Post on 06-Oct-2020
Post(?)Merger Integration
28 November 2019
2|Introduction
Our Observations
Buy side:
Investment and Human Capital destruction
4|
M&A - “Acquisitions are done for growth”
But what is the real reason?• Strategic decision, target carefully selected• ‘Strategic fit’• Access to new market/product/technology• Scale advantages• Take out competitor• Coincidence, stumbled on it
5|
M&A - What do you want to accomplish?
• Better/bigger profit• Vertical integration• Better market position on existing market• Market position on new market• Innovative power• Transformation to a completely new model
6|
Bigger
and
bigger
7|
Seller always wins
8|
Emotions rather than facts
Deal hormones
Victor mentality
Uninformed optimism
We gotthem!
We know them! They are our
competitors for decades
Now that the deal is finally closed, let’s just fix it!
9|
Announcement Day
Employee:‘will I have a job?’‘who is my boss?’
10|
Rationality is the basis…
“The strategic fit is obvious”We have complementary client segments, a complementary geographical footprint and a complementary product set with potentialfor cross sell and up sell.In addition we will realize considerable scaleadvantages in the fields of Purchasing, IT, HR, Finance, Production and Sales.
…but still quite some hurdles to take:
• How big is the acquisition and integrationexperience of the CEO and his team?
• Culture differences• Different ways of working• Value creation & synergy realisation• What does the client think?• What do employees think?• What do suppliers think?• What do works councils think?
11|
Why integration?
• Integration activities need to be done in any case to harvest the benefits and repay the investment, but intensity differs – examples:
• ‘Holding’• ‘Bolt-on acquisition’• ‘Absorption’• ‘Merger of equals’
• Integrate or keep stand-alone?• Whatever the choice, some basics need to be put in place (like financial reporting)• Think it through – ALL aspects of BOTH businesses
Lowintegrationlevel & effort
High
12|
Typical integration challenges
• Irrationality of the deal• Unrealistic expectations• (Too) High price paid• Merger or acquisition?• The business is in trouble (acquirer, target or both)• Top management disalignment (exec and non-exec level)• Never done an acquisition before• Culture aspects• Target is a carved-out entity• SPAs with post-closing conditions
13|
Closing
Pre-SigningDue Diligence Pre-Closing
Integration ScanExecutive Alignment Kick-off
Deal and integration process…
Signing
Transaction
IntegrationImplementation
Integration ReviewSecond Wave Activities
120 Day ActivitiesIntegration PlanningDay 1 PreparationIntegration DD
Integration plansQuick wins
Post-closing conditions
MOMENTUM
14|
…and four key themes
A successful integration
15|
TRAN
SACT
ION
These themes need attention throughoutthe integration process
Closing
Pre-SigningDue Diligence Pre-Closing
Integration ScanExecutive Alignment Kick-off
Signing
ImplementationIntegration Review
Second Wave Activities120 Day ActivitiesIntegration Planning
Day 1 PreparationIntegration DD
INTE
GRAT
ION
Integration plansQuick wins
Post-closing conditions
VISION AND APPROACH
VALUE CREATION AND PRESERVATION
CONTROL
PEOPLE AND CULTURE
4 TH
EMES
16|
Develop and confirm the rationale of the deal…
Confirmeddeal rationaleExamples
• Fully integrated• Specific functional areas• Maintained at arm’s length
Examples• Revenu synergies• Cost synergies• Take out competitor• Access to technology• Customer base• Vertical integration• …
Examples• Centralized• Locally driven• Multi-/omni channel• Customer driven• Knowledge center• ..
17|
What is the strategic
rationale for the deal?
What are the key pockets of
value in this Integration?
What degree of Integration is targeted per
area/function?
What type of programme would this Integration
require?
Integrationguiding
principles
What are the objectives and
how will success be measured?
What is the Integration
overall timeline?
What are the key risks?
What issues/principles are
non-negotiable for this deal?
1
2
3
4
5
6
7
8
Guiding Principles – agreement on keyfundamentals of the integration
18|
Business Architecture conceptSubject
BUSINESS MODELMarkets
Brands
Propositions and products
Distribution channels
Client (group)s
OPERATING MODELProcesses and services
People and culture
IT Systems
Locations and assets
Contracts and IP
FINANCIAL MODELBaseline
Synergies
Business Model
Operating Model
Financial Model
Business Architecture
19|
INITIAL STATE (BASELINE)
Business Architecture baseline, interim & end state
ACQUIRER ACQUIRED
COMBINED: INTERIM STATE
COMBINED:END STATE
BEFORE CLOSING ON DAY 1 AFTER INTEGRATION
20|
Post-closing conditions
• Understand what has been agreed contractually• Be clear on definitions• Gather the right data to monitor status of the
post-closing conditions• Examples:
SPA: guaranteed
# clients
Earn out
21|
Governance
Governance
Appointments
Org. design
Works council
ImplementationIntegration Review
Second Wave Activities120 Day ActivitiesIntegration Planning
Day 1 PreparationIntegration DD
ClosingSigning
N-1N N-2 N-…
2 RvC 1 RvC
2 Works Councils 1 Works CouncilInterim solution (committee)
2 Organisations 1 Organisation (end state)Interim organisation
22|
Elements of control – Day 1
• Day 1 preparation• Signatory authority• Aligned reporting• Clear decision making processes• Roles & responsibilities
Deal close
time
Dea
l kno
wled
ge
Key: Deal team Integration Team
Pre-Signing Pre-Closing Post-Closing,first 120-Days Post-Closing, beyond the deal
Integration DD Day 1 PreparationIntegration Planning
Post 120 Day SupportIntegration Review
Second Wave Integration120 Day Activities
Integration ScanExecutive Alignment Kick-off
Signing (announcement)
23|
Acquiring a carved out entity
• Do you know exactly what you are buying?• Has the entity business continuity?• Are TSA and LTA in place?• How big are the risks of clients and/or
personnel leaving?• Is seller aware of its supplier role?
