Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.



Published on

Published in: Business
  • Login to see the comments


  1. 1. 1GRUBISIC & Partners M&A - Capital raising - Valuation - Due diligence - Financial advisory GRUBISIC & Partners CORPORATE FINANCE FINANCIAL ADVISORY SERVICES WITH SPECIAL EMPHASIS ON ... (i) Sale of Companies and Asset Disposals (ii) Capital Raising (iii) Acquisition of Companies Including Financial, Tax and Legal Due Diligence (iv) Valuation (v) Financial Analysis and Restructuring (vi) Evaluation of Strategic Options
  2. 2. GRUBISIC & Partners CORPORATE FINANCE 2 It’s not about being smarter than the rest – it’s about being more disciplined
  3. 3. GRUBISIC & Partners CORPORATE FINANCE 3 Content GRUBISIC & Partners – Scope of Services 4 Membership in M&A Worldwide 5 Financial Analysis and Valuation 8 Company Sale or Recapitalization 14 Acquisition and Due Diligence of Target Company 19 Financial Restructuring 27 Evaluation of Strategic Options 29 Selected Clients 33 Team 35 Contacts 40
  4. 4. GRUBISIC & Partners CORPORATE FINANCE 4 Focused on Corporate Finance Experts in Corporate Finance Sale of Business1  Project management and financial advisory in sale process including:  Transaction structuring  Preparation of teaser and information memorandum for investors  Valuation of business  Identification and communication with potential investors  Analysis of non-binding offers (term sheets)  Organization of due diligence  Advisory during negotiation phase  Assistance in fulfillment of conditions precedent  Transaction closing Acquisition of Business2  Project management and financial advisory in acquisition process including:  Identification of appropriate targets  Analysis of targets and initial valuation  Structuring and preparation of term sheet (non-binding bid)  Performing financial and tax due diligence  Coordinating work of other advisors on transaction  Preparation of final valuation  Advisory during post due diligence negotiation Capital Raising  Raising debt or equity capital for expansion or restructuring purposes. Indicative order of capital sources from cheaper to more expensive:  Bonds  Collateralized loans  Non-collateralized loans  Subordinated debt  Convertible debt  Preferred shares  Ordinary shares Valuation 3 4 Financial and Tax Due Diligence  Detailed analysis of revenue and costs  Detailed analysis of assets (receivables, inventory, long term tangible and intangible assets)  Detailed analysis of liabilities (suppliers, state, creditors, other liabilities)  Determination of profit margins per product and service categories, seasonality, anomalies and normalization of operating profit  Analysis of cash flow  Quality of accounting practices  Identification of tax risks 5 Financial Restructuring  Preparation of detailed financial model with business projections in different scenarios  Identification of areas and measures for cost optimization, treatment of non-operating assets and other measures needed to improve company’s cash flow  Presenting restructuring plan to creditors and debt restructuring  Bringing investors to perform recapitalization and/or refinancing of existing liabilities 6  Some of the reasons for valuation include preparation for recapitalization or sale, exit of one of the partners from ownership, pledging shares as collaterals, etc.  Fundamental valuation method is based on discounted future cash flows (DCF method) requiring detailed projections of income statement, balance sheet and cash flow  Methods used to check soundness of results received from DFC method most often include valuation based on trading multiples and transaction multiples Evaluation of Strategic Options7  Entrance of strategic or financial investor  Sale of a company or acquisition of other businesses  Choosing financing structure  Debt restructuring / refinancing  Merging companies or spinning off parts of existing business  Transfer of ownership  Treatment of non-operating assets  Investment decisions and change in product and service portfolio  Modelling and simulation of scenarios
  5. 5. GRUBISIC & Partners CORPORATE FINANCE 5 Membership in M&A Worldwide Membership in M&A Worldwide – 45 members around the globe  GRUBISIC & Partners were admitted as full member of M&A Worldwide in November 2012  M&A Worldwide is on of the 4 leading global associations of independent firms specialized for mergers & acquisitions  As of 2015, M&A Wordwide counts 45 member firms allowing maximum utilization of local contacts and know-how of each respective member in its domestic market  Membership in M&A Worldwide brings the following benefits for GRUBISIC & Partners and our clients: • Easy identification and access to relevant strategic investors • Utilization of global network with strong local presence and reach of partner firms in their respective home markets resulting in strong synergies • Unique knowledge and expertise of all partners often coming from Big 4 firms, investment banks and private equity funds, thus assuring that there is no transaction type or industry where member firms do not possess adequate experience • Enrollment of senior partners throughout the whole transaction process Countries with member firms In 2014 members of M&A Worldwide have completed 223 transactions with total value of EUR 3,6 bln, of which:  77 transactions were sell-side mandates  69 acquisition transactions  55 capital raising projects  22 other transactions
  6. 6. GRUBISIC & Partners CORPORATE FINANCE 6 Members of M&A Worldwide (1/2) Members of M&A Worldwide # Country Partner Web page 1 Algeria Emergence North Africa Partners 2 Australia Johnsons Corporate Pty Ltd. 3 Baltic Countries United Partners 4 Belgium Omnicap 5 Brazil Cypress Associates do Brasil 6 Bulgaria Transacta OOD 7 Canada Focus LLC 8 China Morgen Evan Advisory Services Ltd. 9 Croatia GRUBIŠIĆ & Partners 10 Egypt FinCorp Investment Holding 11 Finland Armatori Corporate Finance 12 France Linkers Fusions & Acquisitions 13 France MBA Capital 14 Germany ACTIVE M&A Experts GmbH 15 Germany S & P Mergers and Acquisitions 16 Great Britain Bluebox Corporate Finance 17 Great Britain Rickitt Mitchell & Partners Limited 18 Hong Kong SCS Global Consulting (Hong Kong) Limited 19 Hungary International Mergers & Acquisitions 20 India Corporate Catalyst India Pvt. Ltd. 21 Israel MnA Team 22 Italy Avvalor Corporate Solutions Srl 23 Italy Bridge Kennedy International Srl 24 Japan SCS Global Consulting KK 25 Luxembourg T & T Merger & Acquisition Transactions 26 Malaysia SCS Global Advisory (M) S/B 27 Mexico Corporate Finance Services Mexico
  7. 7. GRUBISIC & Partners CORPORATE FINANCE 7 Members of M&A Worldwide (2/2) Members of M&A Worldwide Recent Conventions Bordeaux, France - May 2014 Shanghai, China - November 2015istanbul, Turkey - May 2015 # Country Partner Web page 28 Morocco Actipar Sarl 29 Netherlands Aeternus Corporate Finance 30 Netherlands T & T Merger & Acquisition Transactions 31 Norway DHT Corporate Services AS 32 Poland Capital One Advisers 33 Poland JP Weber Sp. z o.o. 34 Romania FRD Center 35 Russia RMG Partners 36 Saudi Arabia AMWAL FINANCIAL CONSULTANTS 37 Singapore SCS Global Holdings Pte Ltd 38 South Africa IBN Business Solutions 39 Spain ARS Corporate Finance Advisors SL 40 Sweden Stockholm Corporate Finance AB 41 Switzerland adbodmer capital 42 Tunisia Emergence North Africa Partners 43 Turkey Crossborder Corporate Consultancy 44 USA Focus LLC 45 USA Morgen Evan Advisory Services Ltd.
