Financial due diligence in Asia

Financial due diligence in Asia31 January 2018 | Asia House

2

Document Classification: KPMG Confidential

© 2018 KPMG P/S, a Danish limited liability partnership and a member firm of the KPMG network of independent member firms aff iliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.

Stig Meulengracht

Partner, Due Diligence

— Stig has been with KPMG since 2001. Initially from Audit, he transferred to

Deal Advisory where he focuses on due diligence processes, in 2005.

— Stig has extensive experience from both domestic deals and cross-border

transactions where he has provided services from a buy-side and sell-side

perspective to a number of well-known Danish and international corporates

and private equity clients, e.g. Axcel, Maj Invest, Nordic Capital, CVC and

Triton.

— He has worked in a wide range of industries, including food and

drink, energy and utilities, consumer products, retail and

industrial markets

Contact: M: +45 5215 0245 | [email protected]

With you today…

— Prior to joining KPMG Deal Advisory in 2017, Charlotte was with PwC TS

in Denmark, Singapore and Canada for more than 12 years.

— Charlotte has extensive deal experience and focuses on financial due

diligence on the back of her audit experience and international mindset.

She has assisted a diverse range of both Danish and international clients

carrying out financial due diligence on the Danish, SE Asian and North

American markets.

— She has worked in a broad range of industries, including food

processing, retail, industrial products, manufacturing and

pharmaceutical products.

Contact: M: +45 2813 6262 | [email protected]

Charlotte Niclasen

Director, Due Diligence

We are the no. 1 due diligence advisor in the Danish market

Note: Advising buyer or seller, announced deals with Danish target or bidder.

Source: Mergermarket

2016 No. deals

1 KPMG 20

2 Deloitte 19

3 PwC 19

4 EY 17

5 BDO 3

2017 No. deals

1 KPMG 26

2 EY 19

3 PwC 15

4 Deloitte 10

5 BDO 3

3



Introduction to KPMG

KPMG BY THE

NUMBERS

KPMG DEAL

ADVISORY

DEAL ADVISORY IN

DENMARK

AROUND THE WORLD

10,000+Partners

197,000+Total employees

700+Offices

152Countries operational

USD26b+In revenue

10,000+Deal Advisory

professionals globally

39Deal Advisory

professionals in

Denmark

8M&A

professionals

4Valuation

professionals

23Due Diligence

professionals

4Strategy

professionals

KPMG IN

DENMARK

44Partners

500+Employees

5Offices

3Service lines

Audit | Advisory | Tax

4



Deal Advisory in Denmark

We benefit from working in an extensive international network …

Deal Advisory in Asia Pacific

+2,000

professionals106

KPMG offices

2 Partners

39

professionals

5

KPMG offices

… a network of +2,000 Deal Advisory professionals from KPMG member firms in Asia Pacific

focused on international and complex transactions and supported by the specialist skills with

access to local transaction knowledge.


5



PartnerFund

… and work at deal speed to understand what lies ahead of our clients' businesses

We help our clients buy, sell, fix, fund and partner throughout the entire deal lifecycle

Buy Sell

Fix

KPMG Deal Advisory

— M&A buy-side advisory

and assistance

— Strategic target

identification

— Management buyouts

— Financial sponsor add-on

acquisitions

— Fairness opinions

— Financial due diligence

(FDD)

— Contract assistance (SPA

advisory) and closing

accounts

— Integration advisory

— M&A sell-side advisory and

assistance

— Corporate divestitures and

spin-offs

— Vendor initiated due

diligence (VDD)

— Carve-out financial

assistance

— Distressed M&A

— Separation advisory

— M&A-driven valuations

— Financial modelling

— Recapitalisations and restructuring

— Independent business review (IBR)

— Option analysis

— Lender and borrower advisory

— Cash and working capital management

— Turnaround planning and

implementation

— Operational restructuring

— Valuations for tax purposes and

economic consulting (transfer pricing)

