并购交易导航：避免触礁寻求价值创造

1、Global Research12 December 2019Fundamental AnalyticsNavigating M&A deals: Avoid the rocks and seek value creationA flurry of M&A activity in the marketIn 2017, we published a note “How to identify M&A value creation? Some deals are more equal than others” which outlined the limitations of valuing M&

2、A deals solely on the basis of EPS accretion/dilution and credit ratios. Recently, there has been a flurry of M&A activity, such as LVMHs $16bn bid for Tiffany and Charles Schwabs $26 billion planned acquisition of TD Ameritrade, partly driven by an excess of private capital dry powder in the market

3、 (More: $2.5 trillion of private capital dry powder). In light of this, we think it prudent to remind investors of these limitations.EPS accretion does not equal value creationM&A deals are often considered “good” if they are EPS accretive and are able to maintain a stable post-deal credit rating. H

4、owever, we believe that this approach is too simplistic and fails to answer one of the cornerstone questions of fundamental investment analysis: what is the return on investment and does this return create or destroy value? A deal needs to generate a return on equity (RoE) above the cost of equity f

5、or the deal to be considered value-enhancing.Large offer premiums put significant pressure on the target to performPaying an offer premium suggests that there needs to be additional performance over and above what was implied in the standalone pre-acquisition targets share price. This unpriced perfo

6、rmance is often termed synergy. A large offer premium requires significant synergy to be created to justify the price paid. Using the offer premium and the cost of equity, we can back out an implied RoE required for the deal. We can then compare implied RoE to both historical values and peer data to

7、 assess if it is a realistic level of RoE for the target to achieve.A streamlined interactive M&A modelWe have streamlined our interactive M&A model to focus on: (1) EPS accretion/dilution analysis; (2) leverage analysis; (3) synergies analysis; and (4) returns analysis. In this note, we use the Nov

8、ember 2019 LVMH-Tiffany deal as a case study for our M&A analytical framework. As additional M&A deals could occur in the Luxury sector, e.g. Kering reportedly in talks to buy Moncler, this case study provides investors a basis for further analysis on other deals. (More: Luxury at a tipping point)Va

9、luation, Modelling & AccountingGlobalEquitiesGeoff Robinson, CA FCAAnalyst HYPERLINK mailto:geoff.robinson geoff.robinson+44-20-7567 1706Yiding Lu, CFAAnalyst HYPERLINK mailto:yiding.lu yiding.lu+44-20-7568 9091Courtney Cook, CFAAnalyst HYPERLINK mailto:courtney.cook courtney.cook+44-20-7567 4871Ren

10、ier Swanepoel, CA(SA), CMAAnalyst HYPERLINK mailto:renier.swanepoel renier.swanepoel+44-20-7568 9025Zuzanna Pusz, CFAAnalyst HYPERLINK mailto:zuzanna.pusz zuzanna.pusz+44-20-7567 1883Susy Tibaldi, CFAAnalyst HYPERLINK mailto:susy.tibaldi susy.tibaldi+44-20-7568 5989Mariana Horn UribeAnalyst HYPERLIN

11、K mailto:mariana.horn-uribe mariana.horn-uribe+44-20-7567 2191 HYPERLINK /investmentresearch /investmentresearchThis report has been prepared by UBS AG London Branch. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 43. UBS does and seeks to do business with companies covered in its rese

12、arch reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.Contents HYPERLINK l _TOC_250013 Executive summary3 H

13、YPERLINK l _TOC_250012 How to analyse an M&A transaction?6 HYPERLINK l _TOC_250011 Analysing M&A value creation6Implied RoE8 HYPERLINK l _TOC_250010 Our M&A analytical framework12 HYPERLINK l _TOC_250009 Our interactive M&A model12 HYPERLINK l _TOC_250008 How does the model work?12 HYPERLINK l _TOC_

14、250007 Synergy analysis13 HYPERLINK l _TOC_250006 EPS accretion/dilution analysis16 HYPERLINK l _TOC_250005 Leverage analysis23 HYPERLINK l _TOC_250004 Returns analysis23 HYPERLINK l _TOC_250003 How to run the UBS Interactive M&A Model28 HYPERLINK l _TOC_250002 The M&A model engine30 HYPERLINK l _TO

