Deal governance for finance

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hello and welcome to all of you to our latest career webcast edition and thank you for joining today over lunch in this edition of the webcast we will be focusing on another dimension of our deal service offering specifically our corporate finance m a practice my colleague basel and myself are very much looking forward to sharing with you over the next 30 minutes some insights of what the m a lead advisor practice here at pwc is doing on a daily basis if you do have any questions during the presentation please note those questions down there should be the option just at the bottom of the screen to raise questions and we'll take the last 15 minutes of this session to try to address as many of your questions as possible with that we will jump into the presentation starting with a very brief introduction my name is larissa stunitz i'm a senior manager in pwc swiss m a lead advisory practice i joined pwc in 2014 spending my first two years at the firm as part of a rotational graduate program that included rotations in pwc strategy and operations consulting practice our transaction services team here in zurich as well as the strategy team focus on commercial due diligence in london in the media and technology sector since 2016 i'm fully focused on advising transactions both on the cell as well as the buy side as m a lead advisor with a particular focus on the tmt space i hold a bachelor in business administration and master degree in accounting and finance from the university of san gal as well as a master degree in international management from the asada business school and with this i would hand over to my colleague basel for his short introduction hello everyone also very warm welcome from my site to our career webcast my name is vasil abele and i'm the manager in the corporate finance m a team at pwc in syria i am with pwc since 2018 and bring along around five years of m a experience during the past i worked on various sell on buy side transactions with the majority of them being in the broader industrial and logistics industry for both listed as well as private companies i initially graduated from the university of san gallen where i did a master's in accounting and finance as well as a bachelor's in business administration so today's webcast is all about m a lead advisory and split into three parts we start with an introduction to our lead advisory practice at pwc and will then give you some practical insights from a past salsa mandate we advised on the case study at hand is a bit simplified but definitely gives you some good insights into an m a project we end today's webcast with a q a session as already introduced by lasse so we start with an introduction to the m a lead advisory practice within this section we give you an overview on pwc switzerlands on where the lead advisory practice is actually located within the organizational structure as well as on our positioning and perception in the market in the second part lasse then introduces the typology of m a engagements the roles typically involved as well as the standard m a process pwc is among the most trusted professional services network both in switzerland as well as globally in switzerland and the principality of liechtenstein we employ around 3400 employees at 15 office locations generating around 900 million swiss francs in gross revenues we have a well-diversified and dynamic workforce with an average age of 34 years coming from 85 nationalities training and development is a very important topic at pwc and we invest around 60 million swiss francs annually in upskilling programs to make sure that we stay number one pwsc is organized along three pillars audit tax and legal and advisory advisory itself is made up of a consulting section and a deal section within the deals team which consists of more than 110 employees we are capable of advising on pretty much every aspect of a deal we have dedicated teams for example for tax or legal advisory as well as for financial due diligence the lead advisory services are provided out of the corporate finance m a team where both lars and myself are part of we are a team of approximately 20 professionals with offices in zurich and geneva advising on both sell and buy side transactions as well as on corporate finance topics we work with leading swiss companies both public and private as well as private individuals and financial sponsors within the m a market which is commonly split into small mid and large cap we are strongly focused on the mid market this means that we typically advise on transactions with an enterprise value of 20 to 500 million swiss francs but we are also able to advise a much larger transactions and also successfully did so in the past we are industry agnostic which means that we are capable of advising irrespective of the industry within the team our more senior members do have a sector focus whereas the more junior members work on projects from various industries and deepen their sector knowledge over time within the mid-market mmd we are the leading advisor both in switzerland as well as globally based on the number of transactions advised in the past five years we advise on more than 70 deals in switzerland and on more than 2 600 deals on a global basis that means that usually at any time we advise on more than 15 live transactions with our team around 80 percent of our transactions are cross-border transactions which means that the seller the buyer or the target are located in different countries which makes working in our team extremely interesting as you collaborate across borders with people from different backgrounds languages and cultures and also get exposed to various tax legal economic and geographic situations so with this overview of how we as a team and practice are organized and positioned in the broader market i would now try to focus more on the practical side and