International M&A

23 Feb 2021
Highly Restricted
What We Will Cover Today

Key Elements in an M&A Process

a) Typical M&A Process
b) Deal Sourcing
c) Deal Documentation
d) Stakeholders
e) Key Dates

Case Study: Acquisition of a German firm by an Indonesian (Indian)

Company

1
 Typical M&A Process

Buyer’s perspective

A deal could take from 6 months to

a few years to close
Source: CFI

2
Deal Sourcing

Several deal sourcing strategies may be adopted by a firm:

Investment banks Online platforms

In-house deal Tradeshows &

origination team Conferences

Other intermediaries
and networks

Deal sourcing is fundamental to M&A activity and represents the first stage of
any transaction

3
Key Deal Documentation

1. Teaser
2. Non-Disclosure Agreement (NDA)
3. Process Letter
4. Confidential Information Memorandum (“CIM”)
5. Financial Model
6. Non-binding Offer / Indication of Interest (“NBO”)
7. Management Presentation
8. Binding Offer / Letter of Intent / Binding Term Sheet
9. Share Purchase Agreement (“SPA”)
10. Shareholders Agreement (“SHA”)
11. Others:
a) Option agreements
b) Escrow agreement
c) Non compete agreement
d) Exclusivity
e) Brand Licensing

4
Stakeholders

Deal origination • Investment Bankers

& management • Business teams – Deal / Strategy Team, Management, Board

• Financial & Tax Advisors

• Tax Consultants
• Legal Advisors
• HR / Pension / Industrial Relations Advisors
Diligence
• Commercial / Market Consultants
Advisory
• Environmental Consultants
• Industry Experts
• Virtual Dataroom Providers
• Professional Translators

• M&A Lawyers (documentation)

• Banks / Financial Institutions
Transaction • Escrow Agents
Structuring and
Closing • Stock Exchanges
• Anti-trust bodies
• Notary

5
 Key Dates

Payment of Purchase Price

Legal Ownership Transfer

Source: Latham & Watkins

6
 Case Study

ABY’s Acquisition in
Technical Textiles Yarn

Highly Restricted
 Textiles Value Chain

Source: TextileExchange

8
 ABY Overview

Manufacturing Facilities

PT Sunrise

5 units across 3
countries with 50 years
of spinning experience
Indo Thai
PT Elegant Synthetics

Yarn manufacturers for

apparel, home textile,
industrial work wear,
home textile, auto etc.

Focus on innovation
through dedicated NPD
PT Indo cell
Indo Phil Textiles
Liberty

9
 Acquisition Strategy

ABY v/s Tech Tex player

Financial attributes

Revenue ($/k Spdl) 1x 3-4x High value

focussed
EBITDA ($/ k Spdl) 1x 3-4x business
3X providing
ROCE (%) 1x 2.5x significantly
superior
EBITDA Margin (%) 1x 1.2 – 1.5x returns on
investment
Business attributes …

Products continue to be VAP due to

Ease of replicability resulting
Value Added Products limited know how, close knit
in shorter life cycles for VAPs
(VAP) cycle relationships and long product … coupled
to become commodity


establishment cycle with a more


sustainable
Entry barrier Low High
and robust
Price sensitive Quality & Functional focussed business
Customer profile profile
(Traders, Fashion Brands) (Auto, Aerospace, Health, Protex etc.)

Specialised fiber, limited commodity

Business volatility Exposed to commodity cycle
linkage

Technical Textiles provides ABY the opportunity to generate higher returns on capital and significantly
improve its overall business profile

10
Acquisition Criteria

Superior technology/
Experienced and
Technical Knowhow/
capable team
Access to fibre

Leading Brand with Opportunity to

strong foothold in replicate products at
western markets ABY Indonesia/Thailand

11
Target Search: Prioritization of Opportunities
c. 200 spinning companies were identified in the initial list
for further evaluation and prioritization

Market
Technolo access in
gy Europe

VAPs:
Colored,
Technica
l textiles
etc

~18 spinning companies were identified and prioritized on the basis of region,
technology and customer connect

12
Mapping, profiling and prioritization of the key players

Priority 1 Companies:
Evaluation Criterion
# Company Country Marketing
Fibre Base Dyed/ Grey Product Range Tech Tex Technology Machine Aging Mgmt Team
Network
3- High width & 3- Good
3- >50% Viscose 3 - >70% Direct 3- >40% Dyed 3- >50% Tech tex (TT) 3- All tech+ Att 3- <15 yrs
depth (Professionally)
2 - 35-50% Viscose 2 - 50-70% Direct 2- 25-40% Dyed 2- 30-50% TT 2- 2 Tech 2- 15-20 yrs
2- Medium 2- Medium
1 - <35% Viscose 1 - <50% Direct 1- <25% Dyed 1- <30% TT 1- 1 Tech 1- >20 yrs
1- Low 1- poor

FilMan
competely into
Fil Man Viscose, Modal, Micromodal,
High width & TT with All Tech +
1 Made Italy tencel, polyamides, Direct 20% Dyed NA Good
Group depth Borckenstein Attachments
polypropylene, aramids etc
into high end
apparel
Medium, all
R. Belda Medium width Cater to
2 Spain Cotton, Poly, Viscose, blends Direct 90% Dyed 1 Tech 15-25 years family
Llorens, SA & depth apparel; no TT
members

Franzoni Medium width All Tech + Most machines in 20- Weak

3 Italy Cotton, Viscose Direct 25-40% dyed <30% TT
Filati & depth Attachments 25 years Management

Viscose (biggest Lenzing Modal

Samil Melange High depth & Low Tech Tex.
4 Korea partner in Korea), specialty NA Ring, MVS NA NA
Spinning yarns width High fashion
viscose
Cotton,Viscose,Polyester,
Tencel,Modal, Thermolite, Tech tex as Ring, OE, MVS,
High depth &
5 Karsu Turkey Coolmax (Strategic tie up with NA Dyed as well well - Primarily Compact, Siro, Mixed NA
width
Advansa and Lenzing). Biggest fashion Core spun
Modal producer in the world

