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M&A due diligence workshop2017 Engineering and Construction Conference

IntroductionsBruce GribensPartner M&A Transaction Services (Tax)Direct: 1 415 783 5959Email: bgribens@deloitte.comLocation: San Francisco, CAJames “Mark” AndrewsManaging DirectorM&A Transaction Services (IT)Direct: 1 215 789 2757Email: jaandrews@deloitte.comLocation: Philadelphia, PABryan JohnsonSenior ManagerM&A Transaction ServicesDirect: 1 617 437 3657Email: bryjohnson@deloitte.comLocation: Boston, MATodd WilsonManaging DirectorM&A Transaction ServicesDirect: 1 312 486 3892Email: twilson@deloitte.comLocation: Chicago, ILRob StrahleSenior ManagerEngineering & Capital ProjectsDirect: 1 212 436 7439Email: rstrahle@Deloitte.comLocation: Jersey City, NJCopyright 2017 Deloitte Development LLC. All rights reserved.2

AgendaTopicPresenter(s)TimingIntroductionsAll5 minutesThe M&A Lifecycle and Overview ofTransaction ExecutionTodd Wilson / Bruce Gribens5 minutesImportance of Integrated Due DiligenceMark Andrews / Bryan Johnson /Rob Strahle10 minutesFunctional Due Diligence BreakoutsCopyright 2017 Deloitte Development LLC. All rights reserved. Accounting, Finance, & TreasuryTaxITProject Due Diligence Todd Wilson and Bryan JohnsonBruce GribensMark AndrewsRob Strahle25 minutes each3

The M&A Lifecycle andOverview of Transaction Execution

M&A Lifecycle OverviewA multidisciplinary and integrated approach is key to success across the M&A lifecycleThe M&A LifecyclePre-dealM&A Strategy Establish a broad corporatestrategy and assess means torealize that visionPre-AnnouncementTarget Screening Define and prioritize acquisitioncriteria to apply to entireuniverse of potential targets Review portfolio against valuecreation and strategicimperative Collect screening data fromentire universe of potentialtargets, and apply the Assess and prepare for multiple, acquisition criteria to evaluatepotential fitpotential acquisition pathways Prioritize initial acquisitionto achieve goalscandidates and develop profiles Identify, evaluate, and prioritizestrategies for achieving organic High level pre deal integrationplanning and initial diligence forand inorganic growthsynergy opportunities Assess capability to undergo astrategic M&A program Establish decision rights andaccountability within theorganization Detailed screening of potentialtargets on the basis of businessstrategy, competitive strategyand value potential Valuation of business entities,including financial modeling,approaches, and challengesCopyright 2017 Deloitte Development LLC. All rights reserved.Diligence & EvaluationPost-AnnouncementIntegration /Separation Planning Conduct Financial / Accounting Establish operating model andand Tax diligenceoverall integration blueprint Perform business duediligence, includingcommercial, operations, IT,and HR Organize controls such asintegration management officeand synergy / work threadteams Initial internal controlsdiligence Conduct clean room analysis tofront load synergy capture Identify core and non-coreportfolio assets and eventualsale opportunities Develop Day One requirementsand End State plans Negotiations executionincluding deal valuation, assetor target valuation andstructuring Refine integration planning ontarget Design customer, market,product and organizationalstrategies Address people and cultureissuesIntegration /Separation Execution Provide “Day 1” stabilization of theorganization and functionalcapabilities Execute and manage integrationplans Deploy all clean room analysis andimmediately execute on synergyopportunities Define customer retention,workforce transition,communication and growth plans Integration Execution Support IP rights protection andmanagement Develop and execute acommunications strategy5

Leading PracticesLeading companies tightly integrate their upstream and downstream M&A ivestitureIntegration CurveApproach RiskRequiredLevel ofResourcesHandoff RiskExecutionRiskTransaction CurveLowStartApproach Risk:Resources are focused on the transaction andnot integration and its associated costsM&A LifecycleHandoff Risk:Resources dedicated to integration are notadded to the team early enough to sufficientlyprepareEndExecution Risk:Resources most knowledgeable with thetransaction do not remain on the team throughthe integration phaseA holistic, integrated approach minimizes risks, gaps and handoffs and captures valueCopyright 2017 Deloitte Development LLC. All rights reserved.6

