Mergers & Acquisitions

3 big mistakes

Thursday October 22nd 2020

Joris Kersten, MSc BSc RAB
Kersten CF - Uden (The Netherlands)
Trainer/ Consultant

➢ Joris Kersten (1980);

➢ Independent M&A
consultant;
➢ Independent Trainer Globally
in Valuation and Financial
Modelling;
➢ Co-owner real estate DIY
sector;
➢ Trainer Financial Modelling at
AMT Training London, New
York and Hong Kong;
➢ Trainer Corporate Finance at
Leoron Institute Dubai/ UAE.
 Trainer/
Consultant
➢ Adjunct Lecturer Corporate Finance &
Accounting at: TIAS Business School,
Nyenrode University, Maastricht School
of Management (MSM);
➢ Adjunct Lecturer Corporate Finance &
Accounting at partner Universities of
MSM at: Peru/ Lima, Mongolia/
Ulaanbaatar, Surinam/ Paramaribo and
Kuwait/ Kuwait City.
➢ Education: MSc Strategic Management &
BSc Business Studies, both from Tilburg
University;
➢ Registered Advisor Business Acquisitions
– Tax & Legal (RAB);
➢ Degree to teach in Universities;
➢ Registered Valuator (RV) – Right now
following this education/ training myself.
Kersten Corporate ➢ Consulting in M&A and Valuation
Finance ➢ Training in Valuation and Financial Modelling
➢ Address: Gording 67 – 5406 CN Uden – The
www.joriskersten.nl Netherlands
www.kerstencf.nl
➢ Joris@kerstencf.nl / +31 (0)6 8364 0527
Face to face ➢ 6 days - Business Valuation & Deal
Structuring.
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joris@kerstencf.nl South (“Zuidas”)/ The Netherlands.
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➢ 6 days - Business Valuation &

Deal Structuring.

➢ 28, 29, 30, 31 October 2020 +

2, 3 November 2020.

➢ Location: Crown Plaza Hotel @

Amsterdam South (“Zuidas”)/
The Netherlands.
Early bird discount (registration
before 1st October 2020)

Course manual + registration form available

at: www.joriskersten.nl
Mergers & Acquisitions
3 big mistakes
Source used:
Why deals fail & how to rescue them (2016). The
economist books, London. Anna Faelten, Michel
Driessen, Scott Moeller. 9781781254530.
Introduction
Global M&A deal making broke the 5
trillion USD barrier in 2015. And this was
3.7 trillion USD in 2007. This according to
data on announced deals by ‘Dealogic’.
And the combined value of all M&A deals
from 1980 to the end of 2015 was almost
65 trillion USD.
Now the question is whether M&A deal
making hurts of helps business and the
economy overall?
Introduction
The answer is that M&A, when properly
done, drives corporate and economic
growth!
But the other way around is also true,
when poorly done, it can damage
business and the economy.
I will give you some more statistics on
success rates later on.
Introduction: The three
mistakes in M&A deal making
When Hewlett-Packard (HP) took over the
UK company called “Autonomy” in 2011
nobody predicted the disaster that would
follow post-deal.
Just 12 months after the deal HP was facing
write downs of 8.8 billion USD, nearly 80% of
the 11 billion USD they paid for the company
called “Autonomy”.
HP argued they were victim of fraud by
Autonomy’s management and its auditors,
blaming the losses on accounting failures.
Hewlett Packard (HP) and the
company called “Autonomy”
HP was founded in their famous garage in
Palo Alto (Silicon Valley) in 1939.
They were one of the core Silicon Valley
start-ups and later one of the biggest
manufacturers of computers.
In 2010 Mr. Leo Apotheker became CEO
(ex SAP) and the market was expecting
immediate acquisitions since HP’s share
price was suffering.
Hewlett Packard (HP) and the
company called “Autonomy”
The company “Autonomy” was a
Cambridge University spin-off, founded in
1996, and a success story.
HP announced a bid in 2011 of a
stunning 64% premium on the share
price of Autonomy.
Hewlett Packard (HP) and the
company called “Autonomy”
Autonomy was one of the fastest growing
software businesses in the world.
Their main product was the “Intelligent
Data Operating Layer” (IDOL), a highly
intelligent tool for indexing unstructured
data.
So HP bought the company at a record high
price, and most of this price was written
down withing two years after the deal.
Hewlett Packard (HP) and the
company called “Autonomy”
HP blamed the huge write offs on the
accounting practices of the acquired
company
But industry experts and analysts were
questioning the accounting practices of
Autonomy for years already.
So HP should have dealt with these
accounting issues in the due diligence,
both pre-announcement, and pre-
completion, of the deal.
Post-deal of the
Autonomy transaction
The decision to use acquisitions to buy
yourself into a certain strategic paths is
commonly used by companies.
But there are a number of alternatives of
M&A which should be evaluated as well.
And these could have been, for example
for HP, less risky.
Post-deal of the
Autonomy transaction
On top of that, when one believes M&A is
the right tool, than the decision for which
target company to go is also a tricky one.
Buyers need to find a target that is both a
strategic fit, and the target needs to be ‘in
the market’.
And it is possible that HP focused too much
on its target Autonomy, a common error for
buyers.
This since with this standpoint buyers lose
their bargaining power when negotiating the
final price.
Mistakes in M&A
Within the HP/ Autonomy deal many
mistakes took place.
But Mrs. Faelten, Mr. Driessen and Mr.
Moeller identified three overall mistakes
in M&A deal making.
They mentioned them in the book that I
have used as a source for this article:
Mistakes in M&A