  8. 8. GRUBISIC & Partners CORPORATE FINANCE 8 Financial Analyis and Company Valuation
  9. 9. GRUBISIC & Partners CORPORATE FINANCE 9 Activity and Liquidity Profitability Returns  Activity indicators (asset turnover, inventory turnover in days, collection period in days, and payment period in days) Special attention is paid to collection period from particular customers given profitability of existing business relation, seasonality of receivables, degree of their collectability and aging structure. Inventory is analyzed on product category level focusing on relationship between category profitability and inventory turnover, while at suppliers level the relationship between purchase levels from particular suppliers, purchasing terms (including payment period in days) is analyzed.  Liquidity indicators (current ratio, quick ratio, and cash ratio).  Profitability indicators down to gross profit level (gross profit margin). Special attention is paid to identification of relevant product and service categories and pertinent sales structure based on those categories. In addition, cost of goods sold (COGS) is calculated for all categories in order to get full understanding of gross profit margin levels and trends on product/service category level. Same analysis is applied to customer level (or group of customers), sales channels, and geographical territories. Finally, an analysis of each category’s, customer’s, sales channel’s and geography’s contribution to overall gross profit will be performed.  Profitability down to EBITDA level (EBITDA margin). A detailed analysis of fixed operating expenses (OPEX) will be done including grouping of expenses into adequate categories allowing for better understanding of types of costs being incurred, their level and share of total costs, and finally their impact on EBITDA.  Normalization of EBITDA and profit margins. Analysis of OPEX may result in a need for reclassification of part of those costs into COGS in order to get better assessment of real gross profit and gross profit margins. Furthermore, all one-time and non-recurring revenues and costs will be reassessed including their impact on calculated EBITDA, and finally the influence of other operating revenue (other than sales) on EBITDA, such as revenue from asset disposals, rent, reversed warranty provisions, etc. will be studied in order to determine normalized EBITDA related to and stemming only from core operating activities.  Profitability below EBITDA level (EBIT and net income). Depreciation policy, structure of financing costs and effective income tax rate will be analyzed.  Du Pont analysis. Return on assets (ROA), return on invested capital (ROIC) and return on equity (ROE) will be decomposed into relevant elements providing for better understanding of element’s contribution to an indicator (e.g. ROE will be looked at as a product of asset turnover x net profit margin x equity multiplier, and as sum of ROIC + ((ROIC – cost of debt) x D/E). Such approach allows for identification of areas offering possibility for improvement in ROA, and especially and more important in ROIC and ROE. Financial Analysis and Company Valuation Analysis on Corporate, Profit Center or Cost Center Level (1/2)
  10. 10. GRUBISIC & Partners CORPORATE FINANCE 10 Operating and Financial Leverage Net Working Capital (NWC) Long Term Assets and CAPEX  Indebtedness indicators will be systematically rated (capital structure as measured by debt to equity (D/E) ratio, level of net debt, ratio of net debt to EBITDA, ratio of net debt to cash flow, and coverage indicators).  Operating and financial leverage. Calculation of degree of operating leverage (DOL) and degree of financial leverage (DFL) will be performed. DOL tests the influence of fixed operating costs on operating profit by measuring percentage change in operating profit for 1% change in revenue, whereas DFL tests the influence of fixed financing costs on net income by measuring percentage change in net income for 1% change in operating profit.  Net working capital. Special attention will be paid to operating and cash cycles in days, the extent to which changes in the amount of NWC influenced operating cash flow, and the level of investment in NWC needed to generate 1 unit of EBITDA. In addition, it will be tested to which magnitude would changes in collection period, inventory turnover in days and payment period of suppliers impact NWC and subsequently operating cash flow.  Structure of long term assets and capital expenses (CAPEX). Structure and utilization rate of long term assets will be analyzed together with historical CAPEX and assessment of a need for future CAPEX.  Identification of non-operating assets. Intention is to determine which parts of assets are operating i.e. contributing to operating cash flow, and whether non-operating assets can be put to a better use or sold. Cash Flow  Structure of cash flow (operating, investing, financing and free cash flow). The emphasis will be on identifying and understanding the structure of operating cash flow in order to determine which part of it comes from basic operating profitability (EBITDA – corporate income tax) in comparison with changes in NWC. Furthermore, as for the free cash flow, focus is on comprehending its sufficiency to service principal and interest payments to creditors, and/or to provide for potential dividends or share repurchases from shareholders. Financial Analysis and Company Valuation Analysis on Corporate, Profit Center or Cost Center Level (2/2)
  11. 11. GRUBISIC & Partners CORPORATE FINANCE 11 Forecast of Revenue and EBITDA Forecast of Net Working Capital Forecast of Long Term Assets  Projection of gross profit for all product categories (quantities, selling prices, gross profit margin) including reasonably detailed articulation of all pertinent assumptions. Projection will be done and presented in a manner fully comparable with historical results.  Projection of operating costs (employee costs, rent, marketing, travel, energy, vehicles, memberships, banking services, insurance, intellectual services, maintenance, telephone, Internet, IT, representation, other operating expenses) for each profit and cost center.  Projection of accounts receivable based on assumption regarding average collection period in days.  Projection of inventory by product category based on assumption regarding average inventory turnover in days.  Projection of accounts payable based on assumption regarding average payment period in days.  Projection of other current assets (loans given, advanced payments for goods, short term loans given to third parties, receivables from employees, etc.).  Projection of other current liabilities (VAT and other tax obligations, liabilities towards employees, advances received, etc.).  Calculation of total anticipated investment in (or reduction of) net working capital during forecasted period.  Projection of CAPEX and asset disposals for each major category of long term assets (land, buildings, equipment, machinery, software and other intangibles, vehicles, etc.).  Projection of asset disposals (sale of parts of the business, sale of non-operating assets, etc.).  Projection of depreciation  Projection of other long term assets (loans given to third parties, shares in other companies, deposits and various guarantee payments, deferred tax assets, etc.). Forecast of Short and Long Term Debt and Interest Payments  Projection of short and long term debt based on existing repayment schedules and assumptions regarding issuances of new debt and/or restructuring of existing debt (refinancing, converting short term debt into long term debt, rescheduling of principal repayments, lengthening maturity, converting debt to equity, etc.)  Projection of interest costs based on existing repayment schedules adjusted for anticipated modifications of debt facilities as a result of debt restructuring or issuance of additional debt. Financial Analysis and Company Valuation Detailed Financial Projections (1/2)
