Deals that deliverAligning deal strategy and execution in the consumer products sector

i i i

D el ivering on th e p rom ise . . .

1

C onsum er p roducts com p anies currentl y f ace enorm ous op p ortunities and constraints to g row th : the ballooning middle class in Asia, Latin America and Af rica versus th e anaem ic g row th in toug h er, m ore reg ul ated devel op ed m ark ets w ith dep ressed consum er sp ending .

W inning in th is ch al l eng ing w orl d req uires consum er p roducts com p anies to m ak e caref ul ch oices ab out w h ere to p l ay and h ow to w in. Th ey need to exp l oit b oth org anic and inorg anic m eans to devel op th eir b rands, categ ories and g eog rap h ic p ortf ol ios. S p eed is of th e essence, b oth in term s of identif ying th e rig h t op p ortunity and seiz ing it. I n th is articl e, our l ens is entirel y on inorg anic p l ays.

I t is our exp erience th at w h il st m ost com p anies are cl ear on th e l og ic b eh ind th eir acq uisitions or divestm ents, th e sam e cl arity is not al w ays dem onstrated in th e w ay th e deal is im p l em ented. D eal val ue can of ten b e com p rom ised as a resul t. W e’ ve draw n on our exp erience to p resent th e th ree distinct acq uisition rational e driving deal s in th is sector, and introduce th e im p l em entation ap p roach es th at w e b el ieve are m ost l ik el y to del iver val ue in each case.

Introduction

2

Deals in the consumer products (CP) industry com e in m any sh ap es and siz es. B ut l ook m ore cl osel y and k ey p atterns emerge. We’ve analysed M&A activity in this sector (see Figure 1) and identified th ree distinct acq uisition rational e behind the deals taking place (many of which we’ve advised on). Each rationale h as dif f erent op erational im p l ications and integ ration ch al l eng es f or th e com p anies invol ved if deal val ue is to b e m axim ised.

Because even the best conceived M&A strateg ies and cl earest deal rational e can only take them so far, CP businesses need to recog nise th ese f undam ental differences and reflect them in deal execution. F ail ure to do so w il l underm ine th e deal ’ s ob j ectives and dissip ate val ue.

Three types of consumer product deal

S ource: E Y anal ysis

Figure 1: Three types of consumer product deal

Cate

gory

, geo

grap

hy a

nd/o

r sec

tor

New

Exis

ting

AB I nB ev

Unilever

C oca- C ol a

SABMiller Meantime

C am den Tow n B rew ery

D erm al og ica, Murad, REN

innocent

Th ese rel ativel y sm al l - scal e deal s tak e p l ace w h en l arg er b usinesses acq uire successf ul nich e p l ayers in existing or new categ ories or routes to m ark et, sup p orting th em and h el p ing th em to accel erate g row th . O f ten th is is w ith m inim al interf erence, b ut w ith increased investm ent and l everag e of th e l arg er b usiness’ s streng th s al ong th e w ay.

E xam p l es incl ude C oca- C ol a’ s acq uisition of I nnocent S m ooth ies, and Anheuser-Busch InBev’s string of eight deals (and counting) in th e craf t b rew ing sp ace.

A similar ambition has led some CP companies to launch their own venture capital funds (e.g., Unilever Ventures, Nestlé’s Venture Capital Fund) to invest in young, promising companies, accel erating g row th b y p roviding access to th eir g l ob al ecosystem , assets and exp ertise. Th e dif f erence h ere is th at th e targ ets are not integ rated into th e p arent.

I n c u b a t eS o w h at are th ese th ree distinct acq uisition rational e? S h ow n in F ig ure 1 , w e’ ve l ab el l ed th em as Incubate (typically smaller-scale deals), Innovate and Accumulate (both usually undertaken at scale).

3

R evenue of targ et

E m p erador I nc.

