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  • 1. The Transformative Role of Human Capital inMergers, Acquisitions, and DivestituresThe 6th Annual Conference on Mergers and AcquisitionsJuly 2012
  • 2. M&A Environment Through First Quarter 2012Source: 2012 Merrill datasite/monthly M&A Insider Mark 2012, we expect activity to increase during the yearAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 2
  • 3. Sustained Shareholder Value Creation Remains Challenging Were all Transaction Goals Achieved? Yes 22% 78% NoDistribution of Total Return to Shareholder versus Industry Benchmark (TRS measured 24 months after deal announced) Source: 2008, Aon Hewitt/ M&A Transaction and the Human Capital Key to Success – Global ReportSignificantly value-destroying deals Significantly value-creating deal(TRS less than -20%) (TRS greater than 20%) Factors Contributing to Deals not Meeting Goals 22% Frequently Rated High Frequently Rated Low 39%  Cultural integration issues  Payroll integration/  Inconsistent/ unclear implementation issues communication of synergy  Compensation integration/ 20% objectives implementation issues Value-destroying deals  Integration/ implementation took  Benefit integration/ (TRS less than zero) longer than expected implementation issues 19%  Insufficient attention/ priority to  HR operations integration/ workforce/ people issues implementation issues Value-creating deal  Insufficient/ incorrect employee  Staffing selection issues Source: Accenture analysis (TRS greater than zero) communications Aon Hewitt | Global Aon Mergers and Acquisitions Solutions Proprietary & Confidential 3
  • 4. One Possible ExplanationAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 4
  • 5. Human Capital Issues Remain a Huge Tripwire in Global Transactions Top 10 drivers of deal failure (% of respondents) The top drivers for deal failuresIntegration took longer thanexpected 41% are Human Capital issues, but only 15% of time in dueCultural integration issues 33% diligence is spent on HR &Inconsistent communicationof synergy objectives 32% Communications.Insufficient attention/ priority 30%to workforce/ people issues Percent of time spent on each functionPoor/ misinformed strategy 28% during due diligence OtherRisks/ liabilities not identified 10%during due diligence 26% Communications Finance 5% 25%Insufficient executioncapability/ competency 26% Sales and Marketing 10%Leadership “infighting” and/or buy-in 22%Price paid for target was too 10% Humanhigh 20% Resources 20%Failure to implement an Business Line/appropriate org. structure 18% Operations 20% Legal 0% 10% 20% 30% 40% 50% Source: 2009 Aon Hewitt/ The Deal Human Capital StudySource: 2012 Aon Hewitt/ Culture Integration in M&A, Survey Findings Aon Hewitt | Global Aon Mergers and Acquisitions Solutions Proprietary & Confidential 5
  • 6. Cost and Growth Synergies Always Involve Human Capital Value of Synergies (Assumed) Growth …depend + on business – – + + strategy and workforce Transaction Integration Costs = ability/ Costs Value of willingness Target Maximum to execute it Value of Price For Costs Acquirer Enterprise Metrics of Success Objectives Methods to address HR issues  Identification of HR and Risk Liabilities Pay the Right Growth synergies are almost exclusively  Purchase price adjustment Price  Obtain protection for HR/ Risk liabilities and cost driven by Human Capital — physical assets, process reengineering, or tech  Retain key talent infusion are enablers of growth. Achieve Growth  Retool workforce Synergies  Minimize disruption  Improve processes and efficiency The “winners” are those firms that can build execution capabilities and  Identify HR/ Risk cost savings measure outcomes around growth Manage Cost  Estimate severance and restructuring synergy capture  Capture economies of scale in purchasing goods/ service  Minimize litigationAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 6
  • 7. Human Capital Synergy Examples Synergy Type Representative Examples Pay the Right Price  Eliminating redundant jobs, delayering, functional redundancies (easy to identify)  Capturing scale economies in purchasing goods/services (e.g., consolidating vendors)  Reducing overhead costs Achieve Growth  Enhanced productivity and enhanced client engagement and pull-through Synergies (difficult to  Driving target company’s superior or complementary products through the estimate) acquirer’s sales force and distribution channels  Expanding the acquiring company’s sales by running products through the target company’s distribution channel  Using scale of combined company to access new revenue enhancement opportunities (e.g., expanded deal flow) Manage Costs  Transferring best practices and core competencies from one company to another (result in both cost  Improving core business processes (e.g., faster, lower-cost product development savings and revenue process) enhancements)  Outsourcing/BPO/EBOAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 7
  • 8. M&A Planning: A Human Capital Lens
  • 9. M&A Planning Blueprint for Human CapitalArea Topic Target Evaluation Due Diligence Integration Planning Implementation Org. Structure Review publicly available info re: org. Assess overall organization model Develop new org model, detailed org Transition to new organizationOrg. design charts model/chartsDesign Leadership Review publicly available information Identify initial key talent and Finalize leadership team (plan) and Select/deselect leadership team and (proxy, websites) and identify key background identify leadership competencies assess performance talent Governance Review publicly available info regarding Conduct high-level “as is” baseline Establish new governance model – Implement new model and identify reporting relationships assessment of reporting relationships eliminate/change/enhance/add transition issues, risks and outlining differences functional roles opportunities Executive Review publicly available information to Assess existing employment contracts; Develop new employment agreements Execute individual employmentComp. & compensation determine compensation levels of exec identify existing commitments; as needed agreementsBenefits team determine executive team for combined entity Employee comp. Review publicly