The world has changed. Have you?

How our Advisory practice can help your business

IN THE WORLD, WHETHER YOU ARE FACING A

OR GRAPPLING WITH RISK

WHEREVER YOU ARE

PERFORMANCE ISSUE,

CONTEMPLATING A TRANSACTION

KPMG FIRMS CAN HELP YOU BUILD SUSTAINABLE VALUE

AND COMPLIANCE,

2 KPMG Advisory
2010 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member rms of the KPMG network are afliated.

he world is no longer in recession. Many board members and executives are looking to the future. The experiences of the past few years have shown businesses should be striving for a subtle balance of creative strategies and challenging governance. Yes, business does need challenge. Companies should be brave enough to ask the awkward questions. And they need rigorous risk management that ensures questions are answered as well as asked. And a recession is a great chance to cut back on excess spend and to streamline. But the winners should do this while looking forward. KPMG firms see consolidation in many industries, we see exciting new markets in the East and South and we see new services demanded in many sectors, from communications and healthcare to, of course, finance. This is where KPMG firms come in. Wherever you are in the business cycle, if you need advice on improving performance, executing transactions, restructuring your company or handling risk and compliance, KPMGs Advisory practice can help you deliver. We have rare global reach and are employers of choice with a reputation for quality, integrity and consistency. Our business model has, like our firms clients, evolved. We have sharpened our technical skills and honed our global approach to transactions and risk. Through the changes caused by the worldwide crisis we have continued to expand, especially in the high growth markets where we have leadership positions and are ready to respond to the fresh opportunities and demands our clients face. But in this world of change some things have not altered. Advisory continues to have huge strength and depth in mature markets. KPMG firms have 30,000 people, over US$6 billion in combined Advisory revenues and work with many of the Fortune 500. So if you want to thrive, not just survive, get in touch. Alan Buckle Global Head of Advisory, KPMG

Contents
Pressing challenges What we do Key strengths Performance and technology Transactions and restructuring Risk and compliance Making a difference Contacts 4 6 8 10 13 16 19 20

KPMG partners photographed by Richard Cannon Other photography by Getty Images, Shutterstock Printed by the Stephens & George Print Group

KPMG Advisory 3
2010 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member rms of the KPMG network are afliated.

REALIGNED PRIORITIES.
KPMGS REGIONAL LEADERS

THE FUTURE IS FULL OF

LOOKING FOR SUSTAINABLE GROWTH

PAUL BROUGH Head of Advisory, Asia Pacific region Its easy to be at your best when things are going well. Companies and managers can learn a lot more about themselves when the market gets tough. After the global financial crisis comes a new era. Even in markets where growth has remained a realistic goal, the way that businesses raise capital, approach joint ventures and acquisitions, manage risk and comply with regulations has changed radically. Yet any uncertainty about the global economy should not distract companies from focusing on controlled, sustainable growth. Financing will be more of a challenge in the new business environment. That is why I expect more companies to realize that collaboration through alliances and joint ventures is essential to their growth strategy.

PRESENT THREE OF THE

MOST PRESSING

M&A will remain crucial, but the emphasis will be on making sure deals deliver the value investors were promised
The idea that cooperation is the new competition has already become something of a clich. It would be more accurate to say that those who do not have the skills to cooperate and collaborate may find it harder to compete. Mergers and acquisitions will remain crucial, but the emphasis will be on making sure these deals deliver the value investors were promised. As the anticipation of the value to be extracted from an acquisition typically accounts for 50 percent of the purchase price, managers who fail to execute post-deal integration properly are effectively throwing money away. Companies should also feel empowered to dispose of non-core assets to focus on the most promising and profitable areas of the business. Growth should never be an end in itself. The focus must be on sustainable, profitable growth that enhances the value of the business.

Forward thinking (from left): Paul Brough, Alan Buckle and Mark Goodburn

4 KPMG Advisory
2010 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member rms of the KPMG network are afliated.

STAYING IN SHAPE
ALAN BUCKLE Head of Advisory, Europe, Middle East and Africa region In the past, CEOs and CFOs were measured by the growth they achieved, the value they created and the performance they delivered. In the future, they are likely to be judged by the ambition they show when managing costs in both good times and bad. Companies that set modest cost reduction targets and fail to meet them risk alienating investors and could, given the uncertainty of the recovery, leave themselves vulnerable in years to come.

PREPARING FOR A NEW LANDSCAPE

MARK GOODBURN Head of Advisory, Americas region We are getting a clearer picture of a new business landscape formed by the seismic shocks of recent times and it looks very different in some fundamental ways. Some things never change. Cost optimization will be imperative, long-term vision will continue to be central to growth and while the funding mix will undergo a muchneeded rebalancing, the search for capital goes on. Yet companies, and in particular multinationals, that believe an upturn in economic conditions means business as usual will be surprised. The organization of tomorrow is flexible shifting markets and mindsets seamlessly and ready to hunt for revenue streams outside its comfort zone. It is prepared to embed sustainability in every area of operations, anticipating a future where it could be judged on its green credentials as well as its shareholder returns. It uses technology to deliver relevant information, engage customers and be more responsive. It views the world as a single market and is ready to understand the opportunities that the rise of India, China and other fast-developing economies brings.

