Summary: INTELLIGENT M&A
there is no such thing as a pleasant surprise; any surprise is mature intelligence function can provide:
worrying because it indicates weak intelligence systems. • Immediate intelligence. Intelligence collected
Intelligence should be at the very heart of all corpo- from open sources to provide endusers with intelligence
rate endeavors but often is not. A recent global work within a 24-hour time frame.
force research study shows that less than half of employ- • Continuing intelligence. Intelligence that is rigor-
ees believe that they are in safe hands and that their ously researched, analyzed and documented, delivered by
executives are taking steps to ensure the long-term suc- continuous monitoring of the competitive environment.
cess of their organizations. How, then, should organiza-
• Technical intelligence. Intelligence that maintains
tions avoid catastrophes? The answer is by staying in
technological competitiveness and manages R&D and
close touch with the external environment.
new product development projects effectively, evolving in
Business Intelligence Industry approach according to evolving technologies.
Whether traditional or modern, the intelligence function • Analytical intelligence. Intelligence that provides
remains the same — to be the eyes and ears of the organi- advanced warning of emerging opportunities and/or threats.
zation, to gather and analyze information that provides a • Internal intelligence consulting. Intelligence
competitive advantage.Why, then, does it appear so difficult gleaned by embedding analysts within internal M&A
for organizations to engage with the external environment? teams, enabling the analyst to provide targeted and time-
First, as most observers agree, there is a perception of ly intelligence to the group.
greater complexity in the modern business environment. • Activated intelligence. Intelligence requests gener-
Getting to the other side of that complexity clearly ated by both formal and informal observation of the
involves greater knowledge of the environment but also environment, appearing at the request of a client and tai-
greater knowledge of how to deal with complexity. lored to that client’s needs.
The second reason why organizations fail to engage with • Counterintelligence. Intelligence activities undertak-
the environment is that they do not believe it is necessary. en to protect the company from other entities looking to
They become complacent.They believe that their approach exploit the company’s vulnerabilities. G
has worked, is working, and will, therefore, continue to
work.They fail even to observe it, much less respond to it.
Finally, and perhaps most significantly, organizations sim- Designing the
ply fail to give sufficient thought and resources to intelli-
gence as a function. Unwise leaders often choose to limit
Although each acquisition or merger deal is unique, in
the effectiveness of the intelligence function by affording it
general the merger process usually unfolds in six stages:
too little value and, consequently, too few resources. How
does one best engage with the external environment? By 1. Corporate strategy development: determine if
creating an organizational intelligence system. acquisition or merger is the appropriate strategic move;
develop a long list of possible candidates.
Review 2. Organize for the merger/acquisition: select
The first component in such a system is a review of the project leader, form different teams, identify outside
components of the company’s external interaction, in a facil- advisors, and so forth.
itated brainstorming session. Identify any gaps in the external 3. Specific deal pricing and negotiation: includes
provision, any disconnections between the components.The
identification of final acquisition candidate(s), valuation
review process need not be complicated or expensive, but it
and pricing, and negotiations between both managements.
will be resource intensive, and the resource will be the brain-
power and thinking time of the senior management team, 4. Structuring and approval: engage in tasks includ-
and not just for the day of the brainstorming. ing structuring the deal, conducting due diligence,
arranging financing, ensuring approval by common stock-
Structure holders, filing appropriate paper and closing the deal.
Having identified the gaps or inefficiencies in the 5. Post-merger integration.
company’s established intelligence system, remedies must 6. Post-acquisition review.
be implemented. It may be that internally advertising
The buyer’s perspective differs from the seller’s but
one’s product range can actually stimulate recognition of
both largely need to follow these steps. Although it is
the value of those products and change the culture.
more common for buyers to initiate a deal, targets can
Essentially there are seven intelligence products that a
also put themselves up for sale. Sellers initiate deals most
www.summary.com Soundview Executive Book Summaries® 3
Summary: INTELLIGENT M&A
commonly when they are experiencing some difficulty, and documents and the “back end” (details) of offer and
including financial difficulties, succession issues or legal defense documents.They give general corporate and reg-
matters. It is critical to determine the underlying reasons ulatory advice and sometimes offer tax advice.
because they are not always stated. • Accountants draft the “middle bit” (numbers) of the
From the seller’s perspective a typical takeover pro- offer documentation and provide the “independent” finan-
ceeds through the following stages: cial information as required. Note that it is management,
1. Corporate strategy development to determine if the not the accountants, that produces the financial forecasts.
division or company should be sold. • Human resources consultancies help bidders
2. Preparation of the expected pricing and expected determine the strength of the target’s senior and even
deal terms. middle management teams.The bidder needs to know as
3. Organization for the merger/acquisition: select pro- well whether those people will stay with the new com-
ject leader, form different teams, identify outside advisors, pany and what incentives will be required.
and so on. • Stockbrokers are the principal line of communica-
4. Development of a “long list” of possible buyers and tion with institutional shareholders and because of their
discussions with those companies. knowledge of the markets and the investors, they provide
input on valuation and pricing.