  12. 12. GRUBISIC & Partners CORPORATE FINANCE 12 Forecast of Other Long Term Liabilities and Equity Sensitivity and Scenario Analysis Forecast of Cash Flows and Need For External Financing  Projections of other long term liabilities (warranties, deferred revenue, deferred tax liabilities, pension liabilities, etc.).  Projections of equity based on anticipated future earnings, dividend payouts, value adjustments of assets directly impacting equity, and potential recapitalizations.  Sensitivity analysis. Identification of key drivers of income statement and balance sheet with quantified effects of changing inputs on forecasted financial statements with special emphasis on forecasted free cash flow.  Scenario analysis. Identification of realistic and pessimistic scenario with quantified effects on forecasted financial statements and company’s cash flow.  Projection of operating, investing and financing cash flow.  Projection of free cash flow and funds available to investors for repayment of principal, interest and dividend.  Projection of potential cash gap and need for external funding (timing and magnitude). Financial Analysis and Company Valuation Detailed Financial Projections (2/2)
  13. 13. GRUBISIC & Partners CORPORATE FINANCE 13 Financial Model Business Valuation Evaluation of Strategic Options and Improvement Measures  Creation of detailed financial model using previously addressed elements with forecast of income statement, balance sheet, operating, investing, financing and free cash flow. Same format is used for presentation of expected and historical figures in order to retain comparability.  Determination of adequate discount rate (weighted average cost of capital).  Determination of anticipated long term capital structure (share of debt vs share of equity in total invested capital).  Calculation of terminal value using 3 different methods: (i) EBITDA multiple, (ii) perpetuity model (iii) constant growth (Gordon) model.  Sensitivity analysis of estimated valuation on changes in discount rate and assumptions related to terminal value.  Final valuation expressed in relative terms as a multiple of selected financial parameter (sales, EBITDA, net income, etc.) achieved in last fiscal year or its forecast for the current year.  Merger of companies from the group  Carve-outs and spin offs of assets  Transfer of shares in portfolio companies to a new firm  Sale of companies or assets from the group  Acquisition of companies or assets outside of the group  Search for strategic partner(s)  Change and/or strengthening of management  Acquisition of shares from existing shareholders by other shareholders or by management through MBO/LBO  Squeeze out of minority shareholders  Measures directed to improvement of gross profit and EBITDA  Debt restructuring  Implementation of adequate financial controlling and reporting system Financial Analysis and Company Valuation Enterprise and Equity Value Including Evaluation of Strategic Options
  14. 14. GRUBISIC & Partners CORPORATE FINANCE 14 Company Sale or Recapitalization by Strategic or Financial Investor
  15. 15. GRUBISIC & Partners CORPORATE FINANCE 15 Transaction Preparation Preparation of Information Memorandum  Meetings with management and agreement on indicative transaction timeline  Defining transaction structure  Creating list of potential investors  Preparing initial transaction documents for investors  Teaser  Non-Disclosure Agreement (NDA)  Estimate of valuation range  Information Memorandum is a document with detailed information about the company and envisaged transaction, which includes among other things:  Overview of the market (size, trends, potential growth), market shares, description of competitors, barriers to market entry of new competitors, etc.  Overview of products and services, manufacturing sites and facilities, sales and distribution channels, customer structure, etc.  Management and SWOT analysis  Key investment highlights (why it makes sense to acquire ownership in the company)  Historical financial statements, analysis of revenue, expenses, assets and liabilities  Business plan and financial projections  Other data, information and analysis relevant to the transaction Initial Contact and Continued Communication with Potential Investors  Establishing of initial contact with investors (by sending teaser)  Signing of confidentiality agreement upon receiving feedback and request for additional information  Distribution of information memorandum to interested investors  Maintaining constant communication with investors and responding to inquiries  Organizing meeting and conference calls with company’s management  Updating information memorandum as needed Company Sale or Recapitalization Transaction Planning, Preparation of Information Memorandum and List of Potential Investors
  16. 16. GRUBISIC & Partners CORPORATE FINANCE Negotiating Term Sheet  Non-binding offers come in the form of Memorandum of Understanding, Letters of Intent or Term Sheet, before the start of due diligence, which depending on the type of investor and type of transaction usually includes:  Transaction structure  Period of exclusivity in negotiating and executing due diligence  Valuation range and assumptions upon which it is determined  Anticipated duration of the process and treatment of costs incurred during the process  Structure, dynamics and form of payment (cash, shares, assets, retained part of the purchase price for warranties, earn out, etc.)  Representations and warranties to be provided by seller (or vice versa)  Requirements for additional funding (capital increase) in the period after the entry of investor  The rights of the buyer and seller in the event of the sale of shares by one party (e.g., drag-along rights, tag-along rights, etc.)  Lock-up period  Treatment of business relationships between the company and related parties  Conditions precedent for closing  The basic outline of the Shareholders' Agreement  Buyer and seller representation in management and supervisory board  Exit strategy for the founder and/or investor (initial public offering on the stock market, selling to a strategic buyer or financial investor, etc.)  Other elements of the non-binding offer that are essential for the implementation of the specific transaction Organizing and Following Execution of Due Diligence  Organization and coordination of due diligence performed by investors including:  Collecting documentation for due diligence  Preparation of data room in which the potential buyer as part of due diligence will have access to relevant legal, technical, commercial and financial documents  Coordinating and monitoring the process of due diligence  Preparation of materials and management for meetings with interested investors during due diligence  Answering additional questions and distribution of additional documents to interested investors at the end of due diligence Company Sale or Recapitalization Negotiating Key Terms and Conditions of Transaction (Term Sheet) and Preparation for Due Diligence