talk about the type of situations meaning transactions we would usually advise on how we as m a lead advisors fit into the global universe of stakeholders in a typical m a process and how a standard sell side process is structured but first what is it we are actually talking about when we speak of m a simplified speaking we mean with this the sale or acquisition of a company or part of a company to somewhat categorize and summarize different m a engagements we typically see we have categorized those three different categories to somewhat see there is obviously many more aspects that may shape transactions such as the shareholder structure private or public ownership the financial situation are we talking for example about a fire sale are we intending to sell the entire company or minority stake only and so on but we do feel that this overview does give a good idea of what we are dealing with in a broader sense and helps to frame the variety of transactions we are advising looking at the three dimensions client process organization i would focus first on the client dimension and with this i mean are we advising the seller or the buyer of a target company we as the lead advisor can and do work on both sides however i would say that probably around 65 percent of the transactions i've personally advised on over time have been on the sell side additionally working on the buy side usually means that we are all as a lead advisor enter a bit later in the transaction process meaning on buy sides we would usually spend less time overall speaking again and that's how it's true for all three dimensions this is the simplification of the reality we may for example also advise on joint ventures where the differentiation between buyer and seller is less distinct or not applicable at all the second dimension we would emphasize is the process dimension meaning are we talking about a bilateral process where we have one seller and one buyer talking to each other bilaterally or are we in an auction process which may be private or public where we have multiple buyer parties bidding on the same target company in most cases on the sell side we would advise our clients to not only speak to one party but have multiple options assessed as part of an auction process to optimize the negotiation power of our client and obviously transaction likelihood however there may be situations where discussions are already ongoing or the seller has an existing preference for one particular budget and we are also supporting bilateral situations last but not least the organization dimension shapes the nature of a transaction and with this i mean is it an independent standalone business being sold are we for example selling swiss train operator sbb or as we have recently done are we selling only a business unit of a larger group such as the rail freight business of the sbb in the latter situation there are obviously many additional complexities added to the equation that need to be carefully managed throughout an m a process in the second half of the presentation we will provide you with a very practical example to try to further illustrate these dimensions and how they are shaping and transaction before we jump into that example however i would like to briefly go through the key stakeholder groups and advisors you typically see in an mna process going clockwise from the top we obviously have a seller or sellers and a bidder orbiter then we have typically a lead advisor or investment bank that would be us advising across the entire deal duration from beginning to end you may have banks involved for financing purposes you will definitely have m a lawyers involved supporting the drafting of transaction agreements and the legal negotiations typically you will have tax advisers supporting the cell and buy side given the significant impact taxes can have on the final proceeds structuring a deal in a certain manner can have contacts benefits or costs associated to it and last but not least you will have advisors providing due diligence services for example financial commercial legal technical or environmental if you're interested in learning more about this intelligence aspect of a transaction i refer you to the career webcast of our transaction services colleagues who take a deep dive on the topic of financial due diligence as you can see we as a firm can provide almost all services relating to an m a transaction apart from the actual debt financing of a deal however we do provide advice on debt structuring and support discussions with banks when necessary on this next slide we have outlined how the typical sales process is structured and who of the stakeholders we have previously highlighted are involved at what stage of the transaction generally speaking we would typically structure a cell site process into four different phases namely preparation marketing due diligence and negotiation what we as m a lead advisor do specifically in each of those four phases of the transaction we will explain in more detail for now one key point to understand about what we do as a lead advisor is the fact that we are the constant partner to the seller from beginning to end meaning we're usually involved from pre-discussions when a cell is first starting to consider potential sale of the target company through preparation and up to the signing and closing of the transaction that means we are typically working hand in hand together with our clients over a period of eight to four months to realize a transaction throughout the different phases we are then working together and coordinating the work of the other advisors being responsible for making sure that no information is getting lost and that for example key issues raised by the client during the preparation phase are properly reflected four to five months later during the negotiations and in the drafting of the transactions usually we as lead advisor the single point of contact for all bitter