available info and Assess competitiveness and Establish rewards strategy for Implement new rewards strategy; align develop hypotheses on potential effectiveness of current plans and combined entity; design and establish with change and communications Retirement plans issues; Identify local country labor law vendors; identify risks and quantify specific plans programs; mitigate activities Health care requirements material liabilities liabilities and risks benefits Other benefits Staffing levels Review publicly available info. for Assess current staffing levels; estimate Develop detailed selection process; Execute selection and staffing process;Staffing staffing and structure; hypothesize on potential headcount synergy target train managers to execute process transition to new org model andTalent potential issues staffing levelsSelection& Retention Consider those employees critical to Determine key roles and retention Develop retention plan for identified Execute retention plan and timingStaffiing retain issues key talent Consultation Initial understanding of implications Initial planning discussions with works Incorporate works council requirements Execute project plan based on dealEmployee Requirements within countries involved in deal councils in those countries affected in into deal terms and project plans terms and timing requirements fromRelations EMEA works councils Collective Review publicly available information Understand current labor environment Establish overall labor strategy for the Execute communications to union bargaining and identify local country labor law and agreements; identify and quantify independent entity; tailor for individual leadership; conduct negotiations; agreements requirements material liabilities bargaining agreements implement agreements Culture Review publicly available info. including Compare current cultural attributes; Assess cultural issues and potential Execute specific actions to driveCulture national culture and industry info. conduct high-level gap analysis impact on integration timeframe and culture and engagement changes; costs periodically monitor changes through Employee Review publicly available info. Including Establish baseline engagement levels; Develop a plan of decreasing surveys to gauge progress Engagement industry info and id. potential areas of identify risks associated with the disengagement timeframe and concern/focus divestiture increasing employees level of engagement to maintain the business Compliance Review information including company Analyze risk management Develop priority compliance action Monitor critical compliance activities values, internal policies, external culture/controls; identify and report plans through transition relationships major risks Change High-level assessment of change Assess readiness for change; identify Develop change management plan, Execute integrated change plan;Manage Management management requirements integration risks including leadership, involvement, monitor success and tune as neededthe learning componentsChange Communications Understand communication capabilities Understand existing channels and Identify key stakeholders; begin Continue executing tactical for deal and notify necessary preferred ways of communicating executing tactical communications communications; integrate across all constituents (legal) program HR activities Program Understand deal rationale, geographic Establish basic infrastructure, including Expand infrastructure to manage Continue rigorous program Management requirements and initial project timelines, data room, reporting, individual HR workstreams; formalize management; measure and track Office structure meeting logistics governance progress against synergy targets Aon Hewitt | Global Aon Mergers and Acquisitions Solutions Proprietary & Confidential 9
  • 10. Due Diligence Snapshot
  • 11. Sources of Human Capital Risks Talent Risk Reputational Risk  Evaluation of individual leaders from CEO down against  Due diligence of business entities, owners and management competencies critical to success in post-deal environment teams, potential board members and key hires, and JV partners.  Application of range of valid, sound, and target-appropriate tools delivered by highly experienced, professional global team. Fact-  Proxy fight and hostile takeover defense support based talent value assessment on which to base compensation  Results translate into real benefits including prevention of and retention offers reputational damage, increase in critical negotiating leverage,  Due diligence of team effectiveness of leadership team; and reduced financial losses resulting from misrepresentations. Assessment of depth of bench strength and succession risk  Identify and avoid financial losses resulting from  Identification of performance and retention risk, lending results misrepresentations. to quantification of potential retention considerations in  Identify possible trailing litigation or regulatory issues transaction value  Gain a more complete understanding of involved parties  Analysis includes a competency profile of each individual along with recommended actions to address lacking areas and drive results Culture Risk Compliance Risk  Evaluation of a properly calibrated risk environment that  Evaluation of compliance programs across all functional encourages leaders and employees to make business areas that is appropriately documented, communicated, decisions that maximize the risk/return trade offs within the risk implemented and reported. tolerance of the company  Due diligence on compliance related policies and  Due diligence on risk environment and governance focusing on procedures, compliance communications, ethics and assessment, monitoring, and control environment and likelihood compliance training, whistle blower programs, compliance for reckless behaviors hotlines, processes for treating alleged incidents; risk assessments; and business and compliance review  Analysis of internal policies and practices and governance processes. model e.g., does management demonstrate active commitment to risk management policies and practices? Does the company culture and pay practices support the operational risk management environment that is appropriate?Aon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 11
