CANBACK & COMPANY Cambridge, Massachusetts 42.365869,-71.093471 www.canback.com +1-617-399-1300 PREDICTIVE ANALYTICS INTEGRATORS PREDICTIVE ANALYTICS INTEGRATORS M&A DUE DILIGENCE EXPERTISE Canback & Company February 2015
Jun 24, 2015
CANBACK & COMPANYCambridge, Massachusetts
42.365869,-71.093471www.canback.com
+1-617-399-1300
PREDICTIVE ANALYTICS
INTEGRATORS
PREDICTIVE ANALYTICS
INTEGRATORS
M&A DUE DILIGENCE EXPERTISECanback & Company
February 2015
2
Canback & Company is the world’s leading
management consulting firm leveraging
predictive analytics for strategic purposes.
We operate globally with the world’s largest
companies as clients. This has taken us to
54 countries since our founding in 2004.
We also offer analytic services with the
Canback Global Income Distribution Data-
base (C-GIDD) as our flagship product.
3
Pe
rfo
rma
nce
Time1900 1960 1990
Traditional
management
consulting
Predictive
analytics
2015
A new paradigm
with higher
performance
Few, if any, break-
throughs since the
early 1990s
- Conceptually based
problem-solving
- Experience preferred
over hard analysis
- Datasets at the
center of problem-
solving
- Repeatability and
scalability for
efficiency
Canback & Company prefers fundamental analysis of primary data over conceptual frameworks,
achieving greater accuracy in problem solving at a lower cost
“The future is already here, it is just unevenly distributed”
- William Gibson
MANAGEMENT CONSULTING INDUSTRY S-CURVE
4
We have established satellite offices in key international markets: Brazil, China,
Japan, India, Indonesia, Kenya, Mexico, and Nigeria. Our new core office in South
Africa opened this month.
For more information about the various offices please visit our website
Kenya
Boston
Mexico
Brazil
China
Indonesia
Nigeria
Giancarlo Spata Mark Wopicho
Francisco Maciel
Xingxing Liu
Teddy Purnomo
STREAM Insight Ltd
Japan
Shin Ito
OUR GLOBAL OFFICES AND LEADERS
Canback & Co has offices in ten key international markets, allowing us direct access to vital
centers of economic growth. Boston and Johannesburg are core offices, while the other eight are
satellite offices
South Africa
Arshad Abba
India
Aniket Pargaonkar
OUR CAPABILITIES
OfficeManagement
Consulting
Predictive
AnalyticsC-GIDD
Market
Research
Boston
Johannes-
burg
Tokyo
Beijing
Jakarta
Mexico City
Lagos
Nairobi
Pune
Sao Paulo
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M&A due diligence is today our largest practice because of our fast, fact-based and practical
approach
Canback & Co
Management consulting
>65%
M&A due diligence
>35%
Strategydevelopment
30%
Predictive modeling
15%
Commercial databases
15%
Market/industry research
<5%
We have a special expertise in quick
delivery of M&A due diligence,
working with up to 30 team members
to evaluate acquisition opportunities
from a market and functional
perspective
This used to be our core activity and
is still the #1 priority. We work on
market entry, brand development,
consumer segmentation and other
market/marketing efforts in emerging
countries
Boston Johannesburg Tokyo Beijing Jakarta Lagos Mexico City Nairobi Pune Sao Paulo
Predictive models are almost always
part of our management consulting
work. We also build them on a
standalone basis
We pioneered, and are still the
world’s only supplier of GDP and
income data at the subdivision and
city level: C-GIDD
We occasionally conduct standalone
market research for existing clients
where we know the topic
Market Opportunity
AssessmentTarget Evaluation Case StudiesExperience & Approach
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Mapping the Path to Future Prosperity - Emerging Markets Inclusive Growth Index (2014)
African Cities Growth Index 2013 (2013)
The Shifting Urban Economic Landscape: What Does it Mean for Cities? (2013)
Abuja +12: Shaping the Future of Health in Africa (2013)
Hot Spots - Benchmarking Global City Competitive (2012)
Nigeria - A Nation Divided (2011)
Quarterly Divisional Seminar Series — South Africa (2014)
Quarterly Divisional Seminar Series — Asia-Pacific (2013)
Africans Open Fuller Wallets to the Future (2014)
The War for Nigeria (2013)
Annual Results Presentation (2013)
Entering the African Beer Market: Uncovering the Strategies to Enable Success (2013)
NYC Jobs Blueprint (2013)
The Future of Retailer Brands (2010)
Canback & Co is often cited in the press, research reports, annual reports, and investor
