Sigma and CWG Merger Risks and Management Overview
NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES
Key Risks - Risks Relating to the Proposed Merger
Key Risk
Reliance on information
provided
Integration risk and
realisation of synergies
Potential loss of Sigma's
franchisees from Proposed
Merger
Summary
Sigma undertook a due diligence process in respect of the Proposed Merger, which relied in part on legal, financial, taxation, synergies and operational due diligence on information provided by or on
behalf of CWG. If any such information provided to, and relied upon by, Sigma in its due diligence, and in its preparation of this presentation and other materials given to ASX, proves to be incorrect,
incomplete or misleading, or if any of those due diligence enquiries failed to identify potential issues, there is a risk that the actual financial position and performance of CWG may be materially different to
Sigma's understanding, or the realisable synergies from the Proposed Merger will be less than anticipated including those reflected in this presentation. Either of these could have a material adverse effect
on MergeCo's financial condition or performance.
There is also a risk that the due diligence conducted has not identified issues that would have been material to the decision to enter into the Proposed Merger. A material adverse issue that was not
identified prior to entry into the Proposed Merger (or an issue that later proves to be more material than first anticipated) could have an adverse impact on the reputation, financial performance or
operations of Sigma (for example, Sigma may later discover CWG liabilities or defects which were not identified through due diligence, are more than initially identified through due diligence, or for which
there is no contractual protection). Due diligence cannot uncover all potential issues or historical non-compliance by a merger partner, and reliance has, by necessity, been placed by those undertaking
due diligence on the accuracy of information and confirmations provided by CWG and its representatives.
Further, as is usual in undertaking mergers and acquisitions, the due diligence process undertaken identified a number of risks associated with CWG, which Sigma had to evaluate and manage. Certain
risks cannot be avoided or managed appropriately and the mechanisms used to manage these risks included in certain circumstances the acceptance of the risk as tolerable on commercial grounds such
as materiality. There is a risk that the approach taken by Sigma may be insufficient to mitigate the risk, or that the materiality of these risks may have been underestimated or unforeseen or for which
there is no contractual protection, and hence they may have a material adverse impact on Sigma's operations, earnings and financial position.
The integration of two businesses of the size and nature of Sigma and CWG carries risk, including potential delays or costs in implementing necessary changes and difficulties in integrating various
operations and systems. The success of the Proposed Merger, and the ability to realise the expected benefits of the Proposed Merger outlined in this presentation, is dependent on the effective and timely
integration of the Sigma and CWG businesses following Completion. There is a risk that integration could take longer, be more complex or cost more than expected, encounter unexpected challenges or
issues (including differences in corporate culture loss of, or reduction in, key personnel, expert capability or employee productivity, or failure to procure or retain employees of CWG, require changes to
operating models, or loss of existing Sigma franchisees), or divert the attention of management, which impact on the integration process (which in turn could cause the anticipated benefits and synergies of
the integration of Sigma and CWG being less than estimated).
A failure to integrate the businesses in the time and manner contemplated by Sigma or a failure to achieve the targeted synergies of integration may impact on the financial performance, operation and
position of Sigma. Furthermore, CWG will be the most material part of MergeCo's business upon acquisition. If the CWG business does not perform as expected, this could have a material adverse impact
Sigma's financial position and performance.
There is a risk that the announcement or implementation of the Proposed Merger may result in a loss of certain of its franchisees, whether because of the franchisees' negative sentiment towards CWG
in the market, or otherwise. If there are losses of franchisees, there could be a reduction in expected growth of the combined group, which could have a material adverse effect on MergeCo's financial
performance or position.
68
80View entire presentation