m&a post deal integration: why transition is crucial to success
TRANSCRIPT
M&A Post Deal Integration: Why Transition is Crucial to Success
Frost & Sullivan on M&A Post Deal Integration
Mark Simoncelli, Global Director: Implementation PracticeMark Simoncelli, Global Director: Implementation Practice
Ryan Sherring, Consulting Manager
9 May 2012
© 2012 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of
Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the written approval of Frost & Sullivan.
Today’s Presenters
• Mark has been involved in large scale business transformation for over13
Mark Simoncelli
Global Director: Implementation Practice
Frost & Sullivan
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• Mark has been involved in large scale business transformation for over13
years. His expertise includes thought leadership and implementation
internationally and locally (Africa).
• Particular expertise in:
• Strategy implementation, M&A, Due Diligence and Post Deal Integration
• Business Change Implementation (end to end Transformational Change)
• Organisation Development & Culture Change
• Process Optimisation & Business results realisation
Today’s Presenters
Ryan Sherring
Consulting Manager
Frost & Sullivan
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• Ryan has 7 years of consulting experience, both internationally and locally
(Africa), with a current focus on corporate growth strategy
• Particular expertise in:
• Corporate strategy design and implementation
• Organisation Alignment and change management
• Geographic Expansion
• Post Deal (M&A) Integration
Focus Points
Today we will Cover:
� Context
� The purpose of this briefing
� The importance of Post-Deal Integration
� Executing a successful integration:
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� Developing a formal integration process
� Change Management strategy
� How to construct an effective communications strategy
� Building cross-functional integration teams
� Measuring and tracking business benefits based on identified value drivers
• Questions from readers
2012 M&A Corporate Strategy Research Findings
Key Corporate Development Challenges
Corporate Development Resource Trends
Key Internal Challenge:
Aligning acquisition strategy with the corporate strategy
Key Internal Challenge Root Cause:
Lack of alignment on common objectives
Budgets:
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Post Deal Integration
Resources:
Understaffing is a major issue
Budgets:
Budgets and staffing levels will remain unchanged in 2012
Composition of Implementation Teams:
The majority of companies rely on ad hoc integration teams
Ability to Execute the Plan:
Strategists indicate that their teams are ‘Average’ in their ability to implement strategic initiatives
M&A Drivers:
Gaining new capabilities is the primary driver behind M&A activities in 2012
Source: Frost & Sullivan: Growth Team Membership
Context
� The purpose of Post Deal Integration
� Companies looking to expand into new markets, pursue new innovation opportunities,
and hit aggressive targets must build M&A into their growth strategies
� Recent Frost & Sullivan studies highlight the reality of poor integration
• 75% of larger mergers destroy, rather than create, shareholder value
• 50% of companies decline in productivity following a merger announcement
• 47% leadership attrition can be expected within the three years following a merger
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• 14% drop in employee satisfaction can be expected immediately after a merger
� M&A deals fail to realise synergies and the desired objectives due to poor integration
� Discuss the numerous challenges companies face when conducting M&A
transactions
• Employee retention
• Cultural compatibility
• Synergy exploitation
• Speed of integration
• Long-term sustainability
The importance of Post-Deal Integration
Post-Deal Integration Best Practices:
• Facilitates and provides integration knowledge
transfer to ensure sustainability
• Alignment between strategy, performance metrics,
Post-Deal Integration
Commercial Due
Diligence
Commercial Due
Diligence
Industry Analysis/Pre
Due Diligence
Industry Analysis/Pre
Due Diligence
Target Identification
Target Identification
Strategy
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structures and operating plans
• Develop clear, coherent and timely change
management strategies
• Establish organisation culture focus and agreed
leadership style
• Establishment of clear roles of top and mid-level
management (on both sides) during implementation
• Optimise business processes, knowledge networks
and information flows
• Manage integration through effective communication
and engagement
Strategy
Leadership Philosophy
Organisational structure
Business systems
Business processes
Source: Frost & Sullivan: Growth Team Membership
Post Deal Integration Success Factors
• external market factors have been carefully considered
• internal analysis (due diligence) has identified synergies
Successful post deal integration is the process of merging
both the acquiring and the acquired company ensuring:
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• buy in and full support from key stakeholders exists
• value drivers are defined and agreed upon
• desired outcomes are agreed with preferred timelines
• structured teams are in place and aligned on both sides
Develop a structured integration process to provide a consistent foundation for integration teams
• Post Target
Identification
• Assess the capability of
the organization in fulfilling
it’s goals
Operational Alignment &
Planning
Internal Capability Analysis
Commercial Due Diligence
Implement 100 Day Integration Plan
Plan and Execute Medium to Long Term Initiatives
Post Deal Integration
• Establish and mobilise
integration teams
• Define Value Drivers on
which to measure success
during the integration
• Define the Target
Organisation Model
• Establish organisation
design principles
• Operational alignment
• Optimise existing capabilities
• Identify opportunities to build
new capabilities
• Identify ongoing synergies
between companies
Deal Announcement
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it’s goals
• Evaluate the
organization’s existing
business processes,
capabilities and
proficiency
• Assess the target’s true
operational state
• Position the joint entity in
the market going forward
during the integration
• Strategy & vision
congruence
• Design detailed integration
plan and compile the
integration toolkit
• Functional integration
assessment
• Stakeholder engagement
tool
• Operational alignment
• Initiate change
management process
• Prepare case for change
• Create situational
awareness
• Change readiness
