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This presentation outlines some best practices during mergers and acquisitions. The best practices are discussed over a wide spectrum of the M & A process, including: pre-deal, during deal, post deal, executive teams, core team, due diligence team, integration team, Case studies are used to illustrate the best practices. The deck has 55 slides.

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Mergers, Acquisitions Best Practices Presentation Transcript

  • 1. Mergers & Acquisitions Best Practices Date
  • 2. 3 Executive Summary (2 of 7) Research Approach Research efforts targeted XYZ client experience, resources from the XYZ M&A Group, in addition to numerous outside publications, articles, and books Mergers & Acquisitions Today • Mergers and acquisitions are considered a major source for growth and value • Mergers and acquisitions are also a major source of risk in today’s market M&A Overview • Leading companies employ a three-phased integrated M&A process complemented by diverse support teams • The M&A process is comprised of three overarching, integrated phases: Pre-Deal, Deal and Post-Deal This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/mergers-acquisitions-best-practices-738
  • 3. 6 Executive Summary (5 of 7) Post-Deal Phase Best Practices Leading Companies – • Employ continual communication, emphasize speed, address cultural issues and record all acquired mergers and acquisition knowledge • Provide extensive communication to affected employees and develop a comprehensive 100-day plan to facilitate the integration process • Quickly define the new business model and execute against the significant value drivers while continually addressing internal and external issues during the integration process • Take time to record experiences and knowledge gained during a merger or acquisition in order to improve and refine the process • Employ calculated speed, focus significant time and resources on communication directed towards all affected parties, and proactively address cultural issues in order to improve transition success Case Study -- The merger of Glaxo and Wellcome provides an example of a successful transition strategy and integration This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/mergers-acquisitions-best-practices-738
  • 4. 9 Contents • Executive Summary • Research Approach and Key Findings • Mergers & Acquisitions: Process • Mergers & Acquisitions: People • Mergers & Acquistions, Licensing & Business Development and Key Considerations for Company This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/mergers-acquisitions-best-practices-738
  • 5. 12 Mergers & Acquisitions Today Mergers and acquisitions are also a major source of risk in today’s market In about two-thirds of all acquisitions, the acquirer’s stock price falls immediately after the deal is announced. In most cases, that drop is just a precursor of worse to come. The market’s routinely negative response to M&A announcements reflects investors’ skepticism about the likelihood that the acquirer will be able both to maintain the original values of the businesses in question and to achieve the synergies required to justify the premium.” – HBR, Stock or Cash?: The Trade-Offs for Buyers and Sellers in Mergers and Acquisitions Any company contemplating an acquisition must familiarize itself with the simple facts that external growth is extremely competitive and the probability of increasing its shareholders’ wealth via M&A is low. -Richard Ivey School of Business, A Note on Merger and Acquisition and Valuations “Despite 30 years of evidence demonstrating that most acquisitions don’t create value for the acquiring company, executives continue to make more deals, and bigger deals, every year.” –HBR, Are You Paying Too Much for That Acquisition Several well-structured studies calculate 50-75% of acquisitions actually destroy shareholder value instead of achieving cost and/or revenue benefits. There are five root causes of failure: • Poor strategic rationale, • Overpayment for the acquisition • Inadequate integration planning and execution • A void in executive leadership and strategic communication • A severe cultural mismatch - European Business Journal Research indicates that between 70 to 75% of corporate mergers and acquisitions in the U.S. and U.K fail to reach their financial targets (i.e., fail to earn at least Its cost of capital). - London Business School Research This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/mergers-acquisitions-best-practices-738
  • 6. 15 M&A Process: Overview The M&A process is comprised of three overarching, integrated phases: Pre-Deal, Deal and Post-Deal “Successful M&A players recognize the process as a holistic lifecycle in which each stage is linked to every other, one in which integration must be central to the mindset of all involved from the first decision to the last.” – The Point, The Big Deal: Getting M&A Right from Pre-Deal Through Post-Deal “Successful M&A players recognize the process as a holistic lifecycle in which each stage is linked to every other, one in which integration must be central to the mindset of all involved from the first decision to the last.” – The Point, The Big Deal: Getting M&A Right from Pre-Deal Through Post-Deal Post-Deal Phase Deal Phase Pre-Deal Phase Leading companies consider the corporate strategy when deciding to merge, acquire, or divest assets and when conducting target screening Leading companies conduct extensive due diligence activities, assess multiple financing options, develop negotiation strategies, and thoroughly prepare for closing Leading companies employ continual communication, emphasize speed, address cultural issues and record and manage M&A knowledge This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/mergers-acquisitions-best-practices-738
