DNA Code of Successful M&A Integration

Transcription

1 DNA Code of Successful M&A Integration thecfo

2 Every acquisition is unique in terms of its goals and implementation. It is a first-time experience for most of the companies involved. And this complex process is subject to enormous stress, high expectations and intense time pressure. thecfo

3 Key Success Factors for Post M&A Integration The success of an acquisition does not arise from skilled negotiations or the purchase price. The critical issues are: well defined and justified business strategy; and correct, tailored approach to post-merger integration, The expected synergies can be generated and additional growth achieved only if two companies do indeed become one. Successful PMI Concept

4 Key Success Factors for Post M&A Integration The Formula for Success Y = f (x) Y - enterprise value generated from the merger x - business parameters behind the merger f - the eight levers and disciplined management of the merger

5 Value Generated from the Merger Key Success Factors for Post M&A Integration The merger parameters, the eight levers being the most important business decisions and the management of the merger should be well structured into the overall process to maximize the success of the merger. THE DISCIPLINED MANAGEMENT OF THE MERGER THE PARAMETERS BEHIND THE MERGER THE EIGHT LEVERS OF POST M&A INTEGRATION SUCCESS OF AN ACQUISITON Degree of Merger Process Structuration

6 The Parameters Behinds the Merger The merger parameters must be well understood before the deal and merger integration begin. Strategic objectives for an acquisition must be well understood as they influence the overall merger process. Soft, intangible elements must be analyzed to create a secure base for upcoming decisions in the deal. Sequence of the Acquisition Determination of type of takeover is vital for the approach selected for the merger integration.

7 The Eight Levers of Post Merger Integration The most important decisions must be made before the integration begins. These decisions can be condensed into eight levers.

8 Approach and Management of the Merger The structured approach and high degree of discipline while managing the merger are vital to maximize the chances for a successful extraction of deal value. Today Before the Merger After the Merger Structured Approach and Discipline in Managing the Merger

9 Parameters Behind the Merger thecfo

10 The Parameters Behind the Merger 1. Business Logic 5 Strategic Objectives for an Acquisition Strategic Goals Consolidation of a Sector Regional Expansion Expansion of the Product Range Acquisition of New Skills Business Add-on Example 1: Consolidation of a Sector Objective - produce cost synergies Business Context - in saturated markets, companies with similar business activities merge in order to generate economies of scale and expand their market position. Implications - transaction usually results in job cuts, it unsettles the affected people from the very start, and triggers protests among employees and unions. PMI Approach - a successful integration must be carried out quickly and completely. In a time of major uncertainty, fast decisions must be made and responsibilities assigned at the very start. This is the only way to avoid paralysis and effectively generate the synergies.

11 The Parameters Behind the Merger 1. Business Logic 5 Strategic Objectives for an Acquisition Strategic Goals Consolidation of a Sector Regional Expansion Expansion of the Product Range Acquisition of New Skills Business Add-on Example 2: Business Add-on Objective - expansion to new business fields to gain additional sales and earnings Business Context market not necessarily saturated, and new opportunities exist. Typical strategy for conglomerates and companies seeking diversification. Implications - The company s organization remains basically intact, people tend to be supportive. PMI Approach - The focus of a successful PMI lies in adapting fundamental corporate governance functions and in developing optimal conditions for long-term sales and earnings growth.

12 The Parameters Behind the Merger 2. Organizational and Cultural Barriers Post Merger Integration Analysis of soft, intangible elements creates a secure base for upcoming decisions in the deal There is need to analyze the soft behavioral factors such as: In which organizational structures and processes do executives and employees act? What is the leadership culture like? How are decisions made? What type of incentive systems impact employees work?

