Turnaround Management - Linking to M&A and Integration Success

Transcription

1 Turnaround Management - Linking to M&A and Integration Success Anton E. Tremp Siemens, Building Technologies HQ, Switzerland 'Thought Leader Global' Conference Amsterdam, November 15 th &16 th, 2012 Siemens AG All rights reserved., Amsterdam 1

2 Content Motivation & Introduction Characteristics of Turnarounds 2 Examples Turnaround to prepare for M&A Turnaround after failed Integration Key Considerations & Learnings Leadership in Turnarounds Leadership in Post-Merger Integration Projects Conclusions Page 2 Motivation In The Art of M&A Integration 1 15 studies are listed, showing that - based on more than 7'000 transactions - 50% to 75% of all transactions have not achieved the intended goals Even if the situation may have improved in recent years, there are many failed integrations, which will require some sort of action to rectify a turnaround If a business shall be divested, it is important to be able to sell it as a healthy business may require a turnaround to prepare the business for the transaction 1 A.R.Lajoux, The Art of M&A Integration, McGraw-Hill, 1998; Page 3, Amsterdam 2

3 Introduction - Siemens, Key Figures Revenue by Sector Revenue by Region Healthcare 17% 35% Energy 22% 26% Infrastructure and Cities Industry Asia, Australia Americas 19% 15% 28% 38% Germany Europe, CIS, Africa, Middle East (excl. Germany) Based on total Sector revenue, first half of FY 2012 Based on customer location, FY 2011 Revenue and employees Employees in thousands 100, , , , , Revenue in millions of 0 FY Continuing operations comparison with previous year In millions of FY 2010 FY 2011 New orders 74,055 85,582 Revenue 68,978 73,515 Income 4,262 7,011 Free cash flow 7,043 5,885 Employees 336, ,000 As reported in annual reports Page 4 Introduction - Anton E. Tremp since 2005 with Siemens, Building Technologies Division Restructuring & turnaround projects of Siemens subsidiaries abroad Rectification of troubled Post-Merger Integration projects Post-Merger Integration of large acquisition in India, Ireland, UK & Singapore Corporate & business development projects for 4 Years Partner in a Private Equity Company Investment Management & Board Member for technology companies in Switzerland, EU & US ad interim CEO of Software Company several turnaround projects as well as M&A transactions for 14 Years in the Electrical, Security & Software Industry mainly in General Mgmt as well as in Marketing & Sales Mgmt always with a strong international orientation across the entire globe additional experience in R&D, Project Mgmt, Finance & Controlling B.Sc. in Electrical Engineering, M.Sc. in Computer Science (US) and Executive MBA from University St.Gallen Page 5, Amsterdam 3

4 Content Motivation & Introduction Characteristics of Turnarounds 2 Examples Turnaround to prepare for M&A Turnaround after failed Integration Key Considerations & Learnings Leadership in Turnarounds Leadership in Post-Merger Integration Projects Conclusions Page 6 Characteristics of Turnaround Situations Mistakes have happened in the past, causing problems, and they have not been rectified! Because : not recognized / not understood not willing to acknowledge / not willing or able to (re)act applying known problem-solving techniques, which do not help focus on urgent matters instead of important matters wrong / insufficient measures taken and/or too late there is always a 'leadership issue' resulting in a serious crisis for that company with a high level of psychological stress Page 7, Amsterdam 4

5 Typical Stages of Corporate Crisis Profit / Cash flow Strategic Crisis Turnarounds Profit Crisis 'Cash is King' Do the 'Right Thing' Re-gain Profitability / positive Cash Flow Liquidity Crisis <1 Years until Insolvency Time [Years] Source: Helbling Corporate Finance, Nov. 2008, analysis of >300 turnarounds Page 8 Reasons for Corporate Crisis Widespread Poor leadership, or lack of leadership Missing financial transparency Insufficient controlling Insufficient reaction to changes in the market Insufficient reaction to already recognized problems Too much capital spending Insufficient equity base Insufficient sales capacity Lack of focus Frequently Shortfall in demand due to economic downturn Failed diversification Failed acquisition, or failed integration Lack of replacement investments Lack of knowledge related to markets & functional disciplines Too much stock Seldom Late reaction by auditors Exchange Rate impact Dependency on a few, large accounts Subsequent costs after moving facilities Too much spending, poor cost mgmt Quality Issues Criminal acts external factors internal factors Source: Helbling Corporate Finance, Nov. 2008, analysis of >300 turnarounds, amended Page 9, Amsterdam 5

