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Access Kit Final

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  • 1. Mergers & Acquisitions in Nigeria “How Not To Go Wrong” An Access Kit From the December 15 & 16, 2004 Workshop and Learning Café Eko Hotels & Suites, Victoria Island, Lagos Central Bank of Nigeria Securities & Exchange Commission Aina, Blankson & Co. Roundtable International, Inc. Compiled by: The Roundtable International, Inc.
  • 2. The Roundtable International, Inc. “Developing World Class Performance in People, Teams, Communities and Organizations” Our Intentions As our perception of the world shifts from a stable orderly model to a change- driven, unpredictable one, we all struggle with uncertainty and increasing demands the new world, and new local, order brings. It is from engaging the unpredictable that the truly new emerges. The creation of the truly new requires performance that is world-class. How do you develop world- class performance in people, teams, communities and organizations? The answer is The Roundtable International – a network of “organized intelligence” providing professional consulting services. Our client base includes governments, civic entities, large and medium sized national and international organizations. Our practice forges the seamless interplay between strategy, processes, technology, people, organization and culture within the context of design, execution, and support. We begin each engagement with you by getting a “hands on” education on your organization and its people. This helps us understand issues specific to your organizations as well as to recognize general issues faced by all organizations and their stakeholders. In this way, you can apply hard earned lessons from another Roundtable International engagement. Our Areas of Specialization The Roundtable International offers professional consulting services in three target areas: mergers and acquisitions, the growth of small and medium size enterprises, and the development of a vibrant local economy. In the context of these three areas, we specialize in: Strategy Formulation, Execution, and Evaluation -- We help establish strategies that set the rule-changing direction for the organization and its industry while internalizing changing environmental dynamics. Leadership and Organizational Development: We help to build generative leadership and organizational culture that presents an arena for creativity and cooperation. This functions within a structure that effectively blends hierarchy with a collaborative process of cross- functional problem solving, personal and organizational growth. Corporate Governance, Restructuring and Turnaround: In governance, we help to establish the framework of rules and regulations that enable stockholders to exercise appropriate corporate oversight. In restructuring, our work promotes efficiency to restore growth. In turnaround’s we analyze the reasons for corporate decline, establishing the key factors in turnaround success and coaching for regaining growth and profitability. (Continued on page 39) © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com
  • 3. The Access Kit, 2005 Table of Contents: IINTRODUCTION TO THE ACCESS KIT..........................................................................1 STRATEGY........................................................................................................................3 Phase I: Strategy Due Diligence...................................................................................................... 3 Questions to Continuously Ask ..................................................................................................... 3 Best Practice to Apply ................................................................................................................... 3 Current ....................................................................................................................................... 3 What We Need Help With............................................................................................................. 3 Phase II: Business Integration of Strategy .................................................................................... 3 Best Practices to Apply.................................................................................................................. 3 Phase III: Business Building for Growth of Strategy................................................................... 3 Questions to Continuously Ask ..................................................................................................... 3 Best Practices to Apply.................................................................................................................. 4 Current ....................................................................................................................................... 4 Emerging or Requested Practice................................................................................................ 4 EXECUTIVE LEADERSHIP...............................................................................................5 Phase I: Due Diligence of Leadership ............................................................................................ 5 Questions to Continuously Ask ..................................................................................................... 5 Best Practice to Apply ................................................................................................................... 5 Current ....................................................................................................................................... 5 Emerging or Requested Practice................................................................................................ 5 Phase II: Leadership During Integration ..................................................................................... 5 Questions to Continuously Ask ..................................................................................................... 5 Best Practice to Apply ................................................................................................................... 5 Current ....................................................................................................................................... 5 What We Need Help With............................................................................................................. 6 Phase III: Leadership During Business Building.......................................................................... 6 REGULATORY ..................................................................................................................7 Phase I: Due Diligence of Regulatory and Compliance................................................................ 7 Questions to Continuously Ask ..................................................................................................... 7 Best Practice to Apply ................................................................................................................... 7 Current ....................................................................................................................................... 7 What We Need Help With............................................................................................................. 7 Phase II: Regulatory and Compliance During Integration ......................................................... 8 Questions to Continuously Ask ..................................................................................................... 8 © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com i
