1 Ddim 2019 Slides Gimede PDF

DDIM
2020
MERGERS AND ACQUISITIONS
M&A (I): Introduction to Firm Growth and Value
Creation
M&A (II): How To Value a Target
M&A (III): The M&A Process
M&A (IV): Review of 2018 M&A Activity and
Outlook for 2019
Docente Gimede Gigante
VALUATION OF A TARGET: MAIN EVIDENCES FROM M&A TRANSACTIONS
M&A (I): Introduction to Firm Growth
and Value Creation
18
(I) Introduction to Firm Growth and Value Creation
– Definition of M&A
– Takeover Methods
– A Classification Scheme of M&A
– Sensible reasons for mergers
– Dubious reasons for mergers
– Valuation of a Target: Main Evidences from M&A Transactions
Docente Gimede Gigante 2
How to Grow?
Growth Strategies
Growth
Internal / Organic External
 Increase production capacity  M&A Transactions
 Expand distribution platforms ―Mergers
 Innovation / Product mix ―Acquisitions
 Commercial Strategy / ―JVs
Marketing
 M&A is an alternative form of investment to fuel the growth of a company with respect to organic /
internal development. Selection between the two alternatives should be based on cost benefit analysis
and execution risks assessment (“Make or Buy” decisions).
What is M&A?
M&A is a Broad Term Encompassing Various Types of Transactions
M&A can be considered any process where the ultimate beneficial ownership, and the
respective control of a firm, are transferred from a subject (or a group of subjects) to another
Acquiring Company Acquired Company
Acquires Control Loses Control
Bidder Target Seller(s)

Consideration
Various Dimensions of the M&A Transactions
Objectives Consideration Financing Status of the Target
 Strategic: Bidder is a  Statutory Merger: Target is  Cash: Bidder pays  Debt Financing:  Private: Target is sold

corporate which executes merged into Bidder and Seller(s) in cash Consideration is financed through a private
the M&A transaction to ceases to exists through cash on balance transaction, between
accomplish its own  Equity: Bidder pays sheet or raising debt Bidder and Seller(s)
 Acquisition of Target: Target
corporate objectives Seller(s) with its own
continues to exists as a  Public (Tender Offer):
shares, in exchange of  Equity Financing:
subsidiary of the bidder A public offer to buy
 Financial: Bidder is a the shares of the Consideration is financed
Financial Investor (PEs,  Acquisition of Assets: Target raising equity (e.g. Right shares is made by the
HFs, the management Target’s Assets transferred Issue) Bidder directly to Target’s
etc.) looking for a to the Bidder  Mixed: Bidder pays shareholders
targeted financial return Seller(s) with a mix of
cash and of its own
shares
• An M&A transaction can be shaped in various forms, with different characteristics, depending on the combination of
the above options
The process of an Acquisition
Friendly Acquisition ‐‐ The managers of the target firm welcome
the acquisition and, in some cases, seek it out
Hostile Acquisition ‐‐ The target firm’s management does not want
to be acquired. The acquiring firm offers a price higher than the
target firm’s market price prior to the acquisition and invites
stockholders in the target firm to tender their shares for the price
Method of Payments:
Cash offering -- It may be cash from existing acquirer
balances or from a debt issue.
.
Securities offering ‐‐ Target shareholders receive shares
of common stock, preferred stock, or debt of the
acquirer. The exchange ratio determines the number of
securities received in exchange for a share of target
stock.
Merger Transactions
Cash only
Stock only
Cash and securities
Other securities
Based on data from Mergerstat Review, 2016. FactSet Mergerstat, LLC (www.mergerstat.com).
A Classification Scheme of M&A
• Horizontal Merger:
– combinations of two (2) firms in the same line of business:
• ex. Bank of America’s acquisition of Merrill Lynch;
• Adidas and Reebok
• Vertical Merger:
– between companies operating in different stages of production:
• ex. Tele Atlas bought by Tom Tom;
• BskyB and Amstard
• Conglomerate Merger:
– between companies operating in unrelated businesses;
• ex. AOL’s – Time Warner;
– much less popular now
Sensible reasons for mergers
• Economies of scale:
– a larger firm may be able to reduce its per‐unit cost by using excess capacity or
spreading fixed costs across more units;
– natural goal of horizontal mergers;
• Economies of vertical integration:
– occurs with a merger between a firm and one of its suppliers/customers;
– control over suppliers «may» reduce costs and increase efficiency;
– eases the firm’s coordination and administration;
– over‐integration can cause the opposite effect;
• Complementary resources:
– merging may results in each firm filling in the «missing pieces» of their firm with pieces
from the other firm
– each firm has what the other one needs;
Sensible reasons for mergers
• Surplus funds:
– if the firm is in a mature industry with few, if any, positive NPV projects available, acquisition may be
the best use of funds;
– firm with a cash surplus and a shortage of profitable investment opportunities often turn to cash‐
financed mergers as a way of redeploying their capital;
• Eliminating inefficiencies:
– cost cuts generate increases in sales and earnings;
– firms with unexploited opportunities to cut costs/increase sales and earnings are natural candidates
for acquisitions by other firms with better management;
• Industry consolidation:
– industries with too many firms and too much capacity usually trigger waves of M&A;
Dubious reasons for mergers
• Diversification:
– easier/cheaper for stockholders than for the firm itself;
– investors should not pay a premium for diversification since they can do it themselves;
– value additivity principle;
• The «Bootstrap Game»:

– acquiring firm has high P/E ratio;
– selling firm has low P/E ratio (due to low number of shares);
– after merger, acquiring firm has short‐term EPS rise;
– long‐term acquirer will have slower than normal EPS growth due to share dilution.
(I) Firm growth & value creation
Firm growth & value creation
Valuation of a Target: Main Evidences from
M&A Transactions
• Firms that grow through acquisitions have generally had far more trouble creating value than firms
that grow through internal investments
• In general, acquiring firms tend to:
1. Pay too much for target firms
2. Over estimate the value of “synergy” and “control”
3. Have a difficult time delivering the promised benefits
• Worse still, there seems to be very little learning built into the process. The same mistakes are
made over and over again, often by the same firms with the same advisors
Conclusion:
There is something structurally wrong
How to Value a Target: Valuation Methods in Context
M&A (II): How To Value a Target
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(II) How to Value a Target: Valuation
Methods in Context
a. Main Valuations in M&A Context
b. How to value Synergies
c. How to value Premium for the Control
M&A Transactions
• Objective of the Bidder approaching the valuation exercise is to define a fair value
for the target company
• Objective of the target is to define a price at which it is willing to sell
• Valuation is an intellectual exercise, whose role is the support to the negotiations
around the price of a M&A transaction
 M&A prices may differ from theoretical stand‐alone valuations due to certain
factors affecting bid‐ask spread dynamics
– Competitive pressure
– Synergies
– Management change effects / Restructuring plans
M&A Transactions
Valuation
Methodology Description/Focus Pros Cons
DCF  Present value of expected  Detailed forecast analysis × Heavily reliant on
cash flows  Analyses the drivers of the assumptions
 Firm vs. equity valuation value of a company × Labor / data intensive
× “Blue sky” scenario
Trading Multiples  Based on multiples of key  Simpler, commonly used × Assumes full efficiency of

financial / physical metrics methodologies financial markets
of a set of companies  Easy to present × Lack of transparency
 Market‐based regarding assumptions
Transaction  Based on multiples paid in  Easy to present × Potential non‐compatibility

Multiples analogue M&A  Incorporates synergies and across transactions
transactions in the past control‐premium × Subject to cyclicality of
multiples paid in different
market conditions
Valuation Methodologies: DCF
The “Guts” of DCF Analysis
3. Terminal Value
1. Determination of  Extrapolation and
Free Cash Flows discounting of free cash
 Value of business in flows after the end of the
projection period DCF Analysis projection period
 Otherwise, likely “sale
price” at the end of the
projections period
2. Calculation of Discount Rate
 Incorporates time value of
money
 WACC vs. equity cost of
capital
DCF Analysis – Key Consideration
Methodology Description Main Applications
 Intrinsic value of a business' cash  Project with finite life (10y versus 5y)
flows on a risk adjusted basis  Stable, low growth, predictable and
 Takes into account time value of not cyclical business/cash flows
money
Typical Uses Challenges
 How much could buyer pay?  High growth or start‐up firms and
 How much should seller want? other situations where majority of
 Allows us to perform "what if?" value lies outside projection period
scenario analysis and not yet in steady state
 Troubled or loss making firms
Valuation Methodologies: Trading
Multiples
Trading Multiples
Generalist Multiples
Wideness of
Multiple Pros Cons Application
Price/Earnings  Traditional, more intuitive, linked to actual return × Earnings can be very volatile
for shareholders × Dependent on accounting standards
 Truly represents equity investor point of view × Dependent on capital structure
× Earnings can be negative
EV/EBITDA  Takes into account × Does not consider below EBITDA items

profitability of the company which may drain cash and may be
 Not subject to differences in non‐cash recurring (e.g. Taxes)
depreciation accounting (vs. EBIT) × Exposed to accounting policy decisions
 Not subject to capital structure (e.g. capitalized costs)
 Proxy cash generation (before working capital
dynamics)
EV/Sales  Sales cannot be negative, applicable in case of × Does not take into account profitability

negative profitability × Does not take into account capital
(only in certain
 Comparable across all firms structure sectors)
Growth  Usually applied on Earnings or EBITDA × Used only to a certain extent, based on

