M&A

FOLLOWING GLOBAL TRENDS: EXAMINING THE NEED FOR MERGERS & ACQUISITIONS IN THE ENERGY SECTOR IN MALAYSIA
Case studies, Concepts, and Debatable Ideas

Kenny Ong CNI Holdings Berhad
www.myCNI.com.my
www.OOBEY.com
1. M&A Trends in the Energy Sector 2. Rationale for M&As in the Energy Sector 3. Strategies, Structure, and Optimizing Value in M&As 4. Considerations, Risks and Pitfalls 5. Investment Opportunities
www.myCNI.com.my
www.OOBEY.com
Before we start
How to fail without trying
The Roadmap to Failure by Fred Wiersema and Mike Treacy
www.myCNI.com.my
www.OOBEY.com
The Roadmap to Failure

Fred Wiersema and Mike Treacy
Downpresure of Unclear Strategy
The Moment of Truth
X
Performance
Todays performance Doom Projections Performance Freefall
Tomorrows actual performance
Clear Sailing
www.myCNI.com.my
Denial & Defense
Overdue Failure Time

www.OOBEY.com
Denial and Defense

Its not really good value our competitor is offering, because it doesnt include a lot of our features. - ABC vs Air Asia Its good value but not in our preferred customer market. - ABC vs Toyota Sure theyre hurting us, but with their unfair advantage, what can we do? ABC vs MILO The rules we are playing by have always worked before AMEX vs VISA
www.myCNI.com.my
www.OOBEY.com

The Moment of Truth
X
Performance
Clear Sailing
www.myCNI.com.my
Denial & Defense

www.OOBEY.com
Ad Hoc Tactics
Selectively hold discounts to hold business that has started to go elsewhere Introduce new promotions, terms, conditions, and offers to confuse and cloud the market Beef up customer service by adding people to fix messups and quicken delayed shipments Delay capital investments and adjust accounting methods to portray quarterly financial results more favorably Introduce new and improved products that are new in form, but not in substantive ways that are of consequence to purchasers Merge, Acquire, Joint Venture and Ally out of desperation or without proper considerations
www.myCNI.com.my www.OOBEY.com

The Moment of Truth
X
Performance
Clear Sailing
www.myCNI.com.my
Denial & Defense

www.OOBEY.com
What is the moral of the story?

1. M&A Trends in the Energy Sector
www.myCNI.com.my
www.OOBEY.com
M&A Trends in the Energy Sector Malaysia (1/2)

1. MMC purchase of Malakoff, 2007: largest M&A in Malaysia, 2nd biggest in Region 2. Seadrill Ltd (Oslo Stock Exchange, offshore drilling operations) SapuraCrest Petroleum Bhd, raising shareholding from 10% to 18.51% 3. Sarawak Corridor of Renewable Energy (Score) hydroelectricity, aluminum, steel, oil and gas, glass and agriculture 4. Perisai Petroleum Teknologi Bhd - acquire SJR Marine (L) Ltd for US$42mil, an anchor handling tug (AHT) for US$11.5mil, a portable saturation diving system (SAT system) for US$4.25mil and the disposal of two subsidiaries Corro-Shield (M) Sdn Bhd and Orinippon Trading Sdn Bhd for RM40mil.
M&A Trends in the Energy Sector Malaysia (2/2)

5. Budget 2008: Stamp Duty exemptions for PLCs and Petronas vendors 6. Budget 2008: Investment Tax Allowance for energy conservation, energy savings 7. Budget 2008: Tax Exemption of income from Certified Emission Reduction (CER) 8. Europes ban on Biofuel i.e. Palm Oil 9. Excess capacity 10. Energy Blueprint - IPPs to supply at competitive prices to an Energy Exchange
M&A Trends in the Energy Sector

1. Booming Demand 2. Supply shift to remote, unstable locations 3. Environmental impact, Fuel Mix 4. Demand shift in Asia 5. Middle East cheap energy = diversification 6. Natural resources depleting fast 7. Massive capital required
www.myCNI.com.my
8. Supply security 9. Interest in Renewable energy 10. Demand reduction and Demand Management 11. Scarcity of Talent: Technical, Projects 12. Global labor market 13. New, low cost players 14. Niche companies in new technologies*
www.OOBEY.com
M&A Trends in the Energy Sector