Visits completed
To retain on shortlist
13
Mapping, profiling and prioritization of the key players

Priority 2 Companies:
Evaluation Criterion
# Company Country Marketing
Fibre Base Dyed/ Grey Product Range Tech Tex Technology Machine Aging Mgmt Team
Network
3- High width & 3- Good
3- >50% Viscose 3 - >70% Direct 3- >40% Dyed 3- >50% Tech tex (TT) 3- All tech+ Att 3- <15 yrs
depth (Professionally)
2 - 35-50% Viscose 2 - 50-70% Direct 2- 25-40% Dyed 2- 30-50% TT 2- 2 Tech 2- 15-20 yrs
2- Medium 2- Medium
1 - <35% Viscose 1 - <50% Direct 1- <25% Dyed 1- <30% TT 1- 1 Tech 1- >20 yrs
1- Low 1- poor

Company has
Partnered with Lenzing, Lycra, restructured from
High depth & High on Tech All Tech +
6 FilSpec Inc USA Dupont, Outlast, Thermolite, Direct <25% dyed apparel to TT in last 15 NA
width tex Attachments
Thermocool years. So should have
new machines
Cotton , viscose, Polyester,
Acrylic, specialty poly , specialty High on Tech Ring/ Core Spun/
7 Hoftex AG Germany Direct NA High width NA NA
viscose (modal, micro modal, tex Siro Spun
tencel, FR), polyamides
ZKS Medium in
Close collaboration with Lenzing
Zwickauer High width & Tech Tex. Also
8 Germany & Kermel. Also use Poly, PA, Direct NA 2 Tech NA NA
Kammgarn depth present in
GmbH Aramids etc
fashion
Open end, ring,
Viscose, Tencel, Modal, Modal Both grey Medium width Low on Tech siro, also
9 Tearfil Portugal NA NA NA
sun, Cotton, Wool, poly etc and melange & depth tex launched new
pluma tech

European Viscose focused - buy dyed fibre Direct; they

Almost 100% Medium width Low on Tech
10 spinning Belgium from Nagda. Can blend with also have a OE primarily Medium - Old
group* dyed & depth tex
various fibers trading arm

Visits completed * Discussions done with this company in 2013-14 for know-how transfer. However, the same did not materialize
To retain on shortlist
14
Mapping, profiling and prioritization of the key players

Priority 3 Companies:
Evaluation Criterion
# Company Country Marketing
Fibre Base Dyed/ Grey Product Range Tech Tex Technology Machine Aging Mgmt Team
Network
3- High width & 3- Good
3- >50% Viscose 3 - >70% Direct 3- >40% Dyed 3- >50% Tech tex (TT) 3- All tech+ Att 3- <15 yrs
depth (Professionally)
2 - 35-50% Viscose 2 - 50-70% Direct 2- 25-40% Dyed 2- 30-50% TT 2- 2 Tech 2- 15-20 yrs
2- Medium 2- Medium
1 - <35% Viscose 1 - <50% Direct 1- <25% Dyed 1- <30% TT 1- 1 Tech 1- >20 yrs
1- Low 1- poor

Working with Kermel, Lenzing,

Established a
Asota, Dralon etc. However Seems to be High on Tech Ring, OE, Siro,
14 SELVAFIL SA Spain NA plant for NA NA
based on company profile, may medium - high Tex Core spun
dyed
not be very high on Viscose

Die
High on Tech
15 Spinnerei Germany Viscose, Poly, FR, PP, PA Direct Dyed + Grey Medium Ring, OE NA NA
Neuhof
tex

Viscose, Modal, tencel,

Tuscarora Specialists in Ring, OE, MVS +
16 USA ProModal, Bamboo, Cotton, Poly Direct Medium - High TT + Fashion NA NA
Yarns Inc Dyed yarn attachments
etc

Cotton/ Viscose/ Poly/ Acrylic/ Ring, OE, MVS,

17 REGITEX Canada Direct NA Medium TT + Fashion NA NA
Specialty Optispun

viscose, cotton, polyester, Ring, OE, MVS,

18 Acarsoy Turkey acrylic, modal (Lenzing NA Dyed Medium Fashion Core spun, siro NA NA
accreditation) spun

Visits completed
To retain on shortlist
15
Acquisition Planning: Connects made with Multiple Targets

Specialty yarn companies were identified across the globe and prioritized based on :
• Strong presence in Technical Textiles/ Specialty yarn
• Access to/relationship with customers and Special fiber suppliers
• Market access and closeness to customers

Revenue Volumes Realisation Tech

Target Company Technology Fibers / Suppliers Priority
($ Mn) (MT) ($/kg) Tex

DuPont, Outlast,
Lampertsmuehle RF, Twisting, Trevira, Lenzing,
XX XX XX 100% 1
(Germany, Slovakia) Dyeing SGL, Teijin,
Dralon, Toray
Fil Man Made
RF, OE, MVS, Trevira, Dupont,
(Italy, Turkey, China, 97 13,000 6.7 100% 2
Compact Tencel, Teijin,
Portugal)
Trevira, Tencel,
Selvafil Ring, OE, Core-
35 1,500 23.3 Beltron, Aramids, 100%
(Spain) twist
Lenzing
Qualified for
Predilnica Litija
35 6,500 5.4 RF Codura, Coolmax, 70%
(Slovenia)
Thermolite
Schoeller Outlast, Trevira,
Worsted,
(Austria, Czech, 64 3,500 18.3 Lenzing, SGL 65%
Superwash
Germany) Group

Aramids,
Schappe Worsted, Stretch
12 300 40.0 UHMWPE, Carbon, 100%
(France) Breaking
Metallic

