international competitiveness in m&a

©COPYRIGHT 2012. KEN SMITH. ALL RIGHTS RESERVED 1

Firmex Webinar SeriesMarch 20th, 2012

1:00 p.m. to 2:00 p.m.

Please submit all questions to [email protected]

Ken SmithAuthor & Associate Dean, Executive ProgramsUniversity of GuelphMacKinnon Building, Suite 800University of Guelph, Guelph, ON N1G 2W1519-824-4120 ext. [email protected]

International Competitiveness in M&A

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Ken SmithKen Smith is a professor of business and a strategy consultant. He has practiced as a strategy consultant for over 25 years, beginning with McKinsey & Company and later with SECOR Consulting, Canada’s leading international strategy consultancy, where he has been a Managing Partner and Chair of the Board. He is now Associate Dean of Executive Education at the University of Guelph and continues consulting part-time.

Ken’s client work and research interests are focused on business and public policy issues related to industry restructuring and international development. He published several articles relating to the corporate governance and public policy issues associated with global industry restructuring, including his article “Losing (Ownership) Control” in the Harvard Business Review. Earlier, he developed the first shareholder value-based metric of merger success and introduced the application of real options to acquisitions in restructuring industries. Much of this work is included in his new book “The Art of M&A Strategy” with Alexandra Reed Lajoux, McGraw Hill, New York, 2012.

Most recently, Ken has initiated a program of research and education applying this business and public policy background to issues of hunger and poverty. In collaboration with major international NGO’s and corporate partners, this work is aimed at understanding those problems in food industry development in developing countries that may be resolved with new business solutions.

Ken is also active in corporate governance. He is a director of ACCERTA, the Mergers & Acquisitions Leadership Council. He is also the past-Chair of the Ontario Chapter of the Institute of Corporate Directors (ICD). Ken holds a B.Sc. in Mathematics from York University, and an M. Sc. and Ph.D. in Mathematics and an MBA from the University of Toronto. He is also an accredited director with an ICD.D from the Institute of Corporate Directors.


Losing (Ownership) Control


Undertook research to answer four questions:

1. Are Canadian & US companies competitive in M&A internationally?

2. What is the impact of increased international M&A activity?

3. Should Canada & the US be more ambitious outside of North America?

4. Are corporations playing on a level field?


Losing Control


Cross-Border Transactions

Change of Ownership Control (Top 10 Buyers and Sellers, Total Value of Deals >US$1billion, 2000-2009)

Net

Ou

tbo

un

d-I

nb

ou

nd

(U

SD

mil

lio

ns)

Source: Bloomberg, SECOR analysisNotes: Pending deals are for 2009 only, INT includes deals with multiple acquirers


Canada Deal Flow

2000 2001 2002 2003 2004 2005 2006 2007 2008 20090

25,000

50,000

75,000

100,000

-75,000

-50,000

-25,000

0

25,000

-47,274

-16,619

372

16,2556,438

-18,170

-47,056-53,860

-13,985

4,594

Inbound Outbound

CDN Cross-Border Deal Flow(Total Value of Deals >US$100million, 2000-2009)

Tota

l V

alu

e (

US

D m

illi

on

s)

Ne

t O

utb

ou

nd

-In

bo

un

d (

US

D m

illi

on

s)

Source: Bloomberg, SECOR analysis


US Deal Flow

2000 2001 2002 2003 2004 2005 2006 2007 2008 20090

50,000

100,000

150,000

200,000

250,000

-200,000

-150,000

-100,000

-50,000

0

50,000

-162,561

-4,458

-15,405

26,093 12,747

-25,657-18,256

-72,480-90,277

-9,874

Inbound Outbound Net Deal Flow

US Cross-Border Deal Flow(Total Value of Deals >US$1billion, 2000-2009)

Tota

l V

alu

e (

US

D m

illi

on

s)

Ne

t O

utb

ou

nd

-In

bo

un

d (

US

D m

illi

on

s)