  • 12. Global Due Diligence: Focus on Key Workforce and ComplianceIssues People Assets Adverse Margin Impacts People Costs Workforce Flexibility  Profile key management  Understatement of  Benchmark jobs and  Goodwill issues/morale  Organization chart ongoing program costs people costs  Procedure steps  Skill profile  Severance payments  Benchmark staffing  Legal barriers  Commitments to future levels  Demographic  Union/Work Council characteristics cost increases issues  Collective agreement  Temporary/contract commitments workers  Expatriates  Relocation expenses Asset Liability Impacts Adverse Revenue Impacts Organizational Fit Compliance  Change of control  Sales incentive design  Cultural barriers  Programs and triggers  Likely employee turnover  Incompatible job processes  Pension, welfare  Retention plans definitions  Illegal payments liabilities understated  Incompatible reward  Discrimination  Pending industrial  Contracts with disputes structures  Acquired rights executives may contain  Incompatible process  Payroll & HRIS future liabilities and structure  Collective agreements  Book accruals  Duplicate jobs understated, e.g.  Employee commitments vacation, sales commissionAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 12
  • 13. Address Country-Specific Labor and Compliance Issues  Many countries have local laws and practices that can have a significant effect on the price of a deal Brazil China France Germany Israel Japan Pension  Employment  Triggering of  Triggering of  Complex  Complex underfundin laws vary by Individual and acquired rights labor laws compensation g province union rights programs  Variation in  Increasing Plan tax  Some  Post-retirement pension duties for  Variation in status benefits are medical and life valuation social pension set by law methods security valuation Minimum  Termination methods health  Unrecognize indemnities  Restrictions on  General benefits d benefit asset transfers trend over  Restrictions on  Early retirement costs and the last retirement plan Termination incentive plans  Eliminate liabilities decade of changes indemnities pension  Formal and “legalization  Constraints discrimination  Restrictions on Small group informal ” of the on policies/practice asset transfers insurance severance plans workplace severance s costs  Employee practices  Employee  Recent  Implementing housing housing legislation retirement plan subsidies subsidies increasing mergers protection of  Minimum legal  Complex labor  Complex labor employees benefit levels environment environment  Legal limits on  Individual reductions in employment benefit levels contracts Aon Hewitt | Global Aon Mergers and Acquisitions Solutions Proprietary & Confidential 13
  • 14. Integration Drill Down
  • 15. The Critical First Step is to Understand the Business StrategyBuy Competitors Buy Suppliers Acquire people or technology  Secure raw materials/inputs Expand geographically  Improve quality Gain market share  Lower costs: R&D, production, inventory Reduce costs: sales,  Acquire hard-to-duplicate assets marketing, inventory  Respond to deregulation  Enter higher-margin industry segmentDiversify Buy Customers Balance market risks  Own distribution network Expand product portfolios  Freeze out competitors Enter entirely new businesses  Lower costs: production, inventory, sales Integrate product line  Improve identity/visibilityAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 15
  • 16. Define an Overarching Integration “Philosophy” POSSIBLE INTEGRATION “PHILOSOPHIES” Limited Integration Dominant Player Absorption Holding Company A Company Dominance Company Company A B Company B Very little integration of A & B B’s assets are fully integrated into A Mutual Best of Both Integration Transformation to New Company Integrated Integrated Best of Best of Best of Best of New New Company A Company B Company A Company B Company Company Full merger of best practices from A External New Company & B to create a new entity Best Practices Best Practices Best of Both integration that also incorporates external and new company best practicesAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 16
  • 17. Integration Success is Linked to Sustained Focus on Leadership andKey Talent  Utilize leadership practice strategies and approaches on a consistent and sustained basis than underachievers Extent* to which the leadership practices are utilized 100% 94% 81% 82% Underachiever 80% 80% Overachiever 75% 73% 71% 68% 68% 62% 63% 60% 60% 58% 57% 56% 50% 40% 20% Identification Assessment Selection Use of formal Coaching/ Having leaders Onboarding Having and retention of leaders/ and leadership mentoring and key talent of leaders/ leaders/key of leaders/ key talent placement competency leaders and lead key talent key talent of leaders/ model for key talent participate in talent participate in integration ongoing key talent transactions teams leadership development programs *Responses of 4 and 5 was considered where 5 indicate “Always” Source: Aon Hewitt M&A Research DatabaseAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 17
  • 18. Leadership Assessment and Selection Key drivers for leadership assessment Best practices to engage and retain leaders and selection in acquisitions  Limited or questionable data is provided about  Engagement begins with orientation, but requires key leaders from the acquired organization continued conversations and engagement by the acquirer  Early assessments are often inaccurate – especially when provided under severe time  Executives require more than retention packages constraints (e.g., competitive compensation and benefits, career development, strategic vision)  Political considerations may play a key role (e.g., would target CEO’s assessment be the  Targeted development and reward strategies for key same as yours?) technical and functional experts  Business objectives and strategies may be  “Mentoring” relationships between acquired leaders different requiring a different type of leadership and peers in the business who have been “acquired” (e.g., transformational vs. transactional change)  GE Best Practice: Performance-based retention targeted at achieving business financial targets (including synergies) plus non-financial actions such as mentor or IDPAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 18