presentations by some of the largest companies and organizations in the world
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Canback & Co has built its M&A due diligence track record through a combination of
experience, technical strengths, and in-market capabilities
CANBACK & COMPANY’S M&A DUE DILIGENCE CAPABILITY
Due diligence experience
M&A framework
Quantitative approach
Local research
• Standardized and
highly efficient
processes
• Unique due diligence
approach emphasizing
market potential
• Unique focus on
demand modeling
• Market sizing and
forecasting using
rigorous statistical
models
• In-market research
merged with local
insight
• International
expertise, particularly
in emerging markets
• Independent decision
making
• Completed over 50
due diligence projects
since 2009
Click on image below for a copy of
Market Opportunity
AssessmentTarget Evaluation Case StudiesExperience & Approach
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Since 2009, we have completed over 50 due diligence projects globally, most of which for
recurring clients
Due Diligence
Project Examples
• $5 billion FMCG acquisition in Brazil
• $2 billion acquisition in the Caribbean
• $8 billion acquisition in Mexico/Brazil
• $12 billion acquisition in the United
States
• JV evaluation in 8 sub-Saharan Africa
countries
• Commercial due diligence for
acquisition in Turkey
CANBACK & COMPANY’S DUE DILIGENCE WORK
U.S.
3%
23%
Europe
Asia
Africa
12%South America
37%
9%C. America and
Caribbean
17%
Project Mix by Geography2009-present
DUE DILIGENCE EXPERIENCE
Since 2009, Canback & Company has completed over 50 due
diligence projects internationally
Over 80% of these projects were engagements for recurring clients
Market Opportunity
AssessmentTarget Evaluation Case StudiesExperience & Approach
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The Canback & Co commercial due diligence approach involves two phases over the course of
6 to 8 weeks. Sometimes clients commission both phases, sometimes one or the other. Note
that the market opportunity assessment often is done before the kick-off
Timing 3 - 4 weeks 3 - 4 weeks
Objectives Assess market environment and opportunities
Conduct market structure, conduct and
performance analyses
Create "as-is" demand model
Develop commercial strategy
Identify operational improvement opportunities and
quantify synergies
Build "as-is" and "to-be" financial models
Key tasks Analyze macroeconomic environment
Perform SCP analysis
Conduct in-market research
Build "as-is" predictive demand model (10-year
forecast) to quantify market potential
Create commercial strategy for pricing, sales and
marketing, and distribution to capture market potential
Manage due diligence across functional groups
Collaborate with corporate finance team and investment
banking team to build financial models
Deliverables Market analysis and player assessment
Predictive demand model
Operational due diligence report
Post-acquisition strategic blueprint for next 3 years
Valuation and financial models
Phase 1: Market opportunity assessment Phase 2: Target evaluation
M&A COMMERCIAL DUE DILIGENCE TIMELINE
Kick-off
Market Opportunity
AssessmentTarget Evaluation Case StudiesExperience & Approach
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The two phases takes us from understanding the current situation (“as-is”) to finding the future
potential (“to-be”)
M&A commercial due diligence
Market opportunity assessment
Structure-Conduct-
Performance analysis
Market demand forecasting
Target evaluation
Commercial strategy
Functional strategies
Financial modeling
• Develop medium-
and long-term
commercial
strategies
• Identify operational
improvement
opportunities in sales
and marketing, as
well as distribution
• Manage due
diligence
processes across
functions
• Align functional
capability with
commercial strategy
• Collaborate with
clients and
investment banks to
build financial models
• Merge our predictive
demand model
seamlessly with the
financial model
• Combine statistical
analyses and
managerial insights
to assess market
opportunities
• Conduct in-market
research to refine
models and
recommendations
• Use rigorous
statistical methods
to build "as-is" and
"to-be" demand
models
• Leverage our income
distribution database
C-GIDD to quantify
market potential
“As-is" “To-be"
CANBACK & COMPANY’S M&A COMMERCIAL DUE DILIGENCE FRAMEWORK
