Post(?) Merger Integration · the integration process Closing Pre-Signing Due Diligence Pre-Closing...

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

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…and four key themes

A successful integration

15|

TRAN

SACT

ION

These themes need attention throughoutthe integration process

Closing

Pre-SigningDue Diligence Pre-Closing


Signing

ImplementationIntegration Review

Second Wave Activities120 Day ActivitiesIntegration Planning

Day 1 PreparationIntegration DD

INTE

GRAT

ION

Integration plansQuick wins


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|


• 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




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


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




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|

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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 [email protected] [email protected]

Website www.integrationpeople.nlOffice IntegrationPeople.nl BV

Wisselweg 331314 CB ALMERE

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Post(?) Merger Integration · the integration process Closing Pre-Signing Due Diligence Pre-Closing...

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