  • 19. Acquirers are Increasingly Using More Comprehensive Leadership Assessment Tools and MethodsAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 19
  • 20. Understanding National Cultural Differences Is Essential to theSuccess of the Transaction Linear-Active, Multi-Active Reaction Variations Hispanic America MULTI- ACTIVE Italy and Spain Africa Russia Arabs France Iran and Turkey BELGIUM INDIA Australia and Denmark Indonesia and Philippines Netherlands and Norway Korea U.S.A. China LINEAR- Switzerland REACTIVE Vietnam ACTIVE U.K. Sweden Finland CANADA Singapore Hong Japan Germany Kong Source: When Cultures Collide, Richard Lewis, Third Edition.Aon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 20
  • 21. National Culture Recognizing differences - IsraelValues :Obsession to surviveCourageEnergyOpinionated viewsImpatienceMoralityModernityPractical & pragmaticInformal peoplePoor listenersFriendly atmosphere butbusiness like.Full use of high technologySeeking innovation andimprovementsstraightforwardSource: Richard D. Lewis Aon Hewitt | Global Aon Mergers and Acquisitions Solutions Proprietary & Confidential 21
  • 22. Addressing Organizational Culture is Highly Correlated withSuccess What defines How it is culture demonstrated Leadership What they attend to, measure, reward and control; role modeling and coaching Customer Experiences Employee Experience Organizational Structure Mission, Objectives, Shareholder Value Values and Strategies. Formal statements, charters, creeds Brand Promise Business Partner Programs, Policies, Relationship Practices Criteria for recruitment, promotion & exit Work Environment Business Results Design of physical space; Socialization PattersAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 22
  • 23. Culture Must Align With Strategic Priorities and Drive Value Major Strategic Priorities Efficiency Quality Innovation Customer Service Company Image Cultural differentiators* by strategy in financial high-performance companies  Safety focus  Teamwork/BP sharing  Diversity of thought  Career development  Shared understanding  Structure/process  Process quality focus  Supervisor relations  Performance of company direction/ efficiency  Empowerment  Stimulating management brand  Training  Training environment  Local flexibility  Shared values/pride  Coordination  Long-term orientation (physical)  Positive working  Integrity  Data orientation  Understanding  Stimulating relationships  Leadership  Performance customer’s quality environment  Supportive service  Belief in P/S quality management expectations (interpersonal) environment  Focus on priorities  Data orientation  Information sharing  Customer knowledge  Involvement  Collaboration/  Service orientation  Workload/resourcing teamwork  Values  Physical conditions  Support for risk taking  Learning/information  Customer  Rewarding innovation sharing understanding  Bias for action  Belief in P/S quality  Anticipating customer needs  Flexible work arrangements  Credible leadership * Differentiators derived from employee research into the survey questions and topics on which financially successful companies excel versus their peers.Aon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 23
  • 24. Aligning Culture with Strategy Leads to Better Engagement andRetention Outcomes 44% more employees are engagedStrong Culture Alignment 7% 35% 51% 7% in companies where culture is aligned with strategy Low Culture Alignment 9% 20% 42% 29% 71% of employees in companies with misaligned cultures are either 0% 20% 40% 60% 80% 100% passive or actively disengaged Highly Engaged Moderately Engaged Passive Actively Disengaged 1%Strong Culture Alignment 51% 30% 5% 13% 2X the number of employees will stay with companies where culture is aligned with strategy Low Culture Alignment 25% 36% 19% 3% 18% 75% of employees are likely to 0% 20% 40% 60% 80% 100% leave companies where culture is not I have no plans to leave Would consider another job offer aligned with strategy Actively looking for another job Made plans to leave Plan to retire in the next few years Source: Aon Hewitt’s Engagement 2.0 StudyAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 24
  • 25. What are M&A Overachievers Doing Differently?Answer: Less analysis, more action! Assess Current State Culture 75% 89% Underachievers Define Future State Culture 70% spend more time 89% assessing culture Analyze Current/Future Culture Gaps 75% 89% Make Organization Structure Changes 100% 78% 90% Overachievers Redesign HR programs 67% spend more time Managing culture. Conduct Team Building Interventions 90% 78% Ie, the “How” Communicate Regarding Culture 85% 78% 50% 60% 70% 80% 90% 100% Overachievers UnderachieversSOURCE: Aon Hewitt’s Culture Integration in M&A StudyAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 25
  • 26. Validate/Implement: Understanding the “What” to Drive CultureChange • Link between the CMO (Change Management Office) and the PMO • Process to link go-forward culture to business strategyLink to Business Strategy • Monitor cultural and change readiness risks through the CMO • Develop and manage execution of integration roadmap • Ensure alignment of people-programs and initiatives to business strategy • Conduct accelerated culture assessment; utilize survey tools with cascading scope from leadership down • Leadership interviews and focus groups to assess and validate legacy cultures Culture Assessment and and go-forward culture Integration Planning • Develop and execute culture integration plan; mobilize leaders and change sponsors • Identify, train, and equip change leaders and sponsors • Emphasize Leadership change agility, change network implementation and acculturation Change Readiness and • Provide formal training and coaching for leaders in cultural integration techniques Managing Engagement • Deploy culture/engagement surveys and measurement tools; analyze and reporting findings • Ongoing engagement monitoring with focused interventions as neededAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 26
