Rubi Suliman, Hi-Tech Leader www.pwc.com The M&A Process Rubi Suliman, Hi-Tech Leader

Agenda M&A Market Overview Due Diligence process Financial Due Diligence

Israeli Hi-tech M&A Landscape 2006: Mercury-HP $4.5B, Msystem - Sundisk 1.55B, Lipman-Verifon $790M= 6.84B 2013: Given Imaging $970M, Waze $966 (published 1.1M), Trusteer $640 2013 IPOs: Wix, Enzymotec, Galtronics, Alcobra, Kadimastem, Somoto (TLV) Source: PwC Israel 2013 Exit Report

Israeli Hi-Tech Trends הסכומים במיליוני דולרים LS: 3 IPO (Alcobra, Enzymotek, Kadimastem), 10 M&A, Big ones: Given Imaging, PROLOR, Enzymotec (IPO) dbMotion, Alma Lasers Internet: Big ones: Waze, Wix (IPO) Adap.tv IT & Enterprise software, big ones: Trusteer, ScaleIO, Onavo

M&A Continuum The success of a deal is dependent upon effective delivery along the entire M&A deal continuum. Failure at any stage of this continuum can cause negative downstream effects. LOI/ Term sheet Due Diligence Due Diligence Closing Signing

Failure Drivers Failure drivers Strategic Fit Culture clash Poor execution Synergy evaporation Mismanagement of the integration Bad deal structure/ valuation Mergers and acquisitions fail for many reasons. Pre- deal, acquirers can proactively mitigate deal risk by understanding the most common drivers of M&A failure. אסטרטגיית רכישות של לקנות גדול

How to Prepare (Acquirer & Acquiree) Advisory Team Legal Accounting Banking Audited Financial Statements Historical Forecast Tax Matters Personal/Corporate Document Preparation Material Contracts & Commitments Agreement with Suppliers, Employees, and Customers Human Capital Retention of Key Employees Intellectual Property

Due Diligence Process Technology/ Pre Significant Revenue Financial Legal Public Company Due Diligence Business Business DD: Synergy Business Model Technology Competitors Market

The Standard FDD Process Pre-Fieldwork Fieldwork Post-Fieldwork Read public information Get up to speed on the relevant market Set scope and data request list Prepare the Data room Management presentation Data analysis Go through data room information: legal, accounting etc. Read audit work papers Interview target management Interview clients & suppliers Draft report Purchase and sale agreement Transaction/ integration plan Term sheet/ No-shop

Generic FDD Scope 1. Read and understand the Company’s significant accounting policies 2. Understand the Company’s key performance indicators. 3. Read the external audit work papers of the Company’s auditor 4. Perform a quality of earnings analysis 5. Quality of revenue 6. Perform an analysis of debt & debt-like items 7. Off-balance sheet liabilities 8. Analyze the Company's revenues and gross margins by product line 9. Key employees/ contracts and liabilities 10. Perform analysis of gross sales to net sales and understand the reconciling items 11. Review customer & supplier contracts and key provisions therein 12. Analyze the components and trends of the Company’s cost of goods sold and opex 13. Isolate historical impact of foreign exchange transactions and translations 14. Assess environmental issues 15. Analyze the significant components and trends of the Company’s balance sheet (AR, Invy, AP, reserves, etc.) 16. Analyze monthly or quarterly working capital trends / seasonality – discuss WC adjustment 17. Understand the existence and impact of related party and/or affiliate company transactions. 18. Analyze CAPEX needs

Quality of earnings overview

Common types of quality of earnings adjustments

Quality of earnings examples

Net debt adjustment

Components of working capital

If less than a normal level of working capital is acquired upon close of a transaction, additional cash may be required to finance operations

Working Capital Adjustment

What is the rationale for having a working capital adjustment mechanism in the SPA

The Buyer and Seller have competing objectives with regards to the Working Capital peg

Questions?