Adjusted  Proxy for DCF unusual L‐T growth expectations
Multiples
 Allows to price growth expected into multiple
levels
Basic Construction of a CSC (Common Stock
Comparison)
 Selected group of listed company “comparables” (same sector, size, business mix, geography, etc)
 Fundamentally a ratio analysis
 Compare valuation measure (numerator) to the company’s performance measure (denominator)
 Usually calculated on expected (future) company’s performance measure
 Consistency in applying these measures is extremely important
 Equity Value/Equity Market Cap
Valuation
 Enterprise Value/Levered Market Cap
 Revenue  Growth Adjusted
Performance  EBITDA / EBIT  Cash Flow
 Earnings
Valuation Methodologies: Transaction
Multiples
Description
 A summary of acquisition transactions in a particular industry that helps
ascertain the value of a business in the market
(Deal comparison)
Definition
 Based on public information available on announcement date
 Similar to the Trading Multiples method, however the two methods differ
significantly
Value a Business Ascertain Sector Conditions
 Determine relevant sector  Determine demand for business
valuation metrics types
Goals
 Identify multiples paid in similar  Identify acquisitive companies in a
transactions sector
 Facilitate discussion of specific  Facilitate discussion of industry
deals/multiples trends
Practical Issues
 Relevance
— Similarity of the targets (industry/sector, growth profile,
margin profile, business risk)
— Similarity of the transaction (buyer demand/competition,
strategic vs. financial buyer, synergies, transaction
structure, cash vs. stock)
— Relevant time period and sufficient amount of information
available
Transaction vs. Trading Multiples
 Theoretically, Transaction Multiples should denote higher
multiples paid by the acquirer because the transaction
consideration should include the premium paid (valid for
strategic buyers)
— Transaction Multiples give a sense of an industry’s level of
activity, typical premia paid, etc.
 Transaction Multiples allow to include private, non‐listed
companies (eliminating the shorcomings of listed companies:
such as Larger size and higher liquidity)
 Transaction Multiples can be influenced by the acquisition
currency (cash vs. stock)
Methods in Context
c. How to value Premium for the
Control
The value of Synergies
What is synergy?
Synergy is the additional value that is generated by combining two firms,
creating opportunities that would not been available to these firms operating
independently:
 Operating synergies
– affect the operations of the combined firm and include economies of
scale, increasing pricing power and higher growth potential. They
generally show up as higher expected cash flows
 Financial synergies
– are more focused and include tax benefits, diversification, a higher
debt capacity and uses for excess cash. They sometimes show up as
higher cash flows and sometimes take the form of lower discount
rates
Valuing Operating Synergies
 (a) What form is the synergy expected to take?
– Will it reduce costs as a percentage of sales and increase profit
margins (as is the case when there are economies of scale)? Will it
increase future growth (as is the case when there is increased market
power)?
 (b) When can the synergy be reasonably expected to start affecting
cashflows?
– Will the gains from synergy show up instantaneously after the
takeover? If it will take time, when can the gains be expected to start
showing up?
Financial Synergy
 1. Tax Benefits
– can arise either from the acquisition taking advantage of tax laws to
write up the target company’s assets or from the use of net operating
losses to shelter income
 2. Debt Capacity
– It can increase, because when two firms combine, their earnings and
cash flows may become more stable and predictable. This, in turn,
allows them to borrow more than they could have as individual
entities, which creates a tax benefit for the combined firm. This tax
benefit usually manifests itself as a lower cost of capital for the
combined firm
How WACC curves may shift
Stand alone limits
WACC
WACC
Debt/ Debt/
Effects of Debt + Equity
Optimum Debt + Equity
coinsurance
• Investors may be able to optimize WACC on their own, through homemade leverage…
• … but the combination of buyer + target does not always trigger positive shifts in
WACC!!
• 3. Excess cash (or cash slack)
– A company with limited project opportunities and a firm with high‐
return projects (and limited cash) can yield a payoff in terms of higher
value for the combined firm. This synergy is likely to show up most
often when large firms acquire smaller firms, or when publicly traded
firms acquire private businesses
With financial synergies, the payoff can take the
form of either higher cash flows or a lower cost
of capital (discount rate) or both
A procedure for valuing synergy
(1) the firms involved in the merger are valued independently, by discounting
expected cash flows to each firm at the weighted average cost of capital for
that firm
(2) the value of the combined firm, with no synergy, is obtained by adding the
values obtained for each firm in the first step
(3) The effects of synergy are built into expected growth rates and cashflows,
and the combined firm is re‐valued with synergy
Value of Synergy =
Value of the combined firm, with synergy –
Value of the combined firm, without synergy
Methods in Context
c. How to value Premium for the
Control
The Value of Control
The value of control should be inversely proportional to the
perceived quality of that management and its capacity to
maximize firm value
• Value of control will be much greater for a poorly managed
firm that operates at below optimum capacity than it is for a
well managed firm
» Value of Control = Value of firm, with
restructuring ‐ Value of firm, without
restructuring
Common Errors in Valuing Synergy
a. Target Firm Stockholders
 Acquiring firms should follow a simple rule when it comes to
value. They should not render unto target firm stockholders
premiums for items or strengths that these stockholders had
no role in creating. A fair sharing of synergy should leave the
acquiring firm’s stockholders with at least some of the
incremental value from synergy
b. Mixing Control and Synergy
– Synergy requires two entities (firms, businesses, projects) for its
existence and is created by combining the two entities.
– Control, on the other hand, resides entirely in the target firm and does
not require an analysis of the acquiring firm (or its valuation)
 If both control and synergy are motives in the same acquisition, it is best
to assess their values separately. In fact, the value of control should be
estimated first by valuing the target firm twice, once on a status quo basis
(with existing management) and once with the changes that are intended
in how the company is run.
 Once the value of control has been estimated, the value of synergies can
be estimated
c. Wrong Discount Rate
 Cash Flows generated by synergy accrue to the combined firm
and not to the target or acquiring firm separately. We should
be using the combined firm’s cost of equity and/or capital to
discount these cash flows. In many acquisitions, the cash flows
from synergy are discounted at either the acquiring firm or the
target firm’s cost of equity/capital
 Analysts often Discount Tax Savings that arise as a
consequence of acquisitions at the riskless rate. Cash flows
generated by synergy are never riskless and using the riskless
rate to discount cash flows is inappropriate
M&A (III): The M&A Process
Learning Objectives
• Primary Learning Objective: To provide
students with a knowledge of the M&A deal
structuring process: seven common evidences
• Secondary Learning Objectives: To enable
students to understand
– the primary components of the process,
– payment considerations, and
– (some) legal considerations
Growing through acquisitions seems to be
a “loser’s game”
• Firms that grow through acquisitions have generally had far more trouble
creating value than firms that grow through internal investments
• In general, acquiring firms tend to:
i. Pay too much for target firms
ii. Over estimate the value of “synergy” and “control”
iii. Have a difficult time delivering the promised benefits
• Worse still, there seems to be very little learning built into the process.
The same mistakes are made over and over again, often by the same
firms with the same advisors
Conclusion:
There is something structurally wrong with the process for acquisitions which
is feeding into the mistakes
46
Some lessons from acquisitions…
1. Risk Transference: Attributing acquiring company risk
characteristics to the target firm
2. Debt subsidies: Subsiding target firm stockholders for the
strengths of the acquiring firm
3. Auto‐pilot Control: The “20% control premium” and other
myth…
4. Elusive Synergy: Misidentifying and mis‐valuing synergy
5. Its all relative: Transaction multiples, exit multiples…
6. Verdict first, trial afterwards: Price first, valuation to follow
7. It’s not my fault: Holding no one responsible for delivering
results
47
Lets start with a target firm
• The target firm has the following income statement:
Revenues 120
Operating Expenses 100
= Operating Income 20
Taxes 8
= After‐tax OI 12
• Assume that this firm will generate this operating
income forever (with no growth) and that the cost of
equity for this firm is 20%. The firm has no debt
outstanding. What is the value of this firm?
48
Test 1: Risk Transference…
• Assume that as an acquiring firm, you are in a
much safer business and have a cost of equity
of 10%. What is the value of the target firm to
you?
49
Lesson 1: Don’t transfer your risk
characteristics to the target firm
• The cost of equity used for an investment
should reflect the risk of the investment and
not the risk characteristics of the investor
who raised the funds
• Risky businesses cannot become safe just
because the buyer of these businesses is in a
safe business
50
Test 2: Cheap debt?
• Assume as an acquirer that you have access
to cheap debt (at 4%) and that you plan to
fund half the acquisition with debt. How
much would you be willing to pay for the
target firm?
51
Test 2: Cheap debt?
Target Firm Stockholders
I. An acquiring firm with a high debt rating acquires a target firm with
a much lower debt rating. Assume, for purposes of this illustration,
that the after‐tax cost of debt for the acquiring firm is 4% and that
of the target firm is 6% and that the debt ratio of the latter is 25%.
In computing the cost of capital for the target firm, the analyst
decides to use the acquiring firm’s cost of debt, arguing that the
acquisition will be funded with new debt at the lower cost. The
lower cost of capital (arising from replacing the target firm’s cost of
debt with the acquirer’s lower cost of debt) will result in a higher
value for the target firm. Why should target firm stockholders, who
played no role in the acquiring firm’s higher rating, be paid a
premium for that higher rating? Paying this higher value would
result in a transfer of wealth from the acquiring firm’s stockholders
to the target firm’s stockholders
Lesson 2: Render unto the target firm that
which is the target firm’s but not more..
• As an acquiring firm, it is entirely possible that
you can borrow much more than the target firm
can on its own and at a much lower rate. If you
build these characteristics into the valuation of
the target firm, you are essentially transferring
wealth from your firm’s stockholder to the
target firm’s stockholders.
• When valuing a target firm, use a cost of capital
that reflects the debt capacity and the cost of
debt that would apply to the firm
53
Test 3: Control Premiums
 Assume that you are now told that it is conventional to pay a 20%
premium for control in acquisitions (backed up by Mergerstat).
How much would you be willing to pay for the target firm?
 Would your answer change if I told you that you can run the target
firm better and that if you do, you will be able to generate a 30%
pre‐tax operating margin (rather than the 20% margin that is
currently being earned).
 What if the target firm were perfectly run?
54
Lesson 3: Beware of rules of thumb…
• Valuation is cluttered with rules of thumb. After
painstakingly valuing a target firm, using your
best estimates, you will be often be told that
– It is common practice to add arbitrary premiums for
brand name, quality of management, control etc…
– These premiums will be often be backed up by data,
studies and services. What they will not reveal is the
enormous sampling bias in the studies and the
standard errors in the estimates
– If you have done your valuation right, those
premiums should already be incorporated in your
estimated value. Paying a premium will be double
counting
55
Test 4: Synergy….
 Assume that you are told that the combined firm will be less risky
than the two individual firms and that it should have a lower cost
of capital (and a higher value). Is this likely?
 Assume now that you are told that there are potential growth and
cost savings synergies in the acquisition. Would that increase the
value of the target firm?
 Should you pay this as a premium?
56
Synergy: More on
Tax Benefits
• Assume that you are the Acquirer, and that you would like to
buy a target firm that has net operating losses of $ 2 billion. If
your tax rate is 36%, estimate the tax benefits from this
acquisition.
• If the Acquirer had only $500 million in taxable income, how
would you compute the tax benefits?
• If the market value of the Target is $800 million, would you
pay this tax benefit as a premium on the market value?
57
Lesson 4: Don’t pay for buzz words
• Through time, acquirers have always found
ways of justifying paying for premiums over
estimated value by using buzz words ‐ synergy
in the 1980s, strategic considerations in the
1990s and real options in this decade
58
Test 5: Comparables and Exit Multiples
• Now assume that you are told that an analysis of other
acquisitions reveals that acquirers have been willing to pay 5
times EBIT.. Given that your target firm has EBIT of $ 20
million, would you be willing to pay $ 100 million for the
acquisition?
• What if I estimate the terminal value using an exit multiple of
5 times EBIT?
• As an additional input, your investment banker tells you that
the acquisition is accretive. (..remember BOOTSTRAP
GAME…)
59
Biased samples = Poor results
Biased samples yield biased results. Basing what you
pay on what other acquirers have paid is a recipe for
disaster. After all, we know that acquirer, on average,
pay too much for acquisitions. By matching their
prices, we risk replicating their mistakes
Even when we use the pricing metrics of other firms in
the sector, we may be basing the prices we pay on
firms that are not truly comparable
When we use exit multiples, we are assuming that
what the market is paying for comparable companies
today is what it will continue to pay in the future
60
Lesson 5: Don’t be a lemming…
• All too often, acquisitions are justified by using the following argument:
– The value of a target firm is based upon what others have paid on
acquisitions, which may be much higher than what your estimate of value for
the firm is
• With the right set of comparable firms, you can justify almost any price
• And EPS accretion is a meaningless measure. After all, buying an company with a
PE lower than yours will lead mathematically to EPS accretion but the Market?
61
Test 6: The CEO really wants to do this… or
there are competitive pressures…
• Now assume that you know that the CEO of the
acquiring firm really, really wants to do this
acquisition and that the investment bankers on
both sides have produced fairness opinions that
indicate that the firm is worth $ 100 million.
Would you be willing to go along?
• Now assume that you are told that your
competitors are all doing acquisitions and that if
you don’t do them, you will be at a
disadvantage? Would you be willing to go along?
62
Lesson 6: Don’t let egos or investment
bankers get the better of common sense…
• If you define your objective in a bidding war as winning the auction
at any cost, you will win but….
• The premiums paid on acquisitions often have nothing to do with
synergy, control or strategic considerations (though they may be
provided as the reasons). They may just reflect the egos of the
CEOs of the acquiring firms. There is evidence that “over
confident” CEOs are more likely to make acquisitions and that they
leave a trail across the firms that they run
• Pre‐emptive or defensive acquisitions, where you over pay, either
because everyone else is overpaying or because you are afraid that
you will be left behind if you don’t acquire are dangerous
63
Test 7: Is it hopeless?
• If you were to create a strategy to grow, based
upon acquisitions, which of the following
offers your best chance of success?
This Or this
Sole Bidder Bidding War
Public target Private target
Pay with cash Pay with stock
Small target Large target
Cost synergies Growth synergies
64
Better to lose a bidding war than to win
one…
Returns in the 40 months before & after bidding war

