NSPD on Bematech`s M&A process: a management tool

proposal

October, 2010

GA

Company snapshot

Name: Bematech S/AFoundation: 1989

Headquarters: Curitiba, PR, BrazilEmployees: +1,500

International subsidiaries: USA, Argentina, Germany, Taiwan and China.

Value proposition: integrated solutions (hardware, software, services and training)

focused on the small and medium retail and hospitality segment

Market share (Brazil)- 54.4% market share in fiscal printers

- 13.6% market share in retail management systems

Sales channel: +3,000 resellersPresence : more than 415,000 points-of-sale in

37 countriesMain customers:

Overview

Market Financials

Portfolio

Background

• Corporate Strategy: Carry out new acquisitions on a selective basis;

• 80 companies analyzed and 7 acquisitions done and aggressive acquisition

guidance to investors ;

• Conflict of interest: guidance to investors + short term goals + 1 team

accountable

• 4 out 7 acquisitions destroyed value so far;

2002 2007 2009

First acquisition (Hardware company)

IPO$~80MM

allocated to new acquisitions

2009: 5 acquisitions

2006

2006: 2 acquisitions

Acquisitions timeline

Background

Source: Accenture, 2006

Testing

Ideation

Elimination funnel and Development Pipeline: assumptions

• Scope: Tool for internal process with high impact in the corporation (Acquisitions

Funnel);

• Product: Acquisition of assets and IT companies

• Assumptions:

• Limited companies available;

• Success of the funnel depends also from external factors: “ the sellers”;

• Guidance to investors influenciate the prioritization;

Elimination funnel and Development Pipeline - PROPOSAL

Target mapping

Investment thesis

Due diligence

Integrationplanning

Financial valuation

Approach

Closing

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Elimination funnel and Development Pipeline: Roles and responsibilities

Phases Sub-Phases

M&A / Business Develop

ment team

Cross functional team

Executive team

Board of

Directors

Elimination Funnel

Ideation Target mapping L A I -

Surface evaluation Approach L A I -

Detailed evaluation Financial valuation L A A I

Development pipeline

Cross funct. Development Investment thesis A L A I

Testing Due dilligence A L A A

DeploymentIntegration planning A L A A

Launching/post launchingClosing L A A A

L = Phase leaderA = should approveI = shoud be informed

Marketing

HR

Finance

Operations

Legal

R&D

Elimination funnel and Development Pipeline: Economic Sub-Thinking

Accumulated OPEX (US$ thousands)

Elimination funnel: ideationPhase Description Screen Screen broad criteria

Ideation

Target mapping: identification of potential targets for acquisitions, based on corporate strategy and segmentation framework; Ideatio

n Screen

Does the company have: solid customer bases or established

distribution channels? Complementary business and

technology?Will this company maintain or expand Bematech market share, increase its profitability and competitive position?

Elimination funnel: ideation

Segment priorization: retail automation penetration x market sizeCompany priorization: market share

Segmentation Framework

Elimination funnel: expansion & surface evaluationPhase Description Screen Screen broad criteria

Surface

Evaluation/

Approach: Targets personally contacted and in case of interest from the target side;A standard RFI (request for information) report is sent to the target company for the next phase;

Surface

evaluation

NDA signature;Target accepts provide detailed information for the next phase;

Elimination funnel: detailed evaluationPhase Description Screen Screen criteria

Detailed

evaluation

Valuation: Financial information modeling;Investment thesis draft produced; First alignment with cross functional;

Detailed

evaluation

screen

Financials present consistency and match with the company expectations?Target information confirms previous assumptions on company fit to the acquisition strategy? Acquisition model defined?

Elimination funnel: detailed evaluation

Economy assumptions

Market assumptions

Operating assumptions

PremissasFinancial assumptions

Discounted cashflow

Taxa de DescontoWACC

Economic

Value

Fin

an

cial in

fo

The Financial Valuation

Development pipeline: Cross functional developmentPhase Description Screen Screen criteria

Cross –

functional developme

nt

Investment thesis: Synergies tracked and assigned and draft of the integration objectives is provided; Cross-

functional

development

Gate

MoU signedExternal audit is hired to conduct the due diligence

Development pipeline: testingPhase Description Screen Screen criteria

Testing

Due diligence: Financial information is confirmed by the audits;Liabilities tracked ;Adjustments on valuation;

Final negotiation is conductedIntegration team building

Testing Gate

Target owners agrees on final negotiation terms and audit results;Integration team assigned;

Development pipeline: deploymentPhase Description Screen Screen criteria

Deploymen

t

Integration Planning

Deployment Gate

How do we create value?What is the integration model?How the integration will be managed?What is the HR strategy?

How we create value?

How integrate?

How manage the integration?

What HR strategy needed?

• What should be preserved to leverage this deal (sinergies)?

• What should be redesigned, adapted and eliminated?

• What shouf be integrated immediately? What can we wait?

• Absorb, integrate, create or attach?

• Which company culture should prevail (Bematech or acquired)?

• Does this model applies to the local management?

• Who will manage the company post-acquisition?

• How do we keep the company performance while we integrate pursuiting synergies?

• How aggressive should be the integration?

• How do we create the integration team? What is their scope?

• What would be the new decision structure of the company acquired?

• What will be the cultural impact of the integration?

• How do we identify, select and retain strategic resources from the acquired company?

• How do we assure the employees motivation during the integration process?

Source: Booz Allen & Hamilton (adapted)

Development pipeline: deployment

Development pipeline: Launch/Post launch reviewPhase Description Screen Screen criteria

Launch / Pos

launch

review

Definition on integration goals, modeling and HR strategy,

PLR Gate Integration plan approved by committee;

Conclusions

• Methodology: can be applicable to internal NPSD as a leadership and

management function

• Elimination funnel

• “Doing more with less”: increase accuracy and speed through a better

screening criteria

• A more dynamic elimination process also gives condition to accelerate

opportunistic acquisitions ;

• Improve criteria on detailed evaluation: finance valuation is the critical point

• Development pipeline

• Mitigate risks of bad acquisitions: improve approval process (gate keepers)

reducing conflict of interest

• Ensure commitment and accountability of the teams, specially at the Testing

phase (due diligence)