parties and are responsible for controlling the flow of information and i think this is really also the interesting aspect of our work as lead advisors that we are the ones that bring together all the different aspects of a transaction to ensure the successful closing of a deal meaning i do not need to be a tax expert or lawyer but i do need to understand the implications that certain tax structures may entail or which legal aspects in a transaction agreement may have a significant impact for our client at the same time we are usually also first line of defense when it comes to any financial related questions at the end of the day we need to be able to discuss most topics on equal footing with a buyer's tax advisors financial due diligence experts or lawyers making the role of lead advisor extremely interesting in my opinion then i would hand over to bob who will introduce the case study after giving you some theoretical background you will now continue with the case study coming back to the previous mna typology the case study at hand can be classified as a cell side project based on an auction process with a car file target this case study is a real life m a project we actually advised on however a bit simplified our team consisted of three professionals and was led by a partner both last and myself are part of this team this is a rather typical team setup for our projects and guarantees that also the more junior members are fully involved in the day-to-day work from the very beginning and that they get a thorough understanding of the transaction as they are an integral part of the transaction team so the target at hand is a division of a diversified industrial group it is a global supplier of customized cable systems founded over 100 years ago the division is headquartered in switzerland with production facilities in europe as well as in asia overall it generates approximately 200 million swiss francs in revenues and employs around 450 people the company develops manufactures and maintains cables accessories and system solutions for power transmission and distribution swiss cables is well known for the durability and quality of its products and has many years of experience however its market is characterized by tough international competition and price pressure especially since the market entry from state-backed players in the middle east and asia at the time of the project starts there were significant production over capacities in the market which made it challenging for swiss cables to maintain a profitable level of factory utilization in addition swiss gables has an important part of its production capacity located in switzerland and therefore obviously experienced additional burdens in international competitions as salary costs are generally higher as compared to the middle east or asia as a result the cable division went through several rounds of restructuring before the decision was made to sell as outlined the target at hand is a division within an industrial group rather than a standalone company which always has a number of consequences for an m a project for swiss cables this divisional setup means that several of their production locations were shared with other divisions from the group they also had a limited number of services that they received from the parent company and the limited number of financial ties specifically cash pooling and inter-company loans with this background information we now have a look at the project itself and on our services that we provided in our role as the mna lead advisor but after getting engaged by the client for a new engagement it is all about organization and information we started with a kickoff meeting with the selling group's management to define the way of collaboration the broader project team as well as to agree on the further timeline of the sales process we jointly defined the key dates of the auction process such as the marketing start the submission date of the non-binding offers the due diligence phase as well as the planned signing date to reduce the possibility of any information leakage we agreed on only involving a limited number of people and defined a tight but realistic timeline the preparation phase is also where the documents which are needed in the marketing phase get prepared in this case we jointly with the target management and the selling groups management prepared an information memorandum and a teaser the teaser is an anomalous short profile of the target and the information memorandum is a detailed prospectus covering the target's financials strategy operational setup and organization structure within the information memorandum you also develop a so-called equity story where you detail the business potential this is usually one of the most interesting parts of the preparation phase as you closely interact with the management team and really get to know the company and its market environment in detail in this case we agreed on building the equity story around the division's thorough market experience and customer relationships its renowned high quality products and its intellectual property besides the informational run limited teaser you also prepare a process lecture and the non-disclosure agreement the later is typically provided by a lawyer the process lecture is a lecture where you detail the requirements of the non-binding offers as well as the deadline of the submission in parallel to the preparation of all these documents you also prepare a so-called long list this is essentially a list of parties both financial investors as well as strategics that have a rational in acquiring the business this list is typically prepared together with the client and the target and then reduced to a so-called short list which is basically a list of parties that you as a sell side advisor actually reach out to and market the business too once these documents are finalized the preparation phase ends and the marketing