M&As as a corporate strategy - M&A can be an effective corporate strategy for growth if aligned with corporate goals and the company has capabilities to extract value from acquisitions. Prospecting targets - Companies should have clear criteria for identifying targets that fit strategic objectives and are affordable. Financial discipline is important to set reasonable price limits. Executing the transaction - Successful execution requires assembling the right deal team and understanding transaction principles like valuation. Key steps include due diligence, negotiations, and communicating with stakeholders. Realizing the vision - After the deal, focus shifts to post-merger integration and delivering promised synergies through plans, communication and change management. Learning from

1. M&As CFO’
M&A : CFO’s and the art of M&A
d th t f
Sanjay Uppal
Group Chief Financial Officer
Emirates NBD
15 – 17 September 2008
The Grand Copthorne Waterfront Hotel
Singapore

2. Introduction
M&As as a corporate strategy
Prospecting : Identifying targets
Transaction Execution
After the deal
Ready to h
R d t shop again?
i ?
1

3. In spite of the current financial turmoil, global M&A
deal volume remains strong compared to historic levels
Year-on-year
Value*, USD billions No. of deals Comments
$2,644
$2 644
5,000
• Global M&A activity is still
2,500 strong
– Deal volumes are still
4,000
significantly higher than those
g y g
2,000
$1,857 $1,857
seen in 2005
$1,813
3,000 • Deals driven by operational
rather than financial agenda
1,500
, $ ,
$1,427
2,000 – Private equity contribution has
shrunk, with only 7% of deals
1,000 $955 $955 in H1 2008 accounted for by
1,000 Private Equity
q y
$602 $610 • Significant and very fast
500 0 growing contribution from
2000 2001 2002 2003 2004 2005 2006 2007 2008 emerging markets, particularly
H1 H1 H1 H1 H1 H1 H1 H1 H1
China,
China India & the GCC
* Announced deals (not withdrawn), includes deals above $25 million only
Source: Dealogic; McKinsey analysis 2

4. M&A activity in Asia – 2008
Despite turmoil in global financial
markets, M&As in Asia expected
to surpass record value of 2007
Approx US$ 300m worth of deals
announced in Asia by August
2008
Total transactions in 2008
expected to exceed US$ 460m
recorded in 2007
China, India & Singapore most
active playgrounds for
yg
transactions
3

5. CFOs in global organizations are playing
a larger role in shaping M&A strategy
Example Description
CFO directly • Business development team reporting to CFO drives M&A
responsible for agenda and execution
M&A strategy
& execution • CFO, along with CEO & Head of Strategy responsible for
g
M&A agenda
• CFO played a very strong role in the merger with Compaq
• Corporate development group responsible for M&A activity &
reports directly to CFO
• Built strong in house transaction capabilities including
valuation for smaller deals
CFO plays • CFO key member of capital allocation committee, which
indirect role shapes M&A strategy
through shaping
g p g
strategy
•I d
Independent M&A department reporting directly to CEO
d t d t t ti di tl t
• CFO influences M&A activity through the Board
Source: McKinsey proprietary survey 4

6. M&As make significant contributions to relative growth
– but most acquisitions tend to destroy relative value
A strong and well executed M&A strategy can
. . . but most acquisitions fail to create value
help companies realize growth . . .
Explanatory power for differences in Improvement in share price from T – 2 years to
company growth*, R², percent T + 2 years, adjusted for returns on MSCI World
Index***, %
Innovation**
Market 23%
growth Success
38% 39%
61%
Failure
39%
Inorganic activity
* Based on the time series growth regression of 54 large companies across a broad range of sectors
** Remainder including disruptive innovation and noise in regression analysis
*** Based on analysis around 1229 large deals executed before 2005
Source: SDC, Hoovers, Company reports, Analyst reports, McKinsey analysis 5

7. Key stages of an acquisition
Pre-transaction Execution Process Post-transaction
Target Transaction Post
Corporate M&A identifica Launch merger Capability
Execution building
strategy strategy tion mgmt
Process
Success of the Transaction depends on success at every stage
6

8. Introduction
M&As as a corporate strategy
Prospecting : Identifying targets
Transaction Execution
After the deal
Ready to h
R d t shop again?
i ?
7

9. Corporate Strategy : Key Dimensions
• Vertical / Horizontal
Organic expansion
• Resource allocation
• Exit strategy
Divestit
• Non-core
ures businesses
• Growth leap
Acquisit
• Vertical / Horizontal
ions integration
8

10. M&A strategy integral to Corporate strategy
Pre-transaction Valuation & Post-transaction
synergies
Due
diligence
Target Transaction Post
Corporate M&A identifica Execution Launch merger Capability
strategy strategy tion Process mgmt building
Structuring-
g
Negotiation
• Ability to use M&A successfully as growth route
–Strong baseline p
g performance
–Distinctive capabilities to add value
• Clear M&A strategy
–Focused to achieve core corporate objectives
9

11. M&A as a corporate strategy
M&A : As an effective corporate strategy
Build vs. Buy : Striking the right balance
Align acquisition parameters with corporate goals
Leverage financial assets through M&A
Prepare the foundation for a successful acquisition
Pitfalls & rebalancing the risk-reward ratio
10

12. Motivations
Cost-reducing & revenue enhancing synergies
Diversification
Strategic Focus : Horizontal & vertical integration
Financial purchase
Valuing considerations other than cash
11

13. Introduction
M&As as a corporate strategy
Prospecting : Identifying targets
Transaction Execution
After the deal
Ready to h
R d t shop again?
i ?
12

14. Target identification : Bringing focus
Pre-transaction Valuation & Post-transaction
synergies
Due
diligence
Target Transaction Post
Corporate M&A identifica Execution Launch merger Capability
strategy strategy tion Process mgmt building
Structuring-
g
Negotiation
• Clear target identification
–Focused to achieve core corporate objectives
• Know what you want
13