15、C_250001 Pro-forma acquisition date balance sheet34 HYPERLINK l _TOC_250000 Post-deal income statement forecasts38Geoff Robinson, CA FCAAnalyst HYPERLINK mailto:geoff.robinson geoff.robinson+44-20-7567 1706Yiding Lu, CFAAnalyst HYPERLINK mailto:yiding.lu yiding.lu+44-20-7568 9091Courtney Cook, CFAAn

16、alyst HYPERLINK mailto:courtney.cook courtney.cook+44-20-7567 4871Renier Swanepoel, CA(SA), CMAAnalyst HYPERLINK mailto:renier.swanepoel renier.swanepoel+44-20-7568 9025Zuzanna Pusz, CFAAnalyst HYPERLINK mailto:zuzanna.pusz zuzanna.pusz+44-20-7567 1883Susy Tibaldi, CFAAnalyst HYPERLINK mailto:susy.t

17、ibaldi susy.tibaldi+44-20-7568 5989Mariana Horn UribeAnalyst HYPERLINK mailto:mariana.horn-uribe mariana.horn-uribe+44-20-7567 2191UBS Research AcademySharpen your investment edgeThe UBS Research Academy is an education platform built for clients and is delivered by our #1 ranked* Fundamental Analyt

18、ics team and by our Equity Research platform. The main objective of the Research Academy is to sharpen your investment edge by raising the bar on your technical and fundamental knowledge. We have a depth of resource; tap into it and make the most of yours.Look through new analytical lenses.Uncover p

19、reviously missed insights.Develop and improve your analytical frameworks.Simulate uncertain outcomes by building better models.Ultimately, ask better questions.In short, Know. More. HYPERLINK mailto:researchacademy researchacademy*EMEA ExtelFigure 1: Taking a leaf out of Warren Buffets booksMany man

20、agement teams apparently were overexposed during impressionable childhood years to the story in which the imprisoned handsome prince is released from a toads body by a kiss from a beautiful princess. Consequently, they are certain their managerial kiss will do wonders for the profitability of Compan

21、y T(arget).Such optimism is essential.Absent that rosy view, why else should the shareholders of Company A(cquisitor) want to own an interest in T at the 2x takeover cost rather than at the X market price they would pay if they made direct purchases on their own?In other words, investors can always

22、buy toads at the going price for toads. If investors instead bankroll princesses who wish to pay double for the right to kiss the toad, those kisses had better pack some real dynamite.Weve observed many kisses but very few miracles. Nevertheless, many managerial princesses remain serenely confident

23、about the future potency of their kisses - even after their corporate backyards are knee- deep in unresponsive toads.Source: Berkshire Hathaway shareholder letter 1981Executive summaryIn June 2017, we published a note highlighting the limitations of assessing M&A transactions solely on the basis of

24、EPS accretion/dilution. We would rather turn the focus towards looking at the overall returns on the investment. Given the recent flurry of activity in the M&A market, we believe it is prudent to remind investors of limitations of purely focusing on EPS accretion-dilution analysis as a means of eval

25、uating the potential success or otherwise of an M&A deal.Our view reflects that of Warren Buffet. We believe M&A deals can create value. However, M&A deals do involve the risk of giving up premium now in anticipation of additional returns in the future. Identifying and uncovering value can be diffic

26、ult in an M&A context. It is our belief that M&A value is driven by the extent to which a deal will:generate and sustain synergies, andenhance post-deal multiplesin order to generate returns in excess of the premium paid.EPS accretion/dilution analysis is often used in an M&A context to provide an i

27、ndication of growth in the earnings generated as a result of an M&A transaction. Many M&A deals are assessed on the basis that a strong post-deal EPS profile coupled with a stable credit rating suggests a strong deal rationale.An M&A deal that is EPS-accretive might not be value-creativeEPS accretio

28、n/dilution analysis captures the benefits of a combination in terms of margins and synergies. However, it never asks the question: Does the deal generate value? Are we generating a positive return to investors? The deal may be EPS-accretive, but does the deal generate value? In this note, we collabo

29、rated with the UBS Luxury team and used the LVMH Moet Hennessy Louis Vuitton (LVMH) $16bn bid for Tiffany & Co (Tiffany) as a case study to answer these questions. While this deal is still subject to approval of regulators and Tiffanys shareholders and is expected to complete in H2 2020, it provides

30、 us with a good example to look at how we can run an M&A analysis. This is especially pertinent as there might be more M&A deals to be expected in the Luxury sector.More: Luxury at a tipping pointHow to analyse an M&A transaction?Many market participants analyse M&A transactions using an M&A combina