Kellogg’s

Nestlé

I ntersnack

UCB Ltd

Molson Coors

AB I nB ev

Kraft

Mondelez International

Nestlé

Premier Foods

Müller

F errero

Whyte & Mackay

Pringles

Galderma

KP Snacks

Genius

S tarB ev

SABMiller

C adb ury

J acob s D ouw e E g b erts

R&R Ice cream

C am p b el l ’ s

D airy C rest

Th orntons

Joint venture

Joint venture

Generally undertaken at scale, these deals enable companies to enter new m ark ets — w h eth er th ese are new g eog rap h ies, new categories of product, or new consumer groups. Having identified com p l em entary val ue- drivers in a targ et b usiness, acq uirers use th ese deal s to b uil d new com p etencies.

Examples include Ferrero’s acquisition of Thorntons (Thorntons was both a confectionary manufacturer and retailer), Kellogg’s acquisition of Pringles (an opportunity for the cereal maker to enter the snacks market), Nestlé’s acquisition of Wyeth Nutrition (a chance to further expand into the infant nutrition market in China) and, most recently, Anheuser-Busch InBev’s acquisition of SAB Miller (completing their global footprint by entering the high-potential African market).

Acq uirers use a l arg e transaction to ach ieve a step ch ang e in th eir m ark et sh are, ach ieving g reater scal e in th eir existing m ark ets and categories. Examples include Kraft’s £11.5 billion takeover of Cadbury (vastly expanding markets for confectionary sales for the combined business), Dowe Egberts and Mondelez forming a j oint venture to ach ieve consol idation of th eir cof f ee b usinesses, and Nestle and R&R taking a similar approach for their ice cream b usinesses.

I n n o v a t e A c c u m u l a t e

Unilever KalinaNestlé W yeth N utrition

Premier Foods RHM

Y il diz H ol dingUnited B iscuits

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Strategic RationaleAcquire to gain access to fledgling b usiness w ith new and h ig h - g row th p otential .

Execution approachPreserve value-drivers and unique com p etencies w h il st l earning .

Strategic RationaleE arl y stag e exit to real ise investm ent or if not strateg ical l y im p ortant to core p ortf ol io.

Execution approachFlexible approach to meet specific b uyer req uirem ents — f ul l y standal one vs. Brands/IP/core technology.

A c q u i s i t i o n (Buy-side)

D i s p o s a l ( S e l l - s i d e )

Figure 2: Unique implications for integration/divestment execution approach

In Figure 2 opposite, we’ve h ig h l ig h ted th e strateg ic drivers f or each of th ese th ree cl asses of deal (for buy-side and sell-side companies), along with the im p l ications th at th ese h ave for the integration/divestment execution ap p roach . Th e b ottom l ine? D eal s del iver m axim um val ue w h en th eir im p l em entation is cl osel y al ig ned to th e strateg ic rational e th at drove th em f rom th e outset. Th at m ay sound ob vious, b ut our exp erience is th at, in th e f ast- p aced, fluid environment of these strateg ic deal s, th is al ig nm ent is of ten com p rom ised.

I n c u b a t e

5

Strategic RationaleAcq uire targ et w ith scal e in new categ ory, route to m ark et, consum er g roup or g eog rap h y.

Execution approachPreserve the value-drivers whilst l everag ing scal e — p otential l y review and transf orm op erating m odel .

Strategic RationaleC orp orate restructure, real ise val ue constrained b y cul tural or h istoric f actors, exit b usiness outside of p ortf ol io strateg y or due to com p etition auth ority rul ing .

Execution approachF l exib l e ap p roach to op tim ise val ue: trade of f m axim ised E B I TD A vs. m inim ised stranded costs.

Strategic RationaleAcq uire targ et to g row m ark et sh are and ach ieve scal e in existing categ ory and/or market.

Execution approachLeverage economies of scale at pace.

Strategic RationaleD ivest or sel l to b uyer w ith l arg er scal e, g reater ab il ity to l everag e synerg ies or due to com p etition auth ority rul ing .

Execution approachMaximise value by focusing on op tim isation of synerg ies f or b uyer.