65 & Peters (2011)
Source: Malmendier, Moretti
You are better off buying small rather than
large targets… with cash rather than stock
• Note that the larger the target, the greater the
negative returns…
• And cash acquisitions tend to do better than
stock acquisitions, at least for big acquisitions
(target company stockholders in big
acquisitions are more likely to be suspicious
about the use of stock as currency)
• For small acquisitions, the reverse is true..
66
You are better off buying small rather than
large targets… with cash rather than stock
67
And focusing on private firms and
subsidiaries, rather than public firms…
68
Growth vs Cost Synergies
• Cost savings synergies are more likely to be
realized than growth synergies. Here are some
reasons why:
– They are more concrete and more likely to
therefore be put down on paper
– It is easier to hold some one responsible for
delivering cost savings
– It is easier to track how close you are to your
forecasts
69
Growth vs Cost Synergies
70
Synergy: Probability of success
Studies that have focused on synergies have concluded
that you are far more likely to deliver cost synergies
than growth synergies
Synergies that are concrete and planned for at the
time of the merger are more likely to be delivered than
fuzzy synergies
Synergy is much more likely to show up when
someone is held responsible for delivering the synergy
You are more likely to get a share of the synergy gains
in an acquisition when you are a single bidder than if
you are one of multiple bidders
71
Lesson 7: For acquisitions to create value, you have to
stay disciplined…the importance of a good Deal
Structuring Process
1. If you have a successful acquisition strategy, stay focused on that
strategy. Don’t let size or hubris drive you to “expand” the
strategy
2. Realistic plans for delivering synergy and control have to be put in
place before the merger is completed. By realistic, we have to
mean that the magnitude of the benefits have to be reachable
and not pipe dreams and that the time frame should reflect the
reality that it takes a while for two organizations to work as one
3. The best thing to do in a bidding war is to drop out
72
CONCLUSIONS:
M&A performance
Do M&As create or destroy value?
– Abnormal returns upon announcement are on average
positive for the target but negative for the bidder
• But they depend on the method of payment, the listing status,
etc..
– Bidders undeperfom in the long‐run
M&A is a complex process, its success depends on
many factors:
– Bidder experience; target selection; discipline in execution
– Value and likelihood of the synergies
– Integration plan
Things to Remember…
• M&A’s Activities
– takeover methods
– types of merger
– mechanics: tax & accounting issues;
– motives: sources of value added;
– dubious motives: don’t be tempted;
– A consistent valuation of the Target is crucial
Docente Gimede Gigante
If you can’t convince them,
confuse them.
—Harry S. Truman
M&A (IV): Review of 2019 M&A