  • 4. The Access Kit, 2005 Best Practice to Apply ................................................................................................................... 8 Current ....................................................................................................................................... 8 What We Need Help With............................................................................................................. 8 Phase III: Regulatory and Compliance During Business Building for Growth......................... 8 Questions to Continuously Ask ..................................................................................................... 8 Best Practice to Apply ................................................................................................................... 8 Current ....................................................................................................................................... 8 What We Need Help With............................................................................................................. 9 STOCK EXCHANGE REQUIREMENTS..........................................................................10 Phase I: NSE Requirements During Due Diligence.................................................................... 10 Questions to Continuously Ask ................................................................................................... 10 Best Practice to Apply ................................................................................................................. 10 Current ..................................................................................................................................... 10 Phase II: NSE Requirements During Integration....................................................................... 10 Questions to Continuously Ask ................................................................................................... 10 Best Practice to Apply ................................................................................................................. 10 Phase III: NSE Requirements for Business Building for Growth............................................. 10 DOCUMENTATION .........................................................................................................11 Phase I: Documentation During Due Diligence........................................................................... 11 Questions to Continuously Consider ........................................................................................... 11 Best Practice to Apply ................................................................................................................. 11 What We Need Help With........................................................................................................... 11 Phase II: Documentation During Integration ............................................................................. 11 Questions to Continuously Ask ................................................................................................... 11 Best Practices to Apply................................................................................................................ 11 Phase III: Documentation During Business Building for Growth ............................................ 12 NEGOTIATION AND DISPUTE MANAGEMENT ............................................................13 Phase I: Negotiation and Dispute Management During Due Diligence.................................... 13 Questions to Continuously Ask ................................................................................................... 13 Best Practice to Apply ................................................................................................................. 13 Current ..................................................................................................................................... 13 What We Need Help With........................................................................................................... 13 Phase II: Negotiation and Dispute Management During Integration....................................... 13 Questions to Continuously Consider ........................................................................................... 13 Best Practice to Apply ................................................................................................................. 14 Current ..................................................................................................................................... 14 © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com ii
  • 5. The Access Kit, 2005 Phase III: Negotiation and Dispute Management During Business Building .......................... 14 Questions to Continuously Ask ................................................................................................... 14 Best Practice to Apply ................................................................................................................. 14 Current ..................................................................................................................................... 14 Emerging/Requested Practice.................................................................................................. 14 CAPABILITIES AND CORE COMPETENCIES...............................................................15 Phase I: Capabilities, Core Competencies During Due Diligence............................................. 15 Questions to Continuously Ask ................................................................................................... 15 Best Practice to Apply ................................................................................................................. 15 Phase II: Capabilities, Core Competencies During Integration................................................ 15 Questions to Continuously Ask ................................................................................................... 15 Best Practice to Apply ................................................................................................................. 15 Current ..................................................................................................................................... 15 Emerging or Requested Practice.............................................................................................. 16 Phase III: Capabilities, Core Competencies During Business Building ................................... 