Detailed Mapping in backup

16
Our Breakthrough

17
 Spinnerei Lampertsmuhle GmbH (SPL)
Key company facts
SPL business foundation
• #1 Technical Textile yarn
manufacture in EU by revenue
• SPL founded in 1854 at Kaiserslautern,
Germany; over 150+ years experience
in technical textiles
• Subsidiary Spilatex, s.r.o. founded in
Slovakia in 2005
Key Own Brands:
• Started Aramex-Garne GmbH in 1995
at Singen / Hohentwiel, Germany;
leading brand for Aramid yarns
• Dunova, a prestigious brand for
SportTech started in 1993 after taking
over the trademark from BAYER AG
Facilities available
Capacity
• Germany: 30K spindles
• Slovakia: 30K spindles
Key financials & figures
• 2019 Revenue: Euros XXX Mn
• 2019 EBITDA: Euros XXX Mn
• Investments: ~Euros XXX M/Yr
• Employees: 580 Spinning
Product Portfolio
• Produces yarn for 24+ technical fibre
trademarks, such as Nomex from
DuPont, Technora, Twaron &
Teijinconex from Teijin, & Kanecaron
from Kaneka
• Partnerships with 15+ reputed
technical fibre manufacturers ensuring
global fibre sourcing from players such Twisting
as DuPont, Toray, Teijin & Trevira
18
 Global TechTex Spun Yarn Market of ~6 MnT / ~ $22 bn

Market size
(Spun yarn)
Global TechTex spun yarn
market of ~$22 bn
Specialty Aramids, PPI, PBS ~$850m
fibres 1 etc.
Others,
12% Indutech, ~28 KT
Protech, 19%
7%
Special Modacrylic, FR
purpose
Clothtech,
technical 2 PSF, VSF FR etc. ~$1.5bn
7% fibres
Mobiltech, ~150 KT
17%
Packtech,
10%
Hometech, Commodity 3
Buildtech, 17%
technical ~$20bn
11% fibres ~5.5 MnT

SPL presence ABY presence

SPL presence is in the mid to top-end of the pyramid – a ~180 KT global market estimated over ~$2bn

Source: BCG Analysis

19
Deal Rationale

• Market leader, strong brand equity, established relationships in the value

No. 1 TechTex chain
spinner in Europe • High value speciality play – strong growth in ProTech and MobilTech segments
• SPL considered to be leader in TechTex globally

• SPL has two decades of experience and know-how to produce TechTex VAPs
Know-how to • Significant scale-up opportunities from transferring know-how to SEA units
make VAP • Continuous exchange to be provided by SPL for transfer of technology,
training of employees and documentation

• Challenging for ABG to scale TechTex business due to limited know-how and
strong market entry barriers
Build vs Buy • Access to speciality fibers restricted by “club” system practice of DuPont &
leverage strong relations with Kaneka

Promoter • Strong technical expertise and close relationships with key suppliers and
customers
knowledge and • ABY will leverage his knowledge and continued support to scale up
support operations as well as grow usage of other fibers of ABG (VSF, Excel, AF)

20
 SPL – Financial Performance

$
t Mn 2013 2014 2015 2016 LTM Realisation ($/'000 Spindle)
P&L 6,668 6,683
Total Revenue 105.2 115.5 107.3 115.9 125.9
EBITDA 5.6 6.3 5.7 6.7 7.8 6,166
6,053
EBIT 3.1 3.8Confidential
3.7 4.6 5.6
EBT 2.6 3.2 3.2 4.2
FCFF n/a 0.7 3.5 3.2
2013 2014 2015 2016
Balance sheet Conv Cost ($/'000 Spindle)
Equity 18.1 19.2 19.5 22.8
Net Debt 10.3 12.8 14.1 12.9 1,668
1,700

Capital employed 28.4 Confidential

32.0 33.7 35.7
1,634

Net D/E 0.6x 0.7x 0.7x 0.6x 1,487

Return profile
ROCE (Pre Tax) 11.0% 11.8% 11.0% 13.0% 2013 2014 2015 2016
ROE 11.1% 13.1% 10.4% 11.9%
EBITDA ($/'000 Spindle)
Days 390
367
Inventory 81 70 73 62
Receivables 33 33 30 30 325 329
Payables 27 15 13 10
NWC 88 88 90 81
2013 2014 2015 2016

21
 Valuation – Steady State Cash Flow Valuation
$ Mn Comment
Total Revenue 119.7
XX 3-Yr Total Revenue CAGR of 3.3%; CY16 Sales $116 Mn
EBITDA margin 6.2% LTM: 6.2%; 2016: 5.8%,, Avg. of CY2015, 2016, LTM: 5.8%
EBITDA 7.4
XX
Less: Depreciation (2.0)
EBIT XX
5.4
Less: Taxes (1.6) Tax rate assumed @ 30%
NOPLAT XX
3.8
Add: Depreciation 2.0
Less: Maintenance capex (2.0) Considered same as depreciation within management guidance of EUR 1.5-2 Mn
Less: Change in working capital - No additional working capital requirement in steady state
Free cash flow XX
3.8
WACC 8.8% D/E: 30:70; Cost of Equity 11%; Cost of debt 5%
EV XX
43.5
Implied EV/EBITDA 5.9x

Less: Net debt (as of Dec'16) (12.9) Includes working capital debt and outstanding pension obligations
Equity XX
30.5

Implied P/B 1.3x 2016 Equity Value: $22.7 Mn

Implied P/E 11.3x 2016 Adjusted PAT: $2.7 Mn
CY16 ROE 11.9%

22
 Transaction Comparables
Transaction Comparables

Target Target Equity Percent EV/

Date Target Name Country segment Target description Acquirer Name value ($m) Sought EBITDA
25-05-17 James Dewhurst UK Technical Design and manufacture high Sioen Industries n/a 100% 7.3
Textiles performance engineered
reinforcement fabrics
27-07-16 Dimension Polyant Germany Technical Market leader in sailcloth Sioen Industries n/a 100% 6.7
Textiles manufacturing with a market share of
40%
10-03-16 Manifattura Italy Nonwoven Market leader in Italy manufacturing Sioen Industries n/a 90% n/a
Fontana S.p.A nonwoven geotextiles for EU civil
engineering market

18-11-16 Pontetorto SpA Italy Fabrics Manufactures and sells pile fleece Daidoh Ltd 21.2 65% 7.2
fabrics for active wear applications
08-03-11 Fibertex France Nonwoven Maanufacturer of nonwovens for the Schouw & Co AB 47.3 85% 4.2
Nonwovens SA Fabrics industrial and technical industry