— Capital raising advisory

— Debt and equity financing

— Capital structure advisory and

financing alternatives

— Tax services

— Joint ventures

— Commercial due diligence (CDD)

— Operations due diligence (ODD)

— Synergy due diligence (SDD)

6



Mads

Nørgård

Senior Associate

Deal Advisory

Casper

Wörts

Senior Associate

Deal Advisory

Niclas

Friis Mahler

Senior Associate

Deal Advisory

Jacob

Aksglæde

Manager

Due diligence

Stephen

Whittle

Associate Director

Strategy

Lars

Barslev

Director

Valuations

Our Danish team include professionals with wide-spread language capabilities and work experience in the Asia Pacific region

Kathryn

Joergensen

Director

Due diligence

Dale

Treloggen

Partner

Due diligence

Kim Harpøth

Jespersen

Partner

M&A

Sofie

Buus

Director

M&A

Pardip

Singh

Manager

Due diligence

Joachim

Dalgaard

Manager

Strategy

Stig

Meulengracht

Partner

Due diligence

Martin T.

Pedersen*

Manager

M&A

Moritz

Lill

Associate

Deal Advisory

Benjamin

Gärtner

Associate

Deal Advisory

Isabella

Chami

Analyst

Deal Advisory

Oscar

Agner

Analyst

Deal Advisory

Eric

Bots-Bjerre

Director

M&A

Shimmie

Sim

Manager

Valuations

Jakob

Lumholtz

Manager

Deal Advisory

Holger

Kusenbach

Associate Director

Due diligence

Morten

Rudebeck

Associate Director

Due diligence

Dan Grønbæk

Olesen

Senior Associate

Deal Advisory

Mikkel

Kjærsgaard

Manager

M&A

Giulia

Patregnani*

Senior Associate

Deal Advisory

Morten

Drustrup

Senior Associate

Deal Advisory

Christoffer

Vlasman

Associate

Deal Advisory

Lauren

Morrissey

Associate Director

Due diligence

Tobias

Risom

Associate

Deal Advisory

Dennis

Albæk

Associate

Deal Advisory

Christian

Lodahl

Associate

Deal Advisory

Ben

Parker

Manager

Due diligence

Frederikke

Gartmann

Analyst

Deal Advisory

Tobias

Galskov

Analyst

Deal Advisory

Andreas

Rekling

Analyst

Deal Advisory

Rasmus

Andersen

Associate

Deal Advisory

Mads

Schønberg

Associate

Deal Advisory

Charlotte

Niclasen

Director

Due diligence

7



We are a leading deal adviser in the Danish market …

KPMG Deal Advisory

March 2016

in Denmark acted as M&A adviser to

A2SEA A/S and its shareholders

DONG Energy A/S and Siemens Wind

Power on the disposal of assets from

the subsea cable installation company

CT Offshore A/S to VBMS

KPMG Deal Advisory

May 2017

in Denmark acted as M&A adviser

to the owners of Grambogård A/S

on the sale of the company to

FoodService Danmark A/S,

part of the Dagrofa Group

KPMG Deal Advisory

July 2017

in Denmark assisted the management

with the construction of a financial

model to be used for periodic

valuation assessments

KPMG Deal Advisory

September 2017

in the UK and Denmark assisted

McBride plc with buy side financial

and tax due diligence on the

acquisition of supplier of auto

dish-wash and laundry products,

Danlind A/S

KPMG Deal Advisory

May 2017

in Denmark assisted PE firm

Maj Invest Equity with buy side

financial and tax due diligence

on the acquisition of

Victor Gruppen Restauranter

KPMG Deal Advisory

May 2017

in Denmark assisted

private equity firm Altor with