16 SYSTEMS AND TECHNOLOGY .....................................................................................17 Phase I: Systems, Technology During Due Diligence ................................................................. 17 Questions to Continuously Ask ................................................................................................... 17 Best Practices to Apply................................................................................................................ 17 Current ..................................................................................................................................... 17 What We Need Help With........................................................................................................... 17 Phase II: Systems, Technology During Integration.................................................................... 17 Questions to Continuously Ask ................................................................................................... 17 Best Practices to Apply................................................................................................................ 17 Current ..................................................................................................................................... 17 Emerging or Requested Practice.............................................................................................. 17 What We Need Help With........................................................................................................... 17 Phase III: Systems, Technology During Business Building for Growth................................... 18 Questions to Continuously Ask ................................................................................................... 18 Best Practice to Apply ................................................................................................................. 18 Current ..................................................................................................................................... 18 Emerging or Requested Practice.............................................................................................. 18 What We Need Help With........................................................................................................... 18 VALUATION ....................................................................................................................19 Phase I: Valuation During Due Diligence.................................................................................... 19 Questions to Continuously Ask ................................................................................................... 19 Best Practice to Apply ................................................................................................................. 19 Current ..................................................................................................................................... 19 © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com iii
  • 6. The Access Kit, 2005 What We Need Help With........................................................................................................... 19 Phase II: Valuation During Integration....................................................................................... 19 Questions to Continuously Ask ................................................................................................... 19 Best Practice to Apply ................................................................................................................. 20 Current ..................................................................................................................................... 20 What We Need Help With........................................................................................................... 20 Phase III: Valuation During Business Building for Growth...................................................... 20 CORE VALUES ...............................................................................................................21 Phase I: Due Diligence of Core Values......................................................................................... 21 Questions to Continuously Ask ................................................................................................... 21 Best Practice to Apply ................................................................................................................. 21 Current ..................................................................................................................................... 21 Phase II: Core Values During Integration................................................................................... 21 Questions to Continuously Ask ................................................................................................... 21 Best Practices to Apply................................................................................................................ 21 Current ..................................................................................................................................... 21 What We Need Help With........................................................................................................... 22 Phase III: Core Values During Business Building for Growth.................................................. 22 Questions to Continuously Ask ................................................................................................... 22 Best Practice to Apply ................................................................................................................. 22 Current ..................................................................................................................................... 22 CULTURAL ALIGNMENT ...............................................................................................23 Phase I: Culture Alignment During Due Diligence .................................................................... 23 Questions to Continuously Ask ................................................................................................... 23 Best Practice to Apply ................................................................................................................. 23 Current ..................................................................................................................................... 23 What We Need Help With........................................................................................................... 23 Phase II: Culture Alignment During Integration ....................................................................... 23 Best Practice to Apply ................................................................................................................. 23 What We Need Help With........................................................................................................... 23 Phase III: Culture Alignment During Business Building for Growth ...................................... 24 Questions to Continuously Ask ................................................................................................... 24 Best Practice to Apply ................................................................................................................. 24 What We Need Help With........................................................................................................... 24 HIDDEN MESSES............................................................................................................25 Phase I: Due Diligence of Hidden Messes.................................................................................... 25 © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com iv