06-12-10 Gamma Holding NV Netherlands Industrial Manufactures textile-based products ING Groep NV, 74.7 26% 4.2
Textiles such as process and conveyor belts, Gilde Buy Out
filtration products, sailcloth etc. Partners BV

Average 5.9
Median 6.7

Note:
The above comparables are across the broader Textiles space in Europe. There is no strict comparable for SPL when considering
23
segment (technical textile yarn), size and financial performance
Valuation Range

Approach Range Reference Valuation range ($ Mn)

EV range of $XX – XX Mn
EBITDA: $X.x Mn
Capitalized steady state
8.5% – 9.0% FCFF: $X.x Mn XX XX
cash flow (FCFF / WACC)
WACC: 8.8%

CY16 Book
P/B1 1.20x – 1.50x XX XX
$X.x Mn
ROE: 11.9%

Transaction comparables EBITDA

(EV/EBITDA) 6.00x – 6.50x $X.x Mn XX XX

24
Potential Risks and Mitigants

Key Risks Mitigants

• Extensive support to be extended by SPL for transfer of

1 Technology Absorption technology, training of employees and documentation
• Continuous exchange of know-how and training

• SPL is well recognized as a market leader in TechTex

2 Long Approval Process &
Lead Times • SPL’s established customers relationships will enable foot in
the door to demonstrate and establish quality

• ABY has established connects with customers across key

3 Breaking and establishing market such as Japan, China, Brazil, Turkey etc.
into the Asian markets
• Experienced TechTex team to drive business development

• SPL is one of the largest partners for DuPont – relationship

4 Availability of key fibers can be leveraged to get access for Asia
from likes of DuPont
• Also has strong relationships with Kanecaron

25
Submission of NBO and Negotiations

26
Key Terms of the NBO

• ABY to acquire majority stake of 74% in SPL

• Parties will have the right to acquire or sell the remaining stake after 3 years
through Put & Call Option

• Mr. Lange to continue in an active business role in SPL, the specifics of which will
be mutually agreed upon

• Enterprise Value on a debt-free and cash-free basis and including normative NWC of
100% of the business is in range of € xx – xxm (valuation excludes rental income,
post diligence, ABY would firm up the valuation)

• There will be no disruption in fibre supplies post-acquisition (to be validated by

meeting top leadership of key fibre suppliers)

• Post acquisition, Mr. Lange undertakes not to compete either directly or indirectly
with SPL/ABY

27
Due Diligence

28
Due Diligence

29
Due Diligence

30
Due Diligence Summary
Status Status
Diligence (Germany (Slovakia) Key Findings
Technical DD Completed Completed • Skilled workforce, knowhow & infrastructure for TechTex products
(ABY Team) • P&M aged between 2-30 yrs. suitable for low speed requirement in TechTex
• Feasible to move and replicate technical know-how to our SEA plants
• ~€2.5m p.a. towards Maintenance Capex (to continue at similar levels)

Financial DD WIP WIP • No critical/major red flag items

(Deloitte) • Inventory ~70 days due to large SKUs, steady AR of ~28 days, low payables of ~15
days as SPL follows the strategy of early payments for cash discounts
Tax DD Completed Completed • No critical/major red flag items
(Deloitte)
Pension DD Completed Not • 184 employees entitled to pension - plan closed to new entrants in 1982 (plan slowly
(Deloitte) applicable being “run-off”)
• Liability provided as per German GAAP is €2.8m and ~€4m as per IAS19
assumptions
Legal DD Completed WIP • No critical/major red flag items for Germany
(Osborne Clarke / • No outstanding litigations/claims/dispute
Kinstellar) • Slovakia – full details of land titles are not available; awaiting further clarifications
Environmental Completed Completed • Documents/approvals etc. provided (no red flag)
DD (ERM) • Site visit to plants completed
HR DD WIP WIP • Germany wage is ~7% lower than regional industry agreement which is committed
(ABY Team) to increase by ~2% over next 2 years
• As per new law, temporary workers cannot be employed for more than 18 months.
Employment contracts of such workers (86 in total) to be reviewed

31
Agreed Transaction Terms

1. Fixed purchase price of Equity €XX Mn versus previously agreed €XX Mn

2. Acquisition in 2 tranches – 74% now and balance 26% after 3 years with Call / Put
Option. No profit distribution during this period, providing kicker in IRRs

3. Lockbox date as on 1 Jan 2018 with no closing adjustments; profits from 1st Jan
2018 to Closing to remain in the company (~2018 EBITDA of €XX Mn)

4. Diligence completed during previous exercise with no critical red flags

• Any material document post the lockbox dates will be provided through
disclosure schedule and adequate protection to be built in documentation
• ~€Xx Mn to be kept in escrow for 30 months against indemnity claims

5. Day to day operational control with Mr. Lange for next 3 years. Select strategic
matters to be consulted with ABY representative or take shareholders approval

32
Key Documentation Related Points

• Transfer of Know-How
– Specifications for products to be provided on Closing as per agreed format
– Absorption to happen over 2 year period: Outsourcing products to ABY Indonesia

• Dilution
– Permitted for funds required only for growth
– Veto rights and value of 26% to remain unaffected

• No dividend payments for 3 years

• Call and put option exercisable between 9 months to 3 years from closing date

• Fixed Term of SHA: 15 Years (as per law)

• Non compete for 2 years post 100% buyout, additionally, similar clause also built into
MD Agreement

• Business plan to be jointly developed within 45 days post Closing

33
 Transaction Structure, Financing & Closing

• SPV – ABG GmbH to be incorporated in Germany

• PT Elegant to infuse 100% equity in ABG GmbH*

Indonesia PT Elegant
• ABG GmbH to raise the remaining amount of ~ €X.x Mn
from local banks# to buy 74% in SPL
100% Equity
• ABG GmbH’s to fund its own interest for first three years
~ €XX mn
Germany (2019) (by borrowing short term loans) in the absence of dividend
~ €XX mn (2021)
• Post 3 years, dividend from SPL to be used for debt
Borrowings
ABG GmbH servicing
€ X.x Mn (2019)
€ ~X Mn (2019-21) • Interest benefit on local borrowings by ABG GmbH
In 2019- Buy 74%
of Equity
• Remaining 26% stake in SPL to be purchased at end of 2021
In 2021- Buy 26%
of Equity by ABG GmbH (infusion of additional equity in ABG GmbH
Debt: €Xx Mn by PTE)
(2019)
SPL
• SPL bank debt at the time of acquisition continues to be
serviced from SPL internal cash flows