Deal Flow vs US/Euro exchange

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-200,000

-150,000

-100,000

-50,000

0

50,000

0.00.20.40.60.81.01.21.41.61.82.0

-162,561

-4,458

-15,405

26,09312,747

-25,657-18,256

-72,480-90,277

-9,874

0.9911.0611.106

0.9570.794 0.740

0.8460.754

0.681 0.721

Net Deal Flow Exchange Rate

US Deal Flow v. USD(Total Value of Deals >US$1billion, 2000-2009)

Eu

ro t

o U

SD

Ne

t O

utb

ou

nd

-In

bo

un

d (

US

D m

illi

on

s)


Price Premium vs. Acquiring Firms’ Three-Year Performance

*Price paid per share versus stock trading price 3 months prior to announcement.

Source:Bloomberg, SDC, FP Datagroup


Canada Cross-Border Activity

Ne

t O

utb

ou

nd

-In

bo

un

d (

US

D m

illi

on

s)

UNITED STATES

FRANCE BRITAIN SWITZER LAND

BRAZIL UAE CHINA NETHER LANDS

AUS TRALIA INT

-50,000

-25,000

0

25,000

50,000

CDN Cross Border Acquisitions by Country (Top 10 partners by cumulative value of inbound deals, Net Value of Deals >US$100million, 2000-2009)

Outbound

121,353.63 7,550.63 8,477.93 2,500.00 2,313.79 - - 405.33 17,072.85 -

Inbound

133,120.57 54,642.51 53,127.04 21,245.27 17,617.72 12,989.17 8,167.33 6,813.29 6,451.33 6,059.51


INT includes deals with multiple acquirers


US Cross-Border ActivityN

et

Ou

tbo

un

d-I

nb

ou

nd

(U

SD

mil

lio

ns

)

BRITAIN CANADA SWITZER LAND

NETHER LANDS

BELGIUM GER MANY FRANCE SPAIN JAPAN BERMUDA

-50,000

-25,000

0

25,000

50,000

US Cross Border Acquisitions by Country (Top 10 partners by cumulative value of inbound deals, Net Value of Deals >US$1billion, 2000-2009)

Outbound

156,732.49

133,120.57 9,512.38 39,865.38 2,618.22 59,785.51 29,457.52 5,520.19 24,490.82 -

Inbound

165,397.46

121,353.63 95,274.48 67,486.44 67,162.09 63,991.42 59,122.65 40,020.86 38,082.96 36,880.10



Missed Opportunity or Risky Business?


Deal Flow by Sector – Canada

Basic Mate-rials

Commu nications

Con sumer Cyclical

Con sumer Non-cyclical

Diver sified Energy Financial Govern ment

Industrial Tech nology Utilities N/A

-75,000

-50,000

-25,000

0

25,000

50,000

CDN Acquisitions by Industry Sector(Total Value of Deals >US$100million, 2000-2009)

Ne

t O

utb

ou

nd

-In

bo

un

d (

US

D m

illi

on

s)



Deal Flow by Sector – US

Basic Mate-rials

Comm unications

Con sumer, Cyclical

Con sumer, Non-cyclical

Divers ified Energy Financial Industrial Tech nology Utilities N/A

-180,000

-150,000

-120,000

-90,000

-60,000

-30,000

0

30,000

60,000

US Acquisitions by Industry Sector(Total Value of Deals >US$1billion, 2000-2009)

Ne

t O

utb

ou

nd

-In

bo

un

d (

US

D m

illi

on

s)



Economic Impact of Net Lossof Control

At a company level ■ Loss of

headquarter jobs

■ Professional services

At an industry level ■ Loss of

consolidators■ Weakening of

industry clusters

At a community/ country level ■ Loss of

community leaders & donations

■ Reduced attractiveness as a financial center

12

3


“... could have been a contender”


Cross-border deal volume 2000 – 2010


M&A Value Creation – Canada

Domestic Continental Overseas

60.0% 68.0%54.5%

Percent Successful(Canada 3 YR Post Deal Acquisition Performance Relative to Industry Indices 2000-2009)