5. A “short list” stage with limited due diligence com-
pleted within the seller’s company. • Public relations advisors help with the selling mes-
sage to multiple audiences, including not only the share-
6.A “preferred bidder” stage with almost unlimited due
holders who will ultimately determine whether the deal is
diligence and strict confidentiality agreements exchanged.
acceptable but also to management and staff of both com-
7. Deal finalization: arrange financing, approval by panies, customers, suppliers and the general public.
common stockholders, file papers and obtain
approvals with jurisdictions in which each company Advisors and Business Intelligence
operates, and closing. G Each of the advisors can play an important intelligence
role, although often each advisor’s actual role is limited
For additional information on design of the acquisition process,
go to http://my.summary.com.
to his or her traditional functions. Accountants, for
example, check and produce the numbers, but, if asked,
can provide important information about the industry
and other companies in the market.
Controlling the Advisors Both large global consultants and small boutique advisors
Although the ultimate responsibility for the success of
are renowned for their ability to seek out nonpublic infor-
a deal will rest with the board of directors and senior
mation about clients and customers. Often, it is difficult for
management, in most mergers there is a large number of
a company to ask this information directly because it
advisors necessary to bring the deal to completion. Some
would need to identify who is asking. Consultants, on the
of these advisors may be involved from the first step in
other hand, do not need to disclose their clients unless
the planning process through to closing, whereas other
asked — and frequently are just not asked!
advisors will play a much more limited role during a
very specific part of the merger process. Do not forget to employ your intelligence function on
your advisors. No matter how reputable the advisors or
Advisor Roles how much work in the deal is conducted by the external
There are numerous advisors involved in a merger or consultants, the board, senior managers and employees
acquisition, among them the following: are the ones who will live with the result for years.This
• The financial advisor is typically at the center and responsibility cannot be delegated. G
acts as the experienced coordinator of many of the other
advisors and their activities.The financial advisor not only
gives general financial advice but also drafts some and
Identifying the Best Targets
The reasons for carrying out M&A activity are depen-
coordinates all documentation, controls other advisors (and
dent on the context of the business, the dynamics of the
often the client), advises on target valuation and deal pric-
environment, future strategic intents and the personal
ing, manages the overall strategic direction of the offer and
motivations of senior management.These motivations
lends his or her reputation to the transaction.
will define the approach taken to acquisition planning;
• Solicitors and lawyers will draft legal agreements each company must make its corporate development
4 Soundview Executive Book Summaries® www.summary.com
Summary: INTELLIGENT M&A
strategy explicitly and directly based on these motiva- • Profitability and other financial factors
tions. In this way, these companies will have clear work- • Risk exposure, including the cyclical nature of the
ing guidelines spanning different time periods that business, any significant legal or regulatory issues,
address their strategic intent, where they would wish to inherent risks to the products, etc.
expand, and even where they would like to divest.This • Asset type, whether buying the whole company or
strategy must be both realistic and personalized to the just a division, real estate, natural resources or people
company. It will identify where there are holes that must
• Intellectual property: patents, client lists, supplier
be filled with acquisitions or mergers.
The Role of Strategy • Management quality and the likelihood that they
In reference to finding a possible target, management will remain with the company
can make quick, informed decisions based on their • Current ownership
knowledge of their own capabilities, corporate strategy, • Cultural and organizational fit. G
the state of the market, an understanding of the business
For additional information on screening candidate targets,
of the target and current key stakeholder perceptions.
From this point they choose whether to act on the go to http://my.summary.com.
opportunity or to attempt to buy more time in order to
carry out some more research on key determinants.