• *Indonesia Controlled Foreign Companies (CFCs) rules rescinded and therefore not to trigger any deemed dividend implications
• # Local borrowing by ABG GmbH may need to be guaranteed by PT Elegant 34
 Our Journey Till Closing

Dec-April
Oct 2017: 2018: Feb 2019:
Submission Agreement on Brought parties
Jan 2017: Oct 2019:
on NBO valuation, DD back on the
Initiated Signing
in full swing, table
connect, Nov 2019:
documentation
declined Closing
prepared

Jun 2017: Set up

Re-initiated delays June 2019 onwards:
connect, Documentation
agreed to preparation
start
process

Mar – Jun 2019:

May 2018: Significant delays,
Transaction revisiting terms and DD
abruptly abandoned items

35
Post Acquisition

36
 Tenets of Successful Integration

Credit: Gregg Nahass, Partner - PWC

37
Developing a Structured Integration Plan

38
Well Defined Plan to Achieve Integration Targets

39
3 Parallel Workstreams in Place to Realize Value

40
 Key Challenges in International M&A


Culture & Talent, Employment Deal Structuring, Costs


Communication & Labour

 
Due Diligence Anti-trust issues Integration & Synergies

https://www.bain.com/insights/dale-stafford-integrating-cultures-after-a-merger-video/
41
In Summary

1. Company acquisition strategy and deal sourcing are critical first steps
towards a successful acquisition, especially in an international context

2. Investment Bankers and advisors play a critical role in deal origination

and project management

3. International M&A can be quite complex, costly and time consuming –

more than 50% of all acquisitions FAIL

4. Each deal is unique and presents its own sets of challenges. International
M&A is not for everyone as they can be fairly complex and may take from
6 months to a few years to close

5. Successful deal closure is only the beginning: post acquisition activities of

integration and synergies extraction are far more challenging than one
anticipates

42
Thank You!

Sahil Jain
sahil.j@adityabirla.com

43
Innovation as a
Strategy
IIM - Udaipur

Abhijeet Kumar
Head – Marketing & Innovation
Birla White, Aditya Birla Group
What is common about these brands?

No Longer a Kodak No longer the Don’t you Yahoo

Moment? Blackberry Boys? anymore?

Once a popular brand but not anymore

Can you name any
other popular brands
that are no longer
relevant?
Why did these
brands gradually
die?

Because they failed to INNOVATE

So what is
INNOVATION?
The story of Sony Walkman- An era of Iconic music players since 1979

1979 – Original Walkman 1st Walkman with 1984 - 1st Discman

rechargeable batteries

Introduction Growth
Stage Stage
• For the Youth • Minor & major product
• Expensive, less demand changes
• Associated with youth,
fitness and mobility
Enter Apple IPod in 2001- Revolutionized the music ecosystem

• Better ecosystem with ITunes store

• Better Interface
• Smaller size
• More storage space
Which simultaneously took Sony Walkman towards decline

2003 – Flash Memory 2007 – Sony Walkman Phone Present day Walkman
Walkman

Maturity Decline
Stage Stage
Summarizing the product life cycle stages & why should brands innovate?
What if brands jump the curve and enter a new phase of growth?

NEW GROWTH

INNOVATION
What are the different types?

Product Service Marketing

Innovation Innovation Innovation
Product Innovation
From Monochrome TV to UHD Curved TV

From Mono grade to Multi grade

From Minerals to Synthetics
Engine Oils
Service Innovation

From DVD Rental to Streaming Hyundai offering Assurance Program

Asian Paints offering safe painting services

Marketing Innovation
Some Innovative brands
Innovation during COVID times

WFH Apps like MS Teams, MICE companies bringing Focus on anything “Anti-
Zoom rolling out new conferences & Product bacterial”
innovative features frequently launches online

Can you think of any other innovative solutions?

Can only tech companies be Innovative?

Name some non technology brands that you think are innovative?
How did Birla White innovate in a low involvement category like “Base
coating”?
Product Innovation in Birla White that changed the category dynamics

From White Cement Manufacturer To Wall base coat provider

Birla White disrupted the Wall Coating market in 2002 by innovating White cement based Putty
Revenue & Profitability doubled within 5 years
Then Consumers told us..

IF ONLY I HAD AN OPTION AGAINST

ADULTERATED LOOSE PUTTY?
Then Consumers told us..

CAN I GET THE EXACT AMOUNT OF

PUTTY AND SAVE COST ON THIS
PROJECT?
Then Consumer told us..

Due to toxic smell of Work with bare hands

paints / putty, work due to lack of proper
becomes difficult equipment. May cause
skin irritations

Dust generated during Line of work

the work makes it sometimes make
difficult to breath them lethargic & less
motivated
Birla White thought..

+
PERFUME
Launched India’s 1st ever scented Putty in the market – reinforced Brand
Leadership

Worked towards Painter’s health & well-being

Contributing 20% of business in a span of 6 months
Service Innovation in Birla White with the “One MRP” concept
Marketing Innovation in Birla White with the “Whitest” Polar Bear
 So, how does Birla White innovate?

