Global Financial Reporting and Valuation Conference · 2020-02-27 · — Optimizing capital and resource allocation — Truly understanding a potential M&A target’s value and risk

Global Financial Reporting and Valuation ConferenceFontainebleau Miami Beach, FL

December 8–10, 2019

2© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDP036451-5I

All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor 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 upon such information without appropriate professional advice after a thorough examination of the particular situation. Any similarity between any depiction in this course and any actual event, person or entity is purely coincidental.

Disclaimer

Evolution of M&A –Leveraging data science to acquire better, faster, smarter

Fontainebleau Miami Beach, FL

December 8–10, 2019


What’s at stake – Buy side M&A

Preventing value leakage and disruption

Maximizing results from inorganic growth

Executing at deal speed and accelerating value creation

Understanding true deal value and risk

Winning in competitive M&A processes

Justifying the deal price


The evolution of M&A Diligence

Traditional Advanced

— Defensive mindset— Risk-based diligence— Siloed functional diligence— “Rear-view mirror” analysis

focused on earnings quality— Slow data gathering— Limited access to granular data— Limited analysis and insights— Manual processes and

checklists— Reliance on spreadsheets

— Offensive, aggressive bid posture

— Greater stakeholder expectations

— Pressure to exceed synergy targets

— Faster deal speeds

— Shorter diligence cycles

— Greater data-driven decisions

— Tech-enabled, rapid data analysis

— Integration across functions

— Higher standards for Day-1 readiness


What is required in today’s environment

Know how to win in their industry

Provide breadth and depth of solutions

Orchestrate seamlessly

Reveal deeper, more actionable insights

Leverage technology

Move at deal speed

M&A teams and Advisors must

be able to…


Key activities across the deal life cycle supported by D&A

Strategy— Target identification— Outside-In Perspectives

Evaluation— Transaction level analysis— Top line analytics— Benchmarking plus— Portfolio optimizationReadiness

— Synergy validation— Integration planning— Benefits tracking— Financial reporting Value Creation

— Day-1 steps and quick wins— Integration execution and

change management— Operating model implementation— Accelerated value creation— Sustained performance improvement

Integrated Value Delivery


StrategyFrom strategic growth objectives to investment case development

Value creation through M&A begins by leveraging your unique strengths, choosing the right capital allocation strategy, and building a strong investment case.

What’s at stake?— Achieving your strategic objectives— Optimizing capital and resource allocation— Truly understanding a potential M&A target’s value and risk— Target fit with your business portfolio and strategy— Synergy potential— A strong investment case

Strategy Evaluation Readiness ValueCreation

Greater linkage between value drivers, actions and outcomes

A better game plan for integrated business diligence

Optimized product and business portfolio for profitable growth

Stronger M&A investment case

Greater confidence in market entry approach


Deal evaluationDiligence overview


Today’s deal environment requires deeper insights and better decisions at deal speed. Decisions and actions must align with your key value drivers and set the stage for value creation.

What’s at stake?— A true understanding of value and risk— Winning in competitive processes — Justifying the deal price— Preparing for accelerated value creation

More conviction behind deal price and structure

Clearer message to stakeholdersFaster deal execution More robust definition of

future performance

More holistic and actionable view on value and risks

Better outcomes


ReadinessPreparing for Day 1 – Overview


With a signed deal in hand, sophisticated buyers prepare extensively for Day 1. They concentrate focused effort on continued confirmatory diligence, integration planning, protecting the business, regulatory compliance, and steps to enable value creation post close.

What’s at stake?

Readiness for financial reporting and regulatory filings

Stakeholder communication plan

Detailed and comprehensive Day-1 action plan

Synergy and value creation plan

Integration blueprint

Better outcomes

— Day-1 readiness— Business disruption

and continuity— Talent retention— Asset protection— Value erosion

— Deal financing— Target operating model— Integration blueprint— Value creation planning— Financial reporting and

regulatory compliance

Refined target operating model


Value creationAccelerating deal value while managing the complex integration process


To accelerate value creation through M&A, leading acquirers need a deal advisor that can bring a powerful combination of integration process control, functional capabilities and ground-level execution.

What’s at stake?

Accelerated delivery of synergies and targeted deal benefits

Sustainable value realizationClear linkage of deal objectives, synergies and upsides to corporate strategy

Conviction in deal synergies and upside as well as rigorous setup for realizing value

Significantly enhanced process controls, governance, budget tracking, synergy tracking and executive reporting

Better outcomes

— Achieving value creation with speed and determination

— Quick wins and early momentum— Stretching beyond traditional

synergies— Clearly defined goals and roles— Avoiding process for process

sakes

— Executive leadership and functional ownership

— Clear cross-functional comms and quick decision making

— Drifting from the deal’s rationale— Failing to start early


KPMG thought leadership: Trends in M&A

— Shorter time lines for bids

— Higher valuations

— Significant increases in EBITDA adjustments

— Analytics are being used increasingly in diligence


Increased pro-forma adjustments

Source: KPMG proprietary M&A data


Increased levels of accounting and pro forma adjustments


Steps to take

What sellers can do:

What buyers can do:

Prepare, prepare, prepare

Stress test the selling thesis

Anticipate challenges

Be thorough

Assemble a team

Use due diligence strategically

Challenges adjustments vigorously

Apply adjustment lessons

Leverage data & analytics to build a foundation to execute on these items

Analytics platform


Advanced M&A analytics

Transaction-level company data

BenchmarkingPlus and proprietary data

Market research and alternative data

Large data analysis and storage built in the cloud

for rapid processing and security

Preconfigured analytics

ARR/customer rollforwards

Gross/net ARR retention rates

Bookings to revenue waterfall

Subscription TCV, ACV, ARR/MRR

Up-sell/cross-sell; new logo adds

New product expansion by cohort

Gross/net renewal rates

Sales pipeline conversion/coverage

Other analyticsCustomer-level churn/LTV

forecast

QBSR productivity/ramp time

Account penetration

Perpetual to SaaS conversion

Data-driven deal negotiation support

Rapid investment decisions informed by analyses of large and

complex data

Greater granularity and transparency into past and future

performance

Financial model refinement or restructuring (when necessary)

Forecast improvements and scenario simulations using machine

learning

GTM tactical and strategic enhancements

Integration action plan

Pricing model optimization

Product portfolio rationalization

New strategic alternatives

Data sources Rapid data ingestion Advanced analytics Impact and outcomes

Data connectors

(API integration)

for many ERP and

CRM systems

Examples of data and analytics application in M&A


Background

PE client was looking to acquire two security monitoring companies with the view of consolidating each company to realize synergies largely through account penetration and customer density improvements Cross-sell Analysis

Customer Segmentation

Segment Profitability

Geospatial AnalysisBenchmarking

Customer Demographics

Performance improvement case – Security monitoring


Synergy assessment case – Software services

Pricing Dispersion Labor Utilization

Spans and Layers

Low Cost Geographies

Site Consolidation.Margin Analysis Background

Target is company operating in the software services industry with more than 40 offices and > 5000 consultants providing services to a broad customer base comprising of major Fortune 500 companies as well as mid tier and small corporations

Thank you

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 endeavor 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 upon such information without appropriate professional advice after a thorough examination of the particular situation.

© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDP036451-5I

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

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Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities.

Documents

Global Financial Reporting and Valuation Conference · 2020-02-27 · — Optimizing capital and resource allocation — Truly understanding a potential M&A target’s value and risk