1. Failure of planning;

2. Failure of communication;

3. Failure to properly consider the

impact of people.
Mistake one in M&A:
Planning
Let’s start with mistake one: Planning.
Using the HP example then we can
conclude that the acquisition of
Autonomy was a risky one, even for HP.
HP had a value of about 100 billion USD
and Autonomy about 11 billion USD at
the time of the acquisition.
Mistake one in M&A:
Planning
The target was magnified a lot because
HP based their future on the strategic
wins obtained by the transaction.
But when you do not have a clear,
detailed, well over thought, and
articulated deal strategy, the no planning
of the integration will be sufficient!
Mistake one in M&A:
Planning
Hubris will therefore be one of the most
common M&A pitfalls for business
leaders since underestimation of the
M&A integration task is easily done.
In subsequent blogs on this topic "M&A
success", I will talk with a lot more depth
about deal strategy & planning.
Mistake two in M&A:
Communication
HP’s failure to communicate the benefits
of the deal convincingly to their
stakeholders resulted in a significant fall
of their share price on the day of the
announcement.
The expected “synergies” should be
clearly communicated in the due
diligence phase!
And the 100-day integration plan should
be written when the deal is announced.
Mistake two in M&A:
Communication
Within the case of HP, a net present
value of 2.9 billion USD synergies were
expected.
This, amongst others, should justify the
24 times trailing EBITDA that was paid for
the enterprise.
On top of that, HP admired the culture of
Autonomy.
Mistake two in M&A:
Communication
But they did not truly understand this
culture, and they did not know how to
adopt it by HP’s other divisions.
All these issues need to be explained and
communicated well to the stakeholders
of the company.
Mistake three in M&A:
People
Poor communication and a lack of
understanding of the culture of
Autonomy led to the third failure:
• The appreciation of the value of people.
Autonomy’s culture was a culture that HP
wanted.
But they failed to learn, and lock in, the
more entrepreneurial culture of their
expensively bought target.
Additional issues in M&A
In the subsequent blogs on this topic;
"M&A success", I will talk with a lot more
depth about the above success factors
and issues.
And maybe you are surprised that “price
& value” have not come up yet as one of
the big mistakes in M&A.
Additional issues in M&A
Of course this is a (huge) issue, but "price
& value" are not part of the three big
mistakes in M&A.
Reason is that there is not such a thing as
the “right price of a deal”.
This since it really depends on the
buyer’s view of the financial future of the
target and the expected synergies.
Additional issues in M&A
So determining whether the price was
really right can only be done afterwards!
Have said this, ceteris paribus, the lower
the price paid, the more easy a
successful transaction can be achieved!
Success rates of M&As
Numerous studies from the 1980s and
1990s show failure rates in M&A of about
70% to 80%.
And more recent studies show failure
rates of about 50%.
But this still implies the high risk of
M&As and the need to understand what
drives M&A success!
Globally about 25.000 to 35.000 M&A
deals take place yearly.
Success rates of M&As
So they are not a rare phenomenon at
all!
In the subsequent blogs/ articles on this
subject I will study/ evaluate the success
factors of M&A more carefully.
This in order to come with some rules of
thumb that can help you when working
on, or being part of, M&A transactions!!
Source used