M&A deals are by definition a means to an end.They Due Diligence
should never (but sometimes do) drive strategic situa- In M&A, the due diligence process includes the verifica-
tions and choices.Whatever the business strategies that a tion of material facts and an examination of the external
company employs to its competitive advantage, the estab- relationships of the company and the internal finances,
lishment of acquisition objectives should be firmly root- operations and management.While due diligence is often
ed within an entity’s “grand design,” helping to promote seen as the bidder’s responsibility, it is just as important for
its strategic goals and objectives. the target to conduct due diligence on the bidder in order
to determine whether the offer is bona fide and legitimate
Screening Candidate Targets and, most importantly, to ascertain whether the bidder has
The screening of candidates will typically include the the financial capacity to complete the transaction.
following criteria, but the actual criteria used may differ
for each acquirer and even for each deal:
The Due Diligence Process
• Industry and the target’s position in it The key factors in conducting informative and timely
due diligence are the following:
• Size of the business (sales, assets, market value, etc.)
• Identifying the most important items to collect: in
• Strategic capabilities
most deals there is not enough time to look at every-
thing in as much detail as desired.
Cisco Picks Its Targets Well • Identifying the right sources for the desired informa-
Cisco, like some serial acquirers, has become tion within the required time frame.
quite adept at ascertaining that companies they • Identifying the right people to review the data: this
acquire fit their corporate strategy; the company should naturally include the people who know most
relies on acquisitions to complement its own inter-
about that area and should also include people who are
nal research and development. Cisco has had peri-
ods when it buys one to two companies per month. expected to be managing the business post-acquisition
In its early period of rapid growth, it developed a and therefore will use that information.
six-point blueprint for evaluation of prospective The target company is not required to provide to a
acquisitions: bidder (or vice versa) any confidential or nonpublic
1. Similar vision to Cisco information unless in a situation where compelled by the
2. Must produce quick wins courts.The target is also not required to disclose infor-
3. Long-term win situation for all parties (share- mation to any party that the party has not requested. Of
holders, employees, customers, partners)
course, withholding information is not necessarily rec-
4. Cultural compatibility must exist
5. Close geographic proximity to Cisco ommended, especially if it is necessary to keep the deal
6. Friendly deals, never hostile. friendly and to get a higher price.
www.summary.com Soundview Executive Book Summaries® 5
Summary: INTELLIGENT M&A
Types of Due Diligence Information statements may enable acquirers to identify reasons why
Due diligence can be divided into external and internal a company wishes to merge or sell out.
information. External due diligence should, if possible, be The building blocks for such information include
conducted before the deal is underway when the time auditing and verifying financial results on which an offer
pressures may not be as extreme as the period after the deal is based, identifying deal breakers, providing ammunition
is announced. Internal due diligence is conducted through- for negotiators and pinpointing areas where warranties or
out the deal. Both need to be continually updated as con- indemnities may be needed, and providing confidence in
ditions change. In addition, each industry will have its own the underlying performance (and therefore future profits)
special due diligence requirements. of a corporation.
While due diligence does enable prospective acquirers Management Due Diligence
to look for potential “black holes,” the aim of due dili- It has become common practice for acquirers to per-
gence should be this and more. A well-managed due dili- form discreet investigations in order to evaluate the com-
gence assignment — varied in each specific case by scope petence of the target’s management and quality of their
and scale to reflect the unique issues of each deal — will past performances. Since often it will be management
help firms to improve their financial performance, who will be carrying the merger forward, it is crucial
strengthen their competitive positioning, develop internal that adequate time is spent on making sure the best peo-
“know-how” and be better able to grow through M&A. ple are in place with all the support they might need. G
Business intelligence is at the heart of due diligence,
providing company executives with the kind of insight
that enables them to make appropriate commercial deci- Post-Merger Integration
sions and plan for the future.While 90 percent or more An M&A deal does not end with the completion of
of information required for merger or acquisition activity the transaction at closing. In most cases, the closing of
is widely available, the key skill in this entire process is the deal is only the start of the truly hard work of mak-
the ability to identify what information is needed, where ing the newly formed company work.
it is most likely to be found and then determine a way Post-merger integration is the “quiet” phase of the typi-
to extract that information. cal merger; to the outside world there is usually very little
discussion about the deal in this phase unless, of course, it is
Financial Due Diligence
falling apart and was a high-profile deal.The success of the
Often the mainstay of the M&A process, financial due deal actually depends more upon the post-merger integra-
diligence enables companies to obtain a view of an orga- tion than any other single step in the M&A process.