phase starts during the marketing phase you prepare a virtual data room and in parallel approach the shortlisted potential buyers the data room is a confidential virtual environment where you share documents regarding tax legal finance and business with potential buyers the preparation of the data room is usually quite time consuming as you need to organize documents properly and reject any sensitive information like product prices customer names or personal data as explained you also approached the potential buyers in the marketing phase we agreed on reaching out to roughly 40 potential buyers the majority of them being strategics leveraging our global presence and our direct contacts to many companies worldwide you approached the defined companies on a anonymous basis and you then typically reach out to the respective person with an email or phone call pitching the opportunity and sharing the teaser and the non-disclosure agreement if a party is interested he is asked to return a signed copy of the confidentiality agreement and then in turn receives the information memorandum and the process ledger from us we successfully pitched the opportunity to around 20 parties which then were interested in further information as buying a business is obviously not a daily experience we usually hold a series of intro and tune day calls with many of the contacted parties to answer their questions explain the strategic rationale and also introduce the further timeline of the project of the 20 parties that were initially interested eight submitted non-binding offers with additional indications of interest from two further parties who voiced interest not for the entire transaction parameter but only for specific activities and assets the receipt of indicative non-binding offers marks the end of the marketing phase and the beginning of the evaluation and due diligence and is a big milestone for any transaction as this is really the first time that you see whether there is a true interest for the target company in the market as is often the case we had significant gaps between the offers received meaning certain parties had included clear strategic or cost synergies whereas others had a more critical view on the future performance of the business and or we're not considering any synergies especially financial investors obviously also need to consider the cost of financing such a transaction and later exit opportunities thus it is really not unusual to have a broad range of valuations at this stage in the case of swiss cables the graph we show here while adopted for confidentiality reasons gives a pretty good idea of what we were dealing with and that were equity values ranging from positive 80 to negative value of 80 million meaning we had a difference of almost 160 million in the valuation between the highest and the lowest bid typically you would agree prior to the received of non-binding offers on a framework for assessing the offers with your client this obviously may include the price but very often also considers many other aspects such as job security for employees transaction likelihood avoiding the buildup of competitors or the public perception of the acquiring party at this stage it is really up to us as lead advisors to advise our clients on who the right party or parties are to take to the next round so who to take to the next round of the transaction based on just this graph the answer might appear to be straightforward but you need to consider many more questions than just the price for example which bidder will provide the greatest transaction security who has maybe over bid and will reduce their offer later during the process which buyer will keep the site which one provides the best overall future for the employees so many questions that need to be considered before proceeding once we have agreed with a client who to invite to the due diligence phase it is then all about holding or improving the price and keeping the perceived competition for the asset high in the case of swiss cables as we see on the next slide we decided to proceed with three of the eight parties to the next stage of the process meaning to invite to the due diligence phase whereas under the non-binding offer stage buyers usually only have access to a limited information package they now receive access to detailed information covering all relevant aspects of the business typically including financial tax legal and commercial information such as detailed sales breakdowns annual or monthly financial statements tax declarations customer contracts and so on with information usually being shared via a virtual data room which is more or less a dropbox solution with some additional security functions in this specific case we have more than 3200 documents in the vdr this also means that we as lead advisor would have reviewed all these documents checked for sensitive information redacted information when necessary for all of these documents and consider any implications that the disclosure may have for the deal throughout the due diligence the buyers and their advisors are then given the opportunity to submit questions in written form and also attend expert sessions on this on specific topics such as it production or finance during the swiss cables transaction we answered in that way more than 8 900 written questions and held 20 plus expert sessions and again we as lead advisor provide many of the answers ourselves or liaise with the management team as well as the other advisors of the client to get the necessary input should provide answers we are also moderating the expert sessions and make sure that all messaging is aligned throughout the entire due diligence oftentimes we as lead advisors from the many discussions during the preparation and subsequent due diligence phase know the target company better than our client or the management team so you are truly in a unique position as you typically have unfettered access to all