Table of Contents
I. Global 2018 M&A Review

II. EMEA and Italy 2018 M&A Review
1
I. Global 2018 M&A Review
Recent M&A Trends
2018 was the 3rd  At $4.2 trillion, 2018 was the third most active year for M&A, behind 2007 ($4.6 trillion) and 2015 ($4.4 trillion)
most active year for  Activity slowed in the second half after a robust first half
M&A on record  M&A as a proportion of market capitalization remained below the long-term average
 There were 45 deals greater than $10 billion announced in 2018, compared to 30 in 2017 driven by deal
Large deal activity announcements in the first half
accelerated  Transactions greater than $10 billion accounted for 25% of total volume
Slowdown in activity  1H 2018 was the most active first half since 2007, with $2.4 trillion in announced volume
in the second half  By comparison, 2H 2018 was the slowest second half since 2013, with $1.8 billion in volume
 Natural Resources and TMT transactions accounted for nearly half of total announced volume and 43% of
Natural Resources deals greater than $500 million
and TMT drove M&A  14 of the 20 largest deals announced this year fell in one of the two sectors
Most transactions
 Transactions involving cash accounted for nearly three quarters of total volume
involved cash
 14 of the 20 largest deals announced this year involved cash consideration
consideration
Private equity and  There was nearly $1 trillion of M&A involving financial sponsors in 2018, accounting for nearly 25% of activity
other buyers are  There are record amounts of dry powder available for investment
poised to step in  The return of joint bids and new sources of capital, including SPACs and family offices, may drive activity
Cross-border M&A  Cross-border M&A accounted for 35% of total activity in line with prior years
remains major driver  Cross-border volume totaled nearly $1.5 trillion in 2018, up from $1.2 trillion in 2017
Restructuring
 Divestitures and spinoffs continue to be a significant component of M&A activity
activity was a big
 Activists, among others, have been a driving force behind some of this activity
component of M&A
Activists continue  30 of the 100 largest public target deals in 2018 involved an activist in the target or acquiror’s stock prior to
to have major role announcement
in M&A  Activists have increasingly played a role in M&A, whether pushing for a sale or opposing an announced deal
3
Outlook for M&A in 2019
Tailwinds Headwinds
+ Expectations of continued global – Deal multiples remain expensive
economic growth – Increasing number of failed sell-sides
+ The effects of corporate tax reform on – Cost of capital is increasing as interest
M&A activity have been very positive rates continue to rise
+ Repatriation of offshore cash has led – Leverage multiples for acquisitions are
to more available capital for declining amid challenging high yield
acquisitions market conditions
+ Equity market valuations remain high – Expectations of slowing GDP and
despite recent volatility corporate growth
+ Shareholder activists continue to push – Global geopolitical risk
for M&A activity
– Regulatory environment continues to
+ Continued unsolicited private be uncertain
approaches
– CEO confidence is in decline
Global 2018 M&A Review 4

2018 Was the Most Active Year for M&A Since
2015…
Natural Resources and TMT were the Biggest Drivers of M&A Activity Top 20 Deals - 2018
Target Acquiror $ bn Industry
$4,449
$4,159 Shire Takeda Pharma $81.5 Healthcare
Express Scripts Cigna 69.8 Healthcare

24% $3,717 Energy Transfer
$3,504 ETP - 97.7% 59.6 Nat Res
26% Equity
Sprint T-Mobile US 59.6 TMT
24%
12% 22% innogy E.ON 54.4 Nat Res
10%
Sky (Bid No 2) Comcast 53.3 TMT
12%
16% Red Hat IBM 36.7 TMT
19%
22% Andeavor Marathon Petroleum 35.6 Nat Res
27% 19% Altice USA - 48.9% Shareholders; Next 29.8 TMT

11%
14% Abertis Infra - 42.9% Atlantia 29.7 Industrial
11% 14% EDP - 76.7% China Three Gorges 27.5 Nat Res
12%
12% Dr Pepper Snapple Keurig Green
11% 27.3 Consumer
11% 8% Group Mountain
8% 7% 8% Dell Tech - 26% Dell Tech 23.9 TMT
12% 11%
9% 8% Unitymedia and others Vodafone 21.8 TMT
2015 2016 2017 2018 Ant Small & Micro - 33% Alibaba Group 19.8 TMT
CA Broadcom 18.9 TMT
Consumer Financial Institutions L3 Technologies Harris 18.7 Industrial

Healthcare Industrial Financial & Risk US - Blackstone and
17.5 TMT
Natural Resources Real Estate 55% others
Technology, Media & Telecom Wind Tre - 50% CK Hutchison 16.3 TMT
Altaba - 24.4% Share repurchase 16.3 FIG

Source: Dealogic, $ in billions

… Due to Increased “Big Deal” Activity
One-Quarter of Total 2018 Announced Volume Was Due to Deals Over $10 billion…
13% 12% 14% 15% 19%

% of Global M&A Volume
24% 20% 23% 25%

10% 12% 9% 32%
10%
12% 13% 13%
12% 13%
33% 31% 33% 31% 11%
25% 30% 29% 30%
25% 31%
39% 44% 45% 45% 43% 38% 38%

31% 36% 32%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
<$1bn $1 - $5bn $5 - $10bn $10bn+
…While Americas-Targeted M&A Accounted for Nearly Half of Overall Volume

31% 31% 31% 30% 29% 25% 25% 27% 29%

34%
21% 25% 24% 27%

23% 24% 21% 22% 24%
23%
46% 45% 48% 48% 50% 51% 51% 46% 47%

43%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Americas EMEA Asia
Source: Dealogic

The Bulk of M&A Activity…
…Involved Cash Consideration…
21% 19% 20% 22% 20% 22%

29% 25% 26% 23%

8% 9% 14%
8% 7% 20% 14% 14%
12% 21%
67% 71% 71% 68% 64% 66% 64%

59% 60% 55%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Cash Cash & Stock Stock
…While Activity Was Largely Driven by Strategic Buyers1

4% 4% 2% 4% 4% 2%
1% 2% 9% 10% 12% 9% 6%
% of $ Volume of $1bn+ Deals
1% 2% 7% 12% 5% 3%
13% 6% 3% 5%
7% 10% 4%
3% 10% 1% 5% 2%
29% 9% 4% 4% 5%
5% 2% 25% 22% 6%
33% 4%
25% 3% 27% 32%
37% 28%
49%
63% 58% 60%
51% 51% 49% 47%
37% 44%
20%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Corporate / Corporate Divestiture - Corporate Buyer Divestiture - LBO Buyer Public to Private Spin-off Other
Source: Dealogic
¹ U.S. targeted deals >$1 billion. Other includes negotiated share repurchases and rescues

After a Record First Half, M&A Activity Slowed
Significantly in the Second Half of 2018
$ 4,625 2018 % ∆ vs
2015 2016 2017 $ 4,449
1H 21% 48% 54% $ 4,159
2H (29) (16) (10)
FY (7) 12 19 $ 3,717
$ 2,025 $ 3,455 $ 3,504
$ 3,255
$ 2,472 $ 1,756
$ 2,764 $ 2,766
$ 2,689 $ 2,655
$ 2,099
$ 1,502 $ 1,801 $ 1,944
$ 2,280
$ 1,265
$ 1,476 $ 1,423 $ 1,500
$ 1,204
$ 2,600
$ 2,402
$ 1,978
$ 1,754 $ 1,655 $ 1,618
$ 1,499 $ 1,560
$ 1,213 $ 1,233 $ 1,266
$ 1,077
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
1H ∆ Y-o-Y 39 % (33)% (39)% 13 % 24 % (18)% 3% 31 % 20 % (18)% (4)% 54 %

2H ∆ Y-o-Y 1 (26) (20) 23 (14) 12 5 20 37 (15) (7) (10)
FY ∆ Y-o-Y 19 (30) (30) 18 3 (4) 4 25 29 (16) (6) 19
1H as % FY 56 % 54 % 47 % 45 % 54 % 46 % 46 % 48 % 44 % 44 % 45 % 58 %
2H as % FY 44 46 53 55 46 54 54 52 56 56 55 42

M&A Activity Declined in 3Q 2018 and 4Q 2018
After Five Consecutive Quarters of Rising Volumes
$1,223
$1,179
$1,049
$895 $906
$850
$803
$757
1Q '17 2Q '17 3Q '17 4Q '17 1Q '18 2Q '18 3Q '18 4Q '18
Source: Dealogic, in $ billions.