• Being consumer
focused
• Identifying their
needs

Image source: https://blog.watermelon.co/en/customer-service/why-the-customer-is-always-king/

So, how does Birla White bring innovation to ground

Gate 1:
Idea Gate
Gate 2: Gate 3: Gate 4: Test Post
Business Develop & validate launch
Case Gate Gate Gate evaluation
1. Ideas,
Concepts & Initial
2. Business 3. Develop 4. Test & 5. Scale-up
Scoping
Case validate & Launch

Detailed development and Formulation & Product launch

Detailed business case design of product packaging • Launch plan
• Project justification formulation and packaging tests: • Launch
• Project team • Lab testing of • 3rd party collaterals
Preliminary quick scoping
• Project charter formulation/s tests • Plant trial &
and testing of initial
marketing & technical • Product development • Design & prototype of • Stability tests production
concepts brief packaging structure • Volume
• Project plan • Manufacturing strategy estimation
Three things I want to leave you with…
Thank you!
Domestic Mergers & Acquisitions
March, 2021
 Group Corporate Finance - CFG
Who we are CFG - Landmark Deals
Internal Investment Bankers/Financial Advisors
Century Cement JP Assets
to the Group ($[ ] Bn) ($[ ] Bn)

Binani Cement ETA Star

What we do ($[ ] Bn) ($[ ] Mn)

1. Help Group Companies through every step of

their growth
($[ ] Mn)
• Raising growth capital
• Re-financing
• Organic Growth (Investment Appraisals) Columbian Chemicals
($[ ] Mn)
• Inorganic Growth (M&A)
2. Value Unlocking – Restructuring & Divestment
3. Strategy
• Sector Analysis
• New Opportunities
• Ideation

2
 Why M&A & Divestments

Increase Market
Integration
Share

Geographical
3 4 Problem Solving
Expansion

2 5

Adjacent
Exit Non-Core
Products/ 1 6
Businesses
Technology

BUY vs. BUILD

3
 The M&A Journey
Completion
➢ Approvals
➢ Conditions Precedent
➢ Closing mechanics

Diligence
➢ Valuation Adjustments
➢ Identify Conditions Precedent Documentation
➢ Specific Indemnity ➢ Drafting of agreements
➢ Share Purchase / Business Transfer
➢ Representations and Warranties
➢ Indemnities

Preliminary Study Non-Binding Offer

➢ Acquisition Criteria ➢ Draft Valuation
➢ Target Evaluation ➢ Proposed Structuring
➢ Initial Term Sheet
➢ Initial Negotiations

Negotiations

4
Types of M&A
 Types of M&A

Acquisitions Joint
Routes Venture

Share Merger/Demerger
Purchase

Business
Transfer

Group Restructuring could entail a mix of types of M&A

6
 Share Purchase

Pre Post

Cash Novelis
Shareholders
Announced: Feb 07

4 months 100% subsidiary

Closing: May 07

• Acquired shares of Novelis for cash through overseas debt structure

• Global footprint, Downstream portfolio
• Novelis became a subsidiary of Hindalco and Board of Novelis was reconstituted
• Entire company including its business, fixed assets, working capital, debt, actual / contingent liabilities taken over by
Hindalco
• As most licenses, registrations continue with Novelis, lesser approvals for closing

7
 Business Transfer (Slump Sale)
Pre Post

Cash
Announced:
Mar 16

UltraTech Jaypee 15 months UltraTech Jaypee

Closing
Jun 17
Cement
undertaking

• Acquired cement undertaking (identified assets and liabilities) of Jaypee through court scheme
• Market Share and New Markets (6 plants, 5 Grinding units in 5 states)
• Issue of debentures and preference shares by Ultratech (cash equivalent)
• Post closing, cement undertaking of Jaypee became a division of UltraTech and Jaypee continued as an entity
• Business related representations / warranties and indemnities sought
• As most licenses / approvals in name of Jaypee, significant approvals sought by UltraTech (including NCLT related approvals)

8
 Merger
4.8%

42% 100% 26% 45%

Announced
Mar 17
17 months
Closing
Aug 18

• Merger of Vodafone India (unlisted) with Idea Cellular (listed)

• Largest telecom player in India, significant operational synergies, complementary customer base / reach
• Approvals: CCI, Shareholders, Creditors, SEBI, Stock Exchange, Sector Regulator
• Vodafone shareholders received Vodafone Idea (Merged Entity) shares as per swap ratio agreed at time of announcement
• All operations, assets and liabilities of both companies become part of Merged entity
• Promoters of each entity to enjoy Board representation, veto/other rights and provide indemnities for its respective entity
• As part of Composite scheme, AB Group acquired ~ 4.8% from Vodafone shareholders to reach 26%

9
 Joint Venture

Announced 4 months Closing

Oct 15 Jan 16

Aditya Birla
Renewables

▪ AB Group and Abraaj entered into a joint venture to co-invest in solar projects
▪ Develop large scale solar platform, leverage capital and operational capabilities of both groups
▪ New JV Co with negotiated terms (board representation and other governance rights)
▪ Detailed JV agreement with rights, obligations, dispute resolution mechanism, project approval process, funding obligations
▪ No significant regulatory approvals required

10
 Demerger
Pre Post
ABG: 42% ABG: 68% ABG: 59%
Announced
May 15
10 months
Closing
Feb 16

Demerger of
Madura Garments

• De-merger of Madura business undertaking from ABNL into PFRL (listed)

• Consolidate apparel retail business of AB Group in Pantaloons (renamed as ABFRL post demerger)
• Madura Business undertaking became a division of ABFRL
• ABNL Shareholders continued to hold shares of ABNL and received shares of ABFRL
• Resultant ABG Stake in ABFRL post demerger reduced from 68% to 59%
• All NCLT related approvals obtained. FDI concerns on small NRI / foreign investors of ABNL, given sector restrictions

11
 Group Restructuring
Step 1: Merger of Nuvo & Grasim Step 2: Partial Demerger of ABCL

ABG: 57% ABG: 31% ABG: 40%

Announced
Aug 16
17 months
Closing
Aug 17
100% Grasim: 56%
ABG: 72%
Financial
Services
PI
Invest

• Complex two stage restructuring: merger of ABNL with Grasim and • PE investor in ABCL prior to listing also set benchmark valuation
partial demerger of ABCL from merged entity) • Significant regulatory approvals (FS business being highly
• Rationale for the restructuring included: regulated, FDI)
• Simplifying Group structure
• Access to high growth financial services to Grasim
• Unlocking value of Financial Services to shareholders
• Stronger parentage support to FS