13 The Parameters Behind the Merger 2. Organizational and Cultural Barriers Example 1: Acquisition of a privately owned mid-side business by a corporation Post Merger Integration Business Context - the owner serves as a company s information and decision-making center, and there is no need for any type of formal structure. Managers are given ad-hoc instructions, Implications - When such an organization encounters the formalized processes of a corporation, conflicts and frustration are pre-programmed, PMI Approach - addresses these points, builds bridges for the employees that enable them to make the transition to the new business culture and prevents typical corporate actions that would cause paralysis

14 The Parameters Behind the Merger 3. Sequence of the Acquisition In an ideal world, every merger would be a home run Identify and Approach Target Sign the LOI / SPA Close the Deal Integrate Successfully Ideal World negotiations are conducted quickly, both management teams work together, neither antitrust officials, management opposition nor critical investors slow the final closing, PMI process runs quickly and smoothly and starts before the closing, fundamental decisions are made very early and unanimously, the integration planning is done promptly in joint teams, with full insight into the other company s information. Real World Issues the other side refuses to cooperate, exchange of information is not effective or even possible, there is apparent doubtful or even hostile attitude of management, the antitrust reviews take longer than planned, as a result, months pass between the takeover offer, the signing and the closing.

15 Defensive / Destructive Open / Friendly Attitude of Management The Parameters Behind the Merger 3. Sequence of the Acquisition Types of Takeovers Home Run Time Out Process: Integration process begins immediately, open exchange of information from the start, initial decisions can be made before the closing Attitude of management: open and friendly Sequence: Closing immediately follows the signing Process: Joint integration planning, initial team building, preparation of guidelines, decisions only after the closing Attitude of management: open and friendly Sequence: break between signing and closing, most commonly due to regulatory requirements Short Shrift Process: Integration process must start at once, dynamic and strong leadership by the acquiring company is required Attitude of management: defensive and destructive Sequence: Closing immediately follows the signing Delayed Game Process: one-sided integration planning, clear directions for Day Zero and the integration and stabilization of business is the top priority Attitude of management: defensive and destructive Sequence: break between signing and closing due to management opposition, the seller strategy or other conditions Fast Deals Time Slow Deals

16 The Eight Levers of Post Merger Integration thecfo

17 The Eight Levers of Post Merger Integration Post Merger Integration Approach The post merger integration process must address the deal realities from the very start to optimally use the time until closing. From the start, the company should: consider potential barriers to the acquisition and integration process, systematically explore options for action, and identify the correct programs and decisions that will result in a successful deal execution and integration. thecfo

18 The Eight Levers of Post Merger Integration The Eight Levers Eight Conscious and Fundamental Decisions Eight Fundamental Decisions Restructuring ( Costs ) TYPES OF SYNERGIES Growth Fast under time pressure INTEGRATION SPEED Slow and steady All areas EXTENT OF INTEGRATION Some areas Takeover INTEGRATION SPIRIT Merger of equals Immediately after signing START OF INTEGRATION Deferred until closing Clean team INTEGRATION TEAM Joint team Informal, in advance APPROACH TO DECISIONS Explicit, extensive En passant CHANGE MANAGEMENT Explicit, comprehensive The integration concept derived from eight levers can succeed because it sets the correct course through conscious decisions.

19 The Eight Levers of Post Merger Integration Eight Fundamental Decisions 1. TYPES OF SYNERGIES Cost Restructuring An integration effort does not differ substantially from a cost-cutting, restructuring or turnaround program, All divisions of both companies are to be subjected to a rigorous review of potential cost savings, From the very start, it must be clearly communicated that unpleasant decisions must be made and layoffs carried out. Growth The integration is more like a strategic growth project, The nature of the integration is forwardlooking, The focus is placed on understanding customer needs, evaluating market opportunities and generating new business ideas in a creative process. At the start of integration planning, clarity about the type of synergies to be generated must be created and thoroughly converted into corresponding actions.

20 The Eight Levers of Post Merger Integration Eight Fundamental Decisions 2. INTEGRATIONS SPEED Fast Integration Common approach during hostile takeovers or in mergers that will result in extensive layoffs; also common for the financial investors whose focus is on investment horizon and rate of return, High speed may result in decisions being made with increased uncertainty and under time pressure. Slow Integration Common approach during a friendly takeover or an expansion into new business fields, Slower pace can significantly raise the chances for success, Slower pace reduces miscalculation risk and eliminates opposition. At an early stage a company should define how much time it wants / can devote to post merger integration, which should be followed with a realistic integration schedule. This will ensure reasonable expectations are created and will prevent a company from unnecessarily being put under time pressure.