  • 27. Culture Integration to Aim Towards a High Performance Culture Indicators of a successful culture Mistakes to avoid during culture integration integration In the longer term, the success of culture  Often integration leaders not held accountable for integration is does not lie in the similarity of culture integration merging businesses, but in building a High  Lack of urgency in addressing culture Performance Culture.  Executives do not see the need to address culture at all Following activities should be included in culture integration plan  Leaders (often managers/supervisors) not skilled at leading change  Leadership role modeling of desired behaviors  What employees experience does not match what they’re told  Communication of performance expectations  Relegating culture to HR; treating it as “soft” stuff  Conduct assessment but ignore ongoing change  Talent and skill development process  Reinforcement with formal mechanisms  Ignoring subcultures, which invariably existAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 27
  • 28. Aon Hewitt’s Culture Integration Approach: Phases and Timeline Assess/Validate Validate/Implement Implement/Measure Validate ID Cultural/Change Develop Integration Cultural/Change Change Planning Business Alignment / Link to PMO Readiness Risks Roadmap CMO/LINK TO Readiness Risks BUSINESS TRATEGY Assess Alignment of People-Programs/Initiatives Plan Alignment of People-Programs/Initiatives Execute Alignment of People-Programs/Initiatives To Desired Culture To Desired Culture To Desired Culture and Business Strategy Accelerated Culture Broader Culture/ Mobilize Leaders and Change Sponsors Continued Pulse Surveys Assessment; Survey(s) Finalize Future State Engagement Survey CULTURE Leadership Assessment Culture Preliminary Culture Integration Plan Ongoing Culture Integration Execution and Interviews“WHAT” Stakeholder/Audience Identify Change Change Leaders/Sponsors Coaching Analysis Leaders/Sponsors CHANGE READINESS Change Mgmt Tools Focus on Leadership Change Agility, Change Network Evaluate Change Steady/Future State Change Impact Analysis to Leaders Implementation and Acculturation Progress Change Capability Dvmt. Engagement Question Pre-Close Engagement Design in Culture Culture/Engagement Survey Deployment Culture/Engagement Analysis and Reporting Data Analysis (existing) Survey ENGAGEMENT Alignment of Business/People Initiatives People/Business Interventions to Drive Engagement Hi-Po/Retention Discussion Triage Ongoing Engagement Monitoring Gather Input (Interview/Survey) Socialize/Gain Buy-In on LEADERS Train on Culture/Change Coach on Culture/Change Assess Alignment, Capabilities to Drive Cultural Go-Forward Culture Integration & Change Readiness Equip/Train to Drive Change Execute Change Initiatives“HOW” (Levers) Identify Critical Stakeholders STAKEHOLDERS Understand Current Perspectives Provide Information/ (Risks/Opportunities) Gather Feedback Continued Communication Support Execute Key Alignment Communications Continue Ongoing Culture Communications (Leadership and Integration-Specific) COMMUNICATIONS Build and Enhance First-Line Manager Leverage Feedback Loops / Launch Culture Communications Support Communications Mechanisms Adjust Comms Approach as Needed Gather Available Propose Business and Monitor Available Metrics Pulse Survey(s) Baseline Metrics People Metrics MEASUREMENT Link Changes in Culture to Embed Metrics Perspective in Survey(s) Develop Integration Scorecard Employees/Business Outcome Measures Aon Hewitt | Global Aon Mergers and Acquisitions Solutions Proprietary & Confidential 28
  • 29. Aon Hewitt’s Culture Integration Approach: Outcomes Assess/Validate Validate/Implement Implement/Measure • Business alignment / link to deal objectives • Business alignment / link to deal objectives • Business alignment / link to PMO • Identify cultural and change readiness risks • Continue culture/change readiness assessment and change • Execute alignment of people-programs/initiatives to desired CMO / Link to • Develop Integration roadmap planning culture and business strategy Business Strategy • Assess alignment of people-programs/initiatives to desired • Plan alignment of people-programs/initiatives to desired culture culture • Accelerated culture assessment • Preliminary culture integration plan • Ongoing culture integration execution • Leadership assessment and interviews • Broader culture/engagement survey • Mobilize leaders and change sponsors“WHAT” Culture • Culture/engagement survey (cascade from leadership down ) • Mobilize leaders and change sponsors • Continued culture/engagement pulse surveys as need to • Finalize future state culture • Consider focus groups for survey feedback track progress • Stakeholder/audience analysis • Focus on leadership change agility, change network • Change sponsor/leader coaching • Change impact assessment with culture implementation and acculturation • Evaluate change progress and recommend actions as Change Readiness • Identify change sponsors/leaders (in conjunction with talent • Change sponsor/leader coaching needed selection approach) • Evaluate change progress and recommend actions as • Steady/future change capability development • Change tools to leaders and managers needed • Pre-close engagement data analysis (existing) • Culture/engagement survey deployment • Culture/engagement analysis and reporting Engagement • Engagement question design in culture survey • Ongoing engagement monitoring • Ongoing culture/engagement monitoring • Hi-Po/retention discussion triage • Alignment of business/people initiatives • People/business interventions to drive engagement • Gather input (interviews/surveys) • Socialize buy-in on go-forward culture • Continue leadership on-site employee meetings by • Assess Alignment, Capabilities to Drive Cultural Integration & • Train on culture/change location/function/group Change Readiness • Gain leadership input on cultural integration plan • Coach leaders on walking the talk (culture/change) Leaders • Ensure senior management and executive leadership buy-in • Coordinate leadership on-site employee meetings by • Link with talent selection/staffing process and involvement location/function/group • Follow up measurements of leadership change capabilities“HOW” (Levers) • Facilitate leadership alignment on go-forward culture and • Link with talent selection/staffing process and