  • 7. 18 Pre-Deal Phase: Best Practices Leading companies consider the corporate strategy when deciding to merge, acquire, or divest assets and when conducting target screening Leading companies commit significant resources and time to understanding the corporate strategy and developing an aligned M&A strategy before initiating target screening efforts Leading companies conduct extensive opportunity scans that include economic benefit modeling, market condition evaluations, and thorough target screening Leading companies begin integration planning during the pre-deal phase to ensure feasibility of the deal, isolate and address potential issues, and improve likelihood of transition success Being clear on the nature of the strategic levers is critical for both pre-merger and post-merger activities. Indeed, failure to do so can trigger other causes of failures. – European Business Journal Being clear on the nature of the strategic levers is critical for both pre-merger and post-merger activities. Indeed, failure to do so can trigger other causes of failures. – European Business Journal If a deal has been misconceived, no degree of brilliant post-merger integration will clean up the mess. – McKinsey Quarterly, After the merger If a deal has been misconceived, no degree of brilliant post-merger integration will clean up the mess. – McKinsey Quarterly, After the merger Integration Planning Target Screening Corporate Strategy/ Portfolio Planning This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/mergers-acquisitions-best-practices-738
  • 8. 21 Pre-Deal Phase: Integration Planning Leading companies begin integration planning during the pre-deal phase to ensure feasibility of the deal, isolate and address potential issues, and improve chances of transition success Best Practices • Begin integration planning before the deal phase has begun • Establish one small, full-time merger Integration Team – Identify an Integration Manager – the manager should have deep knowledge of the acquiring company and be responsible for managing day-to-day project integration activities – Vest Integration Managers with real decision making authority relative to integration activities – Include experts from Operations, Human Resources, and IT – Involve team in the deal-making process – Create clear and simple integration governance processes The most successful companies at capturing value through M&A “ensured integration was placed at the heart of the merger process, with a detailed plan put in place at the outset.” – The Point, The Big Deal: Getting M&A Right from Pre-Deal Through Post-Deal The most successful companies at capturing value through M&A “ensured integration was placed at the heart of the merger process, with a detailed plan put in place at the outset.” – The Point, The Big Deal: Getting M&A Right from Pre-Deal Through Post-Deal Integration Planning Target Screening Corporate Strategy/ Portfolio Planning This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/mergers-acquisitions-best-practices-738
  • 9. 24 Deal Phase: Key Activities Leading companies conduct extensive due diligence activities, assess multiple financing options, develop negotiation strategies, and thoroughly prepare for closing Post-Deal Phase Deal Phase Pre-Deal Phase • Determine financial value drivers • Determine valuation range • Develop a checklist of areas that must be evaluated • Perform due diligence activities (e.g., accounting, legal, patent, environmental) • Determine key deal terms, e.g., length of deal, terms of agreement • Structure deal financing (cash, debt, stock) • Determine how finances will be provided • Organize access to capital markets • Understand background and incentives of the other side • Understand value that might be paid by a third party • Establish negotiation strategy • Conduct due diligence • Reach agreement on final terms • Review transaction financial implications • Draft contract language • Sign contract • Close agreement ClosingNegotiations Deal Structuring/ Financing Due Diligence Valuation This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/mergers-acquisitions-best-practices-738
  • 10. 27 Deal Phase: Due Diligence Leading companies begin due diligence as soon as a target has been identified and continue the process past closing Best Practices • Begin due diligence process as soon as an acquisition opportunity is sensed • Create Due Diligence Team • Answer three questions during initial state of due diligence: 1. Is it in our stockholders’ interest to own and operate this company? 2. How much is it worth? 3. Can we afford it? • Assess and examine target’s management • Assess advantages and disadvantages of merger/acquisition relative to other potential competitors (assessment should include the long-term cost of losing the opportunity to a competitor) • Conduct due diligence up to, through, and beyond closing “Unsurprisingly, the eyes of many senior managers tend to glaze over (during due diligence), and they leave the job to business development staff, line managers, accountants, lawyers, and bankers. But that boredom is dangerous: acquirers have wiped out more value off their market capitalization through failures in due diligence than through lapses in any other part of the deal process.” – HBR, The Fine Art of Friendly Acquisition “Unsurprisingly, the eyes of many senior managers tend to glaze over (during due diligence), and they leave the job to business development staff, line managers, accountants, lawyers, and bankers. But that boredom is dangerous: acquirers have wiped out more value off their market capitalization through failures in due diligence than through lapses in any other part of the deal process.” – HBR, The Fine Art of Friendly Acquisition ClosingNegotiations Deal Structuring/ Financing Due Diligence Valuation This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/mergers-acquisitions-best-practices-738