In the future, CEOs are likely to be judged on the ambition they show when it comes to managing costs
Businesses across the world have had to re-examine their cost base in the economic turbulence of the recent past. One of the challenges now is to seek to ensure that the savings deliver not just short-term tactical gains but also long-term sustainable improvements in business efficiency. Those organizations best placed to achieve such improvements have looked beyond simple cost cutting and short-term remedies to think radically about their business model. They have taken a hard look at their processes, identified how they can simplify their operations and empowered departments to perform by liberating them from red tape. They have improved the flow of information to senior management, optimized their supply chain and ensured their IT systems are lean and efficient. As growth returns to the agenda, it is imperative that such examination of business processes becomes embedded in the culture of every company so that management can create sustainable change and, where necessary, take the bold strategic leaps to maintain efficiency. Exceptional circumstances require exceptional management but the enduring lesson is clear: sound business processes are a key weapon in a companys armory at any time, not just during a crisis.

Anyone who believes that an economic upturn means business as usual should prepare to be surprised
Underpinning these fundamentals is an uncertain regulatory landscape, with cross-governmental cooperation likely to result in more punitive regimes and a need for greater transparency. Engaging regulators and politicians will become crucial for CEOs. Meeting these challenges need not mean reinventing the fundamentals of business. But it does require a responsiveness and acumen many leading companies have already begun to foster. More than ever, simply focusing on the day-to-day is not enough to feel confident about tomorrow.

KPMG Advisory 5
2010 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member rms of the KPMG network are afliated.

ITS ON OURS.
CAN ADD VALUE TO
THIS IS HOW KPMGS ADVISORY PRACTICE

IF ITS ON YOUR AGENDA

YOUR BUSINESS
o business is an island, and KPMGs Advisory practice is an indispensable helping hand for some of the biggest companies in every sector, right across the world. We seek to add value as our firms professionals immerse themselves in our clients operations, understanding their needs, culture and unique requirements. We provide objective advice based on experience but tailored to support individual circumstances. We seek to go beyond simply supporting operations or transactions and reach into every aspect of corporate strategy, as well as advising on complex services relating to regulation, valuations and risk management. Our teams are client-focused and cooperate internally, working across both internal business areas and international jurisdictions to deliver genuine results. So, no matter what stage of the business cycle you are in, or where you want to be, we can point the way forward.

2010 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member rms of the KPMG network are afliated.

Performance & Technology

Recognizing the new business environment means rethinking every aspect of how you operate Revenue enhancement and cost optimization Controlling cost and maximizing revenue is key to performance. Finding cost optimization opportunities can help ensure greater investment in areas that drive growth. IT-enabled transformation IT is a critical enabler of change and growth. It should be aligned to business strategy, driven by an understanding of the impact on business processes and a constant focus on delivering benefits. Deal services Deriving the most value from mergers and divestments is vital to deal success. Coordinated efficiencies across finance, IT, HR and operations can realize tangible business value more quickly. Embedding risk management and regulation Embedding risk and compliance processes throughout operations is critical today. A holistic approach in linking people, process and technology can deliver sustained benefits. Transforming operations Ensuring operations are geared to achieve business strategy is essential to improve growth prospects. Designing models to support front and back office operations can drive real efficiencies in achieving broader business objectives. Finance transformation and business intelligence Improving the value generated from data can support decision-making and deliver genuine competitive advantage. Transforming finance with more effective processes, IT and performance management can offer tangible benefits. Working capital and cash management Better cash management, as well as alignment of cash and working capital strategies to business goals, can release cash, improving returns on capital.

Transactions & Restructuring

To make the most of the opportunities rapid change brings, you need reliable advice from experienced professionals Strategy for growth Where is your business going? Where will future growth come from? Answering these fundamentals is easier when you have unbiased advice from experienced professionals who take the time to understand your needs and examine every possibility. Successful mergers & acquisitions KPMG can advise on M&A, from strategic planning and due diligence to pensions advice and post-merger integration. In 2008, KPMG firms advised on 395 transactions. Consolidating and restructuring Restructuring can stabilize a troubled business and our Chief Restructuring Officer service can aid the process with independent advice at a senior level. Turnarounds, group streamlining and exit planning services are also within our experience. Financing Our firms experience is valuable throughout the corporate financing process from raising capital to refinancing and conducting Independent Business Reviews, which can highlight issues and areas of underperformance across the business and show a more effective way forward. Value from disposals Freeing up cash, whether for growth or to service debt, needs a considered approach. By understanding your objectives and your companys position in depth, KPMG can help structure a deal that meets your needs, no matter how complex. Crisis management When the situation becomes critical, specialist advice can make a substantial difference during complex insolvency work or crisis cash management. Our distressed M&A service offers a lifeline to struggling companies.

