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Getting under the bonnet
Successful Separations Transcript

Hi, I'm Steve Munce, and I'd like to talk to you about successful separations

Ok, so it's often the case that vendors are reluctant to spend their time, money and effort on figuring out how the separated business will eventually operate, or even the impact that the separation might have on costs.  After all, that's surely the buyer's problem?

Or is it?

If you want to maximise value from a sale, then it is absolutely your problem.

We've recently carried out a survey that told us that 46% of corporates and 24% of PE firms felt they did not maximise value in their last disposal.  That's a huge amount of value given away and a massive missed opportunity!

Sometimes, vendor management doesn't even realise that there are separation issues with a material effect. For example, on a recent deal a senior executive on the sell side was quoted as saying that the business to be sold was standalone and required little separation work to be done to extract it from the parent. But within a week, a rapid value assessment exercise identified over 350 separation touch points. Then further work quantified the associated incremental recurring cost impact at 16% of EBITDA.  This could have led to a potential negative deal impact of some £70 million.  However, armed with this knowledge, mitigation plans were developed, so that management was fully prepared for discussions with bidders and the sale realised a figure right at the top end of expectations.

So clearly it is important to define specific costing principles at the outset for any transitional and longer term agreements, and most importantly to introduce external challenge at the earliest possible stage.

To cite another example, on a recent deal, we identified some €20 million annualised savings that had a potential deal value of some €200 million based on 10 times EBITDA value ultimately realised in the deal. On that deal, the vendor received a consideration well in excess of the Board authorised sale figure.

Some of the businesses we are proud to have helped are: Unilever for the sale of its Frozen Foods businesses in Europe, Ford for the sale of its Aston Martin business and also its Jaguar and Land Rover businesses, and United Biscuits for the sale of its Iberian business, amongst many, many others.

So we know our specialist sell side team could help you too.

Steve Munce
May 2008

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