The effort starts with an “as-is” assessment and ends with a “to-be” strategy with financials
Market Opportunity
AssessmentTarget Evaluation Case StudiesExperience & Approach
11
The SCP framework is a standard approach for understanding market dynamics. It is used by
corporations and consulting firms all over the world for more than 50 years and is therefore well
tested and recognized
Note: The Structure-Conduct-Performance framework was first developed by Joe S. Bain in the late 1950s and was later popularized through Michael Porter’s Five Forces
Market Opportunity
AssessmentTarget Evaluation Case StudiesExperience & Approach
CONDUCTSTRUCTUREEXTERNAL
CONDITIONSPERFORMANCE
Socioeconomic
conditions
• Economic growth
• Demographic trends
• Socioeconomic class
composition
• Urbanization
Government policies• Fiscal/monetary policy
• Taxes and subsidies
• Regulations
• Investment incentives
• Trade rules
• Antitrust policy
• Corruption
• Ease of doing business
Infrastructure• Information and
communications
technology (ICT)
• Transport and logistics
• Education
Market demand• Category dynamics
• Growth drivers
• Substitutes
• Price elasticity
Industry supply• Level of competition
• Product differentiation
• Brand power
• Barriers to entry
• Efficiency
• Capacity utilization
Value chain economics• Economies of scale / scope
• Supplier economics
• Marketing effectiveness
• Distribution economics
Strategic priorities
• Market breadth
• Geographic reach
• Vertical depth
Commercial activities
• Product portfolio
• Pricing
• Marketing spending
• Route-to-market/channels
• New product development /
innovation
Supply chain activities• Production processes
• Procurement
• R&D priorities
Finance• Financial resources
• Capital spending priorities
Market performance• Market growth
• Price trends
• Share relative to substitutes
• Industry value and profit pools
Player performance• Productivity
• Organizational effectiveness
• Growth
• Relative market shares and trends
• Profitability
• Share of profit pool
STRUCTURE–CONDUCT–PERFORMANCE FRAMEWORK
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An important part of the due diligence effort are the market visits. These typically happen early in
the process. We follow a rigorous protocol to maximize productivity
Canback & Company market visits generate valuable data directly relevant to the acquisition
target. To ensure success, we rely on a detailed market visit protocol that has been tested and
refined over the past ten years
MARKET VISITS
Meet with key
stakeholders
• Meet with local partners, government officials, and competitors
• Use meeting takeaways to refine model and long-term strategy
Determine margins
across value chain
• Quantify margins for various product channels
• Margins used in financial and demand modeling as well as commercial
strategy formation
Collect price points
• Collect price points by channel and product or brand
• Measure price variation between channels and discover realistic prices
facing consumers
Understand discounts
and promotions
• Determine how trade discounts and promotions impact retail prices and
producer margins
• Evaluate effective promotional techniques
Examine RTM and
delivery standards
• Assess RTM strengths and weaknesses
• Evaluate product availability and identify strong distribution partners
Profile competitors • Determine competitive landscape of international and local players
• Identify and quantify competitive trends
Market Opportunity
AssessmentTarget Evaluation Case StudiesExperience & Approach
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A detailed “as-is” demand model is developed with a 10 year horizon. It is broken down by
specified characteristics like geography and channel
• Category data from the client and third
party sources is cleaned and integrated
with C-GIDD
• The category data is combined with
macroeconomic variables in a format
facilitating statistical analyses
• The data is evaluated for normality,
colinearity, linearity in order to specify an
appropriate model
• We always screen for nonsensical outliers
and remove when necessary
Product
demand
Macro variables
Momentum
Price
• A demand model is used to create
projections using varying
statistical techniques including
pooled cross sectional models
and time series
• Models can be granular at the
brand, pack type, channel, and
region level spanning 5 to 10
years
DEMAND MODELING OVERVIEW
PREDICTIVE