  17. 17. GRUBISIC & Partners CORPORATE FINANCE 17 Final negotiations and Transaction Agreements  Consulting in final negotiations usually includes:  Advising on Share purchase agreement (SPA)  Advising on Shareholder agreement (SHA)  Defining final set of seller’s representations and warranties  Treatment of certain items arising from due diligence  Negotiating final valuation and earn out (if any)  Advising on contracts with management in case existing owners who are at the same time managers remain in the ownership structure  Other elements essential for transaction closing Company Sale or Recapitalization Representations and Warranties, Treatment of Problematic Items From Due Diligence, Final Valuation, SPA and SHA
  18. 18. GRUBISIC & Partners CORPORATE FINANCE 18 1-2 week Week 3-4 week 5-6 week 7-8 week 9-10 week 11-12 week 13-14 week 15-16 week 17-18 week 19-20 week 21-22 week 23-24 week  Data gathering for information memorandum  Creation of long list of potential investors  Creation of teaser  Building up financial model with historical data  Creating initial views of the optimal transaction structure Transaction Preparation  Forecasting income statement, balance sheet and cash flow  Valuation using discounted cash flow method  Producing information memorandum containing: transaction rationale; overview of products and services; description of production and warehousing facilities; description of sales channels; market analysis; competitors overview; management and organization; SWOT analysis; analysis of historical revenue, costs, assets, liabilities, and cash flow; business plan with elaborated assumptions; other elements as deemed relevant for particular business, industry or transaction itself Valuation and Information Memorandum  Establishing initial contact (delivery of teaser)  Receiving investors’ feedback including requests for more detailed information  Signing of NDAs  Distribution of information memorandum on selective basis  Maintaining communication with investors, organizing conference calls and visits to company’s premises and facilities  Receiving and evaluating non- binding offers Approaching Investors  Transaction structure  Exclusivity period  Due diligence requirements  Valuation range  Anticipated duration of the process and treatment of costs  Payment (structure, dynamics and methods)  Follow-on financing subsequent to initial investment  Drag-along and tag-along rights  Lock-up period  Reps and warranties  Management issues  Relationship with related parties  Call and put options  Conditions precedent  Exit strategy  Other elements of transaction as deemed relevant Negotiating Key Terms of Transaction  Data gathering for due diligence and formation of data room containing financial, tax, legal, commercial, technical and other documents about the company  Coordination and supervision of due diligence process  Update of information and provision of additional items as requested by investors  Preparation of materials and management for investor meetings  Additional clarifications and answers to investors’ inquiries following due diligence  Finding solutions and adequate means of treating problematic items emerged during due diligence  Creation of initial drafts of key agreements (SPA, SHA, management agreements, agreements with related parties, etc.) Due Diligence  Detailed layout of all agreements  Reps and warranties in case of risky events occur  Final agreement on valuation and earn out  Agreement with management in case existing owner should remain in company’s management  Defining final set of conditions precedent  Signing of documents  Approval by relevant bodies (regulatory agency, board of directors of buyer and /or seller, etc.)  Closing of transaction upon fulfillment of all conditions precedent Final Negotiations and Closing Company Sale or Recapitalization Indicative Transaction Timeline
  19. 19. GRUBISIC & Partners CORPORATE FINANCE 19 Acquisition of Target Company
  20. 20. GRUBISIC & Partners CORPORATE FINANCE 20 Information Gathering About Target and Stakeholders’ Expectations  Gathering all available data and information about the Target (financial data, operating data, full list of shareholders, news, rumors, on and off the record conversations, etc.)  Depending on circumstances and appropriateness – communicating directly and indirectly to Target’s management, relevant people in the supervisory board, major creditors (banks) and other stakeholders involved in order to completely understand their view of an ideal transaction.  Identifying key factors for success of the bid based on expectations of the stakeholders.  Overview of the local regulatory environment influencing the acquisition.  Talking to the seller’s advisors (if any), procurement of information memorandum and / or vendor due diligence, and transaction process letter if such documents have been prepared. Acquisition of Target Company Information Gathering, Initial Analysis, Creating Term Sheet and Negotiating Key Elements of Transaction  Help in defining and negotiating initial transaction structure and basic transaction terms (term sheet) from commercial, tax and legal point of view, including but not limited to the following aspects:  Pure share deal or partially asset deal and treatment of associated businesses and companies  Exclusivity period for the buyer  Valuation and targeted net working capital at closing  Due diligence requirements  Payment mechanism (earn out and its variables, deferred payment portion of the purchase price depending on the seller’s and buyer’s expectations)  Treatment of non-core assets, intercompany and shareholder loans  Determination of the conditions precedent (CPs) that need to be fulfilled as prerequisite for closing  Drag-along and tag-along rights, including rights of first refusal and lock-up periods in case existing shareholders stay in the ownership structure  Conditions under which the buyer will provide additional financing in the form of equity (if further capital increases are needed)  Call and put options for any of the parties  Treatment of existing management  Representation and warranties of the seller  Non-compete clause  Escrow account and other aspects of the deal necessary to address particularities of envisaged transaction Creating and Negotiating Term Sheet