6 Content Motivation & Introduction Characteristics of Turnarounds 2 Examples Turnaround to prepare for M&A Turnaround after failed Integration Key Considerations & Learnings Leadership in Turnarounds Leadership in Post-Merger Integration Projects Conclusions Page 10 Example 1 - Preparation for M&A Transaction (2003) Company : - Enterprise Software Company in Switzerland, with subsidiaries in Germany & Austria - since more than 10 years active in the market - positive profile and market perception - founder was also CEO, well respected - in 2001 to finance expansion, company sought funds from investment community (Private Equity firm & large Swiss Bank) - Revenues : large single-digit Millions EUR - 60 employees plus freelancers & partners My Role : - Partner at the invested Private Equity firm - Board Member since late 2002, representing the Private Equity firm - for the turnaround: CEO a.i. Page 11, Amsterdam 6

7 Example 1 - Preparation for M&A Transaction (2003) Problems : - burst of the 'Internet Bubble' with market contraction - in 2001 expansion into Austria - in 2001 large investment in R&D, new release is delayed - financial targets were not achieved, started to loose money - lack of financial transparency / very limited controlling - heavy conflicts with the large Swiss Bank Resulting : - Burnout of CEO, requiring 'break' of several months - consequently, employees lost faith - situation became worse month-by-month (financially as well as emotionally) My Goals : - bring company 'back on track' - sell company to strategic investor Page 12 Example 1 - Preparation for M&A Transaction (2003) Widespread Poor leadership, or lack of leadership Missing financial transparency Insufficient controlling Insufficient reaction to changes in the market Insufficient reaction to already recognized problems Too much capital spending Insufficient equity base Insufficient sales capacity Lack of focus Frequently Shortfall in demand due to economic downturn Failed diversification Failed acquisition, or failed integration Lack of replacement investments Lack of knowledge related to markets & functional disciplines Too much stock Seldom Late reaction by auditors Exchange Rate impact Dependency on a few, large accounts Subsequent costs after moving facilities Too much spending, poor cost mgmt Quality Issues Criminal acts encountered problems Source: Helbling Corporate Finance, Nov. 2008, analysis of >300 turnarounds, amended Page 13, Amsterdam 7

8 Example 1 - Preparation for M&A Transaction (2003) Actions : Results : - cash management (temporary salary reduction, creditor mgmt) - arranged for additional equity (internal & large Swiss Bank) - reduced cost base (i.e. headcount reduction) - discontinued operations in Austria / closed local subsidiary - focus of R&D to get release out (without 'nice to have') - engaged temporary CFO / introduced appropriate controlling - brought faith & motivation back, i.e. taking time to discuss and 'being available' - handled all communication with the large Swiss Bank - search for strategic investor - reached sustainable Break Even within 5 months - motivation was back, there was again 'a future' M&A transaction was subsequently successfully executed Page 14 CEO did not return, but a few months after his 'time off', he founded a new company, Amsterdam 8

9 Content Motivation & Introduction Characteristics of Turnarounds 2 Examples Turnaround to prepare for M&A Turnaround after failed Integration Key Considerations & Learnings Leadership in Turnarounds Leadership in Post-Merger Integration Projects Conclusions Page 16 Example 2 - Failed Post-Merger Integration (2006) Company : - Security Systems company in EU country - since more than 20 years active in the market - market leader with benchmark profitability - innovative offerings - hired CEO, highly respected opinion leader at national level - Revenues : mid-range two-digit Millions EUR employees in 3 locations - in late 2004 acquired by Siemens ( friendly take-over ) - highly ambitious growth targets - integration started in Q1/ 2005 Problems : - in Q2 / 2005 financial situation started to deteriorate - in Q3 / 2005 company started to loose money Page 17, Amsterdam 9

10 Example 2 - Failed Post-Merger Integration (2006) Actions I: Resulting: My Role: - in Q4 / 2005 consultants from Germany were engaged to support local management - plus intensified coaching from Siemens headquarters - CEO communicated informally that he would quit - consequently, employee moral started to deteriorate - financial situation became worse month-by-month - working for Siemens headquarters - in March 2006 started on-site as Turnaround Manager My Targets: - comparable levels in terms of financial performance - completed Post-Merger Integration Page 18 Example 2 - Failed Post-Merger Integration (2006) Widespread Poor leadership, or lack of leadership Missing financial transparency Insufficient controlling Insufficient reaction to changes in the market Insufficient reaction to already recognized problems Too much capital spending Insufficient equity base Insufficient sales capacity Lack of focus Frequently Shortfall in demand due to economic downturn Failed diversification Failed acquisition, or failed integration Lack of replacement investments Lack of knowledge related to markets & functional disciplines Too much stock Cultural clash Strategy mismatch Seldom Late reaction by auditors Exchange Rate impact Dependency on a few, large accounts Subsequent costs after moving facilities Too much spending, poor cost mgmt Quality Issues Criminal acts encountered problems Source: Helbling Corporate Finance, Nov. 2008, analysis of >300 turnarounds, amended Page 19, Amsterdam 10