15. Target identification : A disciplined approach
Corporate Aspiration
Target : Fitment Criteria
Affordability
$$$
14

16. Affordability
Determine appetite
Re-establish strategic perspective
Set limits : CFO plays a key role
Hurdle rates for IRR
Time within which it should be accretive to EPS
Financial di i li i f d
Fi i l discipline is fundamental
t l
Acquisition financing : Never too early to plan
Resist temptation to overstretch
15

17. Background check on potential targets
Reputational due diligence
Legal & regulatory risks
Information gathering
16

18. Taking the next step
Public vs. Private deal
Making contact with target
The initial proposal : Presenting the win-win offer
17

19. EmiratesNBD merger : Launch of the process
18

20. Introduction
M&As as a corporate strategy
Prospecting : Identifying targets
Transaction Execution
After the deal
Ready to h
R d t shop again?
i ?
19

21. Executing the transaction
Pre-transaction Post-transaction
Transaction
Target
Execution Post
Corporate M&A identifica Process Launch merger Capability
strategy strategy tion
t t t t mgmt building
b ilding
• Ability to execute deal successfully
–Right deal team in place (with relevant skill sets & experience)
• Good first hand understanding of key transaction principles
–e.g. valuation : must be prepared to walk away if the price is too high
20

22. Deal Organization & Interested Parties
o Equity & Debt Investors
Shareholder o Analysts & Media
s & other
stakeholders o Suppliers / Customers
S li C t
o General Public
o Securities Regulator
Regulators o Business Regulator
o Stock Exchange
o Jurisdictions
External
Advisors
o Lead Advisor
o Fairness Opinion
o Legal
o Financial
Fi i l
Internal Deal
Team o Board
o Management
o CFO
o Core Deal Team
21

23. Due Diligence
Assembling the acquisition team : Internal & external
Understanding the motivation of the transaction
Due diligence : Legal, Financial, Commercial, market surveys…
Qualitative research on management team of target
Analyze targets historical performance
Anticipate dis-synergies (loss of customers, contracts, staff, etc)
Tax i li ti
T implications
Special consideration to balance sheet items
Review management projects & synergy benefits
Identifying potential deal breakers
22

24. Valuation & Negotiations
Components of price & price-value equation
Comparables,
Comparables currency & other considerations
Making the offer
Structuring the terms
Tailor-make terms for each deal
E.g. earn-outs, management retention, non-
g , g ,
compete clause, restructuring
23

25. Communicating with all stakeholders
. . . and articulated issues & our approach for
d ti l t d i hf
We developed our Stakeholder map. . . each stakeholder group
Internal External Others Stake- Their Our Message Channels
holders issues objective
j
Staff Shareholders General Public Shareholders Value Increase Safe / Press /
Enhanced Website
Transaction Customers Service/ Competitive Larger bank, Press /
Boards Customers
Advisors
Ad i Pricing distribution.. Website
UAE
regulators Accountants
Staff Job Security/ Attract and Better Intranet
Career Retain best opportunities webcasts,
Foreign Outlook talent in diversified newsletters
regulators Legal Advisors organisation
Analysts Regulators Transparency/ Compliance/
Other Advisors Meeting
Blueprint Best Practice
Media
Ratings
g
agencies
Suppliers
24

26. Communicating with staff
25

27. Multiple channels leveraged to ensure impact
Outgoing communication Dialogue
Channels / tools Channels/tools
News Letters Steering committee meetings
Press Releases Team meetings
Media Interviews AGMs / EGMs
E-Mails Shareholder dialogue
Intranet Press Conferences
Internet Press Interviews
P I t i
One-on-one meetings
Informal Meetings
Call Centres
Intranet – “Ask the CEO”
26

28. Emirates NBD merger timeline
7 March March – June 12 July 5 Sept 17 Sept 16 Oct
Merger Valuation / Legal / Merger EBI EGM Executive ENBD
Announced Due Diligence /
g Terms Committee Lists on
Negotiations Announced Appointed DFM
(Press
conference)
Trading Suspended
Trading Suspended
Trading Suspended
(7-15 Oct)
(
13 March 2 July 1 Aug 6 Sept 26 Sept
Joint Steering Merger Merger NBD EGM First Board
committee terms Offer Meeting of
established agreed launched ENBD
27

29. Introduction
M&As as a corporate strategy
Prospecting : Identifying targets
Transaction Execution
After the deal
Ready to h
R d t shop again?
i ?
28

30. Realising the vision
Valuation &
synergies
Due
Pre-transaction diligence
Post-transaction
Transaction
Execution
Target Process Post
Corporate M&A Structuring- Capability
identifica Launch merger
strategy strategy tion mgmt building
Negotiation
g
Focus shifts to well executed post merger management
Prioritization of high value & high risk areas
Delivering the value
29

31. Making it work
New B d
N Brand
Re-defining Vision, Mission & Values
Organisation structures & model
Delivering Synergies
Analysts / Media communication
Investor Relations
HR policies
p
Integration : Plans & updates
Financial Announcements
Shareholders
Team building
Impact of external events
...
30

32. Integration
Deriving expected value
Dedicated team in place before transaction closes
Plan, Plan, Plan
Timing is critical
Communication
31

33. Introduction
M&As as a corporate strategy
Prospecting : Identifying targets
Transaction Execution
After the deal
Ready to h
R d t shop again ?
i
32

34. Till next time…..
Each deal is a lesson – Improve your chances next time
Make M&A part of corporate growth cycle
Stay tuned to opportunities – Create opportunities !
Don’t hesitate to ask for help
End is not concluding the transaction – it is delivering the
value
Never stop shopping !
33