alignment compared to baseline future state • Identify critical stakeholders; change sponsors and • Equip/train to drive change • Execute Change Initiatives champions • Set up stakeholder network and game plan • Continue to update stakeholder game plan Stakeholder • Conduct leadership forums to reach stakeholders • Mobilize change sponsors and champions • Stakeholder meetings and initiatives • Provide basic change management tools • Facilitate manager/employee discussions • Monitor feedback loop • Understand current perspectives (risks/opportunities) • Provide information/gather feedback • Support leadership communication • Launch culture communication approach • Continue ongoing culture communications • Continue integration communications • Execute key alignment communications • Adjust communication approach as needed Communication • Build and enhance first-line manager communication • Leverage various communication forums • Leverage feedback loop mechanisms • Propose business and people metrics • Monitor available metrics • Leverage pulse surveys to assess culture change and • Gather baseline metrics available • Develop Integration scorecard leadership adoption of culture Measurement • Embed metrics perspective in survey • Use feedback loop to get metrics input • Link changes in culture to employee and business-related outcome measures Aon Hewitt | Global Aon Mergers and Acquisitions Solutions Proprietary & Confidential 29
  • 30. Workforce Engagement is Important What is Engagement? Why does Engagement Matter?  I tell others great things Total Shareholder Return Say  I would recommend this firm to a friend seeking employment Engagement Levels TSR values over 65% 22% above average  I rarely think about leaving Stay under 45% 28% below average  It would take a lot for me to leave  I am inspired to do my best every day Profitability and Revenue Strive  I am motivated to contribute more Revenue Profitability than is required Engagement Level Growth Growth over 65% 15% 39% Average Distribution of Employee Engagement50% under 64% 10% 14% 41%40% 36% Source: Aon Hewitt 2011 Trends in Global Engagement30%20% 13% 10%10%0% Actively Passive Moderately Highly Engaged Disengaged EngagedSource: Aon Hewitt Engagement 2.0 Employee Survey - US Aon Hewitt | Global Aon Mergers and Acquisitions Solutions Proprietary & Confidential 30
  • 31. Reduce Risk and Cost of Disengagement and Accelerate Financial Value of Changes The Individual Change PathUnderstanding Preference Value Adoption = Behavior Integrating Rationalizing (shortest duration possible) TestingResistance Over- Confidence Letting Go Disengagement “valley of despair” The “change curve” is unavoidable and expected as employees learn and grow through the change event. The depth and duration of disengagement can be managed and minimized. Aon Hewitt | Global Aon Mergers and Acquisitions Solutions Proprietary & Confidential 31
  • 32. In Transactions, Employees have a Raft of Pressing Questionsabout how They are Impacted Personally Employee My Company communication should address these concerns. My Team My Work My Career My Money My Future What will What will What will How will my What will What will happen to happen to my happen to day-to-day happen to the happen to my me? ability to earn opportunities work change people I work Company? money … for my career … short term? with? short- and … long term? long-term?Aon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 32
  • 33. Integrating Program Management and Change Management Yieldsthe Best Results Program Management Office Integrated Change Aligned Efforts and Outcomes Management Office  Pinpoint accountability  Effective allocation of  Define and manage resources  Define benefits stakeholder interests  Faster time to value  Monitor progress  Map specific employee  Rapid stakeholder  Assess and manage risk behaviors that need to change engagement  Optimize spending within budgets +  Gather data to facilitate leadership decision making =  Higher benefits realization  Proactive risk management  Improve operating  Attack barriers to change environment  Sustained momentum  Formulate and implement  Create greater synergy change strategy integration among work teamsAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 33
  • 34. To Build Execution Capability, Develop a Detailed Change Strategythat Includes Specific Activities and Deliverables Driver Example Activities and Deliverables Effective Leaders  Leadership working sessions  Tailored integration training sessions for managers Effective  Integrated multi-media communication program (web, print, town Communication halls, etc.)  Detailed audience analysis Effective Involvement  Extensive employee research (focus groups, surveys, etc.)  Employee involvement on integration teams Effective Capability  Targeted training sessions Building  Identification of new required skills and competencies; plans to develop them Effective  “Line of sight” analysis, linking organizational and employee Measurement actions to business results  Detailed scorecarding, tracking operational, financial, customer, and other metricsAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 34
  • 35. Amiad – Arkal Integration – Israeli Case studyAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 35
  • 36. Amiad – Arkal PMI Case Study April May June July Aug. Sept. Oct. Nov. DeArea c. Integration Approach definition I General Planning Approved PMI PLAN Leading teams assignment Communication Comm. planning II On-going communication D-Day comm. Key People Identify Key PeopleIII KP retention meetings retention Streams check listsIV Orientation workshop - mngs Gap Analysis Gap analysis report Vision, Org. Vision & strategic planning High level Organizational structure V Structure & Management assign. Management Rest of org. Organizational Mng Team Building structure Identify Key Customers customersVI Sales & working Effective Customer Service Co-meetings processes retention Orientation to Emp. DefineVII Cultural Merger Prof. Training Global Mix. Business teams company Branding valuesVIII QC & conclusions
  • 37. About UsAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 37