nization’s underlying historical profits, which can then be
In fact, a merger will likely fail if it has the right strate-
used as a canvas on which to paint a picture of the com-
gic rationale but poor implementation. Likewise, failure
pany’s financial future. A prospective target’s financial
will follow a merger carried out at the best price but
with bad post-merger integration. On the other hand, if
Oracle’s Management Lists a deal has no sound strategic rationale or if the strategy
In the lead-up to an acquisition in early 2006, was based on circumstances that have now changed, and
Oracle was given the names of 53 key people that even if the deal was done for too high a price, the newly
could not be poached during the merger discus- combined firm can still be successful if there is effective
sions or afterward for a period in case the deal fell and creative management of the new organization after
through. If one is given such a list, as noted by the the merger.The simplest way to work toward success is
Senior HR Director for Europe, the acquirer has the to focus on post-merger integration.
beginnings of a tool to check with customers and
former employees as much as it can about those 53 Change Management and Integration Costs
people, as they are presumably the best of the best Post-merger planning should reflect the desired change
in that target company. This process can identify from the deal. If the strategy behind the deal is unclear,
possible problems and issues with those individuals there is no reason to expect successful post-merger inte-
and with the organization. gration. Different types of acquisitions bring with them
In addition, it turns something meant to be different post-merger problems.
defensive on the part of the target into something
of even greater value to the bidder in the due The costs of doing integration poorly can be immense.
diligence process. The overall cost includes not only out-of pocket, quan-
6 Soundview Executive Book Summaries® www.summary.com
Summary: INTELLIGENT M&A
tifiable expenditures (rebranding, systems integration and focused on the success of the deal and on managers and
the like), but also items that are difficult to quantify but employees internally.
that will have a major impact on the newly merged The CEO must appoint an integration manager who
company’s bottom line, including the following: comes from a high level in the organization, ensures
• Hiring and training employees in new positions middle management buy-in and involvement through
• Time-consuming and distracting meetings and the use of integration planning committees and task
activities during integration forces and makes quick decisions on compensation
where necessary. A single integration manager must also
• Dysfunctional politicking and power fights
be appointed to speed up the integration process, create
• Decrease in employee efficiency during the period a structure, forge social connections between the two
of uncertainty organizations and help engineer short-term successes.
• Customer confusion and competitors’ attempts to Engineer successes. One way to maintain the client
poach clients during this period. base and even to grow it is through the engineering of
Integration Planning successes, even if these are not “real.”This can be used to
demonstrate the power of the new organization and
Integration planning should begin at the deal idea-
should be done as soon as possible after the deal is
generation stage and continue throughout the merger
announced (and planned well before that time.) These
process.There are five major stages in the post-merger wins, when communicated properly, can be an effective
integration process: morale booster internally as well.
1. High-level merger planning: discussion at the Act quickly. When talking to almost anyone involved
senior executive level, including talks about how the in a successful integration, the need for speed is usually
companies can or will combine. mentioned in the first sentence. It is critically important
2. Formal (or leaked) announcement: Employees to make the key decisions very quickly. Uncertainty is
and management will have mixed emotions, and expec- the virus of successful post-merger integration, as this
tations rise in many cases due to the external discussion will lead to customers, managers and employees leaving.
about the deal’s potential. Due to the natural uncertainty Retain key employees. It is also important to retain
by most about the deal, it is important to be able to key employees in both the acquiring and acquired com-
announce some integration plans at the same time or panies. Each employee will be most concerned about
within days of the deal announcement. “me.” If those concerns are not addressed, no other busi-
3. Initial organizational merger planning: The ness will get done properly as managers and employees
organization is unstable and although many employees will be distracted.The intelligence function should help
have the best intentions to cooperate, good will quickly the acquirer identify key personnel.
erodes. Post-merger planning is now out in the open People-related issues typically represent much of the
with a need for effective use of business intelligence. hidden post-merger integration cost to the new organi-
4. Initial post-deal integration: often intense dur- zation. Organizations that anticipate these issues will be
ing this period (typically 100 days) but with a high level best positioned to deal with them effectively and to min-
of organizational instability, including “us-them” mentali- imize the negative financial impact they represent.
ty and intra- and interdepartmental hostility. Nurture clients. Do not lose sight of the revenue side
5. Psychological integration: Roles and systems are of the business — the focus on clients.While the compa-
by this point clarified, and there are successes demonstrat- ny is worrying about integration, the outside world will
ing the power of the new organization; this is a long-term, not be so distracted: Customers can be poached if not
gradual process, which may take years to finalize. nurtured and suppliers are at risk. It is therefore important
to encourage the sales force and relationship managers to
Keys to Integration Success be alert to signs that there are problems.
