Download Transactions

23 April, 2004 – Solvay Business School
Discovering Investment Banking
Morgan Stanley Team
Antoine de Spoelberch
Thibault Biebuyck
• Executive Director
• Analyst
• Belgian Banking Group
• Financial Institutions Group
• Coverage and Execution
• Coverage and Execution
• 10 years of Banking experience
• 2 years of Banking experience
• Relevant notable transactions include
• Relevant notable transactions include
– Sale of Fafer to Usinor
– Sale of Inmarsat to Apax/Permira
– Sale of UGB to Hoogovens
– Sale of Egg (in process)
– Sale of Meneba to CVC
• Solvay Business School (2002)
– Sale of Motorola Telco
• Darden Graduate School of Business
Administration
– Creation of Diageo (Guinness/GrandMet)
– Creation of Dexia (CCB/CLF partnership)
– Acquisition of Polygram by Seagram
– Belgacom strategic partnership
• Solvay Business School (1993)
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Selected Belgian/Luxembourg Clients
Kingdom of Belgium
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Introduction
• Organisational Structure
• Investment Banking Activity
– What is investment banking?
– Overview of main roles
• Transaction Overview
– Types of M&A transactions
– Typical phase of auction process
• Case Study: Inmarsat
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Section 1
Organisational Structure
Organisational Structure
Divisional Structure
Morgan Stanley
Securities
Foreign
Exchange
Commodities
Global Capital
Markets
Investment
Banking
Corporate
Finance
Asset
Management
Fixed
Income (inc.
Research)
Mergers &
Acquisitions
Equity (inc.
Research)
Investment
Management
Securitised
Products
Group
Private
Wealth
Management
Private
Equity
Infrastructure
Information
Technology
Institutional
Finance &
Operations
Real Estate
Group
Banking Group
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Organisational Structure
Overview of Business Divisions (cont’d)
Research (Equity, Fixed
Income and Asset
Management)
Sales and Trading
• Industry specialists
• Product specialists
• Designed to support sales and trading
• Distributes underwritten and agented securities
• Market making for institutional clients
• Proprietary trading
• Instruments include equities, bonds, derivatives, bank loans,
FX, etc.
Investment Management
& Individual Investor
Group
• Manage and administer assets for
– Institutions (IM)
– Wealthy individuals (PWM)
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Organisational Structure
Chinese Wall Between IBD & Sales and Trading
Chinese
Wall(1)
Investment Banking Division (IBD)
Institutional Equity Division (IED)
& Fixed Income Division (FID)
Sales
Banking
Joint Ventures
IED – GCM
FID – GCM
Trading
Mergers &
Acquisitions
Equity & Fixed
Income Research
Real Estate
Global Capital Markets
(GCM)
Note: (1) Chinese Wall: Organisational and physical barrier between the investment banking division, the
research divisions and the sales and trading divisions to prevent misuse of confidential and sensitive information
and to guarantee the independence of the various services provided
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Section 2
Investment Banking Activity
Investment Banking Activity
What is Investment Banking?
