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1 Mergers and Acquisitions

Post Deal Integration


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POST MERGER INTEGRATION


MERGER WAVES
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 Period Strategic background


 1st wave 1880-1904 Realization of monopoly rents by horizontal takeovers
 2nd wave 1916-1929 Vertical integration to gain control of the complete value
chain 1940s-1950s: the increase in the number of M&A deals was small and the
value was not significant
 3rd wave 1965-1969 Anti-cyclical portfolio building to harmonize different
industry-driven economic downturns 1970s: drastic downward trend in the number
of M&A announcements
 4th wave from 1981 ‘Back to core business’ through divestures and carve-outs
1985-1989 Speculative gains from financial acquirers (e.g. Leveraged buy-out)
 5th wave from 1993 Increasing shareholder value and globalization 2000
onwards Talents technology and consolidation of the 'New
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MERGER FAILURE
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 Causes of Failures  Causes of Success


 Target management attitudes and  Detailed post-acquisition
cultural differences No post- integration plans and speed of
acquisition integration plans implementation
 Lack of knowledge of industry or  Clarity of acquisition purpose
target Poor management of target  Good cultural fit
 No prior acquisition experience  High degree of target
management and cooperation
 Knowledge of target and its
industry
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 BMW acquired the Rover Company in  AkzoNobel N.V is a Dutch multinational in


1994 for ₤800mn. After investing about coatings and specialty chemicals.
₤2bn and getting no synergies, it sold the  ICI was formed when four British chemical
company in 2000 to Phoenix Consortium companies merged in 1926. with a diverse
for ₤10. BMW’s integration plan variety of products ranging from heavy
suggested a three phase process in which chemicals to pharmaceuticals.
the initial two years were ‘wasted’ in just  The main reasons for the success of Akzo ICI
providing financial help without any merger , were the presence of a well planned
integration plan and the rapid implementation
integration of the two companies. It was
of that plan.
3-4 years before any concrete
integration plans began and only in  They were able to find a balance between the
cultural and linguistic differences between the
1999 were the two companies fully
two companies and were thus able to avoid
integrated communication problems.
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 Initial discussions about


‘‘how we are
different’’ and ‘‘how
do we identify and
select best practices’’
are replaced by
discussions regarding
the ‘‘next practices’’
Building successful post integration team
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 Reduce Role Ambiguity


 Control which employees leave and which remain
 Due Diligence Around Talent Is a Dangerous Corner to Cut
 Give sufficient attention to assessing the personnel who will lead the new enterprise
 Recognize Old Habits Die Hard — But Not All Should!
 Leaders should discern quickly which habits will best serve the company moving forward and support them
 Don’t Tolerate “Bad Behavior”-cliques, information asymmetries and the sabotage of decision making
 strong apolitical leadership and setting very public examples from the top
 Practice Patience With Purpose- fast or slow
 find the rhythm for pushing ahead that properly balances the need to respect the potentially fragile nature of
newly forming relationships with the need to produce evidence of positive results
 Count — and Then Celebrate — Your Blessings
 Reinforce and communicate repeatedly the upside of the deal
Integration Manager?
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 To help lead the task of integrating companies after big mergers or acquisitions- mid- to
upper-level executives relieved of their customary duties for six months to a year
 Implementation of this important role often bedevils CEOs, thus that the effectiveness of
integration managers varies widely.
 How they are seen
 Process coordinators or Project managers
 Best- Pivotal role, helping mergers to succeed by keeping everyone focused on the issues that
have the greatest potential for creating value and by infusing integration efforts with the
necessary momentum
 Most however never get to assume such a role- Why
 CEOs fail to recruit the right people for the job;
 integration managers don’t become involved in the
 merger process early enough; and CEOs fail to give them adequate support
What can Integration Manager do?
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 Much of the role does involve project management


 However does more
 Helps create the integration teams
 Create and oversee a small integration office to track the progress of the integration teams
 Reports on the teams’ progress to a senior-executive steering committee
 push integrating departments to identify the top performers, whose retention is a priority
 track whether synergies are being captured & breaking the deadlocks
 accelerate the pace by anticipating problems, rapidly solving them, and, above all, constantly driving
the decision-making process

 Courageous, politically astute, and capable of influencing


corporate opinion
Where to look for?
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 Shouldn’t look to outsiders, to the acquired company, or to high-level executives


whom the merger might make redundant
 Someone who already knows the acquirer’s organization and systems and is
committed to the merged entity’s future
 Safe choice - GM >15 years of experience with the company, including frontline
operating experience
 Riskier Choice- less experienced rising star, with proven well-developed general
management potential
 Organizations that actively manage their talent pipeline will have an easy time
identifying candidates
 Serial acquirers should therefore have a strong talent-management system that
makes it easy to identify potential integration leaders
Get your candidate on board
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 Reluctant to give up important positions for a 6- to 12-month stint of intense work, at the
end of which their previous job may have been eliminated or given to someone else and
numerous attractive positions created by the merger will probably have been filled.
 CEO should persuade, provide personal assurance and explain importance of the
integration management role
 Assure them that they will remain in it only as long as they are needed to maintain the
momentum of integration
 IM should know what position he or she will assume after successfully completing the job
 If it isn’t possible to promise a specific one, the CEO should sketch out some realistic
possibilities and describe the process for choosing among them as the integration effort
unfolds
 IM should have a senior-executive sponsor to help with his or her next career move.
 IM who has a clear picture of his or her future will also be more effective in the job
When to install
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 Install the IM early- a month or so before the deal is announced