Risk & Compliance

From planning for the future to dealing with present dangers, is risk embedded in your organization? Governance, risk and compliance Risk is a more daunting challenge for businesses in every sector. Acting to make it more manageable will protect your business. KPMGs approach mixes a healthy attitude to growth with a sensible view of the landscape. Regulatory compliance Financial regulations are changing profoundly and rapidly, so its hard to keep up. Being clued-up on compliance protects your organization and its reputation from costs or penalties. IFRS implementation Need help converting to IFRS? KPMG believes the widespread adoption of IFRS gives business an opportunity to examine existing processes and boost investor and market confidence. Continuous auditing and continuous monitoring (CA/CM) Companies are discovering the value of CA and CM, which give internal audit and finance functions enhanced and speedier access to information, and ensures controls are functioning and transactions are properly processed. KPMG firms can demonstrate CA/CMs value and advise on its implementation. Contract compliance services Compliance by third parties with key contracts, and scrutinizing their selfreporting, is critical to maximizing revenues and ensuring costs are appropriate. KPMGs firms contract compliance professionals can assist in enhancing your performance. Global investigations When fraud, corruption or misconduct are suspected, KPMG firms professionals can offer detailed help. Sustainability services Sustainability is no longer simply nice to have: KPMG firms offer a broad range of services across all sectors.

KPMG Advisory 7
2010 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member rms of the KPMG network are afliated.

WHY CHOOSE KPMG? BECAUSE OUR

KEY STRENGTHS

ARE QUALITIES
THAT CAN HELP YOUR

BUSINESS THRIVE

8 KPMG Advisory
2010 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member rms of the KPMG network are afliated.

Effective global coverage with skilled resource

Global businesses need advice from an organization that has a truly global network, with the same commitment to excellence wherever our firms operate. KPMGs Advisory practice has strength and depth in major and emerging markets. Our Advisory practices are among the top advisors in Brazil, China, India, the Middle East, Russia and south Asia. Whether the challenge your business faces is in Beijing, Berlin or Boston or all three you can expect the same quality of service, calibre of insight and understanding of your needs from KPMG member firms. All of which we believe makes us indispensable to multinational businesses as they tackle issues affecting their costs and operations: emerging centers of manufacturing, outsourcing opportunities, and demographic and geographic shifts which redefine customer bases.

Deep insight and understanding gained from working with global champions
No matter what your area of business, the chances are KPMGs Advisory practice is already working with a market leader. Our Advisory practice has 30,000 people working in member firms around the world working with global leaders, advising many of the Fortune 500 companies, as well as fast-growing businesses. Our combined Advisory revenues exceeded US$6 billion in 2009. Our sector experience covers a broad range, from communications to energy, from government and health care to financial services. Our depth of knowledge means we understand the markets your business operates in from different perspectives. We can offer bespoke advice backed up by genuine practical experience of successful operations of varying scale and discipline. In 2008, KPMG member firms advised on 395 M&A transactions in deals that were cumulatively worth US$73billion. KPMGs Advisory practice has the resources, flexibility and diversity to manage a single vertical project or collaborate on something broader and incredibly complex.

A highly collaborative culture but not afraid to challenge

Our job is simple: to help you make the right strategic decisions. We believe that collaborative teamwork transcending individual disciplines is essential to help you exploit emerging opportunities, safeguard against risk and create shareholder value. Such collaboration is, we believe, the most fruitful way to work with clients, too. We are not afraid to challenge but we pride ourselves on being easy to work with. And when the key decisions have been made, our work isnt done we support our firms clients in executing strategic shifts and dealing with problems or necessary revisions that might arise along the way.

Employers of choice attracting outstanding people

KPMG member firms are able to attract and retain the best talent by creating a challenging and rewarding work environment. At KPMG Advisory, ambitious graduates and experienced professionals develop technical skills in a particular service such as finance, IT or restructuring work in multidisciplinary teams and are encouraged to become innovative thinkers whose advice is trusted at the highest level of business. Our firms quality has been praised around the world and was named in more than 20 different recognized awards during 2009. Among them, KPMG in the U.S. was named among the 100 best places to work by Fortune magazine.

KPMG Advisory 9
2010 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member rms of the KPMG network are afliated.

Performance and technology

YOUVE REFINED
SUPPORT YOUR GOALS?
A
s we emerge from global recession, organizations are re-assessing their future. Objectives are being revised, strategies realigned and growth is definitely back on the agenda. In order to respond to the challenges and opportunities presented, they are having to critically assess the suitability of their operating structures. A strong focus on efficiency must be maintained and should be balanced by a deeper understanding of how the organization creates and delivers value to its customers and stakeholders. DRIVING GROWTH IN A COST-SENSITIVE MARKET Many organizations now face the prospect of a transformational journey to respond to an environment of constrained growth. This requires looking holistically and objectively at existing operating structures to determine opportunities that will drive profitability and protect the top line. KPMGs Performance & Technology team has extensive experience of taking an external perspective of an organizations operations, back office functions and portfolio of customers and products to rapidly identify opportunities to significantly improve performance. Often, the results of these exercises are challenging and stretching. We encourage leaders to look at the more complex aspects of their organization to unlock
10 KPMG Advisory

STRATEGY.
BUT DO YOUR OPERATIONS
efficiency and value. This might include identifying new business models, leveraging global shared services and sourcing models, and breaking down a value chain to determine opportunities for greater profitability. CEOs should look outside their traditional peer group for ideas about cost, says Aidan Brennan, Global Head of KPMGs Performance & Technology practice. Traditional benchmarking can highlight opportunities for improvement but in todays environment, leaders need to be asking bigger, more challenging questions and looking beyond their immediate peer group for comparisons. Once organizations have determined the benefits of transformation, they need to create buy-in and ownership among staff and stakeholders alike. The burning platform and the associated case for change need to be communicated in a way that truly engages the organization and inspires individuals to take on the challenges ahead. Creating a culture that drives growth in a cost-conscious environment is imperative. This requires leaders to embody the change they want to see and implement incentives to address both financial and non-financial drivers of motivation. Transparency over costs and profitability, when combined with the appropriate governance structure, can be a powerful enabler of sustained performance. KPMGs

YOUR LONG-TERM

2010 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member rms of the KPMG network are afliated.

