M&A Integration M&A Integration Best PracticesBest Practices

A report from the front lines, A report from the front lines, what works and what works and

what doesn’twhat doesn’t

May 2010May 2010

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Agenda and Table of Contents

• In recognition that most deal do not produce the shareholder returns expected and why

• The necessary work tasks of transaction integration, both pre and post close

• The components of standing up an Integration Management Office (IMO) that drives results

• From pro forma expectations to work plans, getting a line of sight

• The productivity of value chain oriented team structures

• Producing the critical path to integration by managing interdependencies

• Integration model options, which makes the most sense

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The Work of Integration

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• Most integrations are under funded by an order of 200 - 300%

• The confidential nature of a deal pre close negates the integration input from operations staff inside both companies

• Use of integration cost benchmarks are possible (5% of transaction value) but are highly unreliable

Transaction Timeline

CLOSE

DueDiligence

IntegrationPlanning

OperationalIntegration

Reconciliation

4 basic phases of a well planned and executed integration

Standing Up the IMO/PMO

Governance

Status Reporting

RiskMitigation

DocumentManagement

ChangeManagement

CommunicationPlan

Who is in charge, How decision making is done, What are the team structures and individual roles, What happens if..

What are the work plans, schedules, persons responsible, team members, budgets, status ..

What are the pro actively identified risks/issues which could hinder the integration, What are our mitigating actions ..

Which documents are stored and why (legal liability, team use, etc.), What system and structure will be used..

Who are the negative and positive stakeholders, What are our tangible plans to negate the negatives..

To who and how will we keep stakeholders informed and why, Which formats and methods will be used..

• Independent body with a charter to: manage, assist and report entire integration towards the accomplishment of the IRR

• Designs and deploys at a minimum:

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Pro Forma to Work Plans

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• Pro Forma approved:Expected deal IRR, ROE

• Deal Drivers , Performance Metrics: Measuring expense, revenue and cash flow changes

• Functional Integration Objectives:Action categories to accomplish drivers, metrics

• Integration MBO’s:Assigned responsibility connected to individual compensation and performance review

• Integration Team Work Plans:Critical path model and detailed work tasks and schedules to accomplish functional objectives

Line

of

Sight

Teams by Value Chain

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Order Produce Cash

Research Market Sell

Recruit On Board Pay

EXAMPLES

• Value Chain = strings of processes triggered by, and output given to, an outside the company entity

• Teams to include representatives from all relevant infrastructure groups (IT, Accounting, Management, etc.)

• Team members share same integration MBO’s

Critical Path and Dependencies

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IntegrationChange

1.1

IntegrationChange

1.2

IntegrationChange

2.1

IntegrationChange

2.2

Value ChainIntegration Team #1

Value ChainIntegration Team #2

Interdependency

• Linkages will exist between work tasks/changes from different value chain teams

• Interdependencies will dictate the critical path towards overall integration accomplishment

• Identification of interdependencies can be used to determine best team structures

• A critical path diagram is often warranted before detailed work plans are constructed

Integration Models

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Integration Time >>

Shar

ehol

der V

alue

>> - Status Quo -

Bolt On

Adopt & Go

Green Field

• Integration models selected are driven by Pro forma, IRR expectations

• Models selection can vary by value chain team, but typically include:

Peregoff & Associates has assisted its clientele in over $6B in transaction success in both pre and post close integration activities including:

Pre Close

• Due Diligence. The identification of opportunities for reducing expense or increasing cash flow leading to deal valuation improvement.

• Integration Planning. The building of comprehensive plans that are directly connected to deal goals and company strategic plan.

Post Close

• Operational Integration. The redesign of all four levers of change (i.e. process, technology, people and space plan) along with Change Management techniques.

• Reconciliation. The unbiased source of analysis and testimonial impacting arbitrated adjustments, holdbacks or bonuses.

Need your next or a previous transaction to produce the shareholder returns projected?

Bryan Peregoff, Director

(US) 443-474-2004 or bp@peregoff.com