Figure 2: Unique implications for integration/divestment execution approach

I n n o v a t e A c c u m u l a t e

M a k i n g t h e r i g h t o p e r a t i n g m o d e l c h o i c e sB ef ore th e transaction is com p l eted and integ ration b eg ins, b oth p arties h ave th eir ow n distinct op erating m odel (encompassing the organisation, its processes and its systems). There m ay w el l b e sim il arities b etw een each b usinesses’ core b usiness f unctions (e.g., Sales and Marketing, Supply Chain, Manufacturing, Finance), but they’ll never b e th e sam e. I n every case, h ow successf ul a deal eventual l y p l ays out h ing es on th e execution: h ow ef f ectivel y th ese tw o op erating m odel s are b roug h t tog eth er and m anag ed over th e sh ort and l ong term .

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I f th ere’ s m inim al added val ue in th e targ et’ s b usiness f unctions, th e acq uirer w il l l ik el y ch oose to f ul l y ab sorb th ose f unctions into th eir ow n op erating m odel . F or exam p l e, if the target’s finance function is less effective th an th e acq uirer’ s, it can b e sub sum ed entirel y. Al ternativel y, if th ere’ s som e uniq ue, dif f erentiating val ue in th e targ et’ s b usiness that needs to be protected and leveraged (an outstanding digital sales capability, perhaps), the acq uirer m ay ch oose to k eep th ese core b usiness f unctions running in p aral l el to th eir ow n until th ey are rep l icated in th e acq uirer’ s b usiness.

O f course, our exp erience sh ow s th at it w on’ t al w ays b e so cl ear cut. O f ten, th e targ et b usiness w il l h ave som e cap ab il ities th at th e acq uirer w ants to p reserve, and som e th at it does not. I n th ese cases, f unctions can b e m erg ed, b ut adj usted so th at th e new op erating m odel retains th e m ost val uab l e core com p etencies. F or exam p l e, th e targ et m ay b e p articul arl y strong in New Product Development, with faster speed to m ark et — cap ab il ities th at th e acq uirer w ants to l everag e in th e com b ined b usiness.

I n oth er cases, th e acq uisition m ay p rovide the impetus (and business case) for active transformation of a business function (or set of functions), perhaps a specific finance transf orm ation, an outsourcing initiative or even an enterprise-wide ERP implementation.

Whatever the motivation behind the deal, acquirers have four choices to make function by function where their post-integration operating model is concerned:

Maintain parallel business functions.W h en th ere is uniq ue, dif f erentiating val ue in acq uired b usiness th at needs to b e p rotected.Before

After

2T

T

B

B

Actively transform the function as part of the integration.W h en th e acq uired f unction h as considerab l e additive val ue or b ecause th e integ ration is th e b est op p ortunity to im p rove current b usiness p ractices.

Before

After

4T B

Merge functions but adjust operating model to protect value in target.W h en th ere are som e cap ab il ities in targ et w ith val ue th at sh oul d b e p reserved.

Before

After

3T B

R etained com p etencies

T BTarg et B uyer

N ew

Key:Target’s function absorbed fully into buyer operating model.W h en th ere is m inim al added val ue in acq uired b usiness f unction.

Before

After

1T

B

B

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I t m a k e s s e n s e t h a t ‘ I n c u b a t e ’ d e a l s a r e m o r e l i k e l y t o m a i n t a i n s e p a r a t e c o r e c o m p e t e n c i e s i n t h e s h o r t t e r m ( c e r t a i n l y i n m a r k e t i n g , N P D a n d M a n u f a c t u r i n g f u n c t i o n s ) . A f t e r a l l , t h e r a t i o n a l e f o r t h e s e d e a l s i s typically for the acquirer to secure access to a fledgling b u s i n e s s w i t h h i g h g r o w t h p o t e n t i a l a n d a d i f f e r e n t i a t e d c u s t o m e r o f f e r i n g . M a x i m u m v a l u e i s c r e a t e d w h e n t h e t a r g e t ’ s k e y v a l u e d r i v e r s a n d c o m p e t e n c i e s a r e u n d e r s t o o d , p r e s e r v e d a n d l e v e r a g e d ( e v e n i f t h e y a r e u l t i m a t e l y s u b s u m e d i n t o t h e a c q u i r e r ’ s o v e r a r c h i n g o p e r a t i n g m o d e l ) .

