FrontLine Partners M & A Approach 2011

Discussion Document 1 CONFIDENTIAL AND PROPRIETARY

M&A and Integration Services

Strategic Business Combinations and Post Merger Integration Approach

This document is confidential and is intended solely for the use and information of the client to whom it is addressed.

www.frontlinepartners.net

http://www.navigantpartners.com/


FrontLine Partners Overview

FrontLine Partners (www.frontlinepartners.net) is a real estate consulting firm that works with banks, institutional investors, lenders, owners, intermediaries, and service providers in the commercial real estate and financial services industry to help them accelerate growth of their business.

FrontLine Partners offers a number of services ranging from strategy formation, corporate and business development, mergers and acquisitions, capital sourcing, and interim executive and operations management.

http://www.frontlinepartners.net/


Tran

sact

ion

Val

ue

Target Acquisition

Maximizing Acquisition Deal Value Companies must accelerate value capture from proposed and identified synergies, and could leverage FrontLine Partners to examine changes and options leading to unidentified synergies.

Market-discounted combination premium

represented by Company X’s offer to buy the target company.

Unidentified Synergies

Company X Revenue = $4.7BN

“Su

gg

este

d”

Syn

erg

y V

alu

e Portfolio of monetized initiatives

Identified Synergies

FrontLine Partners will work with Company X to realize

identified synergies and find unidentified synergies to extract additional value.


FrontLine Partners supports the core lifecycle of strategic business combinations and post-merger integration.

= possible transaction

Transaction Assessment

Stra

tegy

&

Opp

ortu

nity

Rev

iew

Initial Due Diligence

Company/Market Opportunity

Target Screening/ Fit Assessment

Transaction Management

Valu

e D

efin

ition

& E

nhan

cem

ent

Deal Structuring/ Negotiations

Due Diligence

Financial/ Operations Review

Operations/ Risk Plan

Capital Sourcing/ Structuring

Closing/ Post-Closing

Integration Management

Valu

e C

aptu

re

Integration Planning

Pre & Post Closing Implementation

Program Manage-ment Office

Disciplined Execution Plan

Strategy and assessment

phase enables the best deal to come out of the

funnel.

7-15%

2-5%

20-30%

Acquisition and Post-Merger Integration Lifecycle

Successful execution of

Business Plan and Value Capture


Merger Expectations Focus on pre and post merger work ensures our clients realize the full value from acquisitions.

People Strategy

Operating Strategy

Financial Strategy

Technology Strategy

Market Strategy

Acquisition Expectations …

» Expectations for public companies are often set high by investors and Wall Street Analysts.

» They can overvalue and over play potential synergies and economies of scale, leaving the acquiring company on the hook for delivering difficult value from the transaction.

» Company X will have to bring the people, process, and technology strategies together from both companies to achieve required returns/value.

Key Components of a Successful Acquisition Roadmap/PMI Approach


Focus on Pre and Post Integration Efforts

Key Company X Acquisition Components

Asking the difficult questions up-front will help staff focus on the important tasks and help achieve a successful acquisition.

People Strategy

Operating Strategy

Financial Strategy

Technology Strategy

Market Strategy

» Are there clear objectives and guidance?

» What will our future “HR picture” look like?

Document Focus

» Does the market understand the combined company strategy?

» How does the combined portfolio align with our vision?

» What additional value does an acquisition give Company X?

» Can we capture cost savings and improve ROI with better processes?

» How do we position our technology resources?

» What key assets require focus from management?


Company X Integration Needs Companies want to create maximum value in acquisitions for shareholders and create an environment where there is a clear path to value creation (not erosion).

Deal Break Even

SLOPE Transaction Gap

Component

TIME

Com

pany

X D

EAL

VALU

E C

REA

TIO

N /

CAP

TUR

E

Destroy Value

Value Company X Wants

Typical Deal Outcome

TIME Transition &

Transformation Gap Component

Create Value Value comes

down to people, process, and technology

Deal Value to Time Framework


M&A Performance – Critical Success Factors Industry studies have identified pre and post deal critical success factors to ensure merger & acquisition success.