For this article I have used the handbook below

as a source.
The book is brilliant, and written by two
experienced EY M&A consultants and a
professor in Corporate Finance:
• Why deals fail & how to rescue them (2016).
The economist books, London. Anna Faelten,
Michel Driessen, Scott Moeller.
9781781254530.
Job vacancies
Introduction: Job vacancies
Kersten Corporate Finance (KCF) is a boutique
style corporate finance consulting firm
founded by Joris Kersten (1980) five years ago
in 2015.
The office of KCF is located in Uden, a middle
sized town in The Netherlands.
This at about 30 minutes by car east from city
Den Bosch and 30 minutes north of city
Eindhoven.
Job vacancies
Accidently founder Joris was asked to
provide training in Business Valuation,
Financial Modelling and Mergers &
Acquisitions in The Netherlands at banks
and financial institutions.
But soon (due to social media/ linkedin)
Joris was providing training in Corporate
Finance all over the world.
Job vacancies
This at the biggest (“bulge bracket”)
investment banks in New York, London,
Hong Kong and the Middle East.
And also at Universities over the globe,
for example in Peru/ Lima, Mongolia/
Ulaanbaatar, Surinam/ Paramaribo,
Kuwait/ Kuwait City etc. etc.
Job vacancies
Now due to Covid-19 flying/ travelling
came to a stop, so KCF decided to move
back to its core business:
➢Consulting/ deal making in M&As.
This for SMEs (small & medium sized
enterprises) in The Netherlands.
Job vacancies
Activities KCF:
➢Buy side M&A consulting of SMEs in The Netherlands;
➢Sell side M&A consulting of SMEs in The Netherlands;
➢Business Valuations in The Netherlands/ Globally;
➢Financial Modelling in The Netherlands/ Globally;
➢Attracting financing (banks loans/ private equity) in The
Netherlands;
➢Providing a 6 day valuation training 2 times a year in
The Netherlands. During spring at town: Uden and
during Autumn at Amsterdam South (Zuidas).
Job vacancies
1 or 2 Corporate Finance analysts needed
Note: Analyst needs to be fluent in Dutch with
both speaking and writing (this on top of
English).
KCF works mainly for Dutch clients with
annual reports and documents in the Dutch
language which makes being fluent in Dutch
an absolute must!
For increased work in M&A consulting KCF is
looking for 1 or 2 Corporate Finance analysts.
Their work will consist out of:
Job vacancies
➢Conducting business valuations in Microsoft excel
for SMEs in The Netherlands. Think of valuation
with “multiples”, discounted cash flow valuation
(DCF) and leveraged buyout analysis (valuation with
check on internal rate of return (IRR) with certain
financing structure);
➢Writing “information memoranda” for sell-side
M&A projects;
➢Searching and selecting candidate buyers (e.g.
strategic parties, private equity parties etc.);
➢Searching and selecting candidate sellers (target
M&A companies);
Job vacancies
➢Providing (helping with) corporate finance
input to Letters of Intent (LOIs);
➢Providing (helping with) corporate finance
input to Share Purchase Agreements (SPAs);
➢Providing (helping with) corporate finance
input for fiscal issues (tax issues in M&A);
➢Coordinating (helping with coordinating)
due diligence.
Job vacancies
Characteristics of the Corporate Finance analyst
For this job you need to possess or have the following
characteristics:
➢A Master of Science (MSc) degree in Finance or
Accounting;
➢0 to 3 years working experience in Corporate Finance.
So you either come straight from University with a
master in Finance/ Accounting, or you have a few years
working experience in Corporate Finance;
➢A past internship in M&A at an Investment Bank, M&A
boutique or Corporate Finance department of an
Accounting firm or corporate is a pre;
➢Extra-curricular activities conducted within the field of
M&A and/ or Corporate Finance is a pre;
Job vacancies
➢Financial Modelling skills in excel is a pre. But a basic
understanding of Microsoft Excel is enough (you will
learn financial modelling with keyboard excel shortcuts
on the job);
➢Skills to build presentations in power point is a pre. But
a basic understanding of building presentations is
enough (you will learn these skills on the job);
➢Excellent writing skills in both Dutch and English;
➢Excellent speaking skills in both Dutch and English;
➢Living within 45 minutes from town Uden (office
location KCF) is an absolute must since M&A is still
“people business”. So you need to be able to attend at
face to face meetings in Uden very regularly (e.g.
negotiations, client meetings, discussing deal structures
with colleagues etc.).
Job vacancies
What you will get:
➢With this job you will start off with a free 6 day valuation
training of KCF to learn advanced modelling and valuation
skills for the job (training takes place in Spring or Autumn);
➢Market based salary;
➢Bonus based salary based on M&A deal flow;
➢Ability to grow in this relatively young and very ambitious
M&A boutique;
➢Working in a team with high class Investment Banking
valuation techniques with focus on SMEs in The
Netherlands;
➢Working in a highly entrepreneurial team and possibilities to
grow up to ‘partner’ when you work hard and show right
characteristics (e.g. analytical skills, communication skills,
networking skills, entrepreneurial mindset).
Job vacancies
Process of application:
Please write your motivation letter to: joris@kerstencf.nl
Please just type your motivation in the email itself, so no
attachments.
And please provide the link to your LinkedIn profile, so please
no curriculum vitae in attachment, but just link to your
LinkedIn page.
Suitable candidates will be contacted in October/ November
2020.
And the first acquaintance meeting will take place in
December 2020. This face to face at the office of KCF in Uden/
The Netherlands.
Second meeting will take place in January 2021. This face to
face at the office of KCF in Uden/ The Netherlands. And
potentially a third meeting will take place in February 2021.
Starting date job: Quarter 2 of 2021.
Job vacancies
Office KCF at Uden/ The Netherlands.
www.joriskersten.nl
 Do not hesitate to contact me with
End any questions:

Any Questions ??
➢Joris@kerstencf.nl
Contact
Details

Kersten Corporate Finance

Joris Kersten
Joris@kerstencf.nl
+31 (0)6 8364 0527
www.joriskersten.nl

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