I n c u b a t e

F ig ure 3 h ig h l ig h ts h ow th ese op erating m odel ch oices h ave p l ayed out in th ree recent consum er g oods deal s across th e ‘ I ncub ate — I nnovate — Accum ul ate’ sp ectrum w h ere E Y h as b een invol ved. Th e g rap h ic sh ow s h ow th ere w il l of ten b e sh ort and l ong term outcom es f or each core f unction, as th e new l y- com b ined b usiness evol ves over tim e. Th ese are not tem p l ate sol utions b ut il l ustrative exam p l es th at w ork ed f or th ese p articul ar integ rations.

B earing in m ind th e com p l ex m atrix of op erating m odel ch oices conf ronting acq uirers in any integ ration, it’ s no surp rise th at w e som etim es see deal val ue com p rom ised b y issues in execution. Th e f ol l ow ing section exam ines Incubate, Innovate and Accumulate deal s in g reater dep th to h ig h l ig h t k ey success f actors th at w e see driving successf ul outcom es f or each one.

NPD

Move

F inance

H R

Trade Marketing

B uy

I T

B rand Marketing

S al es

Make

S h o r t t e r m L o n g t e r m

Deal 1 Incubate

Keep separate operating models

Adj ust b uyer’ s op erating m odel

Transf orm op erating m odel

Key:

Figure 3: post-acquisition operating model examples from previous integrations

P o s t - a c q u i s i t i o n o p e r a t i n g m o d e l e x a m p l e s f r o m p r e v i o u s i n t e g r a t i o n s

9

A c c u m u l a t eI n n o v a t e‘ I n n o v a t e ’ d e a l s , g e a r e d t o b u i l d i n g s c a l e i n a n e w m a r k e t , a r e l i k e l y t o r e t a i n a c e r t a i n a m o u n t o f t h e t a r g e t ’ s c o r e c o m p e t e n c i e s i n t h e l o n g - t e r m o p e r a t i n g m o d e l , c e r t a i n l y w h e r e R o u t e t o M a r k e t , M a r k e t i n g , N P D , M a n u f a c t u r i n g a n d L o g i s t i c s a r e c o n c e r n e d , i n o r d e r t o p r o t e c t a n d i n c r e a s e r e v e n u e . I n a l l l i k e l i h o o d , a f t e r a l l , i t ’ s p r e c i s e l y t h e s e f u n c t i o n s t h a t m a d e t h e t a r g e t a t t r a c t i v e i n t h e first place. These deals are also the most likely to involve a l e v e l o f o p e r a t i n g m o d e l t r a n s f o r m a t i o n o v e r t h e l o n g t e r m , w i t h t h e b u y e r o f t e n u s i n g t h e m t o c a t a l y s e b r o a d -b a s e d c h a n g e w i t h i n t h e b u s i n e s s .

I n ‘ A c c u m u l a t e ’ d e a l s , s c a l e - b a s e d g o a l s a r e o f t e n b e s t a c h i e v e d w h e n t h e c o m b i n e d b u s i n e s s o p t s t o r e t a i n minimal competencies from the target (e.g., specific NPD a n d M a n u f a c t u r i n g ) , w h i l e a p p l y i n g i t s o w n o p e r a t i n g m o d e l a n d d i s c i p l i n e s o n t h e c o m b i n e d b u s i n e s s f r o m t h e o u t s e t . W h a t e v e r t h e o p e r a t i n g m o d e l c h o i c e s h e r e , r a p i d i n t e g r a t i o n t o d e l i v e r e c o n o m y o f s c a l e s y n e r g i e s w i l l b e c r i t i c a l .