M&A as a Percentage of Global Market Cap Was
Below Historical Levels
Global Announced M&A Volume

Global M&A Volume Average Mkt Cap
$4.6 $100
$4.4
Global M&A Volume ($ tn)
$4.2
$3.9 $3.7
$3.5 $3.5 $80
$3.5
$3.1 $3.3
$2.9
$2.7 $2.8 $2.7 $2.8 $60
$2.3 $2.3
$2.1
$1.8 $40
$1.5 $1.3 $1.4
$1.1
$0.8
$20
$0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Global Announced M&A as % of Global Market Capitalization
11.2%
10.4% Long Term Average: 6.9%
10.0%
9.1% 8.8% Average (Last 10 Years): 5.8%
8.0%
7.2% 7.3% 6.9%
6.5% 6.6% 6.4%
6.0% 6.1% 6.1%
5.6% 5.5% 5.9% 5.7% 5.6% 5.6% 5.4%
5.0% 4.8%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: Factset, Dealogic, $ in trillions

Overall Market Growth Points to Mixed Signals
for Growth in M&A Volumes
Despite Declines in 4Q 2018, 10 Year US Treasury Rates Are Up,
All Major Indices Are Up Since 2015 But Still Attractive on a Historical Basis
S&P 500 Index Nikkei 225 10yr US Treasury Yield
150% FTSE 100 Index Hang Seng Index 3.5
3.0
Indexed Price
21.8% 2.5 2.7

125%
14.7%
2.0
9.5%
1.5
2.5%
100%
1.0
0.5
75% 0.0
Jan '15 Jan '16 Jan '17 Jan '18 Jan '15 Jan '16 Jan '17 Jan '18
CEO Confidence is Now Negative

After 3 Quarters of Declines Volatility Increased in 4Q 2018
75 45 CBOE SPX Volatility Index
Closing Price (USD)

CEO Confidence Index
65
35
55
25 25.4
45
15
35
25 5
Jan '15 Jan '16 Jan '17 Jan '18 Jan '15 Jan '16 Jan '17 Jan '18
Source: Factset, Dealogic, Bloomberg, Compustat, and Goldman Sachs Global Investment Research

Would-Be Buyers Have Become More Aggressive
Nearly Three-Quarters of Deals Began with a Buyer Approach…1

% of Deals Initiated by
72%
Buyer
28%
Buyer Initiated Seller Initiated
… While Fewer Deals Involved Formal Auctions1

55%
52%
% of Public Target Deals Run
49%
as Auction
2016 2017 2018

1 Source: Deal Point Data. Analysis for public target transactions greater than $3 billion announced between 2016 and 2018. Excludes dropdowns.

Financial Sponsors Have Remained Active in the
M&A Market as New Buyers Emerge
LBO Activity Fell on a Volume and
As a Proportion of Total M&A Financial Sponsor M&A Trends
$347
Announced M&A Volume
$313 While M&A involving financial sponsors increased in

$284 1 2018, it remains around a quarter of overall M&A volume
$239 $251
% of Total M&A
$225
($bn)
$181
$193 $172 $192 Emerging buyers are directly competing for assets and
10% 2 partners with financial sponsors on large transactions
7% 7% 8%
6%
$45 $103 $80 $122 $121
Record amounts of dry powder are available to deploy,
2014 2015 2016 2017 2018 3 supported by recent fundraising successes
Public Company Target Other LBO as % of Total M&A
While, More Broadly, M&A involving Financial
Sponsors Has Remained Significant There are Record Levels of Dry Powder Available
$629 $636
Dry Powder - Buyout Funds by

$1,035 $980
$939 $893 $563
$822 $476
$478 $479
$438 $424 $424 $441
$393
$358
Region
$369 $348
$306
$254 $263 $266 $237 $275
27% 25% $226 $239
23% $214
22% 24% $184
2014 2015 2016 2017 2018

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
M&A Involving Sponsors as %
Financial Sponsors of Total M&A US Global
Source: Dealogic, S&P LCD News. $ in billions

Cross-Border Activity Was a Big Driver of M&A
Volume, But Remained in Line With Prior Years
Strategic Cross-Border M&A Top Cross-Border Transactions

Target Acquiror Target / Acquiror Industry ($bn)
Announced Cross Border
$1,563 Takeda
$1,463 $1,465 Shire
Pharma
EMEA / Asia Pacific Healthcare $81.5
M&A Volume ($bn)
$1,252
% of Total M&A
$1,160 Sky (Bid No 2) Comcast EMEA / Americas TMT 53.3
Altice USA Shareholders,
Americas / Americas TMT 29.8
(48.9%) Next
Abertis Infra
Atlantia EMEA / EMEA Industrial 29.7
(42.9%)
China Three
EDP (76.7%) EMEA / Asia Pacific Nat Res 27.5
36% 35% 39% 35% Gorges
33% Unitymedia
Vodafone EMEA / EMEA TMT 21.8
and others
Wind Tre (50%) CK Hutchison EMEA / Asia Pacific TMT 16.3
2014 2015 2016 2017 2018
Asia Pacific /
Flipkart (77%) Walmart TMT 16.0
Americas
Cross-Border Volume ($bn) % of Total M&A XL Group AXA Americas / EMEA FIG 15.4
Johnson Controls Brookfield,
Cross-Border M&A by Industry (Business) CDPQ
Americas / Americas Industrial 13.2
Novartis (JV) GlaxoSmithKline EMEA / EMEA Healthcare 13.0

FIG
8% Bioverativ Sanofi Americas / EMEA Healthcare 11.6
eal
R
Estate Forest City Realty Brookfield Americas / Americas Real Estate 11.3
TMT
8%
23% Petrohawk Energy BP Americas / EMEA Nat res 10.5
Consumer Pfizer
10% GlaxoSmithKline EMEA / EMEA Healthcare 10.0
(Cons. HC Bus.)
Natural Asda Group J Sainsbury EMEA / EMEA Consumer 10.0

Industrial
Resources Enbridge Energy
15% 21% Enbridge Americas / Americas Nat Res 9.9
Partners (62%)
ABB (Power grid
Healthcare Hitachi EMEA / Asia Pacific Industrial 9.4
division)
16%
AveXis Novartis Americas / EMEA Healthcare 8.8
Spectra Energy
Enbridge Americas / EMEA TMT 8.0
Partners (36%)
Source: Dealogic. $ in billions. Cross-border activity excludes LBOs

Divestiture Activity Accounted for More Than
Half of Announced M&A Volume
Divestiture Activity Top 10 Divestitures

Target Size
$2,388 Target Parent Acquirer Industry ($bn)
$2,212
innogy RWE E.ON Nat Res $54.4
$2,036
Divestiture Activity as % of Total M&A Activity

$1,973 $1,949
Sky (Bid No 2) 21st CF (38 %) Comcast TMT 53.3
Announced Divestiture Activity ($bn)
Shareholders,
Altice USA (49%) Altice TMT 29.8
Next
CaixaBank
Abertis Infra (43%) Atlantia Industrials 29.7
(22%)
Unitymedia and
59% Liberty Global Vodafone TMT 21.8
others
56%
54% 53% 53%
Careal Property
CA Broadcom TMT 18.9
(25%)
Financial & Risk Blackstone and

Thomson Reuters TMT 17.5
US Holdings (55%) others
Wind Tre (50%) VEON CK Hutchison TMT 16.3
SoftBank and
Flipkart (77%) Walmart TMT 16.0
others
2014 2015 2016 2017 2018
Fibria Celulose Votorantim Suzano Papel Industrials 14.5

Divestiture Volume ($bn) % of Total M&A
Source: Dealogic. $ in billions
Note: Divestiture volume includes spin-offs

II. EMEA and Italy 2018 M&A Review
Mergers & Acquisitions Update
2018 EMEA M&A Environment
2018 Key Themes 15 Largest 2018 Transactions