  • 7. The Access Kit, 2005 Questions to Continuously Ask ................................................................................................... 25 Phase II: Integration of Hidden Messes....................................................................................... 25 Phase III: Business Building with Hidden Messes...................................................................... 25 CONTINUOUS CHANGE PROCESS ..............................................................................26 Phase I: Due Diligence of the Continuous Change Process........................................................ 26 Questions to Continuously Ask ................................................................................................... 26 Best Practice to Apply ................................................................................................................. 26 Phase II: Integration of the Continuous Change Process .......................................................... 26 Best Practice to Apply ................................................................................................................. 26 THE MERGER ROLE PLAY............................................................................................27 Pre-Meeting Work – What to do Before a First Meeting ............................................................ 27 Issues Not Discussed in Role Play............................................................................................... 27 Advice from Audience................................................................................................................. 28 Next Challenges After the First Meeting..................................................................................... 28 Observation from Roundtable International ................................................................................ 28 Top Five Issues in order of Importance....................................................................................... 29 PARTICIPANT LEARNING PRIORITIES ........................................................................30 Formulating and Executing Strategy........................................................................................... 30 Leadership Process for Continuous Change ............................................................................... 31 Core Values, Agreements and Culture ........................................................................................ 31 Valuation and Financials............................................................................................................... 32 Regulatory and Documentation.................................................................................................... 33 Disputes and Mediation................................................................................................................. 33 Technology, Core Competence and Systems............................................................................... 34 Hidden Messes or yet to be Categorized...................................................................................... 35 THE TRUTH ABOUT MERGERS & ACQUISITIONS......................................................36 RECOMMENDATIONS FROM THE WORKSHOP CONSULTANT TEAM.....................37 Need for a Comprehensive Approach: Banking and Business Reform Together ................... 38 © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com v
  • 8. The Access Kit, 2005 Introduction to the Access Kit This is a kit to guide the mergers and acquisitions (M&A) of Nigerian banks. The contents of this kit come from the collective intelligence of 90 participants in a two-day workshop in Lagos Nigeria, on December 15 and 16, 2004. The 90 workshop participants were executives from thirty-five Nigerian banks. This group is a representative sample (39%) of Nigeria’s banking industry, which has 89 banks in the country. This kit is a by-product of their thoughts, issues and concerns – a realistic, up to the minute environmental scan of Nigerian banks taken from the pulse of the primary stakeholders – bankers charged with the daunting, and somewhat Herculean task, of complying with a twenty five billion naira capitalization by December 31, 2005. The focus of the access kit is less on content and more on context. It is not developed with a cookie cutter “one size fits all” mentality but rather with the intention of developing a practical, innovative and actionable approach to the current M&A climate in Nigeria. Innovation is a continuous process of asking questions. Questions are more important than the answers. To innovate and become profitable over the long term, the right questions need to be asked about the critical elements and phases associated with mergers and acquisitions. This approach serves two purposes: 1. It affords the banks the luxury of solving their own problems without subjecting themselves to the push and pull of circumstances occasioned by the CBN mandate. 2. It provides the regulatory organizations with the data and feedback they need in order to create an enabling environment consistent with the growth and development of a financial sector, which will facilitate the economic development strategy of Nigeria. A merger or acquisition has three phases. Each phase may vary in time and take years to complete depending on the state of readiness, organizational know-how and the strategic orientation of the parties involved. Phases I through III may even require ten to twelve years to complete, with each phase setting the ground for the next phase. Phase I: Due Diligence, given the timeframe set by the CBN will be accelerated rapidly over the next 9 months. Phase II: Integration, may require three to four years. Phase III: Business Building, may take five to seven years. © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 1