information relating to the target company many of our findings are then later reflected in the legal transaction agreements and we as lead advisor again need to ensure that the lawyers responsible for drafting such agreements are made a way of finding or findings or instructed correctly towards the second half of the due diligence we would then provide bidders with a draft share purchase agreement and other ancillary legal agreements giving bidders time to review and mark up these legal agreements at the end of the approximately six weeks lasting due diligence phase for swiss cables we then receive two revised offers including commentary on the legal agreements for the swiss cables business and with this we enter the last stage of the sales process the nego negotiation phase during this stage we as lead advisor together with the legal advisor negotiate on behalf of our clients important to understand here is that it would obviously be a bit misleading to say that negotiations are only beginning at this stage more correct would be to say that the entire process is engineered to optimize the sales negotiation position and to a certain degree the entire process is a long negotiation between seller and buyer this begins with a preparation phase when you need to make very strategic decisions of what when and how you disclose key information and what implications this has on your negotiation position then when you receive non-binding offers we would often have a first round of discussions with bidders and already negotiate certain aspects for example an increase in the valuation to permit a progression to the due diligence phase so many aspects of a deal may have already been pre-negotiated so to speak before we actually enter the negotiation phase and different to what certain tv shows may imply we seldomly have a in today's deal environment straightforward handshake deals where one person alone decides on everything in a single meeting usually we would have several rounds where markups on the transaction agreements are exchanged and written form between the lawyers with the goal to find common ground within the mandate provided by the respective clients key topics that are recurring themes and typically a point of contention are any liabilities of the seller towards the buyer and how these liabilities may be restricted calculation of the final purchase price potential non-competes or costs for transition services these are just a few examples and may differ very much on a case-by-case basis also important to understand why you may have one single share as a purchase agreement so the main contract in many cases you will have to negotiate other ancillary agreements in the case of swiss cables we had to negotiate additionally an i.t service agreement a partnership agreement for a future cooperation between seller and buyer a shareholder agreement as our client would remain a minority shareholder a separate rental and purchase agreement for the real estate and several other smaller contracts while you may start into the negotiations with more than one party in most cases you will limit yourself to one or two given the complexity of running several discussions in parallel and also as many bidders at this stage request exclusive negotiation rights in the swiss cables case we had an initial round of negotiations agreeing key boundaries for the transaction and then continued on an exclusive basis with the final buyer our role at this stage is to ensure that our clients position is properly reflected in the negotiations and to ensure that we can complete the transaction as swiftly as possible while we are not legal advisors we may sure that all information and discussions prior to the negotiations are brought to the table and the sell side lawyers are made aware of any legal implications of these information in many cases we as lead advisors also there to help find common ground and compromises that work for both sides seller and buyer lawyers have a natural tendency to argue which is obviously part of their job and we are there to make sure that a deal gets done and the compromise is found in conclusion we sit at the negotiation table and are besides the legal advisors the main negotiator for the client providing another very interesting dimension of our work so in summary we can say that in the case of swiss cables we were able to find a buyer that had a strong strategic interest in the asset and that can ensure long-term demand for its cables therefore also alleviating some of the commercial issues faced by the target company with the global auction process reaching out to bias in europe the middle east and asia specifically we were able to keep a high momentum throughout the sales process and ensure complete competitive deal environment resulting in an attractive transaction proceed for our client from the same in addition and very important for our client we were able to secure the preservation of the production site and jobs associated to it in switzerland last but not least we're able to find a deal structure that allowed our client to retain a symbolic minority stake in the business allowing the seller to continue its legacy in cable production so with that i say thank you and hope that we were able to share some interesting insights into our work as m a lead advisors here at pwc and we would now try to answer some of the questions that we have received from you in the meantime so maybe i already pick one out of the questions um i think one of the questions you raised if there's only a corporate finance team based in zurich also in other cities so we at pwc here in switzerland are organized in a manner that we have corporate finance teams in the main let's say cities where let's say a lot of the transactions are focused on and that's primarily zurich and then we have a team sitting in geneva covering the the the market in in french-speaking switzerland um and then obviously we have from