  21. 21. GRUBISIC & Partners CORPORATE FINANCE 21  Creating a list of financial, tax, legal, commercial, and technical documents, data and information about Target to be placed and made available in data room  Suggestions to seller as to how to set up data room  Depending on transaction type and actual need, GRUBISIC & Partners may engage third party support in case Target operates in more than one country Final Valuation of Target Company  Projection of income statement.  Projection of balance sheet.  Projection of cash flow.  Valuation  Defining earn out (if any) and/or deferred portion of the payment price. Preparation for Due Diligence  Conducting of financial analysis.  Conducting of tax analysis.  Conducting of legal analysis.  Communication of important findings during the process of due diligence as ˝early warning˝ signals of issues to be dealt with.  Coordination of work of all parties involved from buyer’s side in due diligence process.  Preparation of final list of material risks identified within due diligence.  Developing proposals of solutions and ways of dealing with problematic items stemming from due diligence Conducting Due Diligence Due diligence follows the signing of term sheet. More details on each segment of due diligence is presented in subsequent slides. Taking into account results of due diligence. Acquisition of Target Company Preparation and Conducting of Due Diligence and Final Valuation of the Target
  22. 22. GRUBISIC & Partners CORPORATE FINANCE 22 Financial Analysis of Target  Performing financial due diligence of the Target with structured overview of trends, interpretation of values and implications of historical results with special emphasis on:  Quantities, revenue and implied average selling prices with related cost of goods sold and gross profit margin analysis by (i) product and service category (ii) by customer or group of customers, (iii) by geography  Headcount and salary costs by employee and department  Analysis of other operating expenses (rent, marketing, travel, energy, vehicles, memberships, banking services, insurance, intellectual services, maintenance, telephone, Internet, IT, representation, other operating expenses)  Normalization of EBITDA by identification of non-recurring and non-core revenues and expenses, non-expensed bad debts, intra-group management fees, additional costs needed for business to function as independent entity (if there are shared functions within the group), etc.  Receivables by customer including aging structure, degree of collectability, and average collection period in days  Inventory structure by product category, inventory turnover in days by product category and degree of obsoleteness of inventory  Purchase volumes by supplier, accounts payable by supplier and average payment period in days  Operating and cash cycle  Analysis of other current assets (loans given, advanced payments for goods, short term loans given to third parties, receivables from employees, etc.) and other current liabilities (VAT and other tax obligations, liabilities towards employees, advances received, etc.)  Analysis of net working capital  Analysis of long term depreciable assets and historical capital expenditures (CAPEX) including assessment of future needs for CAPEX (property, plant, equipment, intangibles)  Analysis of other long term assets (land, shares in other companies, deposits and various guarantee payments, deferred tax assets, etc.)  Identification of non-operating assets and degree of its marketability at fair value  Structure of short and long term debt by creditor including repayment schedules for outstanding loans and financial leases, analysis of leverage ratios such as net debt to EBITDA, debt to equity, debt to cash flow including identification of a need for refinancing and/or restructuring of existing debt  Analysis of other long term liabilities (warranties, deferred tax liabilities, pension liabilities, etc.)  Calculation and analysis of operating, investing, financing and free cash flow Acquisition of Target Company Conducting Financial Due Diligence including written report
  23. 23. GRUBISIC & Partners CORPORATE FINANCE 23 Tax Analysis of Target  General  Minutes, resolutions and other documents issued by Tax Authority related to tax inspection  Individual and cumulative review of the obligations / receivables of the tax payer from the Tax Authority at each year end  Balance sheet at each year end  All business agreements of the company  Corporate income tax (CIT)  Annual CIT returns with corresponding addendums  Overview of tax losses that are submitted to Tax Authority  Depreciation calculations at each year end  Specification of non-deductible expenses stated in the CIT return  Overview of goods, services and payments given to owners, co-owners and their family members for private use (by type of payment costs, for example - means of transport, low interest on loans, reimbursement expenses, etc.)  Overview of deferred tax liabilities and assets at each year end  Overview of value adjusted and written off receivables which were subsequently paid  Overview and calculations of gifts and donations  Analysis of representation expenses, advertising costs, costs of official vehicles, costs of transactions between related parties, donations and value adjustments / write-offs  Analysis of liabilities towards foreign suppliers  Used tax reliefs / aid in relation with reduction of CIT base  Analysis of transactions between the company and parties who are in any mode related with the company  Agreements with related parties, including agreements for loans concluded between related parties  Calculation of interest on loans incurred between related parties  Withholding tax (WHT)  Calculations of withholding tax for fee payments to foreign recipients and proofs of paid WHT  Certificates of residence and confirmations regarding tax exemption for withholding tax (if Double Treat Agreement is on force)  Analysis of WHT liabilities and WHT costs Acquisition of Target Company Conducting Tax Due Diligence including written report
  24. 24. GRUBISIC & Partners CORPORATE FINANCE 24 Tax Analysis of Target (Cont.)  Value added tax (VAT)  Annual VAT returns  Monthly VAT returns  Deviations between monthly VAT returns and annual VAT return  Calculations of VAT for self-consumption and deliveries free of charge (deliveries to the owners, employees, benefit in kind etc.)  VAT books of outgoing and incoming invoices  Personal income tax (PIT)  Analysis of employment agreements  Salary calculations / payment lists  Monthly salary recapitulations  Analysis of management agreements, service agreements, and author agreements  Benefits in kind – review of goods and services provided to employees and other private persons for car used  Review of other remuneration provided to employees (e.g. Christmas allowances, vacation allowances, transportation to and from place of work) and their treatment with PIT and obligatory contributions  Review of paid severance payments  Review of travel orders with all addendums  Monthly and annual forms that need to be submitted to the authorized institutions related to income payment  Other taxes  Contracts regarding real estate acquisition, real estate tax resolutions related to payment of real estate tax, proofs for real estate tax payment  Overview of other relevant taxes and contributions Acquisition of Target Company Conducting Tax Due Diligence (Cont.) including written report
