Making the Deal, Then Making the Deal Work!

J. Paul Oxer, PE Managing Director – McDaniell, Hunter & Prince, Inc.

Post-Acquisition Integration, The Value of Empathic Leadership,

And the Real Goals of M&A

Global Competition … Before!

Global Competition … NOW!

• Acquisitions: M&A, Integration

• Alliances: JV, Leader / Member

• Additions: Interviewing / Hiring

Bigger, Stronger, Faster

How do Leaders make their mark?

Creating Teams and betting on People!

What is a Leader’s most powerful quality? Empathy!

Better information, Better responses, Better relationships, Better performance, … A competitive advantage!

“And empathic listening gets you what?”

• More Customers for your Services • More Services for your Customers • Added Capacity and Capability • Expansion into new Territory • Increased Cost Efficiencies • Defense, Duress, Distress

Why Acquisitions?

• Identify acquisition candidate. • Begin negotiation. • Complete diligence evaluation. • Complete negotiation. • Close on transaction -- deal team celebrates! • Pass out transaction bonuses! (Woohoo!) • Hand off to “Operations.” • ASSUME performance.

Typical Acquisition

• 50-70% failure rate – WHY? • Assume it will ALWAYS: be harder than you think, take longer than you think, cost more than you think, and generate less than you think.

• JPO Rule: Success = T+50%, C+30%, R-20%

“Whoops! What Happened?”

Acquirer

Customers

Services

Capacity

Capability

Territory

“The Original Idea …”

Candidate

Customers

Services

Capacity

Capability

Territory

Acquirer

Customers

Services

Capacity

Capability

Territory

“What Really Happened …”

Candidate

Customers

Services

Capacity

Capability

Territory

$$$

“In Business Culture, people issues are the most significant challenge.”

• Organizational Cultural Differences 50% • Human Capital Integration Issues 35% • Financial Reporting Integration Issues 23% • IT/Systems Integration Issues 21% • Lack of Employee Engagement 16% • Leadership / Management Retention 16%

Source: Economist Intelligence Unit

Most Significant Transaction Issues

• Glaringly apparent that culture is important! Everyone reluctant to jump into an ECA without knowing what results would be, but you never actually know until you do it.

• ID clashes between culture archetypes, orientation, language, symbols of authority, respect for management / leadership, and compliance.

• Characterizing culture is not an outcome, but an integral piece of integration process, and should be key in diligence efforts.

Executive Culture Assessment

• Context, reasons for change • Drivers – Behaviors – Outcomes • Archetypes: - Achievement: Team / Individual - Communication: Formal / Informal - Authority: Centralized / Decentralized - Environment: Process / Results - Risk Profile: Conservative / Aggressive - Perspective: Long-term / Short-term Source: Mercer-Kroll

ECA and Integration Planning

• Identify acquisition candidate. • Begin communication and negotiation. • Initiate Executive Culture Assessment. • Initiate Integration planning. • Complete diligence evaluation. • Complete negotiation. • Close on transaction -- deal team celebrates!

A-typical Acquisition

• Pass out transaction bonuses … ~! • Implement Integration Plan. • Hand off TRANSITION to “Operations.” • Assume ASSURE performance!

A-typical Acquisition

• Functional: - Focuses on cost-efficiency, “back-office” synergies - IT, HR, Legal, Procurement, Treasury, Tax, HSE

• Strategic: - Focuses on value, business expansion, “upside” - New markets, regions, sectors, customers

• Compliance: - Sarbanes-Oxley, SEC, FCPA, other regulatory

Functional vs. Strategic

1. Integration isn’t a step; it’s a process. 2. Integration management is a full-time job. 3. Communication is critical. 4. Faster is better, even when it’s not perfect. 5. Success requires attention to culture.

Five Simple Rules

• Power and authority are better exercised and received when those being directed feel they have been heard.

• “People with power behave with the same insensitivity and impulsivity as someone with frontal lobe brain damage, making them prone to act abusively and lose the esteem of their peers.”– Dr. Dacher Keltner, U/California-Berkeley

Empathy and Authority

• The more successful you become, the more important it is to remain empathic.

• You can manage by mandate, but you can only lead by example.

• The higher you rise in your career, the more

fundamental the fundamentals become.

“What does this mean for YOU?”

• Culture is addressed early on. • Best people are selected to lead combined

entity. • Integration focuses on value. • Leaders communicate extensively. • Measures of success are established and

tracked. • Integration plans are in place before deal is

closed.

Top 10: Reasons Why Integrations Succeed

• Approach is tailored to the deal’s strategic

rationale. • Management is in place before deal is

announced. • Majority of employees are focused on base

business. • Speed is valued above perfection.

Source: Bain & Company

• Appoint a strong executive to clearly lead the integration process.

• Compress change duration by taking bold strokes early.

• Provide real incentives to reach targets. • Set out credible milestones and maintain

pressure for progress. • Move quickly regarding personnel changes. • Build robust plan detailing integration activity.

Top 10: Integration Best Practices

• Emphasize transfer of critical capabilities to

capture value. • Ensure senior management involvement in

integration activities. • Adopt best practices in key functions from

either company. • Get task forces with people from both

companies interacting soon. Source: Booz, Allen & Hamilton

For every $1 spent on SAFETY, $3-6 is saved. Those who discount SAFETY simply haven’t

paid the price for NOT doing it … YET! SAFETY is a culture. Do it for: • Conformance – your customer asked you. • Compliance – your regulatory obligation. • Convenience – it’s easier than recovering

your reputation when you don’t! • Contribution – it adds to your bottom line!

Some Notes on SAFETY

Thank you!

• The following slides were not presented in

San Antonio, but add to the topic.

• Questions and comments are welcome: OFC: 832-532-7852

jpoxer@mcdhp.com http://www.mcdhp.com

• Integration is a process, not a phase. • Integration management is a distinct

business function. • Decision delays re: career-affecting aspects

immediately drain value. • Meld functions and culture by addressing

new opportunities together. Source: GE Capital / Harvard Business Review

Lessons Learned

• Humans Are Underrated, Geoff Colvin (2015) • Emotional Intelligence, Dan Goleman (1995) • Good to Great, Jim Collins (1991) • “Making the Deal Real – How GE Capital

Integrates Acquisitions,” by R. Ashkenas, L. DeMonaco, S. Francis; HBR (Reprint 98101).

• “The Impact of Culture on Mergers & Acquisitions,” by G. Gitelson, J. Bing, L. Laroche; CMA Management, March 2001.

Additional Resources

Screen for Intelligence. Interview for Attitude. Select for Capacity. Train for Skill. Compensate for Performance. Promote for Leadership.

A-typical Interview / Hiring / Training Process

• Diligence Analysis • Integration Synthesis • Expansion Genesis

“Evaluate, generate, compensate,

integrate, articulate, create.”

Underlying Philosophies

• Hiring Interviewing • Management Leadership • Acquisition Integration • Operations Development • Sales Marketing • “Making the Deal” “Making the Deal Work”

Hard / Soft Skills