CFOs should look outside their peer group for comparisons. In todays environment, leaders need to be asking bigger, more challenging questions
existing process inefficiencies. Our network of more than 6,000 IT Advisory professionals puts objectivity and an understanding of business needs at the center of what we do. This can help organizations embarking on a transformation journey to benefit from our knowledge and experience of what works and, more importantly, what does not work. TRANSFORMING OPERATIONS In addition to IT-enabled transformations, our Performance & Technology business provides a wide range of operational improvement services, including tax-efficient supply chain models, lean manufacturing, sourcing and procurement. Our approach focuses on delivering value not only in the short term but also sustaining the potential benefits for the organization long after we have left. Our firms have worked across a wide range of sectors to deliver operational improvements, and sustain the benefits of those improvements by building skills, knowledge and capabilities in client organizations. GETTING VALUE OUT OF TRANSACTIONS As the M&A markets pick up, many businesses are contemplating strategic acquisitions or disposals. By combining the deal-based skills of our Transaction Services teams with the process, people and technology

Reorganizing the finance function resulted in better overall performance, according to

60%

of companies surveyed

PERFORMANCE AND TECHNOLOGY AT A GLANCE Driving cost and growth Enabling transformation through technology Transforming operations Transforming finance Embedding risk and regulation Protecting value during deal-based change

KPMG Advisory 11
2010 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member rms of the KPMG network are afliated.

Source: Being the Best 2 Thriving Not Just Surviving, KPMG International, 2009

BUSINESS TRANSFORMATION ENABLED BY TECHNOLOGY Ten years ago, the application of technology solutions to an organization was seen as purely the domain of the CIO. Technology is now integral to every aspect of an organizations business operations. To deliver real business benefits, it is essential to combine a deep understanding of functional and operating processes with knowledge of the enterprise-wide platforms that deliver them. This means working closely with business stakeholders, as well as IT, to shape and design solutions and then implement them on time and with the business case delivered. IT solutions themselves need to be selected because they are the right option for an organization. Too often, organizations do not seek independent systems advice and make costly investment decisions which merely automate

of senior finance professionals believe finance technology improves the quality of reporting

Source: KPMG International cash sur vey, October 2009

Business Intelligence capability can enable organizations to quickly align strategic objectives, performance measures and the associated information architecture to quickly provide decision makers with information they can trust.

78%

Performance and technology

Q&A
AIDAN BRENNAN Global Head of KPMGs Performance & Technology practice

How relevant are KPMG firms to todays consulting market? I believe we are highly relevant to the marketplace today. Clients have become more mature and discerning over the years. They understand that technology alone is not the solution. Rather, greater emphasis must be placed on addressing business needs and leveraging technology as an enabler to deliver the business case. Our strategy is to focus on the broader, business-led offering which balances an organizations competitive positioning and functional and operational strategies with deep people, process and technology knowledge. Over the last four years, our Performance & Technology business has worked with some of the largest, most complex

organizations in the world. I am confident the market will continue to see value in our skills as organizations continue to navigate a challenging economic environment. Cost continues to be a challenge for organizations. What would you advise them against doing in the current environment? More organizations are recognizing that the journey out of this recession is likely to be long and wont be characterized by a rapid bounce back to the boom years. Organizations that try to weather the storm, without putting long-term sustainable improvements in place, are therefore likely to struggle. In my opinion, the winners will be those who ask more substantial questions of their business model and truly embrace

the dynamics of the new market. Two common mistakes many businesses make with regard to cost reduction are 1) simply deferring costs and 2) making sweeping cuts across the board to improve short-term performance. If you decide to just push budget into next year, or defer investments, you risk putting the business on hold without tackling its underlying cost base and profitability. Equally, while the idea that everyone should take roughly 10 percent off their budgets can be partially effective by forcing people to focus on cost, it rarely delivers sustainable cost advantage to really take the business forward. That is why our teams prefer to take a rapid, organization-wide view of potential upsides to business performance.

capabilities of Performance & Technology, KPMG firms can add value through the life cycle of a merger or acquisition. Our knowledge of functional processes, operational processes and behavioral change can be applied pre- and post-deal to accelerate acquisitions, separations and the integration process. Most importantly, KPMG firms experience can help ensure that the rationale for the deal to generate profitable synergies between the organizations involved is not forgotten long after the deal is completed.