?
24|
Synergy BridgeV
alu
e € m
Revenusynergies
Current value
Company A
Dis synergies
Financial synergies
Integration costs
Cost synergies
Current value
Company B
+
25|
Value PreservationV
alu
e € m
Revenusynergies
Current value
Company A
Dis synergies
Finance synergies
Integration costs
Cost synergies
Current value
Company B
+ Loss of clients/staff due to reduced focus on ‘business as usual’ and/or leakage
26|
Cultural and people issues are often the biggest challenges
Top post deal challenges*
* Source: KPMG
16%
19%
27%
29%
32%
36%
Restrictions on Time/ management
resources
Customer retention
IT
People issues
Dealing with different organization cultures
Complex integration of two businesses
Proportion of respondents
... yet companies had not placed a great deal of emphasis on addressing people and cultural issues in planning for the post deal period
In general respondents were not well prepared to deal with cultural differences and retention
Cultural challenges
• Differences in working styles, leadership approach
• National culture differences
• Behavioural differences
People Issues
• Key members of management team leaving
• Retention of key staff
• Employee moral and motivation
• Consultation with staff and representative bodies
27|
Emotional curves
Frustration
Disillusionment
Low point
Exploration
Engagement
Commitment
Announcement Closing 120 Days
Leave
MOMENTUM
ClosingSigning
ImplementationIntegration Review
Second Wave Activities120 Day ActivitiesIntegration Planning
Day 1 PreparationIntegration DD
28|
The HR challenge in integrations
• # FTE• Salaries• Secondary benefits• Pensions• …
UNDERSTAND MONITORINSIGHT
• Capabilities• Competencies• Development areas• Appraisals• …
• Retention policy• Employee satisfaction• Future needs• …
For both organisations!
29|
Employee retention• Start with listing the key employees (on both sides!!)
• A financial retention bonus will achieve just that…
• So be creative with other elements:
• Participation in integration program or other innovation
• Development opportunities (such an MBA or position abroad)
• Other non-financial
30|
Organisation Iceberg
Visible
Invisible
Locations, people,structures, products, …
Culture, behaviour,habits, rituals, …
31|
The Merger challenge
Cognitive
Emotional
‘Hard’ factors
‘Soft’ factors:• Culture• Behaviour• Habits• Rituals
Goals KPI SynergiesStrategy Marketshare EBITDA
32|
Quantify culture
Source: Trompenaars Hampden Turner culture model
33|
What “Change” will the merger bring?
• Purpose/vision/mission• Governance• Organisation structure• Business Model• Operational Model• Financial Model• Culture• And not to forget: scale
34|
Change is ultimately a personal choice
Everyone reacts to change differently Change is always received both rationally and emotionally - and politically
35|
Finally: don’t forget the external world
• Acquisitions and divestments cause a lot of ‘buzz’• Imagine those poor employees…. Being called by clients, suppliers, head
hunters, competitors and their families at home…• Do not forget social media – a lot can happen there• Social data can be gathered and analyzed on continuously
36|
Key takeaways
1. Integration is necessary for every acquisition2. Start on time3. Use a integral/holistic approach4. Every integration is different5. Don’t forget the emotions6. The cognitive part just as important as the ‘soft’ factors7. The CEO and his/her team need experience to make integrations successful
THANK YOU
37|
38|
39|
Disclaimer: IntegrationPeople is a trademark of IntegrationPeople.nl BV. This document is solely for use by companies, intending to cooperate with IntegrationPeople.nl BV. No part of it may be circulated, quoted or reproduced for distribution without prior written approval from IntegrationPeople.nl BV.
Evert Oosterhuis Harold de BruijnPartner Partner
Mobile +31 6 3808 9999 +31 6 5314 9724Mail evert.oosterhuis@integrationpeople.nl harold.de.bruijn@integrationpeople.nl
Website www.integrationpeople.nlOffice IntegrationPeople.nl BV
Wisselweg 331314 CB ALMERE
Read our White paper on Integration and our Whitepaper on Carve Out