  25. 25. GRUBISIC & Partners CORPORATE FINANCE 25 Legal Analysis of Target  Statutory issues  Founding and organization, privatization and similar issues  Investments into company in form of contributing real estate and equipment  Decisions of general assembly, supervisory board, and management board  Assets  Ownership and occupancy of real estate and other assets including mortgages and pledges over assets  Possession and validity of appropriate permits and licenses  Issues related to maritime and public goods  Concessions and approvals of relevant bodies  Intellectual property, rights and non-tangible assets  Court proceedings  Current status and likely outcome  Contracts and legal relations  Rents  Insurance  Loans  Suppliers  Employees  Customers  Other agreements and contracts  Labor related issues  Management contracts and work regulations  Collective agreements  Other relevant issues  Environment and customer protection  Competition law and regulation  Subsidies, etc. Acquisition of Target Company Conducting Legal Due Diligence including written report
  26. 26. GRUBISIC & Partners CORPORATE FINANCE 26  Final valuation and structuring  Recommendation of adequate treatment of problematic items found in due diligence  Recommendation of price adjustments (amounts and mechanics – if any)  Implied valuation by DCF  Defining conditions precedent for closing  Defining final transaction structure from financial, tax and legal point of view Signing, Pre-closing and Closing  Defining and organizing signing proceedings  During the period between signing and closing, assisting in fulfilling conditions precedent on buyer’s side and validation of fulfillment of conditions precedent by the Target firm and / or the seller(s)  Organizing closing proceedings Final Structuring and Valuation  Drafting of Transaction Documents (TD)  Share Purchase Agreement (SPA)  Shareholder Agreement (SHA)  Share Transfer Agreement (STA)  Management Agreements (MA)  Escrow Agreement (EA)  Supply Agreement (SA) or other agreements regulating provision of goods and services between related parties  Documents for regulators  Financial, tax and legal support in negotiations of final terms within TD  Net working capital, contingent liabilities and other adjustments to the final price, payment mechanism  Representations and warranties, applicable law, non-compete clause, agreements with related companies, management agreements, etc  Escrow account, earn out, further financing, and other elements of the acquisition given the circumstances  Conditions precedent and closing proceedings Preparation of Transaction Documents and Negotiation of Final Terms Acquisition of Target Company Final Structuring, Valution, Preparation of Transaction Documents and Execution of Conditions Precedent
  27. 27. GRUBISIC & Partners CORPORATE FINANCE 27 Financial Restructuring
  28. 28. GRUBISIC & Partners CORPORATE FINANCE 28  Activity, liquidity, operating and financial leverage, return on invested capital  Profitability on product level  Historical net working capital, long term assets and CAPEX  Operating, investing, financing and free cash flow  Forecast of sales revenue and EBITDA  Forecast of investment in net working capital and long term assets  Forecast of debt and interest cost  Forecast of free cash flow and cash gap (determining a need for external financing)  Sensitivity and scenario analysis Detailed Financial Analysis and Forecast of Future Performance  Presentation of detailed plan to financial institutions with elaboration of major assumptions and explanation of internally undertaken measures aimed at adjusting to new conditions  Break down of concrete proposals to financial institutions or other creditors with the purpose of:  Refinancing of existing loans / leases  Adjustment in maturity schedules of existing debt  Adjustment in interest rates  Obtaining a grace period  Entering into sale and lease back arrangement  Replacement of existing creditor with a new one or raising additional debt  Update and modification of financial model and business plan according to creditors’ requirements as part of the negotiating process Restructuring of Existing (Credit) Liabilities Financial Restructuring Detailed Financial Analysis and Active Help in Implementation of Measures Aimed at Improving Cash Flow and Debt Restructuring  Determining optimal product mix based on analysis of actual profitability and assessment of future perspective  Identification of measures and areas for optimization of operating expenses  Determining ways of more efficient utilization and treatment of non-operating assets  Defining measures for improvement of working capital management  Help in evaluation of profitability of investment projects  Creating list of concrete action points and responsibilities on individual level and assistance in implementation Identification of Measures for Improving Cash Flow* *depending on client needs GRUBISIC & Partners can take the role of finance director during implementation of measures
  29. 29. GRUBISIC & Partners CORPORATE FINANCE 29 Evaluation of Strategic Options
  30. 30. GRUBISIC & Partners CORPORATE FINANCE 30  Entrance of strategic or financial investor in company's ownership structure  Do we need capital for expansion?  Is there a synergy potential between our company and investor's company (new markets, reduced costs, know- how sharing, etc.)?  Is public offering of shares feasible and acceptable way of financing?  Which risks are we exposed to in case we remain independent?  What is the value of our company? Entrance of Strategic or Financial Investor in Ownership Structure  Acquisition of other businesses  What is the main reason for potential acquisition of target company and is this reason valid?  Are we interested in whole or part of the target company's operations?  Are there any synergies between us and target company?  Is target business undergoing structured sale process run by investment bankers and are there other interested buyers?  What would be reasonable valuation of the target company?  How are we going to finance transaction?  How do we plan to integrate operations of two businesses after acquisition?  Is there a natural buyer of target company in case we subsequently decide to sell it? Acquisition of Other Businesses Evaluation of Strategic Options Entrance of Strategic or Financial Investor in Ownership Structure, Sale of a Company or Acquisition of Other Businesses  Sale of a company  Do we have a successor within the family who will run the business (in case we deal with family owned and managed company)?  Have we reached maximum in independent growth and development of our business?  Do we have adequate financial strength and management able to further improve our business?  Is consolidation and mergers in our industry inevitable way of maintaining or improving profitability?  Is management capable and willing to take over the company from existing owners?  Which risks are we exposed to if we don't sell the company?  What is the value of our company? Sale of a Company