  • 9. The Access Kit, 2005 Each group of banks will need a multi-year, action and learning plan, to guide the evolution of the merged entity through three lengthy and intense phases. This kit is an access tool for you to extract the questions, practices and needs that will form your customized plan for action and learning. You can engage a professional services firm to get the specific practices you will require to complete your action and learning plan. This kit does not include every complete tool required and ready to apply. Rather, it provokes you to think about all the complex activities and issues to confront in a merger or acquisition process. There are thirteen elements to address in a complete merger and acquisition process. Some are hard, but most are softer issues. Each element has to be addressed in each of the four processes (search; screen; critical evaluation; and integration of strategy, culture and processes) and three phases of mergers and acquisitions. Each phase has three components relative to each of the thirteen elements: 1. Questions to Continuously Ask: Question and quest have the same root. The right questions that fit your circumstances will go a long way to a more successful merger or acquisition. 2. Best Practice to Apply: Practice is what you are able to consistently do with knowledge. Best means without equal or at least a limited number of equals. The practice section has current practices, which are known to participants, and emerging or requested practices, which are yet to evolve to be best, but there is some knowledge and evolving practice. Requested usually means an authority, e.g., CBN, has to act on it. 3. What We Need Help With includes the declarations of need where there is little knowledge in the room of 90 bankers or the issue presents an arduous, complex task. Please note: Before the participants brainstormed on each element of the toolkit, there was a presentation of best practice of that particular tool kit element by an expert. Some sections in this kit are blank as there was no discussion on it in the workshop. In some cases, café tablecloths were left blank. © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 2
  • 10. The Access Kit, 2005 Strategy Phase I: Strategy Due Diligence Questions to Continuously Ask 1. Is increasing market share the reason for the acquisition/merger? 2. Is expanding the business the reason for the acquisition/merger? 3. Is expanding the customer base the reason for the acquisition or merger? 4. Hold a vision of where you want to go as the result of a merger or acquisition: What kind of bank do you want after the merger? Hence, you need to answer the basic questions of SWOT, mission statement, vision, goals/ objectives, resources, consultant expertise required (internal or external), time-frame, culture (who do you want to stay and go), values, merger of equals or acquisition, and compliance with regulatory requirements (SEC, BV, CAC, FIIR etc.) Best Practice to Apply Current Appoint consultant (s) with regard to expertise and skills and use a consultant and client collaboration Work with team from banks Identify and work with resistance to change Prepare a structured terms of reference for assignment Determine outcomes required in the report What We Need Help With Phase II: Business Integration of Strategy Best Practices to Apply Rationalise products and services in line with strategy Products/niche – Corporate, retail, HNI, Commercial Phase III: Business Building for Growth of Strategy Questions to Continuously Ask 1. What is the effect on the financial system? 2. In the case of failure of mergers, what happens? 3. The social cost: how are the costs cushioned? 4. The danger of forced marriages is clear and present: How do we prevent false marriages? © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 3
  • 11. The Access Kit, 2005 5. How do we properly identify where the business stands today, and where it intends to be in future? 6. There is difficulty in achieving a change of mindset? 7. Continuity of the business is a thought to keep bringing to the table. 8. Who decides best practice/culture, in terms of organization yet to be defined? Best Practices to Apply Current Concentrate on the core business. Employ consultants to create the environment for efficiency with objectivity as key. External consultants and facilitators add value to a cohesive team that desires to become cohesive. Best practices mean different things to different people -- leaders and organisations. Therefore, institutionally agreed and harmonized practices are more relevant than “best” practices at the integration stage. Who decides what is a best practice, the acquirer or a consultant? Institutionalize corporate governance by defining roles for board and management. Install checks and balances for management and the board. Need for strategies to handle boardroom squabbles (Dispute Resolution). Change mindset so the combined interests of the organisation to be created, outweigh the interests of the individual promoters/shareholders. New organization with independence and adaptability. Use a hybrid of corporate and entrepreneurial mindset. Healthy banks need the best of both skills. Best practices in leadership tend to incorporate consultation at al levels in decision-making process. Businesses are more consumer-oriented and banks must adapt this practice Outsourcing, but only when it is prudent relative to cost and control. Emerging or Requested Practice Definition of the vision/mission of businesses Identifying strategies to accomplish them Implementing identified and formulated strategies Notes: © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 4
  • 12. The Access Kit, 2005 Executive Leadership Phase I: Due Diligence of Leadership Questions to Continuously Ask 1. Corporate Governance Issue: Status of compliance with governance policies. Best Practice to Apply Current Practice-based guides to assess hidden messes, average age of staff, educational levels, dispute-resolution systems, customer complaint, staff disciplinary system, performance evaluation. Emerging or Requested Practice Define the policy positions on each item listed above that will be applicable to the new organizations: MRM Policy, staff welfare, career planning, performance evaluation, exit strategy for staff. Phase II: Leadership During Integration Questions to Continuously Ask 1. Who is this leader? On the other hand, is he a micro-manager? 2. What are his strengths and weaknesses? 3. What are the basics: emotional intelligence, passion for risk, self-regulating? 4. What kind of leader do we need? What is the model of leadership? Does it include: alignment with mission, values, core business strategy, focused niche? 5. What is the vision of the merged bank? What is the strategy of the new bank? 6. How do we manage differences (diversity in the emerging entity)? How do we manage differences in the emerging entity? How do you lead contending forces? Best Practice to Apply Current Define corporate vision, mission and values of the entity. Define organizational structure for the new entity. Identify leadership competencies required in the new entity: What kind of leadership is needed? Is it an., extroverted, entrepreneurial leader, visionary leader, participative, technical competence, or emotional intelligence? Concerning a model (criteria), what are the variables; self – awareness, self-regulating / control, social skill – managing people, motivation –self-driven, inner core, empathy? Does it involve a model of leadership for the emerging bank, highly experienced (apply regulatory policies.) or versatile – have the most © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 5