31、tion model (a combo model). These models tend to be simple affairs that combine a bidder and a target to produce an acquisition-date balance sheet (reflecting the impact the acquisition has on leverage and credit statistics) and a forecast EPS accretion/dilution analysis.Good acquisitions are then d

32、eclared as those transactions that generate EPS accretion without threatening the credit stability of the business. M&A models can be structured to maximise EPS accretion and minimise credit disruption through judicious transaction finance structuring.However, we believe that M&A analysis that focus

33、es solely on credit and EPS analysis is one-dimensional and ignores the cornerstone of fundamental investment analysis what is the return? We certainly prefer to view and analyse the M&A transaction through multiple lenses.M&A transactions should be evaluated through multiple lenses.An M&A model can

34、 be as detailed and as complicated as the user desires. However, every M&A model is still sensitive to, and driven by, the same key inputs of the:offer premium,transaction finance structure, andanticipated synergies.It is an analytical bonus to see in-depth and technically consistent return on equit

35、y (RoE) analysis to support these conclusions. Returns analysis should be a core component of robust M&A analysis, in our view. Understanding what generates that return is even more crucial.Analysing M&A value creationM&A deals are often executed at a premium to the targets stock price. To create va

36、lue, therefore, the deal needs to generate a return (that is not yet priced in) in excess of the premium paid often termed as synergy. For many market participants, details such as the size of the offer premium and the synergies required for the deal (and therefore the implied required return) are o

37、ften under- analysed or are accepted without further questioning.Synergy, however, is not the whole M&A story. Many M&A deals are a play on the market the idea of buying an undervalued stock with a view to benefiting from enhancing the multiples over an investment horizon.M&A deals are often analyse

38、d based on EPS accretion/dilutionWe believe that returns analysis should be a core component of M&A analysisAn M&A deal needs to generate a return in excess of premium paid to be value-generatingThe value-add of an M&A deal is thus a function of:Synergies, andmultiple enhancement, in relation tothe

39、offer premium paid.Figure 2: Analysing deal value-addSource: UBSWe analyse deal value-add by analysing and valuing the spread between the return on equity (RoE), which captures synergies and multiple enhancement, in relation to the post-deal cost of equity. If this return is in excess of the cost of

40、 capital, the deal may be generating value.Transaction RoE above cost of equity will suggest that the deal is value-creativeHowever, as companies often pay an offer premium when they acquire another company, we believe cost of equity is not the appropriate hurdle rate to consider in this case. We ad

41、vocate using the implied RoE as the hurdle rate to determine if an M&A deal justifies its price paid.Deal value-add is positive if post- deal RoE is above cost of equityImplied RoE developing an outside view on returnsWe are the first to admit that analysing synergies “from the outside, looking in”

42、is problematic and that we are very much reliant on management guidance. However, we can reverse the logic of this approach to help provide an alternative perspective or an outside view on synergy analysis.We can analyse, for a given offer premium, what return the M&A deal must generate in order to

43、maintain pre-acquisition levels of return.In turn, we can assess to what extent this implied required return is likely to be achieved by analysing synergy potential and the extent to which the synergies can be sustained within the competitive environment the companies operate in.We can calculate an

44、implied RoE based on the size of the offer premiumOur work here supports and builds on Mark L. Sirowers work in his book The Synergy Trap: How Companies Lose the Acquisition Game1A number of studies have been published that analyse the functional relationship between the market value of equity and t

45、he book value of equity (MV/BV). The magnitude of this multiple is driven by the size of the spread between the return on equity and the cost of equity (RoE Ke).If we consider the book value of equity to be the invested equity capital and if the company is able to generate a return in excess of the

46、equity cost of capital (RoE Ke), then the company is generating economic value at a premium to the book value of the invested capital. This premium will be reflected in the market value of equity.The relationship between MV and BV can be seen in HYPERLINK l _bookmark0 Figure 3 below.Figure 3: Market

47、 value/book value is dependent on the spread between RoE and cost of equity =MV = Market value (acquisition value)BV = Book value (invested equity value)RoE = Return on equityKe = Cost of equityn = Investment horizon(1 + )(1 + )Source: UBSWe can rearrange this formula to solve for the implied RoE re