  31. 31. GRUBISIC & Partners CORPORATE FINANCE 31  Choosing financing structure (debt vs equity)  Do we have a need for external financing?  Is external financing needed for restructuring purposes or for fueling further growth of a company?  Are we overleveraged from static point of view (net debt/EBITDA, debt-to-equity ratio) or dynamic point of view (projected free cash flow of a company in relation to repayment schedules of existing debt obligations)?  Do we have access to additional debt and under which conditions?  What is company's degree of operating and financial leverage prior to and after additional external financing?  Are we ready for entrance of strategic or financial investor in ownership structure through recapitalization process?  Is public offering of shares feasible and acceptable option of financing?  What is the value of our business and which ownership stake should new owner have after recapitalization? Choosing Financing Structure  Merging companies from the same group into a single legal entity or spinning of part of existing business into separate legal entity  Would merging companies into single legal entity enable cost savings or improve certain processes leading to better efficiency and ultimately improved profitability?  Would merging reduce amount of administration and facilitate management with focus on better results of the whole group instead of each particular company (currently operating as independent legal entities)?  Would parts of the system become more flexible and competitive if carved out and run as separate / independent businesses?  Are certain parts of the system considered as non-core business and should be carved out and prepared for sale? Merging Companies From the Group or Spinning Off Parts of the Business Evaluation of Strategic Options Choosing Financing Structure (debt vs equity), Debt Restructuring, Merging Companies or Spinning Off Parts of the Business  Debt restructuring / refinancing  Are maturities of existing debt obligations aligned with projections of free cash flow available for debt service?  Do we have alternatives in terms of access to debt and under which conditions?  Are existing creditors able to provide additional debt financing?  Is debt restructuring prerequisite for entrance of strategic or financial investor in ownership structure?  Is company in situation where part of debt obligations has to be converted to equity? Debt Restructuring
  32. 32. GRUBISIC & Partners CORPORATE FINANCE 32  Transfer of ownership between related companies and/or private individuals  Would transfer of ownership between companies create tax savings or other form of more desirable ownership structure?  Should ownership in a number of companies be replaced with ownership in a holding company?  Is for given purpose better to have ownership being held by private individual or a company? Transfer of Ownership Between Companies or Private Individuals  Investments in production or distribution facilities including enlargement or change in product and service portfolio  What are expected implications of anticipated investment decision on company's future free cash flow?  How would investment be financed and under which conditions?  Is planned investment generating positive NPV?  What is expected rate of return (IRR)?  What if we decide not to invest or postpone investment decision?  To which extent would new product cannibalize existing product portfolio?  How does a company's projected free cash flow look if we don't change existing product and service portfolio? Investments in Long Term Assets and Change of Product Porftolio Evaluation of Strategic Options Transfer of Ownership, Treatment of Non-Operating Assets, Investment Decisions and Scenario Modelling  Treatment of non-operating assets  Which parts our assets are considered non-operating and can they be put into operations?  To which extent are non-operating assets liquid?  Are non-operating assets potentially useful for purposes complementary to company's core business?  Should non-operating assets be carved out into separate legal entity?  What would be the tax implications of a sale or carve out of non-operating assets? Treatment of Non- Operating Assets  Modelling and simulation of different scenarios of business development with quantified effects on company's projected income statement, balance sheet and cash flow  Which variables from strategic financial plan have greatest impact on company's forecasted income statement, balance sheet and cash flow?  Which scenario indicates a need for recapitalization or other means of external financing?  Which scenario contains real options i.e. possibility of subsequent decisions about individual actions depending on future developments (e.g. additional investments if thing go well or possibility to swiftly abandon production if things don't develop in desired way) Modelling and Simulation of Scenarios
  33. 33. GRUBISIC & Partners CORPORATE FINANCE 33 Selected Clients
  35. 35. GRUBISIC & Partners CORPORATE FINANCE 35 Team Members and Contacts
  36. 36. GRUBISIC & Partners CORPORATE FINANCE 36 Experience Andrej started his career in 2002 in USA as a finance analyst in Sodexho Inc. In 2003 he joined Hrvatski Telekom as an assistant in the office of Chief Financal Officer where he was in charge of treasury and corporate finance, after which he moved to strategy department managing strategic planning for all member companies of T-HT Group. In 2007 Andrej co-founded fund management company Platinum Invest where he was a board member until 2008 when he sold his equity stake and became head of corporate finance within Erste Group in charge of Croatian market with focus on M&A projects, recapitalizations and financial restructuring. At the beginning of 2010 he started a corporate finance firm – GRUBISIC & Partners Corporate Finance focusing on mergers and acquisitions, capital raising, valuations, due diligence and financial restructuring. Since its inception the firm has completed over 40 different assignments. Andrej is responsible for business origination, conceptual setup of project engagements, supervision and quality control, client advisory and assurance of fulfillment of all preconditions for deal closing. Since 2004 Andrej has been a professor of finance at undergraduate and MBA program at Zagreb School of Economics and Management, and starting from 2016 he will be visiting professor of finance at Toulouse Business School in France. Andrej is co-founder of Croatian chapter of Turnaround Management Association (TMA) and member of its board of directors. Education  Strategic financial analysis for business evaluation – Harvard Business School, Cambridge, USA, 2014 (executive education program)  Doctorate in Business Administration with emphasis in Finance – Business School Lausanne, Switzerland, 2007  Masters in Finance – Webster University, St. Louis, USA, 2003  B.S. in Finance – University of Zagreb, Croatia, 2001  Candidate for 2nd level of the CFA program Team Members (1/4) Experience Tomislav has started his career as financial analyst in New York in 1994 at investment bank Schroder & Co. In 1998 he became chief investment officer at venture capital fund SEAF, which among other investments had acquired Iskon Internet (first ISP provider in Croatia). Following the acquisition Tomislav became chief financial officer at Iskon. In 2006 he joined a brokerage house, Ilirika vrijednosni papiri, as head of research and analysis department. At the beginning of 2011 he joined GRUBISIC & Partners as partner. Clients with whom Tomislav has been actively involved include Kupi me, Bilić Erić, Monile (Galileo), Iverpan, Lider, Wulf Sport (Shoe-be-do), Smoking, Special Hospital Sveta Katarina, Mick, Ljekarne Pablo (JGL), iRačun, E-Vision, Makro mikro, EPTA, Bomark, Tisak and Končar D&ST. Since mid 2015 Tomislav is responsible for daily operations of the office and communication with financial and strategic investors from around the globe, including relationship with other members of M&A Worldwide. Education  MBA in International Finance — Fordham University, New York, USA, 1993  B.S. in Finance - Fordham University, New York, USA, 1988  Candidate for 3rd level of the CFA program Andrej Grubišić Partner Tomislav Žic Partner