DEMAND
MODEL
DATA
VALIDATION &
STRUCTURING
Market Opportunity
AssessmentTarget Evaluation Case StudiesExperience & Approach
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Our target evaluation framework develops a commercial and functional strategies, and quantifies
the acquisition synergy opportunities and financial implications
Financial
modeling
• Work with client and
investment bank as well as
other parties to complete "as-is"
and "to-be" financial models
• Integrate our consumer demand
forecast model and due diligence
improvements into the financial
models
Functional
strategy
• Manage the operational due
diligence process across
functional groups
• Collaborate with client
executives who have functional
expertise to integrate their
recommendations
Commercial
strategy
• Meet with the client to develop a
commercial strategy to capture
post-acquisition medium- and
long-term growth opportunities
• Identify opportunities to enhance
pricing, sales and marketing, and
distribution strategies
The functional due diligence identifies
opportunities in the following areas:
• Sales and Marketing
• Distribution
• Supply Chain and Procurement
• Production
• R&D
• Information Services
• Corporate Affairs
• Taxes
• Human Resources
Develop a commercial strategy to
capture market opportunities
EXPERT VOLUME
ADJUSTMENTS
FINANCE
ASSUMPTIONS
VOLUMETRIC
• Brand mix
• Item mix
FINANCIAL
• Revenue
• EBITDA
CASH FLOW
DUE DILIGENCE TARGET EVALUATION
ACQUISITION
SYNERGIES
SAMPLE ANALYSES
Our due diligence examines
the target’s "as-is"
operational capability and
develops a "to-be" strategy.
Acquisition synergy
opportunities including:
• Organic growth (e.g., new
complementary products
or sales channels)
• Increased customer
penetration/cross-selling
• New market
segments/customers
• Strategy for selecting and
entering new market
segments
• Cost-reduction/margin
improvement
Market Opportunity
AssessmentTarget Evaluation Case StudiesExperience & Approach
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Canback & Co’s main role during the target evaluation phase is to develop the commercial
strategy together our client’s strategists and commercial executives
Suppliers ConsumersProcurement
and inbound
logistics
Production R&D Route to
Market (RTM)
• Sales
• Distribution
Other Support Functions
Human Resources (HR)
Finance
Information and Communication Technology (ICT)
Marketing
• Portfolio
• Volume
and value
projections
DistributorsService
COMMERCIAL STRATEGY DEVELOPMENT
DEVELOP COMMERCIAL STRATEGY
We work with the client team to develop an
integrated commercial strategy that harmonizes
the different value chain components of our
client and the target. Specific questions to
consider are:
• Is there a need to improve current sales and
market strategy to support the change in
product and pricing strategy?
• How can the target restructure the distributor
footprint and relationship to capture the
volume growth?
CAPTURE MARKET OPPORTUNITIES
In the commercial strategy, we identify commercial improvement
opportunities to capture market potential in areas including:
• Product portfolio
• Pricing
• Sales and marketing
GENERATE PREDICTED MARKET VOLUME
The commercial strategy lays out a post-acquisition strategic blueprint
for how to generate the market volume projected by our demand
model as well as volume from potential synergies• Route-to market
• Channel strategy
Market Opportunity
AssessmentTarget Evaluation Case StudiesExperience & Approach
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The functional strategies are mostly developed by our client’s executives. Canback & Co’s role is
to assist with targeted analyses and to help create meaningful presentations. Our client
executives are likely to visit the target’s facilities to inform their functional assessments
Other
Functions
• IT infrastructure and support
• Strategy
• Finance, taxes, corporate affairs integration
Sales and
Marketing
• Promotion and advertising activities
• Marketing operations
• Sales representative training program
• Sales network
FUNCTIONAL STRATEGY SAMPLE TOPICS
Supply Chain
and
Procurement
Production
• Facilities/offices (locations, sizes, functions)
• Production capability
• Manufacturing operations and staff
R&D
• Organizational structure
• Number of employees by location and functional department
• HRM policies (e.g. recruiting, comp levels, comp structure, etc.)