buy side financial and tax

due diligence on the acquisition of

printing solutions provider,

the Tresu Group

KPMG Deal Advisory

May 2016


the owner of

Svend Hoyer Holding A/S on

the sale of the company

to Solix Group AB

KPMG Deal Advisory

December 2016


the ISS Group on the sale of its Danish

sewage activities to Valedo backed,

Norva24

KPMG Deal Advisory

July 2016

in Denmark provided buy side


to private equity firm Axcel


SFK Leblanc A/S

KPMG Deal Advisory

January 2017

in Denmark assisted

McDonald's Corporation with the sale

of their Nordic operations, including

due diligence and other sell-side

assistance

KPMG Deal Advisory

February 2017

in Denmark assisted

Maj Invest Equity with buy side

financial and tax due diligence on the

acquisition of IT infrastructure and

outsourcing provider,

TDC Hosting

KPMG Deal Advisory

April 2017

in Denmark assisted the owners of

Danish furniture company,

Sofakompagniet ApS, with sell side

assistance on the sale of the company

to Procuritas AB

KPMG Deal Advisory

Pending

in the UK and Denmark assisted

Lone Star Funds with buy side

financial, tax, IT and pension due

diligence on the acquisition of

building materials distributor

Stark Group

KPMG Deal Advisory

October 2017

in Denmark assisted Polygon AB

with buy side financial and tax

due diligence on the acquisition

of damage control provider,

Dansk Bygningskontrol A/S

KPMG Deal Advisory

April 2017

acted as M&A adviser to Rambøll in

the divestment of its analytics

laboratory business in Finland

and Estonia to

Eurofins Scientific

Demonstrating the breadth of our capabilities

KPMG Deal Advisory

May 2017

in Denmark assisted Semantix,

owned by Swedish PE firm Segulah,

with buy side financial and tax due

diligence on the acquisition of

translation agency

Textminded A/S

KPMG Deal Advisory

December 2017

in Denmark assisted L Catterton,

the PE branch of LVMH, with buy side

financial, tax and IT due diligence on

the acquisition of Danish fashion

brand, Ganni A/S

KPMG Deal Advisory

January 2018

in Denmark assisted real estate

group, PATRIZIA, with buy side

advisory services on the acquisition

of 12 residential properties of 259

apartments in Marmorbyen,

Copenhagen

KPMG Deal Advisory

Pending

in Denmark acted as M&A and

due diligence adviser to

Pioneer Point Partners LLP


NGF Nature Energy A/S and

NGF Nature Energy Biogas A/S

KPMG Deal Advisory

Pending

in Denmark assisted Transcargo A/S,

International Transport & Spedition

with financial vendor assist on

the sale of the company to

Freja Transport & Logistics A/S

KPMG Deal Advisory

USD300m

Pending

in the US and Denmark assisted

Knoll Inc. with buy side financial

and tax due diligence on the

acquisition of furniture design

company, Muuto A/S

8



KPMG Deal Advisory

Client not final buyer

2006

in Denmark assisted an undisclosed

strategic buyer with financial and tax

due diligence on the contemplated

acquisition of Foster’s operations in

Vietnam and India

Foster’s Asian

operations

… and the Danish team has a track record of advising on deals with a foothold in Asia