Companies who try to weather the storm may struggle. They should ask substantial questions of their business model and embrace the dynamics of a new market
TRANSFORMING THE FINANCE FUNCTION The CFO and the finance function are increasingly considered the right hand of the CEO, and central to improving performance. CFOs have become more involved in strategy development and, in response, finance
12 KPMG Advisory

functions are expected to understand the true drivers of value for an organization and rigorously ensure they are measured and acted on. In response to these changes, finance functions must transform themselves to reduce costs, while increasing the effectiveness of the business support they provide. Simple tasks such as invoice processing might be outsourced, and lower-value processes such as month-end close can often be performed more efficiently in specialist shared service hubs, enabling retained finance teams to focus on decision support and driving performance. Managing future performance is an especially important consideration: 2009 research conducted on behalf of KPMG International, Being the Best: Thriving, Not Just Surviving: Insights from Leading Finance Functions, discovered that companies think their finance teams urgently need to bolster their forecasting, planning and budgeting skills. Against this backdrop, it is unsurprising that our teams work closely with business-facing finance managers to improve their soft skills to better influence operational decision makers. In conclusion, KPMGs Performance & Technology business is here to advise our firms clients as they embark on their transformational journeys in response to an improving but challenging market environment.

2010 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member rms of the KPMG network are afliated.

Transactions and restructuring

OUR PURPOSE IS TO BE ABLE TO LEAD CLIENTS THROUGH

FOR THEM AT ANY POINT

CYCLE AND BE THERE

THE ECONOMIC

mart spenders use a downturn to plan for the future and then go aggressively out to meet it. Adidas, HewlettPackard and Microsoft all launched in tough times. After a recession comes the opportunity to profit from the upturn. Indeed, the current financial situation offers businesses the perfect chance to reassess their priorities. Some will prove Warren Buffetts dictum that cash, combined with courage in a crisis, is priceless. Others will find the skills to turn a difficult situation around. Organizations with a healthy balance sheet and cashflow may use tough conditions to grow market share or boost assets by finding the key transaction to position them for the upturn. For businesses under stress, maintaining control of their destiny is the priority, as they restructure to offset declining revenue or pressure from creditors. No action is without risk, whether it be embarking on M&A, sourcing finance or restructuring, but KPMG firms seek to take a proactive position. For Simon Collins, KPMGs Global Head of Transactions & Restructuring, one of the keys is ensuring that each action is seen in the context of achieving the businesss wider goals, part of a deal lifecycle, with KPMG contributing at each stage. Our purpose is to be able to lead clients through the economic cycle and be there for them, Collins says, helping them with growth opportunities and acquisitions when times are good and helping them to survive and maintain control when times are not so good.

THE DEAL LIFECYCLE Our deep sector experience, our skills and specialisms and our global reach can help our firms clients to find opportunities and execute them efficiently. At each stage of the deal lifecycle, and in different sectors, we seek to add value. A typical example is the sponsorinitiated Independent Business Review (IBR) for private equity firms. It gives prospective lenders a robust, independent overview of a PE investee firm, a proactive initiative that can give the sponsor an authoritative edge to help expedite a deal. We are using KPMGs extensive experience of due diligence to redefine the parameters of what constitutes a good deal. Even the notoriously hard-nosed M&A sector is looking at due diligence in the light of sustainability and CSR. Companies that have invested in these areas are less likely to be interested in purchasing a business with a sustainability deficit and KPMG has the tools to reach a robust judgement. MAKING TRANSACTIONS WORK Securing the right deal at the right price is key, which is why pre-deal evaluation and valuation services are important in this area and they call for a genuinely objective view. Too often, companies have been swayed by internal or external advice given with a vested interest in increasing M&A activity. KPMG firms professionals are more interested in telling
KPMG Advisory 13

2010 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member rms of the KPMG network are afliated.

Transactions and restructuring

Source: Joint ventures, KPMG International, June 2009

52%

of joint ventures meet or exceed expectations, say partner companies

Clear reporting and KPIs are vital, say

Source: KPMG International cash survey, Oct 2009

83%

of companies planning a working capital improvement program

clients whats right for them throughout the deal cycle than in increasing short-term opportunities for ourselves. There will always be another transaction, but relationships can be broken very quickly. Giving clear, and occasionally unpopular, advice is essential for maintaining trust. Getting M&A right is a challenge: a KPMG International study in 2009 All to Play For: Striving for Post-Deal Success found that 73 percent of M&A transactions dont deliver the expected value. In boom times, too many companies approached acquisitions casually, downplaying what ought to be a meticulous process. If youre striking a deal for the right reasons, with a clear strategic vision, M&A can be a valuable part of your companys growth strategy. Downturns can focus the mind and stimulate fresh thinking. The right transaction might be offloading an underperforming subsidiary to free up cash or exploring a joint venture that could give you a foothold in another geography while sharing the risks with a partner. An asset swap might allow you to bring in exciting businesses or shed underperformers. No matter what the transaction, success often depends on post-deal integration, yet there can be a tendency for this detailed, essential work to slide down the agenda after the glamorous business of negotiating the deal has been done. KPMGs M&A Predictor helps companies plan for the future and gives a clear idea of how their peers are reacting