Suppliers of Capital
• Institutions
– Pension Funds
– Insurance Companies
Morgan Stanley Investment
Banking Division
Users of Capital & Advisory
Services
• Corporations
Advisory Services
– Investment Trusts
• Governments
– Sovereign
– Local
– Unit Trusts
Money
• Individuals
• Financial Institutions
Securities
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Investment Banking Activity
Investment Banking Division – Europe
European Banking
UK/Ireland
Nordic
France
Financial
Sponsors
Energy / Utilities
Mergers and
Acquisitions
BNS
Communications
Italy
Media
Spain/
Portugal
Technology
Securitised
Products
Group
Germany
Financial
Institutions
Russia
Health
Care
EMG
Consumer
Products
Global Capital
Markets
Israel
Retail
Transport
South
Africa
GIG
Turkey
Chemicals
Natural
Resources
Middle
East
Real
Estate
Corporate
Finance
Execution
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Investment Banking Activity
A Global Bank with a Local Presence
Toronto
Denver
San Francisco
Menlo Park
Los Angeles
Montreal
Chicago
Houston
Boston
New York
Stockholm
Luxembourg
Moscow
Amsterdam
Frankfurt
London
Zurich
Milan
Paris
Rome
Madrid
Geneva
Mumba
MexicoCity
Beijing
Shanghai
Hong Kong
Seoul Tokyo
Osaka
Taipei
Bangkok
Singapore
Sao Paulo
Johannesburg
Sydney
Buenos Aires
Melbourne
• 700 offices in 28 countries
• Over 65,850 employees world-wide
• Over 5,720 employees in 12 European office(1)
• Individuals from 120 nationalities, speaking 97 languages
Note: (1) Excluding retail offices
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Investment Banking Activity
Overview of Business Divisions
Banking Group
(Corporate Finance, M&A)
• Maintain and develop client relationships
• Market full range of investment banking services to clients
• Ongoing strategic discussions and development of new
transaction opportunities
• Execute acquisitions, divestitures, mergers, JVs and
corporate restructurings
• Capital structure and financing advice and execution (IPO,
privatisation, acquisition financing)
• Provide strategic and tactical advice
• Valuation, fairness opinions
Global Capital Markets
• Monitor capital market conditions and develop new financing
products and raise capital for corporates/institutions
• Intermediate between clients and sales/trading in new issues
and trading
• Market coverage of users of capital
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Section 3
Transactions
Transactions
The Buyside/Sellside Transaction
What?
Buyer?
• Acquisition of controlling shareholding
• Strategic buyer
– Private/Public
• Financial buyer
• Acquisition of assets or of a division
• Minority investments
• Joint ventures
How?
• Full auction process
Seller?
• Limited auction
• Large company
• Bilateral discussion
• Family shareholders
• Hostile
• Public shareholders
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Transactions
Illustrative M&A Advisory Assignment
Exploring
Strategic
Alternatives
• Understand the
client
company’s
objectives
• Identify and
screen possible
strategic
alternatives
• Apply
knowledge of
mergers/
acquisitions
market
• Analyze
strategic and
financial
implications
Valuation
and
Pricing
• Review of
market
valuations of
comparable
companies
• Insight into
precedent
transactions
• Discounted
cash flow
analyses,
including
sensitivity
studies
• Pro forma
analyses
• Judgement,
experience and
market
knowledge
Structuring
• Conventional
structures
• Creative
structures
• Financing
• Tax issues
Assistance in
Due Diligence
Review
• Assisting team
in investigation,
as appropriate
• Coordination
and coaching of
various teams
(financial,
technical, legal,
etc.)
Negotiation
• Price, structure,
contract
• Coordinate
details and
tactics
• Balance price
with other terms
Capital
Markets
Reaction
Assessment
• Equity markets
• Rating
agencies
Fairness
Opinion
Signing and
Announcement
• Communications
strategy
• Ongoing advice
on closing
conditions,
regulatory review
and potential
interlopers
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Transactions
Typical Phases of an Auction Process
Invitation
• Seller sends out invitations
• Buyers sign Confidentiality Agreement
Phase I
• Seller sends out information memorandum and process letter
• Buyers submit non-binding preliminary bids by deadline
Phase II
• Seller selects [usually 3-6] Phase II bidders
• Due diligence
• Buyers submit final bid and marked-up Sale and Purchase Agreement
Completion
• [Confirmatory due diligence]
• Negotiation of final Sale and Purchase Agreement
• Signing
• Closing
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Transactions
Typical Buyside Timetable
January
Phase I
Invitation
Week Starting
February
March
April
May
1 8 15 22 29 5 12 19 26 5 12 19 26 2 9 16 23 30 7 14
Receive Teaser
Negotiate Confidentiality Agreement
Receive Offering Memorandum
Evaluate Offering Memorandum
Submit Non-binding Bid
Announcement of Phase II Bidders
Phase II
Attend Management Presentation/Data
Room
Continue Due Diligence/Revise Offer
 Valuation

Structuring
 Financing
Completion

Legal/Accounting
Submit Final
Bid
Announcement of “Winners”
Confirmatory Due Diligence
Negotiation of Sales and Purchase Agreement
Signing
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Transactions
Teaser
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Transactions
Confidentiality Agreements
Key or Sensitive Clauses in Seller/Potential Buyer Confidentiality Agreements:
• Definition of confidential information
– Includes analyses, compilations, forecasts, studies, etc.