NPD NPD

Move Move

F inance F inance

H R H R

Trade Marketing

Trade Marketing

B uy B uy

I T I T

B rand Marketing

B rand Marketing

S al es S al es

Make Make

S h o r t t e r m S h o r t t e r mL o n g t e r m L o n g t e r m

Deal 2 Innovate Deal 3 Accumulate

Figure 3: post-acquisition operating model examples from previous integrations

1 0

Ex e c u t i n g f o r v a l u e ( a n d w h y i t m a t t e r s )Th e sh ap e of th e p ost- integ ration op erating m odel is a core consideration in any post-merger integration (PMI), b ut it’ s f ar f rom th e onl y consideration. H ow outcom es are driven, th e w ay p eop l e and cul ture are m anag ed, and p l anning and g overnance ap p roach es are al so h ig h p riority. Th e w ay in w h ich th ese various f actors are executed w il l dif f er f rom deal typ e to deal typ e — b ut w h atever th e deal , our exp erience sh ow s th at it’ s h ow th ey’ re addressed, h ol istical l y, th at is th e overriding determ inant of success.

To p ut th is into p ersp ective, l et’ s tak e a cl oser l ook at th e interp l ay b etw een strateg ic p riorities and execution success f actors in each of th e th ree classes of deal we’ve identified (as w el l as h ig h l ig h ting w h at’ s at stak e if execution misfires).

1 1

W ith th e overal l ob j ective of ensuring th ey can com p ete w ith disrup tive new entrants th at use ecosystems of partners to scale at speed and securing access to fledgling markets with new and h ig h g row th p otential , I ncub ate deal s invol ve a num b er of core strateg ic p riorities. At a h ig h l evel , acq uirers w il l b e f ocused on m axim ising th e im p act of th is one- of f op p ortunity to rep osition th em sel ves in th e m ark etp l ace.

To achieve this goal, the following priorities stand out:

I ncub ate

Consequence of failure:T h e b u y e r d a m a g e s t h e a c q u i r e d b u s i n e s s , d e s t r o y s v a l u e a n d f a i l s t o g a i n a n y c o m p e t i t i v e a d v a n t a g e .

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Brand Execution success factors

Maximise the impact of the “one-off” opportunity to reposition in th e m ark et, ch ang ing consum er and m ark et p ercep tions of th e b uyer and reassuring th e targ et’ s l oyal custom er b ase.

W ork cl osel y w ith th e targ et’ s l eadersh ip and sal es and m ark eting f unctions to ensure th e rig h t m essag ing (directive/information) reaches the market from day one — reinf orcing p ositive m essag es f or th e f uture of th e targ et and explicitly demonstrating how their unique value will benefit existing custom ers.

Growth Execution success factors

W ork out th e k ey f actors underp inning g row th , l earn f rom th e acq uired b usiness to nurture and accel erate th at g row th ; create opportunities for cross-selling to more/bigger markets, custom ers and ch annel s b y l everag ing th e b uyer’ s route to m ark et; m eet increased dem and b y using th e b uyer’ s l arg er-scal e m anuf acturing and sup p l y b ase cap acity.

O rientate th e synerg y case tow ards g row th ; b e very p recise in identif ying val ue drivers and ensure th ey’ re nurtured and p rotected; determ ine very cl ear ob j ectives f or th e new b usiness unit l ink ed to th e deal ’ s rational e.

Talent Execution success factors

Keep the leaders and specialists who best embody the target’s uniq ue acq uired val ue; ensure th ey f eel m otivated to b e p art of the future (and are not simply financially locked into the new organisation).

Tak e tim e to understand th e targ et’ s cul ture and account f or th is in everyth ing you do; com m unicate to al l staf f earl y, f req uentl y and consistentl y ab out ob j ectives, tim ing , del ivery p l ans and status ag ainst del ivery of th ose p l ans.

Innovation Execution success factors

E nsure th at th e l arg e com p any m indset and th eir q ual ity, com p l iance and reg ul atory p rocesses don’ t strang l e innovation; sup p l em ent th e acq uired b usiness w ith k now h ow f rom th e b uyer to learn and help accelerate high-growth NPD.