In order to achieve a successful post-merger integra- Communicate. Communication must emanate from
tion — and thus the success of the deal — there are the very top of both organizations or else they run the
eight areas that require attention: risk of lacking credibility. Managers must “walk the talk”
Leadership. It is important to set up the appropriate and show that they have recognized the changes to the
structure and organization for the post-merger integra- organization and their impact on individual employees.
tion, starting with the leadership.The top of the compa- The very senior managers can best communicate the
ny needs to be seen internally and externally as being vision of the deal and the related business logic.
www.summary.com Soundview Executive Book Summaries® 7
Summary: INTELLIGENT M&A
Communications must demonstrate transparency and • Stay around the office. Become more visible. Be the
openness at all times; a lack of candor or honesty will be hardest worker, or at least perceived to be such.This will
immediately sensed by most employees, and the good demonstrate that you are invaluable and provide you with
will that is critical to have in place for the successful opportunities to pull out all the stops and produce.
implementation of the deal will be destroyed. • Your own team may be your most valuable
Integrate the two cultures. Cultural integration is asset. Your own team may have sources of information
paramount in the post-merger period. It is important to that aren’t communicated by your network or by your
make the social connections in terms of communication, manager. Additionally, you’ll feel better if you are doing
identification of common core values and recognition of your best for your staff. Furthermore, you may need
the importance of “superficial” issues such as titles and them in the new organization and you don’t want them
company and division names. It is an issue not just for to consider leaving prematurely.
senior managers but for all levels of the organization, as • Network incessantly, both internally and exter-
both companies will have had unique cultures that may nally. This is important both to gather intelligence about
not instantly or naturally mesh. what is to happen and to gain support as decisions are
Adjust, plan and monitor. Managers should prepare made. Also, let others know your accomplishments, tal-
for surprises — these will always occur in a situation as ents and what you’ve done for the company.
complex as merging two companies and their employees. • Keep your clients and keep them happy.You can
Nothing should be cast in stone — be willing to make avoid being made redundant by making sure your clients are
changes, anticipate unexpected external events and man- loyal to you personally as the salesperson, and not necessarily
age them as best as possible. to the newly merged company. Support and middle-office
Planning should start at the beginning of the deal idea staff should think of the front office as their client.Try to
stage.This includes an identification of whom will fill key link yourself with some client-facing teams; at least get those
roles, their responsibilities, and mapping out what the who you support to speak up positively on your behalf.
future organization will look like. Business intelligence can • Be flexible. Be willing to move or change jobs, and to
be used to determine what changes will be necessary. G show adaptability to a new corporate culture, manager,
travel, job requirements, hours and other business practices.
How to Survive a Merger • Prepare for the worst, even if you think your
job is secure. When rumors about a merger or acquisi-
In today’s business environment, it is unusual for an
tion appear, take them seriously. Such preparation is
individual not to experience a merger or acquisition at
especially important if your company is the smaller one
some point during his or her career. It is certainly useful
in an acquisition.
to know about survival techniques and tips that have
proven helpful to others when faced with an upcoming • Be positive about the new company. Be future
oriented and focus on the needs of the new organization.
or ongoing merger.
A positive outlook about yourself and your place in the
Survival Tips company can be important in easing your anxieties
Assuming you wish to stay with the newly merged about work and the merger.
company, what should you do? The techniques of good There are no guarantees that a job can be retained
business intelligence applied to your own personal situa- or found in the newly combined company, but an
tion would include the following: application of these recommendations should improve
• Start to prepare during the pre-merger phase. Be the odds immensely. G
part of the merger planning and design process, and/or the
post-merger integration team. Get to know the other orga- RECOMMENDED READING LIST
nization as well as possible using internal and external con- If you liked Intelligent M&A, you’ll also like:
1. Making Strategy Work by Lawrence G. Hrebiniak. Hrebiniak offers a com-
tacts and resources.This will not only give you information prehensive, disciplined process model for making strategy work in the real
that will be personally useful but also will enable you to be world, where formulation and execution are both major challenges.
considered more valuable, particularly if you understand the 2. The Well-Timed Strategy by Peter Navarro. Navarro provides the tools to
other company better than your colleagues do. align every facet of business strategy, tactics and operations to reflect
changing business conditions.
• Don’t think that your boss will take care of you. 3. Corporate Agility by Charles E. Grantham, James P. Ware and Cory
As with everyone else in the organization, your boss will be Williamson. In order to compete in the flat world, businesses must be
looking out for him/herself first. He or she may even have willing to embrace a new strategic model. Corporate Agility provides the
blueprint for this revolutionary move forward.
less of an idea than you do as to how decisions will be made.
8 Soundview Executive Book Summaries® www.summary.com