• Buyer will return (or destroy) all information at seller’s request
• Buyer not entitled to rely on accuracy and completeness of information, but solely on the
representations and warranties of Sale and Purchase Agreement
• Buyer will not hire (or solicit) any employees from the company or seller for
[3] years
• Buyer agrees in advance to grant injunctive relief to seller without proof of damages
• Governing law of agreement
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Transactions
Confidential Information Memorandum
Executive Summary
Industry Overview
Business Description
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Overview of the opportunity
Business description
Key investment considerations
Summary financials
Indemnity and key contacts
History
Competitive landscape
Market characteristics and structure
Government regulation (if applicable)
Key trends and statistics
Products and brands
Customers
Sales, marketing and distribution
Manufacturing process
Raw materials and suppliers
Research & development
Product pricing policy
Typical Information Memorandum Structure
Management & Employees
Financial Overview
Appendices
• Organisation charts
• Senior management team
– Responsibilities
– Experience
• Employees
– By division, location and rank
• Employee benefits
• Board of directors (if applicable)
• Historical financials
– 3-5 years
– Commentary
• [Management projections]
– 3-5 years
– Commentary
• Current year budget vs. year-to-date
performance
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Product brochures
Advertisements
List of shareholders
Management biographies
(Audited) financial statements
Borrowing arrangements (if applicable)
Property and facilities
Country/industry economic outlook
Any other relevant information
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Transactions
The Work….
• Review IM
• Valuation
– Develop assumptions
– Build financial model
• Pro forma analysis
• Bid structure
– Legal/tax issues
• Strategic and operational issues
• Insight on competitive landscape
• Bid letter
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Transactions
Preliminary Bid Letter
• Not binding:
Subject to…
• Seller’s requirements
• Typical content:
– Price (amount or range, consideration)
– Assumptions
– Financing
– Conditions
– Required approvals and consents
– Scope and extent of due diligence
– Strategic Rationale/Plans for the Business
– Overview of Acquiring Entity
– Advisers and Contact Name
• Approach:
– Tactical pricing
– Fair pricing
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Transactions
Dataroom
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Transactions
Site Visits
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Transactions
Management Presentation
• Executive Summary
• Industry Overview
• Business Description
• Management & Employees
• Financial Overview
• Questions & Answers
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Transactions
Valuation
Due Diligence input
Company Projected
Earnings and Cash Flow
(including Synergies)
Discounted Cash Flow
Corporate Governance
Other valuation
methodologies (Comps,
Prepaids, LBO, Synergies,
etc.)
Value Range
Strategic and other
qualitative issues
Pro Forma Analysis
Agreed Value
Legal/Tax Aspects
Competitive
Dynamics
Price
Tactical
Considerations
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Transactions
Sale and Purchase Agreement
• Price and price adjustments
• Completion/closing obligations
– Completion audit
– Transfer of title to shares
– Price adjustment mechanism
– Change of directors/officers
– Deferral/escrow of purchase price
– Repayment of inter-company debts
• Warranty provisions
– Seller’s representations and warranties
– Limits on seller’s liability
• Conditions
– What they are
– Responsibility
• Conduct of business pending
completion/closing
– Clearance from relevant competition
authorities
• Post-completion obligations, e.g.
