crescendus™- strategy and execution failures: preventing corporate writedowns

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Strategy & Execution FailuresCorporate Writedowns & how to avoid it in the first place

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INDUSTRY SECTOR SELECT COMPANY EXAMPLES

Technology & Media

Microsoft: $6.2 billion write-down of AQuantive acquisitionPanasonic: ~ 250 billion yen write-down of Sanyo Electric acquisitionHewlett-Packard: $ 8 billion write-down of EDS acquisitionNews Corp: ~ $2.8 billion write-down (of Publishing Unit)New York Times: ~ $195 million write-down of About Group

Energy

BHP Billiton: $2.84 billion write-down of Fayetteville shale assetsacquisitionBP: ~ $ 4.8 Billion write-down ( $2.1 billion US shale assets, $ 2.68 billionfor refinery)BG Group: ~ $1.3 billion write-down of US shale assets

Healthcare

Ipsen SA: ~ € 150-180 million write-down due to lower US sales forecast fromone of it’s holdings, Inspiration BiopharmaElan Corp: $117.3 million write-down of it’s equity investment in Janssen AI,due to discontinuation of Alzheimer's trialBristol Myers Squibb: Write-down of $ 1.8 billion Inhibitex acquisition valuetied to Hepatitis C drug molecule due to clinical trial setbacks

Consumer GoodsGeneral Motors: ~ Potential write-down of € 320 million investment inPeugeotProcter & Gamble: ~ $ 1.5 billion write-down for past acquisitions (Gilletteand Wella related to appliances and hair products)

Note- Crescendus™ has access to global industry information for all the major sectors. The above four sectors and examples wereselected for discussion purposes only. We do not maintain any relationships with the above companies.

Recent Examples of Corporate Goodwill Write-Downs(& those that are planned) - Jan 1, 2012 to Aug 25, 2012

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Why do Writedowns Happen?

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Overconfidence & Deal Fever

• Over-estimated the value of the acquisition or investmentopportunity

• Did not maintain financial discipline and proper oversight (Boardof Directors, Executive Management)

• Overpaid to prevent competition from acquiring assets or togain a competitive position

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Poor Strategy & Scenario Planning

• Lack of clearly defined strategy & a consistent plan to win, thatdoesn’t shift wildly with every market gyration

• Poor contingency planning and lack of adequate market andcompetitor intelligence

• Not exploring scenarios beyond company’s current comfortzone

• Propagating existing product lines and strengthening businessunit turfs (especially by powerful business unit leaders, whocontribute a large portion of the current revenue streams)

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Poor Execution

• Underestimation of execution challenges (synergies, integration,culture, market opportunities, employee incentives, customerdisruptions, operation nimbleness etc.)

• Poor execution always leads to time tested outcomes costcuts and layoffs. These actions are a proxy for management’sinability to execute on the company’s vision, and also reflectsthe weakness of the management teams

• Layoffs and cost reductions further accelerate the decline ofinitial execution goals, and the company ends up at a stage thatis far inferior to where it needs to be

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Listening to Bad Advice

• Inability to effectively manage external advisors and set clearexpectations: Companies need to be in the driver’s seat and notlet the advisors run the show

• Most companies listen to overpaid name brand consultants andinvestment bankers whose incentives are not in tune with thecompany’s goals

• Valuing external advice more than internal ideas, even if internalideas are better in some cases. This is also a sign ofmanagement weakness and their inability to trust their ownteams

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How to prevent Writedowns?


1. Research History & Study Analogies (same & other Industries)2. Avoid Herd Mentality3. Rigorous Scenario Planning & War Gaming4. Maintain Discipline ( & step away from Deal Fever)5. Internal Stealth Disruptive Teams6. Restructure Management Incentives & Personnel Roles7. Proactive Cost Controls8. Post Mortem Analysis (for all major Management Decisions)

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Use our Consulting Services to minimize Strategy & Execution Failuresand costly Writedowns of Acquisitions.

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crescendus™- strategy and execution failures: preventing corporate writedowns

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