  • 38. Aon Hewitt: A Snapshot • Aon Mergers & Acquisitions Solutions Aon Corporation Aon Risk Solutions Aon Hewitt Aon Benfield • Retail Brokerage • Corporate Transactions • Treaty Reinsurance • Captive Management • Talent and Rewards Consulting Brokerage • Affinity Programs • Employee Communication, • Facultative Reinsurance • Select Personal Lines Engagement, and New Media Brokerage • Premium Finance • HR Business Process • Capital Markets Outsourcing • Financial Advisory • Total Rewards • Analytics &Technical Services • Claims Management Aon Hewitt Overview Core Strengths Valued by Our Clients #1 Human capital consulting and outsourcing firm in the world • Aligning complex situations to strategy • Balanced and holistic approach across IT, 90 Number of countries in which Aon Hewitt operates people, process, and organization 330 Number of Aon Hewitt offices around the world • World-class consultants and methods 29,000 Number of Aon Hewitt colleagues around the world • Best-in-class change management and$8.5 billion Aon revenue (2010 corporate) engagement through transitionsAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 38
  • 39. Aon Mergers and Acquisitions Solutions (AMAS) Risk and HR M&A Specialists World-class thought leadership and experience from more than 4,000 diligence assignments over the past 5 years 25 years continuous commitment to providing focused diligence advice to corporate and private equity clients Staffed with 400 dedicated professionals worldwide including MBA’s, attorneys, actuaries, as well as former risk managers, brokers, underwriters, claims adjusters, management consultants and investment bankers Leveraging human capital and risk expertise from 60,000 professionals in over 500 offices across 120 countries Dedicated consultants who bring strong level of AMAS Global Footprint transactional expertise and ready availability to our M&A clients Dedicated resources in all major business regions throughout the world who bring local expertise in their respective business and regulatory markets Announced the creation of Aon M&A Solutions in January 2011, creating the only integrated global advisor across risk and human capital solutions. Aon Hewitt | Global Aon Mergers and Acquisitions Solutions Proprietary & Confidential 39
  • 40. Aon’s M&A Solutions: Capabilities Summary Aon is the leading provider of HR-related M&A services globally and manages over 200 transactions per year including the largest and the most complex and successful business combinations over the past 5 years. Our People Our Experience and Expertise Our Market Presence Dedicated group of M&A Overall Acting as HR M&A partner to Cisco Hired as ongoing global HR M&A specialists – M&A and  On average, our consultants have providing support for multiple partner. Provided due diligence restructuring are all we do; over 20 years experience working transactions, including $3.2B and integration support for multiple focused on delivering end-to- with some of the world’s most acquisition of Tandberg (35+ transactions as well as HR M&A end capability for major sophisticated organizations countries); working directly with HR training for GE employees globally organizational change events including GE, HP, Nokia, UPS, M&A Leader IBM, Abbott, Cisco, Industry leading experts – Providing strategic support for global Provided due diligence and Wal-Mart, among others Practice-leader level consultants expansion, specifically growth in Latin integration support for multiple  Worked on 500+ transactions in formerly with largest America (Brazil); working directly with transactions in addition to past 5 years, including some of the competitors, joined together to Global Business Integration executive providing HR M&A training for most complex acquisitions in deliver distinctive value within Finance organization Philips employees globally recent history Global expertise – Worked on Depth and Breadth of Services Leading HR due diligence efforts for Provided HR M&A integration transactions involving every  Provide services throughout the Comcast‘s 51% ownership stake in support on multiple transactions in region of the world; specialize in transaction lifecycle – Due NBC Universal (joint venture with GE). addition to HR M&A training and addressing human capital issues diligence, integration planning, $30B transaction involving 45+ HR partner for numerous joint in complex global deals post-merger integration and countries; working closely with SVP ventures restructuring Comp & Benefits and business strategy Industry Expertise – Expertise in  Integrated set of expertise across a leader a multitude of industries including transportation, media, broad range of HR domains Leading transition efforts to stand up Hired as Joint Venture HR M&A financial services, healthcare, including benefits, compensation, HR programs and operations for the partner for Ricoh/ Global Infoprint high technology, manufacturing, communications & change joint venture entity; working directly joint venture in addition to retail management, HRIS, HR with EVPHR from NBCU and providing HR M&A training for IBM operations, HR policies, leadership executives from GE and Comcast employees globally Holistic Skill Set – HR technical selection and staffing, organization (e.g., benefits, employment law, design, payroll, training & Hired as ongoing HR M&A partner for Led global compensation & compensation), organizational development HP MADO and have provided due benefits integration support for (e.g., culture, change diligence and integration support in Abbott’s $7B acquisition of management, organization Methods, Tools and Technology multiple transactions, including $13B Solvay’s pharmaceutical unit, one design), and business  Leverage proprietary methods, acquisition of EDS (320,000 of the largest pharmaceutical deals strategy/operations (e.g., tools and technology to deliver employees in 60 countries) completed in 2009 business strategy, operational consistent M&A solutions across all process design) domains and around the world Aon Hewitt | Global Aon Mergers and Acquisitions Solutions Proprietary & Confidential 40