There is a thirst and a need for advice that is dispassionate and is not connected with the success of an underlying transaction
to market conditions. Whether its raising fresh funds, restructuring or backing M&As, the need for a dispassionate view of the options has never been more pressing. RESTRUCTURING FOR VALUE By definition, restructuring is about retaining and increasing value, improving cashflow, profitability and the balance sheet. Often, restructuring is used as a last resort by a business whose value is under threat, but sometimes it is just a natural part of the business cycle: effective companies are continually asking themselves whether they have the right shape, structure and spread. Timed correctly, restructuring can pre-empt serious financial problems, sharpen strategic focus and, in the long term, deliver shareholder value. KPMGs Advisory practice can help with the big picture and sweating the detail. If you need to restructure, we can analyze cost drivers, offer an established methodology for validation, approval and delivery of actions and help ensure that line managers are engaged in delivering improvements. We can provide a Chief Restructuring Officer service to implement a full turnaround. Even in severe situations, focusing swiftly and decisively on the strategic and financial impact of restructuring means
14 KPMG Advisory

RESTRUCTURING GOALS AT A GLANCE Cost reductions Cash management Turnaround planning and implementation Financial restructuring Exit planning and implementation Debtor-, creditor- or court-driven formal restructurings THE DEAL LIFECYCLE AT A GLANCE Pre-deal evaluation: find the right price Secure the finance Obtain stakeholder buy-in Perform due diligence Align deals with objectives Maintain compliance Work for good integration Extract value Equity/debt capital raising, capital restructuring and securitizations HOW KPMG FIRMS CAN HELP Acquisitions, mergers, takeovers, buy-outs, divestitures and demergers, joint ventures

2010 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member rms of the KPMG network are afliated.

Q&A
SIMON COLLINS Global Head of KPMGs Transactions & Restructuring practice

What are the main issues you see in the market? Fifteen years ago, equity came from capital markets and institutions, debt came from banks, and transactions took place if they made strategic sense. Then somebody threw away all the rules, so equity came from private equity firms, sovereign wealth funds and hedge funds and you didnt need much because debt was coming from all manner of institutions, of which the banks were increasingly becoming intermediaries. People lost sight of the strategic purpose and things started to be driven by financial engineering. Many companies lost the provision of objective, independent advice. Everybody had an interest in doing something rather than not doing something.

If you look at the characteristics of true objective advice, its being able to say dont or slow down, not lets go. There is a thirst and a need for advice that is dispassionate and not connected with the success of an underlying transaction, and this is a KPMG strength. How has the make-up of transactions changed? Pre-crunch, everybody wanted to buy and sell businesses. Now its only happening because people are being forced to do something. A lot of transactions are creditordriven in one form or another. What are the particular factors that affect M&A? Theres not enough focus on strategic value or purpose behind deals. Massive synergies are identified and

used as justification, and very rarely does as much effort go into realizing those synergies. But as funding becomes more difficult and the hurdles for attracting funding successfully become higher, people start to do deals for more strategic purposes, and I think more M&A transactions will be successful. How will that trend develop? Over the next three years, virtually every private equity portfolio company will be refinanced, restructured or sold. You could argue thats the same as in a bull market, but there is going to be an increasing pressure for transactions to be done to shore up or sustain the balance sheet of a parent or a fund.

managers can safeguard value and remain in control. Restructuring can be more complex than an acquisition. The nuances and legal requirements vary between countries, but KPMG firms professionals have global experience. FINANCING FOR THE FUTURE Last but not least, there is an inevitable focus on funding. Todays range of funding providers, from sovereign wealth funds to small savings banks, means the lender base is fragmented. It is easier for management to be distracted by financing when it needs to focus on operations. The fallout from the financial crisis is far from over. Banks have yet to achieve the conservative balance sheet structures that investors and regulators may demand. PE firms are still adjusting to lower returns, but their relentless focus on results and their ability to take the long view suggest this financing model cannot be written off. KPMGs knowledge in this vital area is underpinned by our network of 2,000 professionals worldwide. In 2007, KPMG firms handled more than 1,700 mandates, worth US$780 billion overall. We believe it is the quality of KPMG firms professionals experience and deep sector knowledge that make the difference.

The most successful deal-making businesses spend

35%

longer on average conducting pre-LOI due diligence

KPMG Advisory 15
2010 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member rms of the KPMG network are afliated.

Source: Doing Deals in Tough Times, KPMG in the U.S., 2008

Risk and compliance

RISK MANAGEMENT IS THE JOB

OF EVERYONE FROM THE CEO DOWN.

HOW ROBUST
R
isk in business can take many forms. Senior managers are required to consider emerging risk, systemic risk, risk management and developing a culture that ensures risk becomes part of the organizations DNA. Its not enough just to have a risk management function, you have to practice risk management and that depends on governance and culture. Mike Nolan, KPMGs Global Head of Risk & Compliance, says: Its the risk culture that helps companies do the right thing and not fall into the trap of doing whatever it takes. The global recession has prompted G20 governments to agree to a major shake-up in regulation. New international accounting standards and tougher corporate governance rules will help businesses to focus more intensely on risk and compliance. Mere compliance is not a strategic approach; KPMG firms are working with companies to help them find the value add in risk management. RISK MANAGEMENT STRATEGY For a companys finance function, risk is an important concern. From capital reserves to investment policies and supply chains, many aspects of the finance teams work call for an increasingly firm handle on risk management. And other threats, such as the risk of fraud or the danger of litigation, can have a hefty financial impact.
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IS YOUR PROGRAM OF

RISK AND COMPLIANCE?