• Incentive plans and employment contracts
• Supply chain model
• Facilities/offices (locations, sizes, functions)
• Product vendor management
Distribution
Human
Resources /
Organization
• R&D process
• New product development
ENHANCE EXISTING
FUNCTIONAL CAPABILITY
After the commercial strategy
is developed, a sound
functional strategy is crucial to
ensure successful
implementation of the
commercial strategy.
We are experienced in
managing this process
across functional teams and
identifying functional
improvements.
• Route-to-market structure
• Distributor footprint and operations
• Fleet mix
Market Opportunity
AssessmentTarget Evaluation Case StudiesExperience & Approach
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The financial modeling is typically done by our client’s finance experts, with Canback & Co
providing inputs and being a sounding board
FINANCIAL MODELING OVERVIEW
DEMAND MODEL OUTPUT
• The demand model output can be used to
project financial results down to the SKU level
for the target company’s products using
volume and price forecasts
• This SKU level outputs aggregate to a
company level income statement that can be
used for valuation
• We have built numerous discounted cash flow
models using our demand modeling output as
the basis for revenue projections
SKU LEVEL P&L FOR TARGET COMPANY
TARGET COMPANY DCF
Market Opportunity
AssessmentTarget Evaluation Case StudiesExperience & Approach
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Canback & Co frequently works with other professional services firms in small and large teams
to deliver on due diligence engagements
Due diligence steering committee
Investment bank(s)Accounting
due diligenceOperational
due diligence team
Canback & Co Client team
Legal due diligence
DUE DILIGENCE TEAM STRUCTURES
• The project team membership varies by acquisition
• Size can range from 5 to 50 members
• Operate financial model
• Functional expertise
• Provide internal data, data
from target
• Set goals / priorities
• SCP analysis before project
kickoff – includes market
visit
• Demand modeling
• Project management during
target assessment phase
• Identify acquisition
targets
• Provide guidance on
DCF details, valuation
• Provide WACC
estimates
Market Opportunity
AssessmentTarget Evaluation Case StudiesExperience & Approach
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Case study 1: In early 2013, Canback & Co completed a due diligence project in Southeast
Asia. We conducted a thorough assessment of local players and partnership opportunities for
our client
M&A due
diligence
framework
Southeast
Asia due
diligence effort
Client: Global beverages client
Target: Large beverage player in Southeast Asia
Context: Client is looking to strengthen position in the beverage market through partnership with a large local player. We were
engaged to conduct a thorough analysis of the local market and assess JV potential through conducting commercial due diligence
SCP
• Assessment of political and economic risks, demographics
• Analyze market by category, brand, and player share
• With a team of 4, the entire project ran for 8 weeks, including 1 week of
in-market research
• Worked on the ground and remotely with local researchers who
assisted with translation and in-market visits
Demand modeling
• Model demand at the regional level, over a 10 year time horizon
• Modeling done at the SKU level and includes value and volume
• Demand is forecasted on both an “as is” (organic market growth) and
“to be” (organic growth with strategic initiatives) scenario
Commercial due diligence
• Collaborated closely with client’s management team based in Southeast
Asia
• Assessed multiple local players and profiled most attractive player for
potential partnerships
• Analyzed partnership opportunities for client and target local player to
jointly improve market positions, value chain performance, and
profitability
• Identified specific partnership opportunities for client and local player
such as portfolio improvement, new category rollout and value chain
improvements
Value chain analysis
Target
Evaluation
Market
opportunity
assessment
Due diligence team room
Market Opportunity