Due DiligenceA dynamic set of activities involving working with many unknowns identified via aniterative process & addressed when the acquirer takes eventual control of the targetTypical Due Diligence Issues Early capture and realization of synergies fromthe M&A transaction Uncertainty around target management’sclaims on growth Stability of customer base Accelerating time to close Tax and accounting structuring Internal control structure, including SarbanesOxley compliance Effect of regulatory matters on a targetcompany’s industry Identification and quantification of taxexposures and optimization of related benefits Employee benefits, information technologysystems and risk management practices Supply chain and manufacturing site inspection Benefit plan funding and liability exposuresValue ROICRiskValue driversdetermine priceand structure ofthe transaction anddefine the natureand the scope ofdue diligenceFinancialImprove/ValidateValuation Model & tionsImprove SynergyITTechnicalTaxDevelop AdditionalNegotiating LeverageHuman CapitalRisk ManagementForensic /InvestigativeServicesLegalLegalProvide Feedbackon AcquisitionAgreementsIdentify, Assess& Minimize RiskOur experience shows that it takes a well organized and executed, multidisciplinary approach to due diligence, focused on validating value propositionassumptions, understanding risks and providing actionable feedbackCopyright 2017 Deloitte Development LLC. All rights reserved.7

Due DiligenceDue Diligence objectives, activities and outputs can be segmented into three stageswithin the M&A lifecyclePhase IPhase IIM&A StrategyTarget ScreeningPhase IVPhase IIIIntegration / DivestitureDue DiligencePreliminary Due DiligenceObjectives: Identify business risks Research scouting issues and contact target Make go/no-go decisionTransaction ExecutionFinal Due DiligenceDetailed Due Diligence Analyze data room and any relevant externalinformation Feed negotiation, deal structure, valuation andintegration Make go/no-go decision Obtain signed Definitive AgreementsReach favorable Close terms & final pricingOrganize for integrationContinuously improve due diligence processCollect any outstanding dataAnalyze dataDevelop reps, warranties, deal structureConduct final contract analysisNegotiate definitive agreementsReach final termsExecute closing agreementsGeneralActivities: Identify core team and specialistsCollect external dataReview Offering Memorandum if applicableAnalyze all relevant dataDevelop business caseProduce initial valuationSeek management approval Identify due diligence teamsHire outside expertsCollect external dataPrepare for site visitsConduct site visits & conduct analysisRefine valuationDevelop deal structureSeek management approvalIdentify integration manager Outputs: Preliminary valuationBusiness caseDefined due diligence team and planInitial term sheet (proactive process)Preliminary non-binding indication ofinterest (auction process) Refined valuationDue diligence reportsProposal for BOD/EMTPreferred deal structureSubmission of final bid/term sheet Completed deal structure/closing Due diligence process review Integration planCopyright 2017 Deloitte Development LLC. All rights reserved.8

The Importance of IntegratedDue Diligence

The Deal Team Lead Defines the Process and Manages the Transaction LifecycleProject OversightRoles and Responsibilities Establish strategic objectives, priorities and project governanceExecutive Sponsor Set direction for roadmap, and timingProject Management Office (PMO)Dedicated PMO/Deal Team Leader Understands business issues and impact to the transaction Coordinates activities and dependencies across work streams Identifies and addresses resource needs/gapsTypical Areas of Focus Resolves major issues and proactively manages risksAccounting andFinancial DueDiligenceCommercial andOperationalDiligenceExecutiveAlignment andReportingTax DiligenceIT DiligenceHuman onsDay 1 ReadinessCopyright 2017 Deloitte Development LLC. All rights reserved. Rapidly resolve escalated issues Identifies major decisions and communications Interfaces with broader integration teams Enables executive visibility through effective tracking and reportingmechanisms10

Illustrative Functional ResponsibilitiesPreliminary Due DiligenceBusinessDevelopment Develop preliminary acquisition businesscase Solicit approval from Executive ion Planning & ExecutionDeal Closing Finalize negotiated Definitive Agreement Compile due diligence reports from functions Develop detailed financial model Confirm closing working capital andbalance sheet adjustments Prepare for close with Legal Carry out hand-off to Integration Participate in due diligence meetings andreview issue log Gather deal-model input on synergyopportunities and integration costs Finalize approach and timeline Conduct planning kick-off Prepare for Day 1 / integration Identify significant concentration risk andany logistical issues Consider direct procurement Consider contractual commitments Review pricing strategies, elasticity Review customer creditworthiness, paymentterms, length of relationship Review intercompany sales Identify customer relationship ownersand retention strategy Create customer communication plan Identify cross-selling opportunities Conduct site visits Assess production performance Outline operations & maintenancerequirements Define capex requirements Identify technical and intellectual capitalpotential Identify significant property & engineeringliabilities Assess operations & maintenance performance Highlight risk mitigation activities formaintaining operations Plan for near-term integration Identify opportunities for integratingtechnical capabilities Identify critical resource retentionneeds Conduct asset rationalization Conduct spend analysis Conduct inventory analysis Carry out contracts assessment Confirm vendor/supplier strategy Confirm procurement processesharmonization strategyIntegrationLead/TeamCommercialDetailedDue DiligenceProcurementCopyright 2017 Deloitte Development LLC. All rights reserved.11