15. Private Equity 16. Restructuring undervalued Conglomerates 17. Record profits, High Prices 18. Antitrust Regulations 19. Cross-border Regulations 20. Traditional utilities consolidation 21. Competition for Assets 22. Rise of NOCs
www.myCNI.com.my
23. Alternative Energy growth, fragmented* 24. Low R&D, demand for new technologies 25. Anti-Pollution Solutions** 26. Credit Crunch 27. Foreign entities 28. Reliability standards 29. Political instabilities 30. De-regularization, Unbundling 31. Global Warming, less Water, less Hydro power
www.OOBEY.com
Biggest Trend
Earnings Per Share growth expectations are way above what companies can achieve in most territories from organic growth alone
John McConomy, US Power and Utilities Transaction Services Leader, PricewaterhouseCoopers
www.myCNI.com.my
www.OOBEY.com
2. Rationale for M&As in the Energy Sector
www.myCNI.com.my
www.OOBEY.com
Rationale for M&As in the Energy Sector
Energy companies face a demanding future. They must start preparing for it now
Ivo Bozon, Director, McKinseys Amsterdam Office
www.myCNI.com.my
www.OOBEY.com
Strategies for Growth

Double-Digit Growth, Michael Treacy
1.Base Retention 5.New Business

GROWTH
2.Share Gain
4.Adjacent Market
www.myCNI.com.my
3.Positioning
www.OOBEY.com
Rationale for M&As: Growth Expansion 1.Consolidate 2.Geographic 3.Distribution 4.Compensate Easier
www.myCNI.com.my
Transformative 1.Portfolio refocus 2.Diversification
Tougher
www.OOBEY.com
Rationale for M&As: Expansion

Expansion 1. Consolidate 2. Geographic 3. Distribution 4. Compensate 1. Gain Scale to compete 2. Integrated Solutions 3. Financial Growth 4. Supply (security, mix) 5. Developing markets 6. High cost of Extra Capacity 7. Private Equity 8. Expanding NOCs
Rationale for M&As: Expansion

Expansion 1. Consolidate 2. Geographic 3. Distribution 4. Compensate 9. Remote, unstable locations 10.De-regularization 11.Demand outstrip supply 12.Fuel Mix Carbon Tax 13.Talent 14.New, Low-cost Entrants 15.Undervalued Big Players 16.Newer Assets
Rationale for M&As: Transformative

Transformative 1. Portfolio refocus 2. Diversification
1. New Business Lines 2. Selling/Spin-off non-core 3. Increase product line 4. New customers 5. New technologies* 6. Complementary Business 7. Up-down Supply Chain 8. Patent 9. Convergence anticipation
Rationale for M&As: Energy Sectors

Traditional Utility Oil, Gas, Electricity, Coal
Incremental Technology New Delivery, New Sources, Existing Resources

www.myCNI.com.my
Alternative Energy Biomass, Nuclear, Ethanol, Wind, Solar
www.OOBEY.com
Possible Outside Acquirers or Investors

Institutional
Fund Managers Corporations Sovereign Funds VCs NGOs Financial (Loans) JV Partners M&A Social VCs Holding Co. Gov. VCs Supply Chain Gov. Partnership Non-Profit Org Competitors
www.myCNI.com.my
www.OOBEY.com
Why do Outsiders Acquire or Invest?

1. Return/Profit 2. Risk Management/ Hedging 3. Tax-benefits 4. CSR/Image 5. Diversify revenue 6. Counter-cyclical balance 7. Support Mission 8. Exclusive rights
www.myCNI.com.my
8. Contractual obligation 9. National Agenda 10.Control Supply Chain 11.R&D portfolio 12.Control Management 13.Alternative Cash Flow 14.M&A
www.OOBEY.com
3. Strategies, Structure, and Optimizing Value in M&As
www.myCNI.com.my
www.OOBEY.com
Strategies for Growth

Double-Digit Growth, Michael Treacy
1.Base Retention 5.New Business

GROWTH
2.Share Gain
4.Adjacent Market
www.myCNI.com.my
3.Positioning
www.OOBEY.com
How Markets determine Growth Strategies (1)

Growth Rate Growth Strategy Rate Fast 1. Market Positioning 2. Share Gain 3. Base Retention Flat 1. Base Retention 2. Share Gain (Acquisitions)
www.myCNI.com.my
Why? Maintain market share in strategic segments Prepare for market decline Competitors focus too much on getting new customers Lose customers slower than competitors Create scale economics, squeeze costs
www.OOBEY.com

Churn Rate
Churn Rate Low Strategy 1. Share Gain (Acquisitions) 2. Adjacent Markets 1. Base Retention 2. Share Gain 3. Adjacent Market Why? Buying customer base is cheaper than own efforts New products, old customers strategy Lose customers slower than competitors Customers are always open to the best value and offer Desperate to gain revenue
www.OOBEY.com
High
www.myCNI.com.my