AssessmentTarget Evaluation Case StudiesExperience & Approach
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Case study 2: In early 2014, Canback & Co completed a lengthy due diligence project in West
Africa, assisting our client with negotiation and valuation of a joint venture
M&A due
diligence
framework
Target
Evaluation
Market
opportunity
assessment
West Africa
due diligence
effort
Client: Global FMCG client based in Africa
Target: Distribution company
Context: Client is looking to enter a West African market. JV partner – distribution company – has been identified and parties
have engaged in substantial talks. Our key tasks were to quantify future demand, value the venture, and negotiate distribution fees
SCP
• Assessment of political and economic risks, demographics
• Analyze market by category, brand, and player share
• Walk the ground to understand consumer behavior, establish prices,
and frame competitor conduct
• Analytical framing of market using Canback toolbox
Demand modeling
• Model demand for current and new product recommendations over a 10
year time horizon and 3 phases
• Modeling done at the SKU level and includes value and volume
• Demand is forecasted on both an “as is” (organic market growth) and
“to be” (organic growth with strategic initiatives) scenario
Commercial due diligence
• Route to market challenges and distribution gaps were identified due to
nature of JV partner business
• Proposal of a new sales and service model was introduced to minimize
partner shortcomings and maximize value
Financial modeling
• Demand projections and costs were input into Canback financial model
to determine payback period and valuation
• Financials led to a need for distribution fee renegotiation
• Canback team present during final negotiations to offer strategic advice
and update financial model
RTM evaluation
Due diligence meeting
Market Opportunity
AssessmentTarget Evaluation Case StudiesExperience & Approach
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Canback & Company contact information
C-GIDD BRAZIL MEXICO CHINA
Canback Analytics LLC
210 Broadway, Suite 303
Cambridge MA 02139
http://cgidd.com
Bobo Shen
Tel: +1-617-399-1300 Ext. 210
Email: [email protected]
Canback do Brasil
Rua Com. Miguel Calfat 128
1101 Vila Olimpia
São Paulo - SP 04537-080
Giancarlo Spata
Tel: +55-11-3846 9668 or 8187 7801
Email: [email protected]
Canback Mexico
Bosque de Ciruelos 160-7
Bosques de las Lomas
11700 México, D.F.
Francisco Maciel Morfin
Tel: +52-155-4354-9806
Email: [email protected]
Canback China
Suite 903B, Rongxin Tower
S. Square, Beijing W. Station
Beijing, 100055
Dr Xingxing Liu
Tel: +86-10-8399 3522 or 3523
Email: [email protected]
–––––––––––––––––––––––––––––––––BOSTON HEADQUARTERS––––––––––––––––––––––––––––––––– JOHANNESBURG
Canback & Company LLC
210 Broadway, Suite 303
Cambridge MA 02139-1944
Geo: 42.365869,-71.093471
Tel: +1-617-399-1300
Fax: +1-617-553-4500
Web: http://canback.com
Dr Staffan Canback
Managing Director
Tel: +1-617-399-1300 Ext. 201
Cell: +1-617-818-4963
Email: [email protected]
Jonathan Mayes
Engagement Manager
Tel: +1-617-399-1300 Ext. 203
Cell: +1-412-901-8213
Email: [email protected]
Jesse Logan
Vice President
Tel: +1-617-399-1300 Ext. 202
Cell: +1-781-640-7458
Email: [email protected]
Irina Blinova
Office Manager
Tel: +1-617-399-1300 Ext. 205
Cell:
Email: [email protected]
Canback SA (Pty) Ltd
Morvest Building, 1st floor
118 14th Road
Noordwyk
Midrand
1685
Geo: −25.9570, 28.1308
Arshad Abba
Country Manager – South Africa
Tel: +27-11-231-1362
Cell: +27-83-786 2450
Email: [email protected]
INDIA SOUTHEAST ASIA JAPAN WEST AFRICA
Canback Research
c/o ValueNotes Database Pvt Ltd
1 Bhuvaneshwar Society
Abhimanshree Road
Pashan, Pune 411 008
Maharashtra
Aniket Pargaonkar
Tel: +91-20-5601-0423 or 24
Email: [email protected]
Canback Southeast Asia
Jl. Tiang Bendera 5 no. 2A
DKI Jakarta 11230
Teddy Purnomo
Tel: +62-812-8743 7578
Email: [email protected]
Canback Japan
Ginza Wall Building UCF 5F
6-13-16 Ginza
Chuo-ku, Tokyo 104-0061
Shin Ito
Tel: +81-3-6338-0002
Email: [email protected]
STREAM Insight
7A, Ikorodu Road
Maryland
Lagos
Adewale Opawale
Tel: +234-710-30 51 40
Email: [email protected]