D evel op an ob j ective, ag il e and insig h tf ul g overnance f ram ew ork th at p rotects val ue drivers, understands cul ture and can f acil itate del ivery of deal ob j ectives.

Costs Execution success factors

To b eg in w ith , onl y tak e cost reduction m easures w h ere th e targ et ag rees th at th ey p rovide op p ortunities f or unb urdening the business from inefficient legacy processes.

B e p recise and cl ear w h en integ rating ‘ non- val ue driver’ f unctions to im p rove ef f ectiveness and ach ieve cost saving s.

1 2

CP companies are challenged to keep pace with the rapid rate of innovation in their marketplace. I t’ s not j ust a m atter of m aintaining th e p erf orm ance of existing p roduct categ ories w h il e creating th e m ust- h ave p roducts of tom orrow . I n th is environm ent, I nnovate deal s are g eared to acq uiring targ ets as gateways to innovation via new markets, consumer groups and/or geographies. As well as driving growth for the business, these deals create opportunities for ‘back-flushing’ value into other areas of th e com p anies’ com b ined m ark et f ootp rint.

Key strategic priorities (and the execution success factors underpinning them) are:

I nnovate

Consequence of failure:M i s s a o n e o f f o p p o r t u n i t y t o t r a n s f o r m o u t d a t e d p r o c e s s e s a n d o p e r a t i o n s , d e s t r o y v a l u e ‘ u n d e r t h e c o v e r s ’ i n t h e t a r g e t , u n d e r d e l i v e r o n t o p l i n e a n d b o t t o m l i n e s y n e r g i e s .

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Preserve position/consumer sentiment in new markets Execution success factors

Q uick l y understand th e critical f actors th at h ave driven historical success in the market (e.g., brand equity, product quality, manufacturing standards, marketing/sales approaches, customer/channel relationships, corporate reputation) and treat th em al l as ‘ non- neg otiab l e’ w h en devel op ing th e integ ration ap p roach .

Ap p l y extra rig our to im p act assessm ent of integ ration p l ans in th e val ued m ark ets w h ere access h as now b een g ained; l ocal m anag em ent sh oul d al w ays b e ch al l eng ed b ut m ak e sure th ey are not m arg inal ised in decision m ak ing ; invest in earl y custom er and sup p l ier com m unications in th ese m ark ets.

Drive growth as well as efficiency Execution success factors

H el p th e targ et b usiness to b ecom e even m ore successf ul in new growth markets/segments and cross-fertilise opportunities across the combined business (e.g., by taking the acquirer’s brands into new geographies) and/or the acquired segment into al l g eog rap h ies w h il st understanding som e of th e cul tural ch al l eng es — at l east in th e sh ort- term .

I dentif y sh ort and l ong term synerg ies, devel op a rob ust b usiness case and track its p rog ress; th e synerg y case sh oul d b e a m ix of g row th , p erf orm ance im p rovem ent and cost reduction; create j oint integ ration team s to ensure val ue is f ul l y understood on b oth sides; exp l icitl y rew ard l eaders on b oth sides f or del ivery of m edium to l ong term val ue.

Use the deal as a catalyst for improvement/transformation Execution success factors

Rapidly assess value-drivers, innovation (external and internal), and dif f erences in op erating m odel s and outcom es b etw een buyer/target; objectively question the buyer status quo and be ready to transform/innovate across the business to drive new value (not just synergies) from a ‘best of both’ approach.

Define the Target Operating Model by function, be explicit ab out w h en it’ s a l eg acy b uyer, l eg acy targ et, h yb rid or new model; assess which functions/customer relationships/countries should not be integrated at first in order to protect acquired b usiness val ue or m inim ise reg ul atory exp osures; im p l em ent a p ortf ol io ap p roach to p roj ects, m ixing integ ration p roj ects w ith transf orm ation p roj ects, and b al ancing com p l exity, risk and val ue; com m unicate a vision, not j ust a rational e, and do so b y f unction as w el l as f or th e w h ol e b usiness; com m unicate to al l staf f earl y, f req uentl y and consistentl y ab out th e tim ing , del ivery p l ans and status ag ainst del ivery p l ans.