our network firms across across the globe uh teams sitting in in various cities uh outside of switzerland so then there is another question regarding the specific team set up and so in fact we are able to advise uh on both buy and sell sides and however this obviously means that we cannot advise on both sides at the same time so we can either act as the south side advisor or the buy side advisor then one of the next questions i think is relating a little bit to the client groups so are you working also with private equity funds or venture capital um that's a good question um i think on the pe side we definitely work on on both the buy and the sell side for for peers or with pes from vcs i would say rather limited just given the focus that we are really focusing on on the mid market segment um so we we do from time to time support capital uh raising or fundraising but this is really not our focus so i would say private equity funds very much part of our clients and and customers and vcs much more limited then there is a question regarding the sourcing of a new mandate which is actually quite a good one and how does everything start how happens to contact with the seller buyer targets so at the very very beginning before we get engaged we first have to win the mandate and um we typically get into contact with um our potential client either by our network because they have heard from someone or we get referred by someone and because we did a good job on a pass mandate or there's a second option and that we get invited to pitch and the pitch is essentially a slide deck when where you prepare your credentials and also your vision for the process for the target at hand and then you basically compete with other m they lead advisors and one of the parties invited then wins the mandate and starts the process i think then we have here a question on the language skills whether german is the must or of english is sufficient i think there my answer would be that we are obviously very much working for for swiss clients and many of our clients are very much typical owners of companies that they have a clear preference for for for german speaking consultants in that sense german language skills are are very important and i must say that most of the let's say presentations and marketing materials that we are actually preparing are then in english but just for for the day-to-day activities and the exchanges with clients german or french i must say are are really important um it doesn't mean that we don't have any just language wise english speakers in the team um but it's a clear preference to have let's say people who have a good german or french skills um to bring to the team then there is a question regarding the tasks for the junior members of our team as already indicated the junior members of our team are integral part of the transaction team and this basically means that they work along the entire and a process as outlined in the case study at hand so they are part of the team from the very beginning sometimes they are involved in preparing pitch documents if we have to pitch for example for a mandate that obviously are highly involved in preparing the marketing documents preparing the data room and but also involved during the contacting phase q a calls due diligence phase later on and then also in some parts regarding sba negotiation and preparing of the annexes there are obviously the more senior team members are more involved as this is something that and is more on the principal level also the negotiations itself is more on principle level so there are more junior team members are a bit less involved and i think then we have here a question on the work life balance uh how was it back at your beginning um i i would say generally speaking if if you consider let's say a career in in mna or or as a lead advisor i think there must be let's say the general assumption that there are times when when it's quite a lot of work um i think we are very much driven by uh the transaction transaction momentum so you have phases doing deals that that are let's say we have a much higher workload and in other phases you are more work waiting for for responses and feedback so it really depends but i would say overall if if you consider let's say career in in mna i think we have generally speaking for industry standards a good life balance work life balance but it's definitely still from day to day or from week to week long hours and and um it's probably not every night until two o'clock in the morning um but but it's it's not a nine to five job then there is a question regarding interim positions within our team and yes we do offer internships and at the moment we also have one for example and we generally publish those job descriptions on our website so if you are looking for an internship and check out our websites and there are you for sure um we'll find the job at once and we've published one good and i think maybe in view of overall timing i think maybe one last question i think here's the question around the busy season like in the other practice uh and no well fortunately unfortunately we don't have a busy season uh as mentioned before it's really driven by the transaction um and and this can can go throughout the entire year so it's more driven by the individual transactions that you're working on it can be very busy of the summer it doesn't have to be um so it's really depending on on the deals that you're working on so i would say there's not really a busy season but throughout the year a good level of work so to speak and with this i think we have reached the the end of today's webcast um so thank you very much and apologies for all the questions we've not been able to answer but i hope we were able to to give you some good ideas of what we do here at pwc and uh hope to to see you at some of our events uh in in physical form in the future as well so thank you everyone bye everyone have a good day you