– Transfer of pension schemes
– Unwinding of other arrangements with
related parties
• Confidentiality and public announcements
• Restriction on competition by seller
• Cost and expenses
• Governing law and disputes forum
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Transactions
Final Bid Letter
• Key content:
– Price
– Financing:
– source(s) and proposed timing of financing
– attach letters from financial institutions proposing to provide external financing detailing
the Buyer’s financial ability, if applicable
– Strategic rationale/plans for business
– Social undertakings
– Indication of timetable and next steps
– List of all proposed amendments to the Sale & Purchase Agreement
– Conditions
– To signing
– additional due diligence
– To closing
– regulatory approval
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Transactions
The Deal
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Section 4
Case Study: Inmarsat
Case Study: Inmarsat
Activity Sectors
Maritime
Land
• Service launched:
1982
• Commissioned
terminals(1): 134,800
• Revenues (2001):
US$269 MM
• Established enterprise
users including 52% of
deep water merchant
shipping
• Only provider of GMDSS
• Service launched:
1982
• Commissioned
terminals(1 ): 96,500
• Revenues (2001):
US$97 MM
• Only provider of mobile
broadband service with
global footprint
Note: (1) As of June 2002
Aeronautical
• Service launched:
1990
• Commissioned
terminals(1): 7,200
• Revenues (2001):
US$12 MM
• Established enterprise
users including 50% of
long-haul commercial
aircraft
Leasing & Navigation
• Leasing satellite capacity
• Revenues (2001):
US$37 MM
• Attractive revenue
opportunity for unused
network capacity in
second and third
generation satellites
• Growing, predictable
revenue stream
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Case Study: Inmarsat
Sale of Inmarsat to Apax and Permira
• Inmarsat Ventures plc changed its IGO status and was privatised on April 15, 1999
• 86 shareholders representing most PTOs worldwide
• Shareholders subject to a 15% shareholding and voting cap
• Some shareholders (e.g. Telenor, FT, Xantic), are its largest customers or LESOs
(“Land Earth Station Operators”)
• The commercial relationship between the shareholders is regulated in the “LESO
Agreement”
• The company is a provider of global wireless voice and data communications
services through its satellite constellation (Inmarsat-2 and Inmarsat-3)
• Strong market position; does not sell directly to end users but to LESOs, and Service
Providers
• High operational leverage as demonstrated by the positive impact over the last
couple of years of Global Security Revenues (GSR)
• I-4 Satellite launches expected for 2004 and 2005
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Case Study: Inmarsat
Illustrative Satellite Cash Flow Life Cycle
Illustrative Satellite Cash Flow Life Cycle
Cumulative Cash Flow (€ MM)
10 Year Contract
600
400
Launch
200
0
0
(200)
(400)
1
2
Procurement
Period
3
4
5
6
7
8
9
10
Revenue Generating Period
11
12
13
14
15
Satellite
Life
(Years)
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Case Study: Inmarsat
Morgan Stanley Role
• Morgan Stanley acted as exclusive financial advisor to Inmarsat from early 2000
• Originally engaged to do an IPO to comply with US ORBIT Act(1), also aimed at offering liquidity to
shareholders
• Assisted in preparations for IPO during 2000-02
• In July 2002, the prevailing state of equity markets and valuation levels led the Board to explore a
private equity process alternative
• Morgan Stanley organised a process in which process integrity and competitive tension were
paramount considerations
• Established a Steering Group (“SG”) with some of the largest shareholders (representing 52%) to
provide forum for shareholder input and convey credibility to buyers
• Protected process integrity by obtaining confidentiality commitments from SG shareholders and
standstill and confidentiality commitments from bidders
• Prevented bidder collusion by not allowing teaming up by private equity bidders in their first round
bids
• Bidder consortia were only allowed into the second round after testing
• Valuation levels
• Convincing buyers of business case
Note: (1) ORBIT Act was passed in March 2000 and stands for Open-market Reorganisation for the Betterment of
International Telecommunications Act, requiring Inmarsat and other satellite companies to conduct and IPO
before October 1, 2000 amongst other requirements
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Section 5
Summer Internships
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Summer Internships
Summer Internships
• Morgan Stanley is offering each year summer internship positions for students in its
Investment Banking Division in London. Please apply online from November 2004
onwards on www.morganstanley.com/careers/recruiting
• For any questions regarding this presentation, the internship programme or Morgan
Stanley in general, please contact:
– Thibault Biebuyck: +44 20 7425 3775
[email protected]
– Augustin Bataille : +44 20 7425 3202
[email protected]
– Edouard Janssen: +44 20 7677 9736
[email protected]
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