No business can eradicate risk, but it can be made more manageable. KPMG firms are among the leaders in helping companies address weaknesses in their risk management processes, including combining risk model data with human judgement more effectively, initiating stress testing and scenario planning, and putting in place systems that reward long-term stability and not just short-term profit. At many organizations, risk management will be seen as a box-ticking exercise, carried out in the back office with little input from individuals on the front line and less acceptance in the executive suite. This approach is short-sighted. Risk management is not simply the task of a single department, it is the responsibility of everyone, from the CEO down. This can be difficult to put into effect culturally: a 2009 KPMG International survey of the banking industry reported that fewer than half of institutions planned to make fundamental changes to their risk frameworks despite the fall-out from the financial crisis. One of the keys to making progress on risk management is pushing it further up the corporate agenda. If internal audit is elevated from pure compliance to a function that reviews the risk profile for emerging risks and identifies trends, it will keep its finger on the pulse of performance. The chief risk officer will increasingly get involved in

2010 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member rms of the KPMG network are afliated.

strategic decision making, where the emphasis is as much on risk as it is on growth. Similarly, KPMGs experience can prove vital in helping management put together an effective fraud strategy. Fraud is on the rise in many sectors, and leading companies have had to rethink their strategies to meet a threat which is growing in both scale and complexity. Apart from assisting with strategy, we can provide some very practical help with recovering revenue. KPMG firms have had great success recovering income mis-stated in self-reporting statements, while maintaining and improving relationships with businesses. Risk management is increasingly being viewed as a driver of business change, and companies examining risk have a valuable opportunity to ensure their risk strategy adds ongoing value rather than merely meeting regulatory requirements. THE POWER OF RISK MANAGEMENT Leaders face a balancing act of pursuing their challenging corporate objectives while staying compliant with regulatory requirements. One mechanism that can be used to uncover the value add in risk management is CA/CM

Source: Risk Management in Banking, KPMG International

61%

of businesses plan to place more emphasis on stress testing and scenario analysis

Having a risk culture helps companies do the right thing and not fall into the trap of doing whatever it takes
continuous auditing/continuous monitoring. CA is the collection, on a frequent or continuous basis, of audit evidence on IT systems, processes and transactions. It can increase audit efficiency, enhance auditor competency and ensure compliance. CM is an automated feedback mechanism for finance, to ensure systems operate as intended and transactions are processed as prescribed. It enhances how internal controls are monitored, improving risk management and business performance. CA and CM give boards insight into the status of controls and senior managers visibility into the organization. They are designed to provide internal audit with warning of errors and misconduct, and finance line managers with better tools for day-to-day management. THE REGULATORY CHALLENGE Keeping up with changing regulatory regimes has never been easy. But as the world attempts to make sense of the credit crisis, the rules companies must abide by become ever more stringent. The challenges for boards monitoring their accountability have rocketed. Part of our ongoing commitment to the regulatory landscape is a frequent and mutually beneficial dialogue with regulators. We feed the results of this dialogue back into the services our firms offer clients. The consequences for a corporate business of

Source: Risk Management in Banking, KPMG International, January 2009

45%

of banks say their boards are short of risk knowledge and experience

76%

of senior risk managers feel the risk function is stigmatized

RISK AND COMPLIANCE AT A GLANCE Corporate governance Enterprise risk management Regulatory compliance Continuous auditing/ continuous monitoring (CA/CM) Global sustainability/ climate change IT controls and information protection Internal Audit sourcing Contract compliance Financial risk management Actuarial Forensic technology/ ediscovery Investigations Dispute advisory IFRS

KPMG Advisory 17
2010 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member rms of the KPMG network are afliated.

Risk and compliance

Q&A
MIKE NOLAN Global Head of KPMGs Risk & Compliance practice

What are the key issues for businesses considering their risk management strategy and processes? Organizations have to ask themselves some serious questions, such as: how can we transform an expensive compliance obligation into a real business advantage? Is risk a key consideration in making strategic decisions? Are we forward-looking in addressing emerging risks? Organizations are moving from value preservation to an attitude of value creation. And thats why the topic is

becoming of increasing interest at board level. Organizations that succeed in this area will have the strategic vision to understand that sophisticated risk and controls management has the capability to deliver beyond the basic goals of reducing potential financial losses and meeting regulatory requirements. Why make an added investment if all it achieves is compliance? There has always been scope for risk management to progress from score-keeping to value add. What are the barriers to reaching that point? Theres better understanding of financial risks as a result of Sarbanes-Oxley and other regulations, but less appreciation of how risk permeates the rest of the business for example, reputational or operational risk. A secondary concern is having the right resources in the right place. Many businesses will decide they need a third party provider to plug the gaps in risk skills.