KPMG Deal Advisory

USD 50m

October 2014

in Denmark and China assisted

listed Chinese electro-acoustic

company, GoerTek Inc., with


on its acquisition of

Dynaudio Holding A/S

KPMG Deal Advisory


April 2015

in Denmark and Japan acted as

financial adviser to an undisclosed

listed Japanese conglomerate on

the contemplated acquisition of

audio equipment maker,

the TC Group

KPMG Deal Advisory


July 2016

in Denmark and China acted as

financial adviser to an undisclosed

Chinese client on the contemplated

acquisition of provider of logistics

systems and depalletising solutions

Qubiqa Logistics

KPMG Deal Advisory

Deal aborted

July 2015

in Denmark acted as financial

adviser to an undisclosed Chinese

client on the contemplated public

takeover bid for Danish consumer

electronics maker Bang & Olufsen

KPMG Deal Advisory


December 2015

in Denmark acted as financial

adviser to an undisclosed Chinese

client on the contemplated public

takeover bid for furniture designer,

manufacturer and retailer,

BoConcept

KPMG Deal Advisory

September 2016

in Denmark assisted Chinese

majority shareholder in German

THP-Engineering GmbH with

due diligence and valuation

services on the merger with Danish

manufacturer of heat exchangers,

ATHCO-engineering

KPMG Deal Advisory

May 2017

in Hong Kong and Denmark

assisted Geely Group with

buy side due diligence on the

acquisition of a minority stake in

Saxo Bank A/S

KPMG Deal Advisory

DKK 115m

October 2014

acted as financial adviser to

Dalhoff Larsen & Horneman A/S in

connection with disposal of its

Asian Global Sales entities to the

Austrian-based JAF Group

KPMG Deal Advisory

December 2010

in Denmark assisted Santa Fe

with buy side due diligence


Wridgways Australia Limited

KPMG Deal Advisory

July 2010

in Denmark assisted the

management team of

East Asiatic Company with

sell-side assist on divestment of

EAC Industrial Ingredients

PROJECT

ISABEL

9



Examples of Danish companies doing deals in Asia Buyer Target entity Country Industry Value (USDm) Year

Carlsberg Chongqing Brewery (30.29% Stake)

Chongqing Brewery (12.25% Stake)

Xingjiang Wusu Beer (50% Stake)

Hanoi beer alcohol and beverage Corp (16% Stake)

Hue Brewery (50% Stake)

China

Vietnam

Consumer 600

349

89

116

86

2013

2010

2016

2008

2011

LEO Pharma Astellas Pharma Japan Pharmaceuticals 724 2016

Maersk Group Beigangchi Container Terminal (60% Stake) China Transportation 300 2006

Arla Foods China Mengniu Dairy Company (5.9% Stake)

Mengniu / Arla Foods (Joint Venture)

Hong Kong

China

Consumer 275

33

2012

2006

Hempel Hempel-Hai Hong (China) (64% Stake) Hong Kong Chemicals and materials 148 2009

Torm FR8 Holdings (50% Stake)

Brodsworth Enterprises Ltd

Singapore

Malaysia

Transportation 125

82

2008

2005

Nilfisk Viper Group China Consumer 54 2007

Satair TPA Pte Ltd Singapore Industrial products/services 32 2006

Pandora Oracle Investment (Hong Kong) Limited Hong Kong Services (other) 26 2015

PENM Partners European Plastics Window

Hals Cosmetic and Fashion (30% Stake)

Vietnam Construction

Consumer

10

5

2007

2007

Santa Fe Sino Santa Fe Intl. Transportation Services (50% Stake) China Transportation 6 2017

Maj Invest Equity Niso Corporation (35% Stake)

Kim Healthcare Group (46% Stake)

PT. Fit and Health Indonesia (45% Stake)

Vietnam

Indonesia

Leisure

Medical

Leisure

-

-

-

2016

2017

2017

Sourc

e:

Merg

erm

ark

et

What is due diligence?

11



Business acquisitions in Asia

— How does a potential acquisition create value?

— What are the target markets?

— Which target companies meet my requirements?

— What does the target company contribute to my portfolio?

— How do I ensure to pay an appropriate price for the transaction?

— How do I plan for a successful day 1?

— What does my integration plan look like?

— How do I maximize value?

We assist our clients to prepare for the acquisition of companies,

business units or portfolios of assets and provide support

throughout the process until full integration.

Other decisions must be made for the stand-alone operation of a

company when compared to integrating an acquisition into a

company. We know the challenges in the development and

implementation of an acquisition decision and advise our clients

throughout the entire process.