U.S. Deal Performance


45.3% 44.8% 44.0%

Percent Successful(US 3 YR Post Deal Acquisition Performance Relative to Industry Indices 2000-2009)



Key messages


Value Creation in M&A

3. Manage to Completion• Accelerate transition

and act on strategic potential

1. Focus on Deal Logic• Identify path to

long-term strategic value

2. Align Organization and Culture

• Integrate structure, process, systems and culture

CEOs: Improve Deal Performance (esp. US Companies)



1.4066 1.2674 1.1449

Average Return (CDN 3 YR Relative to Industry Indices, Total Value of Deals >US$1billion, 2000-2009)

Boards: Take the Long View – Buyers are Creating Value


1.16501.1998 1.3456


Average Return (EU 3 YR Relative to Industry Indices, Total Value of Deals >US$1billion, 2000-2009)


Policy Makers: Level the Playing Field

• Drive market opening, but don’t take a long lead

• Ensure domestic regulation (competition policy, securities law, . . .) is designed in international context

• Support global growth


For discussion:

Canadian and US companies are not competitive in International M&A

■ Why not?

■ What should be done?

■ What are the roles of:Business leadersBoardsRegulators?


Questions & Answers


The Art of M&A Strategyby Kenneth Smith and Alexandra Reed Lajoux

Rapid globalization, technological advances, and dramatic changes in public policy have made industry restructuring the “new normal.” In order to compete, M&A must be part of your overall business strategy.

Written by practicing experts in the field of mergers, acquisitions, and divestitures, The Art of M&A series of professional guides is the number-one resource for anyone seeking practical, hands-on advice for planning for and executing successful deals.

Now, The Art of M&A Strategy breaks new ground by providing the tools and techniques to design a business strategy using M&A as a key element. It takes you through all the steps for making optimum use of M&A for corporate success.


Book Winners!

• Shane Handsaeme, Athabasca Oil Sands Corp• Sebastian Storfner, Corporate Finance Partners• John Henberger, Henberger Group Inc• Jim Jeffries, M&A Leadership Council• Phillip McGoohan, Oak Hill Business Partners

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Thank YouOur next webinar is April 17th, 1pm Eastern

Trends in Technology M&Awith a review of overall Q1 Activity Featuring Cyrus Lam, Managing Director, KMPG New York.

www.Firmex.com/company/events

Today’s Recorded Webinar, Slides will be made available in a follow-up email shortly.

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Appendix


0 <0.5

0.55

0.6 0.65

0.7 0.75

0.8 0.85

0.9 0.95

1 1.05

1.1 1.15

1.2 1.25

1.3 1.35

1.4 1.45

1.5 >1.5

0

2

4

6

8

10

12

14

16

18

Three-Year Total Return Relative to Industry Index

Nu

mb

er

of

De

als

Success of US Deals in the 1990sMean = 0.99 = 0.30>1 = 44.3%

Source:Bloomberg, SDC, FP Datagroup


Investment banks with >5 $1 billion deals (listed alphabetically)

Performance by Advisor for Major US AcquisitionsAcquirer Total Return vs. Industry (%)

Bank of AmericaChase ManhattanCIBCCitiCredit Suisse

Deutshe BankDonaldson Lufkin*Dresdner Kleinwort**Evercore PartnerGoldman Sachs

JP MorganLazardMerrill LynchMorgan StanleyThomas Weisel

UBSWachovia***

*Acquired by Credit Suisse in 2000, but still uses the Donaldson brand name

**Rebranded under Commerzbank in September 2009***Absorbed by Wells Fargo during recent recession

18% 16% 14% 14% 13%10%

1% 1% 1%

-3% -4% -5% -8%

-25%-26%

-35%-39%

international competitiveness in m&a

Technology

ken smithken smith

canada deal flow

usdtotal value of deals

pending deals

deal flow vs useuro

professor of business

corporate transactions

new business solutions