1 3

CP companies are finding it harder than ever to achieve year-on-year growth. This challenge lies behind the surge in Accumulate M&A deals across the industry. These deals can create new opportunities to exp and m ark et sh are and ach ieve scal e, and th ey’ re g etting b ig g er al l th e tim e.

Key strategic priorities for these scale-deals include:

Accum ul ate

Consequence of failure:D e a l v a l u e r e d u c e d b y n o t d e l i v e r i n g t h e i n t e g r a t i o n s y n e r g i e s , m i s s a o n e - o f f o p p o r t u n i t y t o t r a n s f o r m o u t d a t e d p r o c e s s e s a n d o p e r a t i o n s .

!

Identify and deliver economies of scale without destroying value

Execution success factors

Expect significant cost reduction options; speed to value is essential, but risk assess all measures first.

I nteg rate earl y and f ocus rig orousl y on m axim ising synerg ies b etw een th e tw o com p anies as f ast as p ossib l e across th e entire val ue ch ain, incl uding th e custom er trade term s. Th ere’ s never a ‘ p erf ect tim e’ to restructure and cut overh eads so, if it needs doing , do it q uick l y and m inim ise any p eriod of uncertainty f or critical staf f . E sp ecial l y in sal es and m ark eting , th ese f unctions are k ey to p rotect b usiness as usual and w in m ark et sh are f rom com p etitors, so ensure th ey’ re integ rated into th e new org anisation’ s cul ture and val ues as soon as p ossib l e.C om m unicate to al l staf f earl y, f req uentl y and consistentl y ab out tim ing , del ivery p l ans, and status ag ainst del ivery p l ans.

Drive growth as well as efficiency Execution success factors

Accum ul ate deal s can p rovok e of f ensive and def ensive reactions f rom com p etitors and custom ers. W h ere p ossib l e, p l an f or th em and b e ready to react w h en needed.

Monitor market trends closely; develop analytics capabilities to enab l e trend p rediction and p roactive decision- m ak ing ; p ay p articul ar attention to custom er com m unications and exp l icitl y p l an and m anag e th e custom er trade term s integ ration. D one w el l , th is can deliver tremendous value and mitigate significant risk.

Manage the competition authorities’ regulatory processes and the integration to avoid any unnecessary delay in realisation of deal value

Execution success factors

R ig h t f rom deal announcem ent, b e ready w ith a w el l - devel op ed strateg y f or navig ating th e reg ul atory p rocess; l ean tow ards solutions that will enable rapid approval (provided they don’t undermine the core deal rationale).

I nf orm your deal ing s w ith reg ul ators w ith as m uch ‘ real l if e’ insig h t f rom integ ration p l anning team s as p ossib l e; l everag e ‘ p l ayb ook s’ f rom earl ier acq uisitions; ch ang e m anag em ent p l anning is k ey; w h ere p ossib l e, ‘ l if t and sh if t’ b uyer’ s op erating m odel into th e targ et and al l ow deviation onl y w h ere th ere’ s a p roven b usiness case f or doing so.

Recommendations Present a credible, motivated leadership team w ith a h istory in th e b usiness of setting strateg y and running th e b usiness w ith out a h ig h l evel of ‘ ow ner’ intervention.

Present a clear strategy for how customer rel ations and route to m ark et is secure and coul d b e l everag ed.

I f a carve out, b e cl ear if th e b usiness is f ul l y f unctional as a standal one — sh ow som e h istory. Th ink th roug h h ow to p resent non-core value chain operations (support services) which a buyer may want to replace w ith th eir existing f unctions, e. g . , F inance, H R .

Have a TSA (transitional service agreement) strateg y th at is l ow distraction and easil y sup p orted b ut p rovides b uyers w ith feasible options. Mobilise a dedicated TSA management office.