What practical steps can business leaders take to address these barriers? Risk management should be seeking to raise its profile within the business. A riskaware culture needs to permeate the organization. Consideration of risk needs to form part of the everyday decision-making process, including across the three lines of defense: at the business unit level, the central risk management level, and internal audit. However, companies need to avoid taking this too far and creating a risk-averse culture where no opportunistic decisions are made. How important will risk be over the coming years? Many companies are at last paying it the attention it deserves. If companies are able to deliver some real changes, theres no reason why risk management cannot become the fourth key platform of a companys performance in terms of how its judged, alongside people, process and technology.

non-compliance are varied and they can be both financial and reputational. For multinationals, dealing with compliance in different jurisdictions adds a layer of complexity, while efforts to

Why make an investment if all it achieves is compliance? There is scope for risk management to become a value add
comply with Sarbanes-Oxley and the like have highlighted the underperformance of IT as a strategic business enabler. Many companies find IT, with its various security issues, the most challenging area in achieving compliance. The adoption of IFRS is designed to standardize reporting practice and
18 KPMG Advisory

harmonize cross-border transactions, but for many companies implementation has been onerous. The financial crisis has slowed progress, as regulators review their attitudes to risk. KPMGs Advisory practice can help train your board in director responsibilities, obligations and better practice governance requirements. We might also assist you in designing a governance framework for your organization, or assessing the capabilities of your companys audit committee. Smart companies see a changing regulatory landscape as a significant opportunity to examine processes and boost investor and market confidence. For example, a 2004 KPMG International survey Basel II: How Ready Are Banks? found that many banks invested heavily in improving operational risk management to comply with Basel II, which made business systems more effective. Understanding the risk environment, and knowing where control takes place, gives an insight into processes and opportunities for improvement.

2010 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member rms of the KPMG network are afliated.

Putting our experience to work

By harnessing the professional skills we use every day, and applying them to the world around us, KPMG firms are helping to make positive changes both locally and globally
any of the big issues facing the world today population growth, climate change, globalization, poverty alleviation, technological change, food, water and energy security and the spread of infectious disease affect business. They certainly affect KPMG and its people. At KPMG, giving back to the communities in which we live and work is one of our core values. Our approach to corporate citizenship is founded on the belief that business has a critical role to play in helping solve the worlds problems.

e have a clear vision of what our role should be. We believe that companies must not only be engaged with their stakeholders, but are themselves stakeholders alongside governments and society. Using the Millennium Development Goals as our blueprint around the world, we are aligning our skills and capabilities with governments, civil society groups and NGOs to become fully involved in finding solutions to pressing global and local issues.

Timothy P. Flynn
Chairman, KPMG International

Lord Hastings of Scarisbrick CBE

Head of Citizenship and Diversity, KPMG International

Disaster relief efforts In 2008, a devastating cyclone struck Burma (Myanmar), followed by an earthquake that shook Sichuan province in China. KPMG rms and people reacted immediately, contributing to a global appeal that raised US$2m. Funds were channelled to humanitarian organizations on the ground, such as CPFA, Save The Children and World Vision. KPMG people also used their skills to support immediate relief efforts and develop ongoing relationships with affected communities. People from KPMG in China, for example, provided nancial management, created procurement and logistics systems and monitored care packages for students.

Global Green Initiative (GGI) KPMG International launched the GGI in 2008, using skills from our Sustainability Services team. As well as engaging our people, suppliers and clients to make a positive and signicant difference by reducing their carbon emissions, this program includes an ambitious plan to reduce our combined carbon footprint by 25 percent by 2010, from a 2007 baseline.

Familia Moja Childrens Center In 2007, 21-year-old James Woodward, a graduate at KPMG in Australia, volunteered at a small orphanage in a slum in the Kenyan capital, Nairobi. Lack of resources forced the directors to close the orphanage, leaving the orphans without a place to live. James arranged for the children to be moved to a small village outside the city, and helped create the Familia Moja Childrens Center. With the support of the Kenyan and Australian rms, James used his business training to set up a charity (Kickstart Kids International) which he now chairs, and has purchased land to build a permanent new home for the orphans. He is now looking to replicate his approach for other orphans in Kenya.

Millennium Cities Initiative (MCI) Working with the MCI, an organization focused on fostering economic growth in sub-Saharan Africa, KPMG rms professionals have provided economic and commercial assistance to develop reports that encourage foreign and local investment. These include the opportunity to produce bamboo bicycles for use in remote parts of Ghana.

To find out more, please visit www.kpmg.com/citizenship

KPMG Advisory 19
2010 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member rms of the KPMG network are afliated.

kpmg.com

Contacts
Global Advisory Executive
Alan Buckle Head of Advisory, Global and EMA Region alan.buckle@kpmg.co.uk Paul Brough Head of Advisory, Asia Pacic region paul.brough@kpmg.com.hk Mark Goodburn Head of Advisory, Americas region mgoodburn@kpmg.com Aidan Brennan Global Head of Performance & Technology aidan.brennan@kpmg.co.uk Simon Collins Global Head of Transactions & Restructuring simon.collins@kpmg.co.uk Michael Nolan Global Head of Risk & Compliance mjnolan@kpmg.com John Condon COO, Global Advisory johncondon@kpmg.com For country-specic contacts, please visit: www.kpmg.com/Global/en/Pages/contactus.aspx

Publication name Global Advisory brochure Publication no 100302 Publication date April 2010 The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. Corporate nance services, including Financing, Debt Advisory, and Valuation Services, are not performed by all KPMG member rms and are not offered by member rms in certain jurisdictions due to legal or regulatory constraints.

2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms of the KPMG network of independent rms are afliated with KPMG International. KPMG International provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member rm. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (KPMG International), a Swiss entity.

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