  • 11. 30 Deal Phase: Closing Leading companies conduct extensive preparations to ensure a speedy, smooth and successful closing Source: The Art of M&A Best Practices • Prepare for the possibility of renegotiations • Have the attorney prepare a comprehensive closing checklist in advance of closing. Checklist should: – Set forth each task that must be completed in order for the parties to be legally and logistically ready to consummate the transaction and the date by which such task must be completed – State the document in which the completion of the task will be embodied – Set forth the name of one or more persons responsible for the task • Conduct a pre-closing drill no earlier that three days prior to closing and no later than the night prior to closing – Counsel for the parties conduct the drill, clients and other persons will be present as needed – Each party places the closing documents on the closing room table to ensure documents embody the conditions to closing • Prioritize unresolved issues • Agree in advance to the new procedures, paperwork, and timing of how to operate the business after closing the deal • Minimize the time between signing and closing the deal If dealmakers master nothing else, they need a good sense of how to close. - The Art of M&A If dealmakers master nothing else, they need a good sense of how to close. - The Art of M&A ClosingNegotiations Deal Structuring/ Financing Due Diligence Valuation This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/mergers-acquisitions-best-practices-738
  • 12. 33 Post-Deal Phase: Key Activities Leading companies employ continual communication, emphasize speed, address cultural issues and record all acquired mergers and acquisition knowledge Post-Deal Phase Deal Phase Pre-Deal Phase Manage Transition Plan Post Integration Activities Integrate Operations Mobilize • Prepare the organization for the upcoming changes • Develop and launch the communication plan • Develop ‘First 100-Days’ action plan • Create a detailed transition & implementation plan • Create and execute the transition & integration plan • Execute the communication plan • Reevaluate target environment to identify gaps • Assess integrated operations • Define high priority initiatives • Refine transition & integration plan • Develop 3- and 1-year plans Announcement This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/mergers-acquisitions-best-practices-738
  • 13. 36 Post-Deal Phase: Integration Leading companies quickly define the new business model and execute against the significant value drivers while continually addressing internal and external issues during the integration process Best Practices Senior Management executes quickly in these three areas: 1. Defining the new business model: unify strategic direction, establish value drivers, develop new operating model, set clear targets, success factors, accountabilities, and performance incentives 2. Resolving uncertainty and conflicts: select and appoint senior management, embrace top performers, communicate to get employee buy-in 3. Responding to external pressures: sell deal to key customers, communicate with external stakeholders, keep regulators satisfied With respect to ‘winners’ of large acquisitions from 1993 to 1998, “key areas, like leadership, brands and compensation systems, were integrated within six months of the deal”. – The Point, The Big Deal: Getting M&A Right from Pre-Deal Through Post-Deal With respect to ‘winners’ of large acquisitions from 1993 to 1998, “key areas, like leadership, brands and compensation systems, were integrated within six months of the deal”. – The Point, The Big Deal: Getting M&A Right from Pre-Deal Through Post-Deal Announcement Manage Transition Plan Post Integration Activities Integrate Operations Mobilize This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/mergers-acquisitions-best-practices-738
  • 14. 39 Post-Deal Phase: Manage Transition Best Practices • Recognize speed is critical to transition and integration success • Ensure senior management is highly visible in the communications process • Keep cultural issues at the forefront of the integration process: implement group meetings, attempt to integrate staff at an early stage • Communicate on-going business news and have multiple and easy-access feedback mechanisms • Pace integration efforts by business area depending upon business priorities and needs • Make tough decisions quickly with best available data and move on The longer integration takes, the further one gets from business as usual. M&A creates uncertainty throughout the organization, and the longer uncertainty exist the higher the risk of losing employees and customers. – XYZ Research The longer integration takes, the further one gets from business as usual. M&A creates uncertainty throughout the organization, and the longer uncertainty exist the higher the risk of losing employees and customers. – XYZ Research Leading companies employ calculated speed, focus significant time and resources on communication directed towards all affected parties, and proactively address cultural issues in order to improve transition success Announcement Manage Transition Plan Post Integration Activities Integrate Operations Mobilize This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/mergers-acquisitions-best-practices-738