21 The Eight Levers of Post Merger Integration Eight Fundamental Decisions 3. EXTENT OF INTEGRATION Full Integration The more intense the focus on cost synergies, the more extensive the PMI process: it often encompasses all functions and all regions, An enormous workload is added to everyday business activities; massive amounts of additional resources must be committed to the integration, The organization runs the risk of losing sight of the customer and its operations, Partial Integration Typical of takeovers in which new products are to be acquired or new customer segments added; Frequently, the only steps that need to be taken are the consolidation of sales or a realignment of finance, HR, IT and back office processes, Many companies choose a partial integration because it appears to be simpler and less controversial. Painful decisions are avoided by ignoring areas of conflict. Synergies are not achieved and value may be destroyed. From the very start a company shall determine the extent of necessary integration and identify areas of conflict to balance daily business and the PMI efforts.

22 The Eight Levers of Post Merger Integration Eight Fundamental Decisions 4. INTEGRATION SPIRIT Takeover Clear statement of takeover is formulated and communicated, The company being acquired may watch the acquiring company with mistrust and fear the worst. The employees of the company being taken over go into inner exile or resign. A carefully and timely executed integration is required. Merger of equals Merger of equals awakens high expectations e.g. that current practices will remain unchanged and that the both parties are equal, Often chosen because of the fear of conflict and because it makes communication with all participating parties much easier over the short term, which may result in disappointment, frustration and mental resignation among those affected. Define the proper integration spirit and the suitable communication strategy at an early stage. Built sensors and escalation measures into the integration process to identify issues and to take necessary countermeasures at an early point.

23 The Eight Levers of Post Merger Integration Eight Fundamental Decisions 5. START OF INTEGRATION Immediate Integration Both management teams will work constructively together and the integration process will start immediately after the agreement is reached, the management teams will quickly define priorities and focal points and create integration teams, the companies will openly share information, and address employees, customers and suppliers in order to eliminate concerns, Deferred Integration Time passes between the SPA and the deal closing ( forced waiting ), During this period of forced waiting the acquiring company shall plan for integration and prepare a detailed plan for the closing, including how to deal with employees, suppliers and, above all, customers who will certainly become unsettled, Intense communications are required to bring stability to and influence the situation. Ensure that the start of the integration is used optimally by employing farsighted planning, open communication and the consideration of risks.

24 The Eight Levers of Post Merger Integration Eight Fundamental Decisions 6. INTEGRATION TEAM Clean Teams When antitrust officials take time to review a deal, the acquiring company can only work with the so called clean teams. Such teams lay the groundwork for integration in cooperation with a third party, Exchange of information between the companies is limited. The limitations of such clean teams must be understood from the start, Often, it may be much more beneficial to wait and begin the work with joint project teams. Joint Teams The joint teams key success rules: the right composition and the provision of the necessary human capacity, involvement of the management teams, integration teams involved on both ends: in the acquiring and in the acquired organizations, the fastest possible transfer of the project work into the areas of responsibility of future managers. The company shall provide for the correct project organization, the appropriate project members and suitable timing.

25 The Eight Levers of Post Merger Integration Eight Fundamental Decisions 7. APPROACH TO DECISIONS Informally in advance In the context of a friendly takeover of a company with a similar way of thinking, this can be done during a preliminary stage, Decisions are frequently made about the new organization, future business policies and even personnel during informal meetings, In this case there is no need for extensive analysis and opinion-shaping processes. Explicitly after the fact The more dissimilar the cultures of both companies and the stronger the resistance of management to the takeover, the greater the need for definitive decisions, including detailed instructions from the acquiring company, Decisions must be prepared in detail and be made at or shortly after the start of the integration with various stakeholders explicitly being included in the process. A company should define the right mix of formal and informal approaches. In takeovers it is important to make conscious decisions about whether to rule out discussion and make a direction-setting decision, or whether a joint search for a solution will be undertaken.

26 The Eight Levers of Post Merger Integration Eight Fundamental Decisions 8. CHANGE MANAGEMENT Implicitly En passant The merger of two companies with similar backgrounds requires fewer explicit actions, The key is for the appropriate executives and employees to meet at an early stage and to share their experiences and opinions, Such informal interaction form the basis for the extent of change management program to be implemented later and which can be expected to take shorter when compared to explicit approach. Explicitly and Comprehensively Change management becomes the critical factor leading to the long-range success of a merger, Workshops, get-togethers, town-hall meetings, outdoor training sessions and many other measures must be employed over a longer period of time in order to form one company out of two, A rapid change process should not be expected. A company should determine how much change management is required and define the best form and provides tools to execute the change management program.