48、quired to justify the acquisition cost.1 The Synergy Trap: How Companies Lose the Acquisition Game by Mark L. Sirower published 2008 by Simon & Schuster.Figure 4: Backing out the implied RoE based on the acquisition price/invested equity value multiple(1 + ) = (1 + ) 11 + = (1 + ) 1Source: UBS = (1

49、+ ) 1In our previous note, we analysed c.150 M&A deals and looked at the implied RoE to justify the offer premiums paid. In this note, we analyse a further 129 deals and calculate their implied RoE. HYPERLINK l _bookmark1 Figure 5 lists the 25 deals with the largest implied RoE.Figure 5: Top 25 deal

50、s with the largest implied RoENo.BidderTargetDateDeal sizeImplied RoE1Nexstar Broadcasting Group, Inc.Media General, Inc.28/09/20155,05729.9%2Comcast Corp.Sky Plc27/02/201846,10628.8%3United Technologies Corp.Raytheon Co.09/06/201989,74323.5%4, inc.Tableau Software, Inc.10/06/201914,77223.1%5Eli Lil

51、ly & Co.Loxo Oncology, Inc.07/01/20196,61323.0%6Pfizer Inc.Array BioPharma, Inc.17/06/201910,42122.5%7AbbVie, Inc.Allergan Plc25/06/201984,06822.2%8Bristol-Myers Squibb Co.Celgene Corp.03/01/201993,53422.1%9Infineon Technologies AGCypress Semiconductor Corp.02/06/20199,42922.0%10Eldorado Resorts, In

52、c.Caesars Entertainment Corp.24/06/201926,71722.0%11Occidental Petroleum Corp.Anadarko Petroleum Corp.24/04/201954,08621.3%12International Business Machines Corp.Red Hat, Inc.28/10/201832,58621.1%13Xerox Holdings Corp.HP, Inc.06/11/201933,17620.8%14Broadcom Ltd.Brocade Communications Systems LLC02/1

53、1/20165,59820.6%15NVIDIA Corp.Mellanox Technologies Ltd.11/03/20196,49920.0%16Discovery Communications, Inc.Scripps Networks Interactive, Inc.31/07/201714,92319.6%17The Charles Schwab Corp.TD Ameritrade Holding Corp.25/11/201928,29319.0%18CenturyLink, Inc.Level 3 Communications, Inc.31/10/201634,663

54、18.5%19American International Group, Inc.Validus Holdings Ltd.22/01/20185,39418.3%20Merck KGaAVersum Materials, Inc.27/02/20196,36218.2%21CME Group, Inc.NEX Group Ltd.15/03/20185,41717.8%22SanofiBioverativ, Inc.22/01/201810,88717.3%23Marathon Petroleum Corp.Andeavor LLC30/04/201831,31217.3%24Abbott

55、LaboratoriesAlere, Inc.01/02/20167,64117.2%25Gilead Sciences, Inc.Kite Pharma, Inc.28/08/20179,55317.2%Source: UBS, FactSetIf we compare the implied RoEs in HYPERLINK l _bookmark1 Figure 5 to the list from our previous note (ignoring outliers), we find that the largest implied RoE has remained in th

56、e range of 20-30% over the past few years. We observe this by plotting the implied RoE ofall the deals we analysed over time (see HYPERLINK l _bookmark2 Figure 6). The implied RoEs remained in the region of 0%-30% from 2009 to 2019 with a median of 11.9%.%Median = 11.9%Jul 09%Nov 10Apr 12Aug 13Dec 1

57、4May 16Sep 17Feb 19%Figure 6: Implied RoE of M&A deals remains fairly constant over time with median of 11.9%80.0%60.0Implied RoE40.020.00.0-20.0-40.0Source: UBSWe can compare the implied RoE for these deals with historical RoEs of the targets as well as peers data to determine whether the company i

58、s likely to be able achieve the implied RoE.More: HYPERLINK l _bookmark12 Achieving implied RoE Realistic for the target company?However, these deals still have significant spread and therefore, were under pressure to generate sufficient returns either through generating synergies or enhancing multi

59、ples from the moment the deal was signed.Large offer premiums put significant pressure on deals to generate sufficient returnsWe also revisited the 146 M&A deals previously analysed. We look at the five-year annualised RoE for those 146 companies since the deal was completed. For those deals which w

60、ere completed for less than five years, we took analyst forecast to calculate the annualised RoE.We would like to caveat that the annualised RoE is calculated based on the consolidated entity post-acquisition, while the implied RoE is calculated based on the targets standalone financials pre-acquisi