Deal
 EMEA M&A activity by deal volume jumped 34% YoY in Date Target Acquiror
Value $bn
2018 vs. 2017 YoY (as per Thomson, up 24% in Dealogic)
28-Mar 76.9
— Global M&A activity was up 19% YoY; Americas M&A
activity was up 26% YoY (as per Thomson) 29-Apr 58.7
 Number of deals >$500m increased 13% YoY (as per 27-Feb 48.4
Thomson, up 8% in Dealogic)
14-Mar 41.5
 ~ 44% of M&A volumes was driven deals >$5bn
11-Mar 77% Stake
38.5
— $10-20bn deals contributed 8% of M&A volumes and
mega deals >$20bn contributed to 26% of overall 08-Jan 67% Stake Shareholders 32.1
volumes
11-May 29.6
 ~68% of M&A activity was driven by strategic acquirers
29-Jan 26.6
 Intra-EMEA contributed to 52% of M&A volumes in 2018 vs.
53% of the M&A volumes in 2017 RELX NV
15-Feb Unification RELX PLC 25.6
 Asia M&A activity into EMEA up 166% YoY (driven by DE, HU, RO
02-Feb 21.8
Takeda acquisition of Shire); Americas up 18% YoY and CZ Operations to
 Corporates focused on simplification of structure and stake 05-Mar 15.1

holdings Power Solutions
13-Nov Business 13.2
 Considerable uptick in Activist’s taking position in M&A
situations and undervalued companies 27-Mar 13.0
36.5% Stake in OTC JV
 Increase in hostile and unsolicited M&A activity 27-Mar Spec Chem 12.6
18-Jun Shareholders 12.5
Source: Thomson and Dealogic as of 31-Dec-2018
EMEA and Italy 2018 M&A Review 17

EMEA M&A Market Witnessed Significant
Growth in 2018
EMEA M&A Activity ($bn) EMEA Quarterly Activity (bn)

1,511 528
1,386
1,600
482
1,400
1,275 1,244
1,200
1,129
309 295
282
1,000
800
243 258 243
600
34%
400
200
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2014 2015 2016 2017 2018 2017 2017 2017 2017 2018 2018 2018 2018
Vol. % of Global 39% 33% 35% 33% 38% 41% 36% 29% 30% 45% 41% 30% 30%
13%
# Deals >$500m 443 400 375 407 461 98 101 94 114 109 124 119 109
# Deals % of
41% 34% 36% 36% 36% 39% 35% 32% 37% 36% 35% 38% 36%
Global
Source: Thomson as of 31-Dec-2018

Large Transactions >$20bn Increased Significantly In
2018. TMT, NR and Industrials Were The Most Active
Sectors
By Sector Overtime By Deal Size
9% 10% 9% 9% 8% 6%
14% 16% 14%
24% 8%
12% 10% 8% 10% 27% 26%
11% 4%
9%
10% 6%
15%
15% 13%
13% 10%
25% 7% 8%
18%
28% 15%
10% 10% 10%
15% 38%
32% 32%
17% 32% 16%
21%
18% 25% 25%
21% 28%
17% 17% 12%

12% 12%
12% 15%
15% 10% 9%
13%
10%
8%
13% 6%
8% 12%
27% 25% 26%
22% 21% 22%
17% 18%
12% 14%
10% 9%
2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018
Consumer Healthcare Industrials NR <$0.5bn $0.5 - 1bn $1 - 5bn
TMT FIG RE $5 - 10bn $10 - 20bn >$20bn
Source: Thomson as of 31-Dec-2018.

Note: All announced transactions and based on any involvement.

Corporates M&A Activity Still Robust
EMEA Corporates Contributed To ~44% of Global Strategic M&A Activity
Strategic Transactions ($bn) Top 20 EMEA Strategic Transactions in 2018

4,000
3,194
Deal
Date Target Acquiror Acquiror Value
Annc. Ind Target Name Nation Name Nation ($m)
2,785
28-Mar-18 HC Shire UK Takeda JPN 76,886
3,500
2,617
27-Feb-18 TMT Sky UK Comcast Corp US 43,198
24% 14-Mar-18 IND
Abertis
SPN
Atlantia and
SPN 41,526
2,402 Infraestructuras others
3,000
29% 11-Mar-18 NR Innogy GER E ON GER 38,501
24% 2,339
Unitymedia (Liberty
09-May-18 TMT GER Vodafone Grp Plc UK 21,826
Global)
23%
2,500 1,926 1,923 05-Mar-18 FIG XL Group US AXA FRA 15,129
30% Novartis (36.5%

1,741 27-Mar-18 HC SWiS GlaxoSmithKline UK 13,000
Stake in OTC JV)
26% 33%
21% 12-Jan-18 IND GKN UK Melrose Industries UK 12,000
2,000
25% 30% 29%

36% 19-Mar-18 RE Hammerson UK Klepierre FRA 11,337
22-Jan-18 HC Bioverativ US Sanofi FRA 11,139

27%
32% 33% 26-Jul-18 NR Petrohawk Energy US BP UK 10,500
1,500
31%
30-Apr-18 CRG ASDA UK Sainsbury's UK 10,023
ABB Ltd-Power
17-Dec-18 IND SWiS Hitachi JPN 9,400
1,000
Systems Division
Brookfield
43% 04-Oct-18 RE Intu Properties UK IK 9,049
46% 42% Property
42% 09-Apr-18 HC AveXis US Novartis SWZ 8,338
43%
47% 41% 45% 11-Nov-18 TMT Qualtrics US SAP SE GER 8,000
500
26-Mar-18 IND USG US Gebr Knauf GER 6,545

GKN (Driveline
02-Mar-18 IND UK Dana US 6,347
0
Business)
2011 2012 2013 2014 2015 2016 2017 2018
16-Jan-18 TMT UBM UK Informa UK 6,115
Americas EMEA Asia 11-Mar-18 IND Inology GER EON GER 5,830
Source: Thomson as of 31-Dec-2018

Note: Transactions excluding Sponsor involvements; Highlighted (yellow) indicate GS involvement

Intra-EMEA M&A Activity Contributed to 52% Of
M&A Activity; UK and France Most Active
Countries
M&A Volume by Country / Region ($bn) EMEA M&A Volume ($bn)1
4% 6% 5% 5% 4%
100%
1% 2% 1% 1% 3% 6% 5%
6%
3% 3% 3% 11%
2% 2% 3% 1% 14%
2% 3% 2% 5% 7% 9%
3%
90%
9% 4%
8% 19%
80%
17% 10%
29% 30% 28%

27% 34%
70%
35% 25%
23% 22%
60%
5% 32%
6% 4% 8%
6%
4% 50%
4% 3% 7%
5% 7% 6%
5%
5% 40%
6% 8% 9%
12% 6%
10% 59%
30%
14% 4%
16% 14% 52% 53% 52%
7%
20%
40%
22%
18% 17% 16%
15%
10%
2014 2015 2016 2017 2018

0%
2014 2015 2016 2017 2018

FraBeLux Germany Nordic Netherlands Intra-EMEA Americas Cross-border
Italy Iberia UK Ireland Swiss Asia Cross-border Other Cross-border
Russia/CIS CEE SA MENA
Source: Thomson and Dealogic as of 31-Dec-2018

Note: All announced transactions and based on any involvement.
1 Excludes volumes from ANZ

Uptick in Number of Hostile Situations
Hostile and unsolicited activity persistent driver of M&A activity
Hostile / Unsolicited EMEA M&A Volume ($bn) Top Hostile / Unsolicited Transactions 2018
500 120 % Size
Year Target Acquiror Industry Status ($bn)
336
450
2018 Shire Takeda HC Completed 76.9

85 % 89 % 88 %
100 %
400
361
2018 Sky Comcast TMT Completed 43.2
302
350
80 %
300
48 % 278 2018 EDP Energias China Three Gorges NR Pending 29.6
250
52 % 50 % 60 % 2018 Smurfit Kappa International Paper IND Withdrawn 15.1
200
165 2018 GKN Melrose Industries IND Completed 12.0

22 %
18 %
40 %
150
2018 Hammerson Klepierre RE Withdrawn 11.7

DK
100
61 182 2018 TDC TMT Completed 10.8

35 35 Telekommunikation
20 %
136 217 2018 Intu Properties Brookfield Property RE Withdrawn 9.0

50
18 29 5 33 40
2018 Scor Covea FIG Withdrawn 8.7
0 0%
2011 2012 2013 2014 2015 2016 2017 2018

2018 USG Gebr IND Pending 6.5
Completed / Pending Withdrawn Withdrawn as % of Total Hostile Activity
# of Hostile / Unsolicited Deals Top 10 Hostile / Unsolicited Transactions 2015-17

70
64
70 %
Size
59 % Year Target Acquiror Industry Status ($bn)
60
57 67 60 %
2017 Unilever Kraft Heinz CON Withdrawn 162.0

38 %
50
36 % 42 % 46 33 % 50 %
2015 SABMiller Anheuser-Busch CON Completed 120.8
39 40 40 % 2016 Monsanto Bayer NR Completed 57.9

40
37 40 %
British American
41 % 28 % 2016 Reynolds American
Tobacco
CON Completed 57.8
30
26 30 %
2015 Mylan Teva Pharmaceutical HC Withdrawn 50.6