11 Example 2 - Failed Post-Merger Integration (2006) Actions II : - acted as 'gate keeper' towards headquarter functions - made transparent cultural differences and consequences in behavior ( to both sides ) - coaching of CEO & mgmt team - increased financial transparency of existing business ( necessary step for strategic alignment of business mix) - aligned cost structure to more reasonable budget - comprehensive program to match local strengths with global Siemens strategy for security business - only partial integration into Siemens ( kind of '80:20') Results : - reached operational Break Even after 3 months and healthy profitability after 8 months - motivation was back with a positive perception of being part of Siemens CEO stayed 3 more years - and is still with Siemens business remained highly profitable Page 20, Amsterdam 11

12 Content Motivation & Introduction Characteristics of Turnarounds 2 Examples Turnaround to prepare for M&A Turnaround after failed Integration Key Considerations & Learnings Leadership in Turnarounds Leadership in Post-Merger Integration Projects Conclusions Page 22 Key Considerations & Learnings Profitability Crisis or already Liquidity Crisis Timing! Be aware of Legal Requirements & Responsibilities Risk Mgmt! Understand why earlier actions were not successful? Find out what the real issues are? Very often the organization knows what would be needed, but don't know how to do it / how to implement it As there is normally a broad range of problems, there is no 'magic bullet' to save the company, it's mainly a lot of hard work across all functions A good understanding of controlling & [corporate] finance is required Turnaround actions need time to stabilize Conflicts are unavoidable / fight for the best possible solution Not every business can be rescued! Page 23, Amsterdam 12

13 Content Motivation & Introduction Characteristics of Turnarounds 2 Examples Turnaround to prepare for M&A Turnaround after failed Integration Key Considerations & Learnings Leadership in Turnarounds Leadership in Post-Merger Integration Projects Conclusions Page 24 Strong Leadership is required in Turnaround Situations to get the job DONE Keep Overview Speed "80/20" Decisiveness Focus on Implementation Optimisms Turnaround Leadership Consequently pushing forward Openness Composure to get the support / trust Honesty & Integrity Creativity to find a solution Page 25 adopted from Helbling Corporate Finance, Nov. 2008, Amsterdam 13

14 Leadership in Post-Merger Integration Take employees and their ideas & concerns seriously Listen carefully, as lower level managers / people at the base will provide additional - business relevant - insights Always maintain an open and honest dialogue 'Take the heat' - it's highly appreciated Foundation for a trusted collaboration Have a thorough plan ready - even if it will not be possible to implement it to the full extend High degree of complexity understanding and mapping of dependencies Provide sufficient time [& resources] for 'soft subjects' but never forget implementation is crucial Implement a comprehensive project controlling Follow-up at level of board / steering committee Actively communicate 'success stories' Page 26, Amsterdam 14

15 Content Motivation & Introduction Characteristics of Turnarounds 2 Examples Turnaround to prepare for M&A Turnaround after failed Integration Key Considerations & Learnings Leadership in Turnarounds Leadership in Post-Merger Integration Projects Conclusions Page 28 Conclusions 1. You can never succeed 'against the people', but only 'together with the people'! - the management and the employees are the ones, who will implement the turnaround actions - they are your 'multipliers' Invest early in a good relationship to the people - you will need it Communicate frequently, open and honest 'take the heat' Pay honest attention to the people's worries, fears, hopes, etc. be on-site / be available / '50:50 Rule' "Laying-off people is often unavoidable, but there is no good reason, not to do it in a correct and considerate way" 1 & keep 'survivors' in mind do it yourself, take the responsibility - it will be appreciated Both - Turnaround Management as well as Integration Management - require a Transformational Leadership approach 2. The best idea is not worth anything, as long as it is not implemented! If these 'rules' are taken into account, turnarounds become a successful 'tool' in the broader M&A context Page 29 1 Prof. R. Dubs, former President of University St.Gallen, Amsterdam 15

16 Thank you for your attention Anton E. Tremp Siemens Switzerland Ltd. Building Technologies Division Gubelstrasse Zug, Switzerland Page 30, Amsterdam 16