  • 41. People & Risk Considerations during M&A Issues Topics of Concern Project  Transaction Governance Leadership  Project Management  Synergy Estimates and Realization  Leadership Assessment & Selection  Leadership Bench Strength Talent Flight  Executive Attrition  Key Talent Attrition  DC/Pension Risk Total Rewards  Health Plan/Claim Risks  Country-Specific Compensation and Talent Risk People  Labor Agreements Employee &  Employee Engagement Labor  Legal Entity Plans Relations  Day 1 Operational Risk  Day 1 Transition (International) Culture  Cultural Differences Aon Hewitt  Go Forward Organization Design Organization AKT  Team/Site Selections  Comparison of Current and Pro-forma Cost of Cost of Risk Insurance and Retained Losses  Change In Control Provisions  Collateral Requirements Collateral &  Balance Sheet Accruals for Retained Accruals Losses  Quality of Earnings  Optimize Cash Flow Risk Cash Flow  Concerns about Costs In Excess of Budget, such as Environmental Clean-Up  Carrier Stability Quality of Ins.  Availability of Historical Policies Assets  Coverage Terms and Conditions  Exposure Analysis Transaction  Uncertainty Around Purchase Agreement Issues SolutionsAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 41
  • 42. About AKT The largest HR Consulting firm in Israel In business since 2001 +90 associates and partners Expertise Growing and profitable Customer base include +150 of Israel’s leading companies • Talent Management Strategic partnerships include: • Total Reward – AON-Hewitt – SuccessFactors • Corporate – LHH (DBM) Transaction &and DBM (LHH Transformation • Learning • HR Excellence • Career Transitions • HR TechnologiesAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 42
  • 43. Aon Hewitt and AKT Partnership • Amdocs • TEVA Partners since 2008. • NICE Partnership strategy is : • Makhtesim-Agan – Supporting global M&A that involves Israeli companies Key Accounts • NDS – CISCO PMI – Supporting Israeli leading corporate on global transformation. Our partnership added value: Experienced, dedicated team Hit the ground running with using proven methodology, strong track record of execution approach & tools and knowledge transfer Most extensive experience in Proven, practical approach and large-scale transformation recommendations In-country partnership providing In-country, on-site delivery, in the local presence relevant language, culture, timezone Key customers: Amdocs, TEVA, Makhteshim-Agan, HP.Aon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 43
  • 44. Aon Hewitt Has Extensive Experience in Helping US Based Corporations Engage in Deals With Global Implications Types of Events Phases Company Background Divestiture Greenfield HR Ops Cultural Due M&A Implementation Standalone Set-Up Set-Up Integration Diligence Hired as ongoing global HR M&A partner. Provided due diligence and       GE integration support for multiple transactions as well as HR M&A training Full PMO/HR for GE employees globally M&A Hired as Joint Venture HR M&A partner for Ricoh/ Global Infoprint joint     IBM venture in addition to providing HR M&A training for IBM employees Full PMO/HR globally Acting as HR M&A partner to Cisco providing support for multiple transactions, including $3.2B acquisition of Tandberg (35+ countries); Cisco working directly with HR      M&A Leader Provided due diligence and integration support for multiple transactions in      Philips addition to providing HR M&A training for Philips employees globally Full PMO/HRM&A with Significant Culture/Change Engaged by both United and Continental in merger of equals to partner    United with their HR leadership on the HR integration process. The acquisition Full PMO/HR involved approximately 86,000 employees in more than 50 countries Provided support and change management leadership to Pfizer through various culture integration initiatives across business units and at the   Pfizer enterprise-wide level As HR M&A partner, Aon Hewitt provided end-to-end HR integration    Express Scripts services for a ~$30B acquisition, including automated RIF support and Full PMO/HR culture/change management support at senior leadership level Conducted a culture survey focused on the leadership groups at HB Fuller and Forbo (largest acquisition in HB Fullers history) to understand current cultures, desired future culture for combined organization, and    HB Fuller priorities for action. In addition, we worked with HB Fuller leadership to Full PMO/HR define the desired culture for the combined organization and are assisting in implementation of key strategies and programs to support the desired culture. Aon Hewitt | Global Aon Mergers and Acquisitions Solutions Proprietary & Confidential 44
  • 45. Our Proprietary Integration Tools, Models and Templates Aon Hewitt brings some of the most sophisticated tools and By leveraging these proprietary technology platforms that are adopted globally by the most methods, tools and technology, we acquisitive companies, including Dell, GE, HP, IBM, and Merck deliver consistent M&A solutions effectively and efficiently across all These tools represent the largest array of proven M&A processes, methods, and templates across the transaction continuum domains around the world Workstream Relevant Tools, Models and TemplatesHR PMO / Support TransAction Manager (and all embedded functionalities)Benefits and HR Policies Global Inquirer / Benefits Index / SpecBook / Health Value Initiative Global Inquirer / Job Link / Total Reward Optimizer / Total Compensation Measurement Database / VariableCompensation Compensation Measurement Index Global Inquirer / Job Link / Total Compensation Measurement Database / Variable CompensationExecutive Rewards Measurement IndexWorkforce Planning TransAction Manager / Employee Data Warehouse / Selection Framework and Process / RIF-Onboarding-Site(incl. Talent Assessment and Selection) Closure Checklists / Notifying Manager Communication ChecklistOrganizational Change Management Aon Hewitt Organizational Change Toolkit / Aon Hewitt Culture Assessment Framework and Alignment Toolkit /(incl. OD/Culture) Organizational Change Roadmap / Communication Roadmap / Day 1 Readiness Check-lists and Templates Global Inquirer / Labor Contract Analysis Templates /Country Profiles (with labor relations information byDiversity and Labor Relations country)International Global Inquirer / Side by Side Analyses / Aon Hewitt Country Profiles / Benefits IndexAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 45