12
Key Terms & Timelines
 Key Financial M&A Terms
1

EBITDA

• Value of Asset
AGNOSTIC • Capital structure
• Age of Asset

2
Cash
Working Collection Purchases /
Capital RM Inventory

Debtors
# of Creditors
To receive cash: Debtors & Sale of Finished Goods days
minus To pay cash: Creditors & Wages / Exps

Sales Production
Finished
WC Cash Trapped WC Cash Release Goods

14
 Key Financial M&A Terms
3
ENTERPRISE
VALUE

→ Value of Business → Value to its equity shareholders

Multiple Based EBITDA X Multiple = Enterprise Value

Particulars FY20A FY21E FY22E FY23E FY24E Terminal Value

OR EBITDA X X X X X
Less: Tax on EBIT X X X X X
Less: Change in WC X X X X X
DCF Based
Less: Capex X X X X X
FCFF X X X X X XX
Discounting@ WACC
Enterprise Value XX

15
 Typical Timelines
▪ Broad info on TargetCo ▪ DD & Management Discussion ▪ Approvals
▪ Preliminary Discussion ▪ Negotiation on Valuation ▪ CPs and Standstill
▪ Negotiation on Adjustments ▪ Closing mechanics
preliminary valuation ▪ Binding term sheet

▪ Agreed valuation subject ▪ Agreements Negotiation on

to DD o CPs, R&W and
▪ Non-binding term sheet Indemnity
▪ 60 days exclusivity o Non-compete
o Transition Period
▪ Confirming Investor’s
Financial Capability

Non-binding
Preliminary Study Due Diligence Documentation Completion
offer

16
SOKTAS India – A Case Study
 Grasim’s Textile Division - JST

VSF Chemicals Textiles Insulators

Jayashree
Textiles (JST)

JST – An Overview

▪ Although the world had seen much of linen by the 20th century, this incredible fabric was
first brought to India by Jaya Shree Textiles in 1949.
▪ Sourcing the raw fibers from Europe, Jaya Shree Textiles manufactured linen with the finest
European technology in India at Rishra, Kolkata
▪ Only integrated player in India with market leadership in Linen Yarn and pure linen fabric.
Recently entered in Apparel space with launch of Linen Club Apparel
▪ Linen business has a total turnover of ~INR [confidential] cr.
▪ Linen Club is the leading pure linen fabric brand in India and is retailed through 6000+
Retail counters and ~200 Exclusive Brand Outlets in India

18
 JST Portfolio – Pre-Acquisition
Existing Businesses

Linen Yarn Linen (Pure) Fabrics Linen Apparel

▪ Leadership Position in the market ▪ Lower volumes higher margins ▪ Linen Club Studio – Predominantly
▪ JST Capacity – > [confidential] MT ▪ JST Capacity - ~[confidential] LM Shirts, Trousers

▪ OTC Distribution – [ ]+ MBOs, ~[ ] EBOs ▪ Launched ~3 years ago

▪ Market leader in OTC

▪ Lower share in Brand & Retail (B&R)

New Businesses

Intimate Blend Yarn Blended Fabrics Blended Apparel

▪ India’s first linen-rich intimate ▪ Introduced blended fabric in OTC & B&R ▪ Brand Cavallo by Linen Club –Shirts
blend yarn ▪ Low market share currently Only

▪ High volume lower margins ▪ Being sold online only

19
 Linen Fabric Industry
Linen Fabric Market in India 1

Market Growth Rates based on Market Growth Rates based on Market Growth Rates based on
Business Estimates – Not for Business Estimates – Not for Business Estimates – Not for
External Use External Use External Use

• Linen fabric grew at a healthy rate at 10% with increased penetration of Linen in both Brands and Retail (‘B&R’) and Over the Counter (OTC).
• Domestic Pure Linen OTC volumes have stagnated over the last 3-4 years.
• With faster growth in branded / organized apparel & increased linen penetration, future growth expected to be dominated by B&R and Blends

Source: Business Estimate 20

 Linen Market – Challenges & Opportunities
▪ Domestic Pure Linen OTC volumes have stagnated over the last few years.
▪ Blends have led the overall consumption growth projected to grow continuously driven by the Brands & Retail (B&R) segment

Market Trends JST Constraint

Big shift towards Linen Blends driven by B&R Limited fabric capacity for future growth

Modern continuous processing Technology required to cater fast

Opportunity to expand blends in OTC segment growing B&R segment

Option 1 – Greenfield Process House Option 2 – Acquisition of Processing Facility

▪ Capex - Rs. [Confidential] Cr. including Land ▪ Shorter lead times

▪ Lead time – [Confidential] Years (and execution ▪ Established business & facilities
challenges) ▪ Opportunity of portfolio/geographic expansion

21
Opportunity Assessment
 Build vs Buy Decision

Build Buy

23
 Soktas India - Overview
Background of India operations
▪ 100% owned by Turkey-based Soktas Group
▪ Commissioned in 2009 in Kohlapur, Maharashtra
▪ Key Investors – Soktas Turkey and International
Finance Corporation (IFC) – an affiliate of World
Bank
▪ IFC exited in 2017
▪ Turkish Promoter was looking to exit India
. operations
 Needed cash for Turkish operations
 Had interests in other non-textile
businesses
Key Investment Highlights
▪ Strong Brands and 1000+ point-of sales
▪ Preferred supplier to leading premium cotton shirt brands
▪ Strong emphasis on designs for each seasonal collection, backed by a dedicated design centre
in Bangalore which was supported by design archive at Turkey
▪ Continuous Processing Technology – critical for serving the B&R segment
▪ Strategically located close to B&R market, long term land lease & surplus land for expansion
▪ Other highlights
 Brand usage rights (perpetuity) in India, Bangladesh, SE Asia and Mid-East
 State-of-the-art plant infrastructure/ERP
 Security of power and water
 Ready availability of skilled labour – textile weaving hub
Key Brands
24
 Soktas – Market Positioning
Retail Price
(INR/Mtr)

>Rs. Super
[Confidential] Premium

[Confidential] %
Rs. [Confidential] Premium

Rs. [Confidential] Medium

[Confidential] %
Rs. [Confidential] Economy

<Rs.
[Confidential]
Low Local Brands
[Confidential] %

25
 Transaction Process

[Confidential] [Confidential]