assessment
• Initiate communications
strategy
between companies
• Integrate functional teams
• Prepare the environment for
change
• Determine system
integration strategy
• Define standardised high
level core processes
• Post implementation support
and review
Key Takeaway: A structured integration process provides a consistent foundation for integration teams and gives structure to the actions required
Change Management Assessment Scorecard provides success criteria against which to measure change success
Monitor & Manage Lead & Inspire
• Risks are well articulated and effectively managed
• Stakeholders expectations are understood and are being managed
• A detailed programme plan for change is in progress
• Benefits are well defined and managed
• Senior Management have visibly articulated the need for Change
• The change has been communicated effectively by senior management
• Sufficient Steering Committee coaching occurs• A strong senior management team is in place
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Key Take away: A Change Management assessment scorecard provides success criteria against which to measure the change process
Engage & SustainDevelop & Equip
• Processes have been defined• Organisation Design is aligned to Target Operating Model
(TOM) • Training and performance support is effective• Communication about change is effective, timely and
accurate• Performance and reward processes/systems aligned• Competencies and career paths are established
• Staff understand and support the need for change
• Effective coaching of staff is in or will take place
• Change agents/User Groups have been engaged
• Continual engagement with all staff• Clear handover plans from the programme to
business as usual
Construct an effective communications strategy
• A coordinated, well-designed and executed communication strategy results in:
• Reduced confusion, increased cooperation, reduced resistance, faster and far-reaching acceptance of reengineered processes and organizational structure and increased commitment
• Establish stakeholder group
• Steering Committee – Provides communication to senior level
• Employees by function, geography, position, impact
• Define Stakeholder Engagement Plan
• Establish guiding principles
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• Establish guiding principles
• Define milestones (Schedule)
• Manage interactions (Stakeholder engagement tool)
• Initiate communications strategy
• Prepare communications (What message do you want to go out?)
• Establish communications methods and resources
• Define specified channels
• Manage select communications to various stakeholders (Right message, right time, right people)
Key Take away: The communications strategy defines the engagement principles, key messages and those stakeholders responsible for delivering those messages
Building cross-functional integration teams
Integration Steering Committee
Strategic Intent – Typically includes CEO, CFO, Head of Integration, Deal Sponsor, CEO of target co.
• Provide input and decision making
• Ratify integration plan and oversee strategic objectives of the acquisition
Target - Head of Integration
• Lead integration planning• Directs and monitors the
execution of integration activities
• Report to Steering Committee
• Mobilise Resources
• Lead integration teams
Acquiring - Head of Integration
• Lead integration planning• Directs and monitors the
execution of integration activities
• Report to Steering Committee
• Mobilise resources
• Lead integration teams
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of the acquisition• Approve business change
decisions
• Lead integration teams • Lead integration teams • Examines cultures and
customs of the target company
Integration Team
Teams consist of experienced subject matter experts within their specific functions. The team is responsible for interacting with the acquired company, developing a detailed integration plan, identifying gaps and synergies for the integration plan
and implementing integration activities during the first 100 days and beyond if necessary
Key Take away: Team structures provide clear lines of responsibility so as to stimulate and lead the integration process
Measuring and tracking business benefits based on identified value drivers
A metrics monitoring system based on value drivers, milestones and synergies is developed to
evaluate early (Lead) and belated (Lag) benefits and objectives. Metrics are chosen based on
the motive for the acquisition, or the value drivers
Lead Measures
• Change Readiness Assessment
• Operational Excellence Measure
• Short Term Production
Example Metrics
Lag Measures
• Increase Gross Profit
• Increase Sales
• Increase Market Size
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Value Driver Monitoring Metric Weighting Score
Employee Retention Total and key employee retention rate 4 3
Revenue/Profitability Turnover / Gross Profit / NPAT 3 3
Short Term Production Increased Productivity / Increased Capability 4 4
Employee Commitment Employee Understanding Survey 4 2
Value Driver Metrics - Illustrative
Key Take away: The right benefits metrics determine and appraise where the sought after value drivers are
being achieved
In closing: Post Deal Integration is a complex journey with many intricacies that need to be
considered. Understanding that the process starts with realising why we are on this journey,
identifying the value drivers. This provides both a starting point and a target or end state.
Conclusion: Key Take Aways and Recommendations
Key take aways:
1. A structured integration process provides a consistent foundation for integration teams and gives structure to the actions required
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structure to the actions required
2. A Change Management Assessment Scorecard determines success criteria against which to measure the change process
3. A communications strategy defines the engagement principles, key messages and those stakeholders responsible for both delivering and receiving the messages
4. Team structures provide clear lines of responsibility so as to stimulate and lead the integration process
5. The right benefits measures establish where those sought after value drivers are being achieved
For more information on Post Deal Integration please contact Frost & Sullivan
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For Additional Information
Mark Simoncelli
Global Director of Growth Implementation Practise for Africa and Europe
+27 (0)21 680 3577
Ryan Sherring
Consulting Manager for Africa
+27 (0)21 680 3278
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Samantha James
Corporate Communications
+27 (0)21 680 3574