Energy Sector
Fast Growth, 1.Market Positioning 2.Share Gain (M&A) Low Churn 3.Base Retention 4.Adjacent Markets (M&A)
www.myCNI.com.my
www.OOBEY.com
Strategy 2: Share Gain Neutralize Competitor Advantages Deliver far better value Buy Market Share outright
Price Premium Operating Model Integration
Buying Market Share: Acquisition strategy

Price Premium
Net Cost per Customer < Direct Acquire
Buying Market Share Operating Integration Model

One Kingdom Pre-integration Blueprint Slow Trigger, Fast Bullet
No evidence of previous company
Buying Market Share: Side notes on Funding

Preferable 1. Cash from Earnings 2. Cash from Borrowings OK, but not preferred 1. Cash from Stock sale 2. Issue more stock
*Adapted from Warren Buffets acquisition strategies
www.myCNI.com.my
www.OOBEY.com
Strategy 4: Invade Adjacent Markets Adjacent Market = Important Similarities and Large Differences in: 1. Cost Structure 2. Competitors 3. Customers 4. Critical Capabilities
www.myCNI.com.my
www.OOBEY.com
Strategy 4: Invade Adjacent Markets

Traditional Utility
Incremental Technology
Alternative Energy
www.myCNI.com.my
www.OOBEY.com
Strategy 4: Invade Adjacent Markets
Upstream Extraction
Midstream Generation Vendors/Services
Downstream Distribution
www.myCNI.com.my
www.OOBEY.com
Strategy 4: Invade Adjacent Markets Is it a promising market?

Best when market is new and not stable You must time your entry carefully Entrenched companies usually delay embracing new technology or process
Can you win in this market?

Must be built on advantages that are tangible, practical and easily implemented
Strategy 4: Invade Adjacent Markets Can you match the Standards of Competition in this Market?
You do have to meet the quality level that is common in the market Three Standards:- Technology, Relationships, Business-model You must have 80 percent of the capabilities you need to match competitors Standards
www.myCNI.com.my
www.OOBEY.com
Strategy 4: Invade Adjacent Markets Make or Buy?

1. It is easier to meet the standards of competition if you buy an existing player 2. Adjacent acquisitions must remain as a separate enterprise 3. Integrate Management Control (systems, technology) 4. Inter-transfer of management talent, knowledge and capability are important
www.myCNI.com.my
www.OOBEY.com
Strategy 5: Acquire new Business No core advantage to bring in Investors mind-set vs. Managers mind-set Value unlocking via operational improvements Invest in Management/Leadership Premium = Combined value > stand alone
www.myCNI.com.my
www.OOBEY.com
Linking BSC to M&A Strategy

Financial
Revenue Growth
Productivity
Market Value
Customers Base Retention Share Gain Positioning Adjacent Market New Business
Internal Process Operational Excellence Learning & Growth Competencies Information Systems Motivation, empowerment, alignment www.OOBEY.com Product Leadership Customer Intimacy Investment Strategy
www.myCNI.com.my
Optimizing M&A: 4-Wheels Model
Business Resources Structure Culture Leadership Person

Objective M&A Strategy
Optimizing M&A : Framework

Structure
Org Structure Job Design C&B Policies & procedures Decision making Job fit Management Systems BSC and KPIs Decentralized & Empower
www.OOBEY.com
www.myCNI.com.my

Leadership Role modeling Vision/Mission/Philosophy Leadership Style Delegation & Empowerment C&B, Promotions Sense of Urgency Customer focused Best practices Bottom line management Tradeoff between Cost vs. Value
www.OOBEY.com
www.myCNI.com.my

Person
Identification and Recruitment Incentives Training Values Motivation Competency Analysis Education/Curriculum
www.myCNI.com.my
www.OOBEY.com

Enablers Resources Projects Technology Equipment Materials Intellectual Property Partners Property
www.myCNI.com.my
Funding (Capital Access) Public Private
www.OOBEY.com
4. Considerations, Risks and Pitfalls
www.myCNI.com.my
www.OOBEY.com
Considerations, Risks and Pitfalls

Global footprint vs. Local Presence Anti-trust and Regulatory permissions Environmental (e.g. Europes ban on Biofuels) M&A Accounting Standards Fair Value definition in financial reporting = Exit price 6. Acquirer and Target having different Risk Tolerances 7. Public (or Public-hopeful) companies need to consider EPS after acquisition 1. 2. 3. 4. 5.
Considerations, Risks and Pitfalls