Pre-CloseOption

IdentificationDeal Strategy Evaluation Deal Execution

100

Days

Value

Realization

12



SPA signing Deal completionDD completionDD start

Identifying the

valueNegotiate the dealDue Diligence Legal completion

Delivering

value

Pre deal:

Understanding

deal rationale

and value

Discussion of

key risks /

potential issues

Completion

assistance:

▪ Completion

accounts

▪ Disputes

SPA assistance:

▪ Proposed

mechanism

▪ Defining

financial terms

Post deal

support

FDD with focus on

value drivers such as

▪ Revenue segments

▪ Historical opex

▪ Working capital

▪ Net debt

▪ Historical capex

KPMG activities

Deal timeline

Target identification

Deal strategy

Preparation of internal approval

Valuation

Continuous deal evaluation

Post deal planning

Coordinating all advisors

Negotiations

Delivering the post deal plan

FDD provides inputs at each stage of the deal – key is get involved early and throughout the process!

Buy-side timeline

Client activities

13



Risk

profile

Markets and

opportunities

Customers

Operations

Infrastructure

and

technology

Structure and

governance

People,

culture and

incentives

Financial

impact –

historical

and future

Products

and

services

Correct interpretation of financial

information is key to a successful

transaction

• We do not look at financial information in

isolation.

• It is important to recognise that the financial

information is just one way of measuring the

result of business performance.

• Correct interpreting of the information can give us

and the client valuable information.

• The more insight and understanding of the

financial information the better we understand/can

present the real drivers and value of the business.

• Sector knowledge and timely involvement will

drive understanding.


14



‘FDD is not an audit'

‘I want to be sure that the valuation is

based on assumptions that are supported

by thorough analysis of the historical

performance of the company'

‘Is there any historical

evidence supporting the

deal rationale?'

‘I want to minimise the risk

of investing in a business

that will not bring the

required return.’

‘So how will the DD help

me explore the link to

business valuation?'

‘I do not need someone who can present the

financials in a pretty format. I want someone who

understands the business, sector and can focus my

attention on the big ‘unknowns’'

‘So what is the equity

value and what known

and potential liabilities

are there?'


15



… and which challenges are often faced?

… and experienced

What we have learned …

For a listed company, look

into the equity structure,

percentage of shares,

capital availability ratio,

forms of investment, major

shareholders, etc.

Financial statements and cash

flow statements are hard to

access in China. But balance

sheets, which provide useful

information on current assets,

current debts and long-term

liabilities etc., can be obtained

through certain channels.

Contractual protection is

unlikely to be sufficient to

cover all buyer liabilities

You need to consider

corruption and bribery

risks from the outset of the

transaction

"We interview the suppliers,

the customers, the

competitors, and we do cross-

checking on inventory," and

"We do cross-checking on

receipts and we talk to

employees at various levels of

the company."

Compliance program and

internal control and

reporting procedures are

not in place

Pre-due diligence and post

due diligence are equally

important

Take nothing for granted

16



… and which challenges are often faced?

… and experienced

What we have learned …

You can’t always trust the

financial numbers you get

presented.

Analysis should not only

focus on financial data but

need to also consider

operational data.

Private expenses vs. Company

expenses & related party

transactions. Look into it – they

might not always be at market

terms.

Using professionals with

experience in the Asian

market can help you

understand the practices

that is typical to be

encountered within a

certain industry.

As a foreign investor you

need to be both patient and

flexible when dealing in

Asia. Negotiations can be

long.

Most companies have multiple

sets (2 - 4) of financial

records. You need to use

significant judgement to

determine the true profitability

of the company.

China, Malaysia, Indonesia

etc. all have strong

currency controls – trapped

cash needs to be

considered.

You need to build trust with

the owners – If they trust

you, they will tell you!

Tax compliance and

outstanding tax liabilities &

social security compliance

and obligations

Q&A

Net assets

Thank you!

Document Classification: KPMG Public

The KPMG name and logo are registered trademarks or trademarks of KPMG International.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity.

Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is

received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a

thorough examination of the particular situation.

kpmg.com/socialmedia kpmg.com/app

© 2018 KPMG P/S, a Danish limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with

KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.

Documents

Financial due diligence in Asia