46 2015 Syngenta Monsanto NR Withdrawn 46.1
20
38 40 20 %
27 2015 Perrigo Mylan HC Withdrawn 35.6

25 25
15
10 10 %
15 2017 Abertis Atlantia IND Completed 34.7
2015 Baxalta Shire HC Completed 33.7

0 0%
2011 2012 2013 2014 2015 2016 2017 2018

2017 Akzo Nobel PPG Industries IND Withdrawn 25.4
Source: Thomson Reuters as of 31-Dec-2018

Financial Sponsors Have Remained Active in the
M&A Market as New Buyers Emerge
Financial Sponsor Activity¹ ($bn) Top EMEA Sponsor Deals 2018

$491 Size
Target Acquiror Sponsor Sponsor Role ($bn)
$373 $387 Sprint Corp T-Mobile TA Associates Buy-Side 58.7
$350 $332 EDP Energias China Three Gorge Capital Group Sell-Side 29.6
Keurig Green
Dr Pepper Snapple BDT Capital Partners Buy-Side 26.6
Mountain
Akzo Nobel (Specialty
Carlyle Group Carlyle Group Buy-Side 12.6
34% Chem)
32%
29% 25% 27% Magneti Marelli CK Holdings KKR Buy-Side 7.1
FountainVest FountainVest Partners
Amer Sports Buy-Side 6.3
Partners and others
Accorinvest Eurazeo Eurazeo Sell-Side 5.4
2014 2015 2016 2017 2018 Sky Betting & Gaming Stars Group CVC Capital Partners Sell-Side 4.7
Rioja Bidco
M&A Involving Sponsors as % Gas Natural CVC Capital Partners Buy-Side 4.7
Sharehldg
Financial Sponsors of Total EMEA M&A Buy-Side / Sell-
Travelport Worldwide Siris Capital Siris Capital 4.7
Side
LBO Activity2 ($bn) Top EMEA LBO Deals 2018

$107 Size
$103
Target Acquiror Industry ($bn)
$94 $94
% of Total EMEA M&A

Akzo Nobel (Specialty Chem) The Carlyle Group Nat. Res. 12.6
Announced EMEA M&A
$72
$82 Techem Partners Group 5.4
$65 9%
Volume ($bn)
Accorinvest Eurazeo Real Estate 5.4

7% 7% 7%
Travelport Worldwide Siris Capital & Evergreen Coast TMT 4.7
5%
FIMEI SpA CVC, PSP, StepStone HC 3.5
$81 $82 Linde (Gases Buss) CVC and Messer Group Nat. Res. 3.3
$57
$30 $25 Recordati CVC, PSP, StepStone HC 3.1
$13 $11 $8
Ahlsell AB Quimper AB Industrials 2.9
2014 2015 2016 2017 2018
Cirsa Blackstone Gaming 2.6
Public Company Target Other % of Total EMEA M&A Zentiva Advent International Healthcare 2.4
Source: Thomson Reuters. $ in billions. Market data as of 31-Dec-2018

1 “Financial Sponsor Activity” is defined as M&A activity involving a financial sponsor as buyer, seller or a portfolio company.
2 “Other” includes transactions with private targets and divestitures
Note: Highlighted (yellow) indicate GS involvement.

Outlook for M&A in 2019
Tailwinds Headwinds
+ Expectations of continued global – Deal multiples remain expensive
economic growth
– Increasing number of failed sell-sides
+ Equity market valuations remain high
despite recent volatility – Cost of capital is increasing as interest
rates continue to rise
+ Shareholder activists continue to push
for M&A activity – Expectations of slowing GDP and
corporate growth
+ Continued unsolicited private
approaches – Global geopolitical risk
– Regulatory environment continues to

be uncertain
– CEO confidence is in decline

Key M&A Themes in Italy
M&A Volumes Since 1985 ($bn)
230.2 Average Volume ($bn)

5Y $ 80
10Y $ 75
143.6 151.4
139.1 135.8
127.3
101.5
91.2 85.6
69.9 75.8 78.1
63.3 67.1 66.2 62.2 67.5 56.4 56.0 56.0
54.4
41.8
31.5
16.3 18.7 22.9 15.3 20.9 17.6 22.8
7.9 9.6
0.5 4.9
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Last 4 Years by Quarter ($bn)
25 17 26 21 22 21 14 30 22 41 22 26 23 26 17 32 34 29 26 11
67.7
Median: 17.5 Median: 23.5
33.4 35.9
25.3 26.1
22.8 21.0 23.5
19.8 21.0
14.0 18.2 14.1
13.0 12.4 16.8
9.2 8.6 12.6
7.4
1Q 2014 2Q 2014 3Q 2014 4Q 2014 1Q 2015 2Q 2015 3Q 2015 4Q 2015 1Q 2016 2Q 2016 3Q 2016 4Q 2016 1Q 2017 2Q 2017 3Q 2017 4Q 2017 1Q 2018 2Q 2018 3Q 2018 4Q 2018
Number of Deals¹  2015-2017 average volumes ~$73bn, up from ~$54bn in 2009-2014: GDP recovery
 2018 strong year at $127bn
— GDP growth, pent-up demand
— $30bn of the $127bn due to Atlantia
Source: Thomson Reuters as of 04-Dec-2018.
Note: All transaction sizes included, any Italian involvement
 Outlook for 2019 impacted by macro slowdown, market volatility, political
1 Includes all deals with size above $100m. M&A deals only. uncertainty

Sale of Gianni Versace to Michael Kors
€1.8 ($2.1) Billion Equity Value | Announced 25-Sep-2018
Goldman Sachs International Acted as Sole Financial Adviser to the Versace Family
Transaction Overview Strategic Rationale for Michael Kors

 On 25-Sep-2018, Michael Kors Holdings Limited (NYSE: KORS) reached a definitive  Enhance Michael Kors leadership position in the global luxury market,
agreement to acquire Gianni Versace S.p.A. for a total equity value of €1.83bn (c. $2.12bn) owning three iconic founder-led brands
— Estimated EV/EBITDA multiple at closing of 22x, reflecting Versace’s strong expected  Opportunity to increase Versace revenues to $2bn in the long term
growth in 2018
— Transaction expected to close in Michael Kors’ fiscal Q4, subject to customary closing
 Commitment to invest in Versace to capitalise on its growth opportunities,
accelerating retail penetration, Asian expansion and accessories and
conditions
footwear potential
— Purchase price expected to be funded by a combination of cash, drawings under the
company’s existing revolving credit facility, and committed underwritten bank term loans  Diversify geographic exposure, increasing Asian vs. US exposure
— €150m of the purchase price will be paid in Michael Kors shares to Donatella, Allegra and  Potential to create long-term operational synergies
Santo, who will be among the largest shareholders of Michael Kors
Sales by Geography2
— Donatella to remain involved post transaction to lead the company’s creative vision
through Versace’s next chapter of growth Pre-Deal Pro Forma
— Acquisition expected to be accretive in low and high-single digits1 in FY2021 and FY2022 Asia 11% Asia 19%
respectively
 Upon closing of the transaction, Michael Kors Holdings Limited will be renamed as Capri Europe Americas Americas
Holdings Limited (NYSE: CPRI) 23% 66% Europe 57%
 Goldman Sachs International acted as sole financial adviser to GIVI Holding S.p.A., the 24%
holding company of the Versace family controlling Gianni Versace S.p.A.
Michael Kors Overview

$8bn pro forma sales in the long term
 Established in 1981, Michael Kors is a global fashion luxury group with brands covering the
full spectrum of fashion luxury categories
 Michael Kors operates 1,038 retail stores worldwide, as well as digital flagships, offering
customers a seamless omni-channel experience
 Following the acquisition of Jimmy Choo in 2017, the group generated sales of $4.7bn in
FY2018
Versace Overview
 Founded in 1978 in Milan, Versace is one of the leading international fashion design houses
and a symbol of Italian luxury worldwide “This is a very exciting moment for Versace. […] My passion has never
 Versace distributes its products through a worldwide network which includes over 200 been stronger. This is the perfect time for our company, which puts
boutiques in some of the world’s most glamourous cities creativity and innovation at the core of all of its actions, to grow”
 The group generated sales of €674m in FY ending Dec-2017 Donatella Versace, Creative Director and Shareholder of Versace
Source: Press release, company public filings

1 On a non-GAAP basis. 2 Michael Kors Group and Versace combined sales and geographic breakdown are as of year-end 31-Mar-2018.