  37. 37. GRUBISIC & Partners CORPORATE FINANCE 37 Experience Darijo has joined GRUBISIC & Partners in 2013 as an analyst. He has worked on projects involving financial modeling, preparation of transaction documents for investors (teasers and information memorandums), capital raising, market and competition analysis, valuation, and financial restructuring. Clients with whom Darijo has actively worked with include Macola, Velekem, Zagorka, Montcogim, NCP Shipyard, Pisinium, Pršut Voštane, Đakovačka vina, Kutjevo, GP Komunalac, KC plin, Eko papir, Shipyard Brodotrogir, Marina Trogir, Zephyr, Končar D&ST and Hospitalija. Education  B.S. In Business Economics – Zagreb School of Economics and Management, Zagreb, Croatia, 2014 (including semesters spent on Higher School of Economics in Moscow and London School of Economics)  Candidate for 2nd level of the CFA program Other  Dean’s award during all years at ZSEM (among top 5% of students)  Fluent in English and conversational knowledge of Russian and German Darijo Krešić Associate Teo Širola Associate Experience Teo has joined GRUBISIC & Partners in 2013 as an analyst. He has worked on projects involving financial modeling, preparation of transaction documents for investors (teasers and information memorandums), capital raising, market and competition analysis, valuation, financial restructuring and implementation of controlling and reporting system. Clients with whom Teo has actively worked with include Dona, GP Krk, Macola, Golf & Country Club Zagreb, DOK-ING, Whitefield energy, Pergament, Conty plus, Planet obuća, Lavčević group, In Tech, iRačun, and Palma. Education  B.S. In Business Economics – Zagreb School of Economics and Management, Zagreb, Croatia, 2014 (including one year spent at ESSEC Business School in Paris)  Candidate for 2nd level of the CFA program Other  Dean’s award during all years at ZSEM (best student in generation)  Fluent in English and conversational knowledge of German and French  Member of MENSA Team Members (2/4)
  38. 38. GRUBISIC & Partners CORPORATE FINANCE 38 Marko Maurović, CFA Associate Experience Marko has joined GRUBISIC & Partners in 2015 as an analyst. He has worked on projects involving financial modeling, preparation of transaction documents for investors (teasers and information memorandums), market and competition analysis, valuation, and financial restructuring. Clients with whom Marko has actively worked with include MGK Pack, Model Pakiranja, Algoritam, Elanija (Vila Rosina), Tisak, Kompas, windpark Oštra Stina, Mucić&Co and Hotel Katarina. Prior to joining GRUBISIC & Partners, Marko has worked as broker in Partner banka and investment advisor and portfolio manager at Aktiv brokeri. Education  Completed CFA program, CFA Institute, Charlottesville, USA  Licensed broker and investment advisor  B.S. in History – University of Zagreb, 2007 Other  Fluent in English Team Members (3/4) Hrvoje Šajković Associate Experience Hrvoje has joined GRUBISIC & Partners at the beginning of 2016 as an associate. He is currently involved in project with Almos. Prior to joining GRUBISIC & Partners, Hrvoje has worked as advisor on projects raising funding from EU funds (IPARD, EAFRD, ERDF, etc.). Preceding his advisory were positions of board member in fund management company – KD Investments, where he was in charge of front office, sales, marketing and investor relations, and position of head of investment banking in Centar banka. Hrvoje started his career in finance as junior analyst in TO ONE brokers. Education  B.S. In Business Economics – University of Zagreb, Croatia, 2004  Licensed broker and investment advisor Other  Fluent in English
  39. 39. GRUBISIC & Partners CORPORATE FINANCE 39 Team Members (4/4) Miro Đuzel Analyst Experience Miro has joined GRUBISIC & Partners in 2014 as an analyst. He has worked on projects involving capital raising, market and competition analysis, valuation, and financial restructuring. Clients with whom Miro has actively worked with include Macola, Velekem, Pisinium, Đakovačka vina, Tisak, Fiolić group and Hospitalija. Since last quarter of 2015 Miro has together with Tomislav responsible for communication with foreign investors, other M&A advisors across the globe, and preparation of lists of strategic and financial investors for all new M&A projects. Education  B.S. In Business Economics – Zagreb School of Economics and Management, Zagreb, Croatia, 2014 (including semesters spent at John Carroll University in USA and Hochshule Pforzheim in Germany) Other  Dean’s award during 2 years at ZSEM (among top 5% of students)  Fluent in English and conversational knowledge of German  Candidate for 1st level of the CFA program Hrvoje Jergović Junior Analyst Experience Hrvoje has joined GRUBISIC & Partners in 2016 as junior analyst. He is currently involved in project with Tehnozavod Marušić. During his studies Hrvoje worked as an intern in Jamnica, Platinum Invest and Kempinski Hotel Adriatic. Education  MBA in Banking and Finance – Zagreb School of Economics and Management, Zagreb, Croatia, (completed all exams and currently working on master thesis and expected to graduate in 1H2016).  B.S. in Business Economics – Zagreb School of Economics and Management, Zagreb, Croatia, 2014  B.S. in Production Engineering – Politech Pula, Croatia, 2013 Other  Fluent in English and conversational knowledge of Italian
  40. 40. GRUBISIC & Partners CORPORATE FINANCE 40 Andrej Grubišić, Partner Grubišić i partneri d.o.o. Tel: +385 1 7987 120 Fax: +385 1 7987 125 Mob: +385 98 458 610 Email: andrej.grubisic@grubisic- Tomislav Žic, Partner Grubišić i partneri d.o.o. Tel: +385 1 7987 120 Fax: +385 1 7987 125 Mob: +385 91 585 7433 Email: tomislav.zic@grubisic- Darijo Krešić, Associate Grubišić i partneri d.o.o. Tel: +385 1 7987 120 Fax: +385 1 7987 125 Mob: +385 95 579 1566 Email: darijo.kresic@grubisic- Teo Širola, Associate Grubišić i partneri d.o.o. Tel: +385 1 7987 120 Fax: +385 1 7987 125 Mob: +385 99 701 1144 Email: teo.sirola@grubisic- Marko Maurović, Associate Grubišić i partneri d.o.o. Tel: +385 1 7987 120 Fax: +385 1 7987 125 Mob: +385 98 622 615 Email: marko.maurovic@grubisic- Miro Đuzel, Analyst Grubišić i partneri d.o.o. Tel: +385 1 7987 120 Fax: +385 1 7987 125 Mob: +385 99 734 0600 Email: miro.duzel@grubisic- GRUBIŠIĆ I PARTNERI D.O.O. ZADARSKA 80 OLIMP CENTAR, 4th FLOOR 10000 ZAGREB Contacts Hrvoje Jergović, Junior Analyst Grubišić i partneri d.o.o. Tel: +385 1 7987 120 Fax: +385 1 7987 125 Mob: +385 99 800 6660 Email: hrvoje.jergovic@grubisic- Hrvoje Šajković, Associate Grubišić i partneri d.o.o. Tel: +385 1 7987 120 Fax: +385 1 7987 125 Mob: +385 91 899 5511 Email: hrvoje.sajkovic@grubisic-