Non-Binding Detailed Due Binding Bid / Transaction

Agreements Closing
Bid / Offer Diligence Offer
Signing
[Confidential] [Confidential] [Confidential]

▪ Description of Acquirer ▪ Financial ▪ Final Purchase Price ▪ Share Purchase ▪ Satisfaction of CPs
▪ Transaction Structure ▪ Commercial ▪ Key Terms – List of Assets, Agreement  Regulatory
Valuation ▪ Legal technical assistance, ▪ Technology and  Lenders Consents
▪ Assumptions/Conditions ▪ HR [Confidential], Know-how  Key Stakeholder
▪ Financing Capability ▪ Technical [Confidential], etc. agreement Meetings
▪ Due Diligence ▪ Information Tech. ▪ List of definitive docs. ▪ [Confidential] ▪ Closing adjustments and
requirement ▪ Business as usual/Standstill ▪ [Confidential] finalization of Purchase
▪ Transaction timing ▪ Confirmatory DD Consideration
▪ Confidentiality, etc. ▪ Exclusivity, Confidentiality, ▪ Payment of Purchase
and Announcement Consideration
▪ Transaction cost, validity, ▪ Transfer of shares to
etc. Grasim

26
 Summary of Valuation
Method EV Remarks

Rs. [Confidential]
DCF ▪ Implied EV/EBIDTA – [Confidential]
Cr.

IFC
Rs. [Confidential] ▪ Exit provided to IFC @ [Confidential] EV/EBITDA (last audited EBITDA
(Valuation benchmark for
Cr. considered)
Exit)

▪ EV/EBITDA Multiple (Average of Peers)

~INR 160-170 Cr.  1 Year: 7.4x
TRADING COMPARABLES (based on 3 year and 5
year average multiples)
 3 Year: 6.9x
 5 Year: 6.3x

Purchase Price (Rs. Cr.) ([Confidential]) ([Confidential]) ([Confidential])

Rs. [Confidential] IRR [Confidential]% [Confidential]% [Confidential]%

Based on Offer Price
Cr. [1] Payback Period (years) [Confidential] [Confidential] [Confidential]

EV/ EBITDA (FY 19LE) [Confidential] [Confidential] [Confidential]

*FY19LE EBITDA: Rs. [Confidential] Cr.

1. Represents maximum EV Grasim was willing to offer. Final Purchase EV, post negotiation, was INR 165 crores 27
 Post Acquisition Integration
Integration Objectives Key Decisions Before Integration
• Align Soktas to OneABG Turnaround Growth
Type of Synergy Strategic
• Preparing for take-over on completion of choices in
Fast Slow & Steady
Speed Integration
transaction

• Integration of different functions and Extent of Integration Entire Partial

departments
Start of Integration Immediate Deferred
• Focus on harnessing synergies identified during
the acquisition plan Integration Team Clean Joint
• Three Year rolling Business Plan (Product and
Change Management Implicit Explicit
Market Mix Optimization)

• Execution take-off of the Business Plan,

• Soktas Operations to continue AS IS basis
stabilisation and handholding
• Existing Team has been retained and integrated into the Aditya Birla Group
• Exchange of Know-How and Best Practices
• Know-how and best practices to be exchanged between Linen Business & Soktas India
• Identify Risks and Mitigation measures

Post merger integration is one of the primary reason for success or failure of an acquisition
Integration approach must be finalized with adequate planning, attention to detail and with contingency plans

28
 Integration Approach
• Absorb Knowhow –Yarn Dyeing, Weaving & Processing
• Procurement (Yarn, Dyes, etc.)
• Supply Chain
• Asset Utilisation
Operations • Delinking with SOKTAS Turkey – Ex. IT,
• Streamlining with ABG Processes (HR, F&A, etc.)
• Benchmarking and Optimisation – JST vs SÖKTAŞ
• Leverage IT Capabilities

People

• Product Mix Optimisation

• Ring fencing of existing KMP Product & • Linen Growth Plan

• Org. Structure & Reporting Market • Distribution Synergies
• Leverage on Workforce Skill • Brand & Marketing Plan
• Requisite Training for Linen
• Phase wise harmonization with ABG
Policies

29
 Key Takeaways
✓ Different contexts in which M&A could be a suitable strategy
✓ Typical M&A Journey and Timelines
✓ Types of M&A with examples
✓ Key Terms used in M&A
✓ Case Study – Acquisition of Soktas India
• Business rationale
• Investment highlights
• Transaction Process
• Summary of Valuation
• Integration Objectives and Approach

30
Thank You

Questions?
ANNEXURES

32

Objective
Transfer of
Consideration to
Status of acquisition in Buyer
Tax to Buyer
Tax to Target
Reps/Warranties & Indemnity
Typical Transaction document
Transaction Costs
Typical Approvals
Timelines for completion
Bank financing
Shares OR Business ??
Share Purchase / Sale Business Transfer / Slump Sale
Shares by shareholders Undertaking / Assets by Target Co.
Shareholders Target Co
Subsidiary of Buyer Division within Buyer
Less efficient Favourable
Business losses cannot be claimed Consideration allocated to tax depreciable assets
No tax for Target Co Capital gains for Target Co
Capital gains for Target Shareholders No tax for shareholders
Company wide R&W / Indemnity Undertaking related R&W / Indemnity
SPA BTA
Lower Higher
Stamp Duty on SPA Stamp duty on BTA plus transfer of fixed assets
Land Transfer
Change of control (CoC), CCI Licenses, Leases, Registrations, CoC, CCI
Upto 3 months Upto 6 months
Restrictive Available
33
Strategy Into Action
IIM Udaipur
Strategic dilemmas
a. Subjects
b. Projects and Project Teams
c. Summer Internship- how to prepare
d. Skill sets for the future
e. Which industries to join
f. Will my work experience be valued?
g. Student loan and how to think about it?
h. Should I study more?
i. Should I turn entrepreneur?
j. Should I teach?
k. Relationship with my teachers and IIM U
Summary