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Strategic RationaleE arl y stag e exit to real ise investm ent or if not strateg ical l y im p ortant to core p ortf ol io.

Execution approachFlexible approach to meet specific b uyer req uirem ents - f ul l y standal one vs. Brands/IP/core technology.

I n c u b a t e

Vendors in these deals have their own strateg ic p riorities. H ow ef f ectivel y th ey execute divestm ents w il l g overn h ow m uch val ue th ey can real ise. At a h ig h l evel , th e strateg ic rational e and execution ap p roach f or each of th e th ree cl asses of deal is sum m arised in th e g rap h ic b el ow . W e al so p rovide m ore detail ed recom m endations b ased on our exp erience advising sel l - side clients in the CP industry.

T h e v e n d o r p e r s p e c t i v e — i d e n t i f y i n g t h e r i g h t e x e c u t i o n a p p r o a c h

Recommendations B e very cl ear w h at th e val ue drivers are and h ow th ey can b e l everag ed b y an ‘ I nnovative’ acq uirer f ocussed on val ue creation e. g . , new g eog rap h y or categ ory im p l ications, ‘ l eading p ractice’ cap ab il ities or com p etencies.

Present a clear strategy for how customer rel ations and route to m ark et is secure and coul d b e l everag ed.

E nsure th ere is cl ear strateg ic l eadersh ip of each critical f unction inside th e divestm ent perimeter, e.g., CIO and CMO, so acquired b usiness h as req uired cap ab il ity to drive th e b usiness under new ow ners.

I f a carve out, estab l ish h ow to p resent indep endence of k ey val ue drivers e. g . , N ew Product Development, Route to Market, Intellectual Property and Supply Chain, even th oug h th is m ay resul t in som e dis- synerg ies.

Have a TSA (transitional service agreement) strateg y th at is l ow distraction and easil y sup p orted b ut p rovides b uyers w ith feasible options. Mobilise a dedicated TSA management office.

Recommendations I f a carve out, decide earl y on h ow to p resent th e standal one, e. g . , m axim um E B I TD A, and if so w h at to do w ith stranded costs.

Maximise the opportunity for buyer synerg ies — p resent a view as to w h at sel l er considers ach ievab l e. C ost synerg ies are ‘ b ank ab l e’ ; revenue synerg ies are strateg ical l y im p ortant.

Present a clear strategy for how customer rel ations and route to m ark et is secure and can b e integ rated.

Anticip ate p re- deal uncertainty f rom senior staf f as rol es are m ost at risk . C onsider incentives l ink ed to deal com p l etion to retain h ig h p erf orm ers and p rotect b usiness p erf orm ance.

B e cl ear on h ow th e b usiness w oul d b e m ost efficiently integrated into acquirer and present th e b usiness in th is w ay.

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I n n o v a t e

Strategic RationaleC orp orate restructure, real ise val ue constrained b y cul tural or h istoric f actors, exit b usiness outside of p ortf ol io strateg y or com p etition auth ority rul ing .

Execution approach

F l exib il e ap p roach to op tim ise val ue: trade of f m axim ised E B I TD A vs. m inim ised stranded costs.

Strategic RationaleD ivest or sel l to b uyer w ith l arg er scal e or ab il ity to l everag e synerg ies.

Execution approachMaximise value by focusing on op tim ising synerg ies f or b uyer.

A c c u m u l a t e

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For more information, please contact:

Brian Marshall Partner

+ 44 20 7951 1295 bmarshall1@uk.ey.com

Ian Haywood Executive Director

+ 44 20 7951 2167 ihaywood@uk.ey.com

Rich Loretto Executive Director

+ 44 20 7760 5781 rloretto@uk.ey.com

This short paper reflects EY’s insights and experiences across hundreds of deals, big and small, in the consumer products industry. The impacts of globalisation, and disruptive use of technology and innovation in particular, have meant that consumer products organisations need to look beyond market dominance through scale alone. This is reflected in the complexity of the deals they are doing, requiring an increased focus on the alignment of the deal’s strategic objectives and its execution.

Next steps

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