 Working early on with the CEO and with the team supporting the negotiations
for the deal allows the integration manager to learn which
 customers, personnel, and projects will be critical for the success of the
combined business and to take steps forestalling problems that involve them
 Identifying employees whom the company can’t risk losing to competitors

 Deal often involve unwritten understandings, IM should know what


they are before the merger announcement
 identify and recruit a candidate as soon as it seems likely to go
through but not to relieve the chosen executive of his or her primary
responsibilities until its completion is imminent
Support the IM
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 CEO’s support in several key ways


 Trustthe IM to provide an invaluable set of eyes and ears
throughout the integration process
 Give IM authority to do the job and make it clear, at the
integration kickoff meeting, that the IM will serve as the CEO’s
proxy in many meetings
 Support to muster resources against roadblocks by BU chiefs
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POST MERGER
Smoothing integrations
The challenges in integration
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 Sooner the companies are integrated the better the


synergies are captured.
 Deal financial aspects, explain to investors,
negotiate with regulatory bodies, check all
necessary compliances are met.
 CFOs need to manage all these without access to
some legally restricted data.
Necessity of CLEAN TEAMS
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 The term clean team originated in the health and computer sciences fields, where a
designated work environment – a clean room – is sealed off to prevent
contamination.
 In an M&A context, contamination refers to the disclosure of specific, confidential
information that could affect competition between involved companies during the
pre-closing period, or in the event the transaction falls through. They can be third
party teams.
 The clean team – operating under certain protocols and prior to regulatory
approval or consummation of the deal – assembles, reviews, and analyzes sensitive,
competitive, and other confidential data, then reports summarized or aggregated
information to the business leaders, who are then able to make informed decisions
about the transaction or the integration of the businesses.
Three types of clean teams.
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Library clean Facilitator Designer-


team clean team planner clean
team

If the time between the Hardest to deploy


The time between announcement and announcement and the closure is at Most number of resources from both
closure of deal in very short. least 6 weeks. organizations.
Such teams can be deployed and meet There facilitator teams has couple
of extra activities compared to a High budget.
objectives in weeks.
Library clean team. Two to three months of time.

Supports both companies by


Primary tasks: recommendations and draft action This team does the real
Decide which data to collect. plan. planning for integration post
Divulge some high-level information merger.
Gather and harmonize the data.
Brief the decision makes about the
before closure of deal. Identify key short term issues
meaning of the data and the problems After deal closure works with new which needs to be resolved.
they foresee. management in implementation of Auditing the terms of suppliers
the recommendations.
and customers.
Developing sensitive post
merger strategies.
Clean team-when not to go for it ?
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 If the size of the merger is too small.


 If the risk is very less compared to the cost of
forming a clean team.
 There can be good business reasons to avoid
disclosing data to clean teams. E.g Patents, R&D
information, formulas, oil exploration locations.
 Thus a trade off between cost, risk and interests.
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POST MERGER
Art of post merger leadership
Why problem exists?
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 Senior managers often fail to define a high impact


role for themselves.
 “ Perhaps most fundamental is that many senior
managers simply do not know how to add real value
during merger integration”.
 Merely steering committees to handle issues as they
arise.
 Be defensive and protect own company from errors.
Leading from the top
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 Leaders must know why they should handle issues


and not the integration teams.
 Seniorityclout
 Breadth of strategic vision

 Teams often overlook strategic levers and drivers.

 Teams are often not having long tem vision.

 Leader need to take care of 5 challenges


5 responsibilities of a leader.
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 Move quickly to mold the top team.


 Communicate the corporate story.
 Establish a performance culture.
 Champion external stakeholders.
 Reinforce momentum with selective learnings.
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POST MERGER
Taming post merger IT integration
IT integration after merger
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 Overcome the urgent technical challenge in path of the


merger.
 Obtain maximum synergy and minimum customer and
employee disruption.
 Often the decision makers take one of two questionable
paths, some fearing cost and complexity never fully
integrate, others in haste choose any one system over
the other, alienating both customers and employees.
A question of Pace
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Rapid Integration Slow Integration


Rapid integration garners some immediate Expensive and delays to capture
synergies, in terms of cost and time. synergies.
Typically drives away 8% customer base Less stress on customers and thus very little
(study on banking systems). chance of losing customers.
Some dissatisfied employees. Less impact on employees.
Immediate benefits are lost due to The long expensive process sometimes
customer and employee dissatisfactions causes the IT cost to be so high that the
and the resulting losses. merging units falls behind its competitors.
SO A TRADE OFF IS NEEDED BETWEEN THE TWO WAYS………..
The trade off decision
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Inputs Output
Identify target Migration Plan
products, product Decision tools. NPV impact.
gaps and customer Required
sets. Sequencing rules. customer and
Trade offs. employee
Determine Interdependencies. communication.
migration routines. Gap closures.
A question of leadership
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 Sorting and managing different powerful interest


groups.
 Product specialists and business groups: Minimum change at the cost of huge expense.
 IT and systems groups: Tend to push for the best technology, at the cost of user comfort

 Confirm target product set.


 Choose a system platform.
 Identify gaps between offerings and services.
 Finalize routines.