Pre-Deal

» Securing the right target or partner, at the right price

» Assessing potential for value creation

» Valuing apportionment in the deal

Post-Merger Integration (PMI)

» Realizing the full benefits of integration

» Value creation

» Time value

» Maintaining momentum

Pre-Deal Success = f (Right Strategy x Right Candidate x Right Price)

Post-Deal Success = f (Right End State x Right Speed x Right Process)


M&A Performance – Root Cause Analysis Difficulty linking the acquisition’s strategic drivers through a fast track and well thought out integration management effort is a root cause of performance issues.

47%

20%

14%

4%

10%

35%

49%

SoundStrategy on

Day One

ClarifyingExpectations(Synergies)

PriceDepends on

Future Profits

Entering When Price Is

Lower

MotivatingEmployees

BreakingCulturalBarriers

MasteringIntegration

Strategic Link

[1] Source: ATKearney - Total shareholder returns (% over/ under performance) vs. industry index (from three months prior - 24 months after merger announcement)

Merger Success Factors (% of Companies Surveyed [1] )


The M&A Value Gap Although mergers and acquisitions are increasing, historical experience suggests the deals do not often yield expected returns, creating a “value gap” between expected and achieved results.

TRANSACTION GAP

TRANSITION / TRANSFORMATION GAP

VALUE G

AP

Expected Value True Potential Value Achieved Value


What Drives the Value Gap?

TRANSACTION GAP

TRANSITION/TRANSFORMATION GAP

VALU

E GA

P Expected

Value True Potential Value Achieved Value

Transaction Gap

» Weakness in Pre-Transaction Success: f(x) of (Right Strategy x Right Partner x Right Price)

» Internal vs. external focus

» Multiple agendas and perspectives

» Internal and external time pressure

» Limited access to information

» Clarity/precision on value drivers

» Failure to assess implementation considerations

» Lack of prior experience in acquisition analysis and negotiation

» Ego

Transition/Transformation Gap

» Weakness in Post Transaction Success: f(x) of (Right End State x Right Speed x Right Process)

» Lack of leadership, vision

» Inadequate integration planning/execution

» Determinism, inflexibility

» Failure to maintain customer focus

» Loss of control

» Loss of momentum/speed

» Organizational confusion and division

» Flight of key talent and knowledge

» Poor cultural assimilation

Since most transactions are not “cookie-cutter”, variations in deal characteristics and integration execution have the greatest impact on the value gap.


FrontLine Partners’ Approach for M&A / Integration

Company X Strategy

and Culture

FrontLine Partners’ M&A methodology and approach for integration is holistic in scope, integrating Organizational Culture, Process, and Technology in a systematic fashion using real estate specific expertise.

Market Strategy

People Strategy

Operating Strategy

Technology Strategy

» Customer Feedback

» Summary Measures

» Messages/Forums

» Controls

» Workflows

» Roles & Responsibilities

» Measures

» Policies / Procedures

» Organizational Structure

» Rewards / Compensation

» Competency Model

» Employee Development

» Performance Measurement

» Applications

» Databases

» Hardware

» Communications


PHASE I - Transition Planning & Design PHASE II - Implementation

Program Management

Change Management

Program Planning &

Start-up

Project Team

Planning

Systems Integration

Process Realignment

Organization Realignment

Day 1 Operations

Systems Integration

Process Realignment

Organization Realignment

Day 100 Operations

» Assess the current state

» Define the future state

» Develop functional transition plans

» Integrate functional plans into cohesive master plan

FrontLine Partners’ Approach to Merger Integration

Pre-Closing Plan Optimization Stabilization

We approach merger integration utilizing a two phased approach.


Integration Planning / Execution / Optimization

Pre-Close Planning “Day 1 Functionality”

Stabilization “Short-Term Goals”

Optimization “Long-Term Goals”

Synergy Focus

Strategic Focus

Tactical Focus

Tactical

Strategic

» Program Management Office

» Integration Planning

» Risk Management

» Communications

» MIS

» Identify Synergies

» Cost Take-out

» Eliminate Redundancies

» Identify Cross-selling Opportunities

» Customer Value

» Cost Savings

» Revenue Increase

» Growth Focus

FrontLine Partners applies its merger integration methodology to both short term tasks and long term strategic vision for an optimal outcome.