27 Extracting Value from the Merger thecfo

28 How can two companies be formed into one powerful organization with a shared mission amid intense time pressures, high expectations and the demands of the daily business world? thecfo

29 Extracting Value from the Merger Systematic Approach to Post Merger Integration The tailor-made integration model that is derived from business strategy, merger parameters, eight levers and disciplined execution can succeed because it sets the correct course through conscious decisions.

30 Extracting Value from the Merger Systematic Approach to Post Merger Integration Maximizing Enterprise Value Strategic Objectives of the Merger Initial Approach to Target Letter of Intent / Head of Terms Share Purchase Agreement Closing Successful Integration Merger Concept Start Planning Integration Operationalize Plans Rigorously Implement

31 Extracting Value from the Merger Systematic Approach to Post Merger Integration Merger Concept Start Planning Integration Operationalize Integration Plans Rigorously Implement Develop strategic merger concept including strategic direction of a new company and its objectives, all aligned with your enterprise business strategy Start planning the post merger integration as early and as thoroughly as possible Integration day zero (i.e. start of integration) must be intensely prepared through the use of extensive readiness checklists Discipline in executing the integration plans must be combined with the necessary resources and management power

32 Extracting Value from the Merger Systematic Approach to Post Merger Integration Develop a Merger Concept Strategic Merger Objectives define strategic objectives for an acquisition i.e. its business logic and align it with a company s business strategy Deal Value Potential identify and estimate the expected synergies that follow the strategic objectives of an acquisition and make initial estimates of these synergies to assess deal value potential. Organizational and Cultural Barriers make a preliminary analysis of the cultural and organizational elements of the target such as management motivations and competencies, leadership style or expected management attitudes towards the acquisition Regulatory Requirements identify what regulatory approvals and notifications will be required in the merger process

33 Extracting Value from the Merger Our Systematic Approach to Post Merger Integration Develop a Merger Concept Fine-tune Strategy and Deal Value Potential the organizational and cultural barriers and regulatory requirements may be heavily impacting the merger objectives, hence a company should adjust its merger objectives and its expected synergies Deal Speed on the basis of strategic merger objectives, expected synergies (and how fast a company want or needs to capture them), cultural and organizational barriers and regulatory requirements a company should make preliminary decisions on the type (sequence) of an acquisition it wants or needs to make Integration Concept Make initial assumptions as to the extent and spirit of integration, approach to decisions, start of integration, preparation process and resources

34 Extracting Value from the Merger Our Systematic Approach to Post Merger Integration Start Planning Integration Operationalize Integration Plans Synergies (Lever # 1) review previously estimated synergies and make new estimates to identify quick wins that further underscore the logic of the merger. The type of expected synergies is most often the key deciding factor to determine the other elements of an integration strategy Capturing Synergies - individual integration projects should be identified showing how and where synergies are to be captured Management and Employees make preliminary decisions about key managerial positions in a merged company. For high-performing employees that are expected to resign start developing suitable retention programs. Where synergies from restructuring are expected develop key assumptions and general plans for restructuring.

35 Extracting Value from the Merger Our Systematic Approach to Post Merger Integration Start Planning Integration Integration Speed (Lever # 2) and Start of Integration (Lever #5) determine when integration could begin ( day zero ) and how long it shall last given the anticipated strategic merger objectives, barriers and risks or regulatory requirements Operationalize Integration Plans Extent of Integration (Lever # 3) Determine scope of integration by departments, functions or geographical territories. The scope should be further detailed by individual integration projects, which should be prioritized and planned Integration Spirit (Lever # 4) the type of acquisition or management attitudes of both companies define the spirit of the deal. Selection of integration team and communication roadmap / plan should be developed showing who will be informed at which time and about which issues