  • 15. 42 M&A People: Overview Integration Team Board of Directors President (CEO) Due Diligence Team M&A Core Team M&A Teams Executives Mergers and acquisitions involve three integrated teams with ongoing and continual Executive interaction This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/mergers-acquisitions-best-practices-738
  • 16. 45 M&A People: Due Diligence Team Characteristics of Leading Due Diligence Teams • Created during target screening • Composed of experts in operations, human resources, finance, tax, business development, technology • Develop deepest knowledge of the target • Develop best insight into integration • Often become part of the Integration Team The due-diligence team must consider the operations, capabilities and leadership of the target organization as critical input to screening for selection. – The Point, The Big Deal: Getting M&A Right from Pre-Deal Through Post-Deal The due-diligence team must consider the operations, capabilities and leadership of the target organization as critical input to screening for selection. – The Point, The Big Deal: Getting M&A Right from Pre-Deal Through Post-Deal Leading companies create a Due Diligence Team as soon as a target has been identified and isolated in order to spearhead the evaluation efforts “Lack of good M&A due diligence is a leading cause of poor postmerger financial performance and a major reason for postmerger lawsuits against officers and directors.” – The Art of M&A “Lack of good M&A due diligence is a leading cause of poor postmerger financial performance and a major reason for postmerger lawsuits against officers and directors.” – The Art of M&A This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/mergers-acquisitions-best-practices-738
  • 17. 48 M&A People: Case Study GE and General Cable attribute the success of recent acquisitions to recognizing the importance of integration activities and positioning the right people in the right roles Making the Deal Real: How GE Capital Integrates Acquisitions During GE Capital’s acquisition of Gelco, GE Capital’s largest acquisition at that time, the role of Integration Manager was created. The manager “brought groups of people from GE Capital and Gelco together in work session to develop common plans; he oriented the new team to GE Capital’s requirements; he made sure that the soft sides of the integration (such as communication and benefits) were taken into account: and he counseled Gelco’s senior managers about how to succeed in GE Capital.” The integration with Gelco went so well that the Integration Manager become a permanent role. - Harvard Business Review, January 1998 Integration Managers During General Cable’s acquisition of BICC’s $1.8 billion worldwide energy-cable and cable-systems businesses, the integration manager was given a clear mandate, “move the integration process forward as fast as possible so the new company could get a running start the day after the deal’s close – in just six weeks.” “Once the acquisition officially closed, the need for speed remains, or even accelerates. One of BICC General’s main goals in the first 100 days was to achieve a $12 million annualized cost savings from its North American operations…Thanks in large part to (the Integration Manager’s) facilitation, the North American operations exceeded its $12 million cost-reduction goal in that first 100 days. And based on that success, the company decided to accelerate its system integration work. By the end of 1999, just six months after the deal had closed, General Cable and BICC’s former North American operations had become a fully integrated company.” - Harvard Business Review, December 2000 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/mergers-acquisitions-best-practices-738
  • 18. 51 M&A and L&BD: Similarities M&A and L&BD follow virtually identical processes for opportunity screening • Corporate strategy: Although encompassing different transaction activities, both M&A and L&BD support the corporate strategy by augmenting business development with external opportunities • Opportunity/target screening: When screening for a possible opportunity, M&A and L&BD follow a similar process (locate, assess and understand, evaluate, and close) • Business Area and Functional support: Assessment, evaluation and integration activities for M&A and L&BD rely on significant support from Business Area and Functional expertsThis document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/mergers-acquisitions-best-practices-738
  • 19. 54 APPENDIX (1 of 2) Resources • Bekier, Matthias, Anna Bogardus and Tim Oldham, “Why mergers fail,” The McKinsey Quarterly, November 2001. • Carey, Dennis, “Lessons from Master Acquirers: A CEO Roundtable on Making Mergers Succeed,” Harvard Business Review, May 2000. • Copeland, Thomas, Tim Koller and Jack Murrin, Valuation: Managing and Measuring the Value of Companies, 3rd Edition. • Dinkin, David and Anita O’Connor, “The Big Deal: Getting M&A Right from Pre-Deal Through Post- Deal,” The Point, April 2001. • Fubini, David, “After the merger,” The McKinsey Quarterly, 2000 Number 4. • Harvard Business Review on Mergers and Acquisitions, 2001. – Aiello, Robert and Michael Watkins, “The Fine Art of Friendly Acquisition,” November 2000. – Ashkenas, Ronald, Lawrence DeMonaco, and Suzanne Francis, “Making the Deal Real: How GE Capital Integrates Acquisitions,” January 1998. – Ashkenas, Ronald and Suzanne Francies, “Integration Managers,” November 2000. – Eccles, Robert, Kersten Lanes, and Thomas Wilson, “Are You Paying Too Much for That Acquisition,” July 1999. – Light, David, “Who Goes, Who Stays,” January 2001. – Rappaport, Alfred and Mark Sirower, “Stock or Cash?: The Trade-Offs for Buyers and Sellers in Mergers and Acquistions,” November 1999. This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/mergers-acquisitions-best-practices-738
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