Phase I Phase II


Size of Opportunity

0

1

2

3

4

5

3 6 9 12 15

Sav

ing

s /

(C

apit

al +

Exp

ense

)

Time to Complete (Months)

< $1 MM

$1MM-$5MM

$1MM-$5MM

< $10MM

“Must Do” Initiatives

Priority Initiatives

Savings/(Capital + Expense) vs. Time to Implement

Priorities are then mapped against a timeline to execute in order to create a matrix of critical initiatives both pre and post close.

Critical Initiative Matrix


Initiative Prioritization FrontLine Partners works closely with its clients to prioritize initiatives to drive “showcase” outcomes.

Depending on Resource Availability and

Other Constraints

High Potential for Success, Early Benefits

Poor Use of Resources

High Risk Areas Address Early

Ease

of

Im

ple

men

tati

on

Value Creation Potential Low

High

Select

Avoid

Showcase

Tackle

High


Integration Management Process and Tools Our projects start with a well defined process that is communicated effectively to all participating parties.

ActivitiesActivities

ProjectCommunication

Plan

KnowledgeManagement

Tools

IssuesTracking &Resolution

Risk Management

& QualityAssurance

DeliverablesDeliverables

P R O J E C T

M A N A G E M E N T

Project Planning• Project Workplan

• Project Charter

• Project Standards

• Project Kickoff Meeting

• Project Budget

Project Management Tools• Scope Management Procedures

• Knowledge Management Tools

• Issues Tracking and Resolution Tools

• Risk Management & Quality Assurance Program

Project Communications Plan

Status Reporting and Budget Management

Procedures

Resource Management

Ongoing

StatusReporting/

BudgetManagement

ResourceManagement

ProjectPlanning

ProjectManagement

Tools

OperateOperate

Project ManagementProject Management

Risk ManagementRisk Management

Deploy-ment

Deploy-ment

SolutionBuild

SolutionDesign

SolutionStrategy OperateOperate

Project ManagementProject Management

Risk ManagementRisk Management

Deploy-ment

Deploy-ment

SolutionBuild

SolutionDesign

SolutionStrategy

Scope management is key to ensuring the

project stays on schedule and budget.

Technical Infrastructure

Project Framework Project Controls and Guidelines

Leadership /Sponsorship

Leadership /Sponsorship

Information Flow

PMPM

ModuleModulePMPM

ModuleModulePMPM

ModuleModulePMPM

ModuleModulePMPM

ModuleModulePMPM

ModuleModulePMPM

ModuleModulePMPM

ModuleModulePMPM

ModuleModulePMPM

ModuleModule

ValueManagement

KnowledgeManagement

ContinuousLearning

Program Leadership

RiskManagement

Strategic Vision and Plan

Tactical Plan

LeadLead

PlanPlan

ManageManageProgram Management

Project Portfolio

Project Portfolio

Project Portfolio

Project Portfolio

Project Portfolio

Project Portfolio

Information Flow

OverviewOverview

Activities Activities

Standards CreationWorkplan & Charter Scope ManagementRisk ManagementResource ManagementKnowledge ManagementTraining and CoachingProject CommunicationsProject Issues Resolution

Program ManagementManaging the Portfolio of Projects


Integration Management Process and Tools One key component of successful merger management is establishing the integration approach and organization structure early.