36 Extracting Value from the Merger Our Systematic Approach to Post Merger Integration Start Planning Integration Operationalize Integration Plans Integration Team (Lever # 6) Formation of clean or joint teams is a pre-requisite for integration execution. In either case there is need to provide for the correct project organization, the appropriate project members, team capacity and timing in combination with the fastest possible transfer of the project work into the areas of responsibility of future managers Approach to Decisions (Lever # 7) there is a need to define the right mix of formal and informal approaches to decision making. In controversial takeovers, it is important to make conscious decisions about whether to rule out discussion (joint search for a solution) and make a direction-setting decision Change Management (Lever # 8) depending on the results of cultural assessments, type of takeover and other elements the extent of how much change management is required and responding measures have to be defined. This process should be executed with the adequate tools such as workshops, get-togethers, town-hall meetings, outdoor training sessions and many other measures over an integration period

37 Extracting Value from the Merger Our Systematic Approach to Post Merger Integration Rigorously Implement Integration Execution - individual integration projects should be by now identified, prioritized and planned: Once the SPA has been concluded both companies can exchange all relevant information and as a result of preliminary work, quickly make individual integration concepts ready for implementation, The expected synergies are broken down by region and department, A project-management office coordinates all activities, but increasingly integrates the line organization, Concerns among employees are to be quickly dispelled through the use of clear communications, The line organizations are introducing the integration function by function and country, which grow into a single combined entity. The complexity and the intense deal pressure of the initial months may water down integration efforts. PMO should ensure fundamental decisions continue to be made in a timely manner and that the progress achieved in the integration.

38 Extracting Value from the Merger Systematic Approach Value Added Integration Diagnostic Tool Integration Execution Tailor-made Integration Model Energetic and Experienced Team of M&A Experts I analyze your situation using and develop a tailor-made integration strategy and integration management model, During the integration process I: advise, facilitate, energize and execute integration strategy hand-by-hand with you, facilitate strict monitoring of progress and help ensure that the integration is not forgotten and that the goals are reached in the long term

39 About Me thecfo

40 About Me Interim finance manager and freelance consultant, based in Switzerland Tomasz Meissner MBA, ACCA, CAPM A highly-skilled, multilingual, culturallyaware and experienced business professional with nearly 20 years of international career. Since 5 years intervening as a freelance consultant across Switzerland and abroad, helping companies with strategic and operational business finance, project management, business transformation and consulting in various industries and sectors. To find out more about me download My BIO now.

41 My Core Value Proposition End-to-end project delivery and on-demand financial advisory As a professional Interim Manager I help international companies, small businesses, nonprofit organizations, professional investors and entrepreneurs with special business finance projects, to provide on-demand financial advisory or to cover for a critical resource gap in their teams. I focus on execution and bring multi-functional capabilities and skills.

42 My Core Value Proposition End-to-end project delivery and on-demand financial advisory My approach is tailored and collaborative rather than prescriptive and proprietary as in traditional consulting. I engage for project duration and can be switched on and off as a resource, at any time. I am a freelancer, and I don t come on your payroll. I cost a fraction of BIG-4. TAILORED COLLABORATION ON YOUR PROJECT

43 How Do You Benefit? An external and independent senior resource in charge of your project I am quickly available and immensely flexible, you can switch my involvement on or off as you like and when you like I am independent and apolitical. The no. 1 reason I am on the project is to deliver what we agreed I will produce benefits over and above your expectations. I can act as coach and mentor, create and develop teams strengthen the team relations. I don t exit until project has finished. I do handover before the final sound of the whistle. I can even recruit my successor.

44 How Do I Work? My approach is systematic and disciplined, driven by YOUR needs We set up the first meeting with to explore the challange and to assess if I can help. Here we agree ultimate goals for the project and select the best action steps or changes. The deliverable is delivered, the work is wrapped, all is handed over and you are happy. Entry Dialogue Goals Engage Finish Working side-by-side with you we engage in further dialogue to fully define the problem and start scoping the project. Here the real work begins, I get involved with your organization and work relentlessly towards agreed goals.

45 How To Contact Me? Call me for a non-binding consultation about your business needs Tomasz Meissner Phone: +41 (0) tomaszmeissner@hotmail.com Address: Rue des sept Fontaines 23 CH-1188 Gimel Switzerland