Sale of Magneti Marelli to CK Holdings for a Transaction
Value of €6.2bn
22-Oct-2018 | Goldman Sachs International Acted as Financial
Advisor to Fiat Chrysler Automobiles
Transaction Overview Magneti Marelli Overview

 On 22-Oct-2018, Fiat Chrysler Automobiles (“FCA”) announced it has  Magneti Marelli is a leading global automotive components manufacturer
entered into a definitive agreement to sell its Magneti Marelli automotive  Magneti Marelli was founded in 1919 and has been a subsidiary of FCA and
components business to CK Holdings (a portfolio company of KKR) its predecessor companies since 1967
 Under the agreement, CK Holdings will acquire Magneti Marelli at a  The company is a world leader in automotive lighting and specializes in:
transaction value of €6.2bn
 The transaction is expected to be completed in the first half of 2019 (subject Automotive
to customary anti-trust and regulatory approvals) Powertrains Electronics Exhausts
Lighting
 Following closing of the transaction, the combined business will be named
Magneti Marelli CK Holdings and will have total revenues of €15.2bn,
creating the 7th largest independent automotive supplier globally Shock
Suspensions Motorsport Aftermarket
 FCA will enter into a multi-year Supply Agreement with Magneti Marelli CK Absorbers
Holdings
 The new entity will operate out of nearly 200 facilities and R&D centers  The company is headquartered in Corbetta (Milan, Italy) and employs
across Europe, Japan, the Americas, and Asia Pacific c. 43k people
 Goldman Sachs acted as financial advisor to FCA
Commentary Calsonic Kansei Overview
“Having carefully examined a range of options to enable Magneti Marelli to

 Calsonic Kansei is a global manufacturer of a comprehensive product line
express its full potential in the next phase of its development, this combination of auto parts specializing in thermal products, exhaust systems, interiors
with Calsonic Kansei has emerged as an ideal opportunity to accelerate Magneti and electronics
Marelli’s future growth for the benefit of its customers and its outstanding people.  A wholly owned portfolio company of KKR, Calsonic Kansei has recently
The combined business will continue to be among FCA’s most important celebrated its 80th anniversary
business partners and we would like to see that relationship grow even further in — In Nov-2016, Nissan agreed to sell its 41.7 percent stake in Calsonic
the future. The transaction also recognises the full strategic value of Magneti
Kansei to KKR, who completed the acquisition in Feb 2017 through a
Marelli and is another important step in our relentless focus on value creation.”
Mike Manley, Chief Executive Officer of FCA (22-Oct-2018)
tender offer
 The company is headquartered in Saitama (Japan) and employs
c. 23k people
“Our industry has gone through fierce change in recent years and the phase to
come will be even more dynamic. It is exciting to form a strong platform for
Calsonic Kansei and Magneti Marelli to work together and create a competitive
automotive supplier which is extremely well placed among the global Top Ten.
Together, we will benefit from complementary geographic footprints and product
lines, while our respective customers will benefit from an increased investment in
people, processes and innovative new products.”
Beda Bolzenius, CEO of Calsonic Kansei (22-Oct-2018)
Source: Press Releases, Company Websites, Company Public Filings

Sale of Candy to Haier
28-Sep-2018 | Goldman Sachs International Acted as Exclusive
Financial Advisor to Candy and Fumagalli family
Transaction Overview Candy Overview

 On 28-Sep-2018, Qingdao Haier Co., Ltd. (“Haier”) and Fumagalli family  Candy is one of Europe’s leading companies in the market of small and
announced a deal to combine the operations of Haier and Candy S.p.A. major home appliances, both freestanding and built-in, with high-
(“Candy”) performance products both in terms of performance and respect for the
environment
 Under the agreement, Haier will value Candy at an enterprise value of
€629m (corresponding to an equity value of €475m based on a net debt of  Its products are marketed through two international brands, Candy and
€154m) Hoover, and through national brands such as Rosières (France) and Jinling
(China) with differentiated markets and different market targets
 The transaction is expected to be completed by early 2019 (still subject to
regulatory filings, approvals and other customary conditions with relevant  Candy is a multi-brand company owned by the Fumagalli family, employs
domestic and foreign government authorities) approximately 5,000 employees, has seven manufacturing facilities in
Europe, Turkey and China, and 45 locations around the world
 Haier is world’s largest manufacturers of home appliance goods marketing
its products with six global brands, including Haier, GE Appliances, Fisher &  The corporate headquarters, design centre, central facility and R&D are
Paykel, AQUA, Casarte and Leader located in Brugherio (MB), Italy
 Goldman Sachs International acted as exclusive financial advisor to
Key Candy and Fumagalli family
Brands
Commentary Candy Key Facts
“In the era of IoT and leveraging its strong R&D capabilities, Candy Group
€1.1bn +14%
is dedicated to applying network technologies to traditional home Turnover vs
Turnover
appliances, which perfectly aligns with Haier’s “Eco-brand” strategy. We previous year
believe this transaction marks the beginning of a successful strategic
cooperation between Haier and Candy Group, which will not only unlock
the potential of the smart home appliance market, but also inspire the >70 45
sector to continue to upgrade in order to improve customer experience” Years of experience Locations worldwide
Liang Haishan, Chairman of the BoD at Haier (28-Sep-2018)
“We look forward to joining Haier. Qingdao Haier and Candy share the ~2,000 7
same vision, which is to continue to improve the quality of family life. We Service centres Manufacturing facilities
believe that Candy’s innovation capabilities and Italian design, technology
and style will fit perfectly with Qingdao Haier’s operating model. Together,
we will better meet the increasing demands for more individualized
products, and make people’s lives better and easier” ~5,000 >6,000
Beppe and Aldo Fumagalli, former Candy shareholders (28-Sep-2018) Employees Aftersales technicians
Source: Press Releases, Company Websites, Company Public Filings

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DDIM

Bidder Target Seller(s)

 Strategic: Bidder is a  Statutory Merger: Target is  Cash: Bidder pays  Debt Financing:  Private: Target is sold

• ex. Bank of America’s acquisition of Merrill Lynch;

• Adidas and Reebok

• ex. Tele Atlas bought by Tom Tom;

• BskyB and Amstard

• ex. AOL’s – Time Warner;

– much less popular now

• The «Bootstrap Game»:

Trading Multiples  Based on multiples of key  Simpler, commonly used × Assumes full efficiency of

Transaction  Based on multiples paid in  Easy to present × Potential non‐compatibility

EV/EBITDA  Takes into account × Does not consider below EBITDA items

EV/Sales  Sales cannot be negative, applicable in case of × Does not take into account profitability

Growth  Usually applied on Earnings or EBITDA × Used only to a certain extent, based on

Returns in the 40 months before & after bidding war

M&A (IV): Review of 2019 M&A

I. Global 2018 M&A Review

Global 2018 M&A Review 4

Express Scripts Cigna 69.8 Healthcare

27% 19% Altice USA - 48.9% Shareholders; Next 29.8 TMT

CA Broadcom 18.9 TMT

Consumer Financial Institutions L3 Technologies Harris 18.7 Industrial

Altaba - 24.4% Share repurchase 16.3 FIG

Global 2018 M&A Review 5

13% 12% 14% 15% 19%

24% 20% 23% 25%

39% 44% 45% 45% 43% 38% 38%

<$1bn $1 - $5bn $5 - $10bn $10bn+

…While Americas-Targeted M&A Accounted for Nearly Half of Overall Volume

31% 31% 31% 30% 29% 25% 25% 27% 29%

21% 25% 24% 27%

46% 45% 48% 48% 50% 51% 51% 46% 47%

Americas EMEA Asia

Global 2018 M&A Review 6

…Involved Cash Consideration…

21% 19% 20% 22% 20% 22%

29% 25% 26% 23%

67% 71% 71% 68% 64% 66% 64%

Cash Cash & Stock Stock

…While Activity Was Largely Driven by Strategic Buyers1

Global 2018 M&A Review 7

1H ∆ Y-o-Y 39 % (33)% (39)% 13 % 24 % (18)% 3% 31 % 20 % (18)% (4)% 54 %

Global 2018 M&A Review 8

1Q '17 2Q '17 3Q '17 4Q '17 1Q '18 2Q '18 3Q '18 4Q '18

Source: Dealogic, in $ billions.

Global 2018 M&A Review 9

Global Announced M&A Volume

Global Announced M&A as % of Global Market Capitalization

Source: Factset, Dealogic, $ in trillions

Global 2018 M&A Review 10

21.8% 2.5 2.7

CEO Confidence is Now Negative

Closing Price (USD)

Global 2018 M&A Review 11

Nearly Three-Quarters of Deals Began with a Buyer Approach…1

Buyer Initiated Seller Initiated

… While Fewer Deals Involved Formal Auctions1

2016 2017 2018

Source: Dealogic, $ in billions

Global 2018 M&A Review 12

$313 While M&A involving financial sponsors increased in

Dry Powder - Buyout Funds by

Natural Asda Group J Sainsbury EMEA / EMEA Consumer 10.0