Develop Organization Structure and Responsibilities

Build Integration Capabilities

Develop Management Plans

Develop and Manage Integrated Plans

Governance

» Steering committee must be active, meet often, resolve conflicts

» Guiding coalition must be continually expanded

Communication

» Needs strong perception of CEO backing

» Requires connection between new vision and corporate success

Measurement

» Requires an agreed baseline

» Needs a definition of project success

Organization Politics

» Requires quick resolution to critical issues

» Demands a high level of sensitivity to the “new and old” ways

Week 11/2

7

12/4

12/1

1

12/1

8

12/2

5

1/1

1/8

1/15

1/22

1/29

2/5

2/12

2/19

TasksTransition Assessment & Planning

Establish project management and structure Division visits Project planning

Organizational RealignmentOrganizational Structure Roles/Responsibilities Physical Space

FacilitiesMoving CoordinationFile storage and archivalAdministration

Data Conversion Data Conversion Programs Data Scrubbing/Data Needs Assessment Data Mapping Data Conversion Testing Convert Data & Validate

Operational RealignmentDefine/Identify future-state ValidationProcess ImplementationPost-merger integration support

CorporatePurchasingCorporate accountingCorporate reportingTransaction CloseHuman resourcesLegalWebsite

Training Determine training methodology Determine training logisticsEnd-user support strategy development Documentation development End-User Training Post merger training support

Technical Infrastructure Change Management/Communication Program MgmtCurrent Initiatives

Steering Committee

Project Sponsor

Project Management

Corporate/Reporting

Location – 1A

Location – 2AController

Location – 2DController

Merger Integration ProjectOrganization Chart

Location – 2CController

Location – 1B

Project Director

Location-2 Regional Lead

Location – 2BController

Technical InfrastructureData Conversion

Corporate/Regional

TrainingFunctional Processes Location-1 Location-2


Integration Management Process and Tools – Risk Management Another key component of a successful acquisition project is a rigorous process for identification and resolution of critical integration challenges.

Risk Guidance and Monitoring Framework

Steering Committee

Senior Project Leadership

Project Management

Project QA

Project Risk Prioritization Framework

Imp

act

of R

isk

High areas of risk and likelihood of occurring are moved to the risk guidance and monitoring framework

Likelihood of Occurring Low

High

High

Issues that present project risk are identified and managed within a tight

framework.


FrontLine Partners understands the importance of maximizing the impact of Company X deals and minimizing the “value gap”. We partner with you to:

» Focus on the changes that need to be made to capture the value of your integration

» Change business practices to optimize transaction strengths

» Accelerate the business transformation to increase the speed to value

Integration Value Framework

» Reduce the costs of your infrastructure

» Quickly realize economies of skill and scale

» Create comprehensive integration models that map the entire process

» Leverage market positions and customer relationships

» Exploit the best practices of both organizations

» Use leading practices from other companies

» Change the way the entity operates

» Create new competitive advantages

» Create new business opportunities

VALUE ADDED

DIF

FIC

ULT

Y

Capture the Value of the Integration

Leverage Strengths

Transform


Clear and deep understanding the real estate market

FrontLine Partners has experience with PMI in the

REIT market

Sessions that accelerate key

strategic integration decisions

Track Record that enables clients to realize

extraordinary results

Real Estate Industry Knowledge / Expertise

Custom project management to ensure linkage

among all business initiatives

Integrated Tools and Methods

PMI Experience

Work-Out Sessions

FLP’s Value Proposition for Acquisition and Merger Integration FrontLine Partners brings both a depth of real estate market knowledge and breadth of transaction management expertise to help clients accelerate value capture from Strategic Business Combinations and Post-Merger Integration (PMI).


FLP’s Company X Engagement Scoping for Acquisitions and Merger Integration FrontLine Partners knowledge of real estate/financial services industry positions it well to help maximize the value of transactions.

Pre-Close Planning Stabilization Optimization

Due Diligence

Valuations

Financial & Operational Risk

Regulatory

Tax and Legal Structures

Integration Management Office

Strategy Articulation

Project Team

Structure

Risk Management Performance

Synergy Planning

Integration Team Deployment

Organization Alignment

Organization Design

Cultural Alignment

Compensation Mgmt.

Process Integration

Customer Retention

Supply Chain

Procurement Communication

Technology Integration

Governance Communication

FLP can lead for Company X

FLP in support role Company X Resources/ External SME’s LEGEND:

Back Office Integration

FrontLine Partners M & A Approach 2011

Economy & Finance

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