8. Synergies and Improvements need to realized as quickly and efficiently as possible 9. Combined Management capability to deliver improved performance 10. First 100 days post-acquisition blueprint 11. Culture management
www.myCNI.com.my
www.OOBEY.com
Consideration: Alternative Deals to M&A
When companies are unwilling to sell or acquisition premiums are too high, alliances are the next best thing to a merger. In other cases, they are actually preferable to M&A
David Hernst, Principal, McKinseys Washington, DC
www.myCNI.com.my
www.OOBEY.com
Consideration: Alternative Deals to M&A

Joint Venture
Unite business units Problem with shared ownership New Product Lines Cost Reductions Share risk, Share Cost in new markets, R&D Buy-out clause
Alliances
Reduce non-core or commoditizing parts Outsourcing, Offshoring Help supplier gain Scale Enter Complementary business
www.myCNI.com.my
www.OOBEY.com
5. Investment Opportunities
www.myCNI.com.my
www.OOBEY.com
Examples
1. Renewable Energy: Wind, Solar, Biomass, Hydro 2. New generation Power Fuel Cells: silicon impregnated with hydrogen, easy to transport wind/solar energy to cities 3. Sun-Wind Generator (Solar Thermal): solar at ground to produce hot air to power turbines 4. Fuel from Carbon Dioxide via Osmosis 5. Heating from Datacenters (Server, Network) 6. Smart Electric Grid: capacity optimization without adding coal/gas 7. Energy Storage technology
www.myCNI.com.my
www.OOBEY.com
End Note for Energy Sector
Globalization, Scale, Profitability

Michael Hurley, UK Oil and gas advisory leader, PricewaterhouseCoopers
www.myCNI.com.my
www.OOBEY.com
Thank You.
soft copy of slides: www.totallyunrelatedrandomanddebatable. blogspot.com

M&amp;A

Загружено:

Сведения о документе

Исходное описание:

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

M&amp;A

Загружено:

Авторское право:

Доступные форматы

FOLLOWING GLOBAL TRENDS: EXAMINING THE NEED FOR MERGERS & ACQUISITIONS IN THE ENERGY SECTOR IN MALAYSIA

Case studies, Concepts, and Debatable Ideas

How to fail without trying

The Roadmap to Failure by Fred Wiersema and Mike Treacy

The Roadmap to Failure

Downpresure of Unclear Strategy

The Moment of Truth

Tomorrows actual performance

Denial & Defense

Overdue Failure Time

Denial and Defense

The Roadmap to Failure

Downpresure of Unclear Strategy

The Moment of Truth

Tomorrows actual performance

Denial & Defense

Overdue Failure Time

The Roadmap to Failure

Downpresure of Unclear Strategy

The Moment of Truth

Tomorrows actual performance

Denial & Defense

Overdue Failure Time

What is the moral of the story?

1. M&A Trends in the Energy Sector

M&A Trends in the Energy Sector Malaysia (1/2)

M&A Trends in the Energy Sector Malaysia (2/2)

M&A Trends in the Energy Sector

M&A Trends in the Energy Sector

2. Rationale for M&As in the Energy Sector

Rationale for M&As in the Energy Sector

Strategies for Growth

1.Base Retention 5.New Business

Transformative 1.Portfolio refocus 2.Diversification

Rationale for M&As: Expansion

Rationale for M&As: Expansion

Rationale for M&As: Transformative

Rationale for M&As: Energy Sectors

Incremental Technology New Delivery, New Sources, Existing Resources

Alternative Energy Biomass, Nuclear, Ethanol, Wind, Solar

Possible Outside Acquirers or Investors

Why do Outsiders Acquire or Invest?

3. Strategies, Structure, and Optimizing Value in M&As

Strategies for Growth

1.Base Retention 5.New Business

How Markets determine Growth Strategies (1)

How Markets determine Growth Strategies (2)

How Markets determine Growth Strategies (3)

Buying Market Share: Acquisition strategy

Buying Market Share Operating Integration Model

No evidence of previous company

Buying Market Share: Side notes on Funding

*Adapted from Warren Buffets acquisition strategies

Strategy 4: Invade Adjacent Markets

Strategy 4: Invade Adjacent Markets

Midstream Generation Vendors/Services

Strategy 4: Invade Adjacent Markets Is it a promising market?

Can you win in this market?

Strategy 4: Invade Adjacent Markets Make or Buy?

Linking BSC to M&A Strategy

Optimizing M&A: 4-Wheels Model

Business Resources Structure Culture Leadership Person

Objective M&A Strategy

M&A

M&A