  • 13. The Access Kit, 2005 functional experience in at least three major areas of banking, and can tell the bank’s story, articulate core competence and has experience in the proposed area of focus? Role of executive in business integration: Define vision and mission, define operational structure, define new corporate culture, manage acculturation, manage internal communication, and provide direction for selection criteria of partners. What We Need Help With Helping leadership address cultural clashes Dealing with employees of perceived weaker institutions Phase III: Leadership During Business Building No discussion at workshop. Notes: © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 6
  • 14. The Access Kit, 2005 Regulatory Phase I: Due Diligence of Regulatory and Compliance Questions to Continuously Ask 1. Should the CBN subsidize the cost of M&A related consultants? 2. How do you deal with unhealthy competition among banks? 3. The role of bank auditors – How do we make them more functional? 4. The external auditors should be more accountable. Whom should we appoint as our external auditors? What should be the criteria for appointment? 5. What criteria should guide the appointment of an audit committee? What is its process? 6. Review of the audit committee process: Should the CBN hold external auditors more accountable 7. What can prevent banks from having multiple books of accounts (N & H)? What should be the date of the financial year-end? Best Practice to Apply Current External credit rating agency’s report, for the individual parties, is necessary. CBN agrees to wave irregularities discovered in financial accounts of banks. Approve the financial year-end of the new entity and the role of auditors. CBN to do closer monitoring in terms of their oversight functions online real time reporting Standardisation of process by the CBN. The appointment and removal of external auditors with the approval of the CBN (Q, EP, & H) Get approval of banking products and subsidiary companies by the CBN. Compliance with post-merger plans as approved by the CBN. There is evidence of implementation for a post-merger plan as approved by CBN. CAC wants statutory returns. What We Need Help With Guidelines should include: Number of customers and number of branches, etc. CBN to set out general guidelines on what to look out for in view of the urgency and the fact that merger is basically, driven by regulations. CBN should set up a dedicated help desk manned by skilled personnel to work with banks / consultants conducting due diligence. Adequate information required for any proper due diligence. Guidelines to spell-out issues such as: technical experts, depth of due diligence and issues to be covered, e.g., cost of engaging experts and the burden of defraying such in its advancement of regulatory examination reports. The report of CBN routine examination of banks made available to banks that have signed MOU’S or confidentiality agreements and ditto for NDIC routine examination reports. © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 7
  • 15. The Access Kit, 2005 NDIC/ CBN: Rather than a yearly audit, CBN should have inspections every other year, closer monitoring, online real-time reporting, standardization of processes, and the right legal processes for qualification of audit committee membership. Phase II: Regulatory and Compliance During Integration Questions to Continuously Ask 1. How do banks move from CBN regulations to self-regulation? 2. Overall how will the banks move to self-regulation? 3. What are the mechanics of the proposed asset management company, owned by government or private sector? Best Practice to Apply Current There should be no duplication of functions. The merged entities should pay the cost of staff to be let go. CBN will be interested in the integration of the consolidation of the bank’s records. CBN will need to ensure healthy competition among banks in the post merger phase. Approved business plan as contained in your scheme documents becomes a benchmark for business integrations and business building. What We Need Help With CBN to ensure proper corporate governance. Banks would like to if they can close down any branches as a result of the merger. Will CBN still continue to interfere with branch network (expansion and rationalization). Business building will require assistance in business development skills by various experts. Phase III: Regulatory and Compliance During Business Building for Growth Questions to Continuously Ask 1. What are the guidelines on dispute resolution? Best Practice to Apply Current Apply an exit strategy for staff that will leave. How to avoid the stripping of assets. Corporate governance. Core values. Full disclosure- transparency (information must be made available). All information is gathered and screened to the test of transparency. Monitoring that involves proper authentication of regulatory documentations. © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 8
  • 16. The Access Kit, 2005 Inspection that is both inside and outside. Timeframe for due diligence should be extended to enable all parties to comply with the relevant statutes. Compliance Issues: Reviews of SEC, CBN, NSE, CAC (BP). Guidelines on the resolution of people issues, e.g., severance benefits and exit packages. Dispute resolution. SEC should ordinarily clear registration, which provides for detailed background information on merging parties. What We Need Help With Systems, process and dispute resolution. Notes: © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 9
  • 17. The Access Kit, 2005 Stock Exchange Requirements Phase I: NSE Requirements During Due Diligence Questions to Continuously Ask 1. Has the merging partner met listing requirements? 2. How to meet SEC and CBN requirements for merger? Best Practice to Apply Current Post-listing requirements to date. List of shareholders holding more than 5% in a merger. Account submission quarterly. Inform the Exchange of change in board management. Inform the Exchange of board meeting. Inform the AGM and EGM. NSE wants: listing requirements for floatation. Compliance with SEC Rules for listed companies. Register. Phase II: NSE Requirements During Integration Questions to Continuously Ask 1. How do you value the shares of unquoted companies that are merging with quoted ones and how do you ensure that both partners have a fair value? 2. What are the appropriate methods of determining share values for two merging institutions? Best Practice to Apply De-listing of one or both companies merging and listing of the emerging company where applicable. Consolidation of accounts of the merged companies. Share pricing as it has to do with the Stock Exchange. The Stock Exchange provides the platform where the Securities of merged companies is stated. Formally, list the stock of the new company. Seek approval for the new company and get it licensed. Phase III: NSE Requirements for Business Building for Growth No discussion at workshop. © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 10
  • 18. The Access Kit, 2005 Documentation Phase I: Documentation During Due Diligence Questions to Continuously Consider Best Practice to Apply List of pending litigations, list of collaterals, software verification, and management. Accounts of the merging companies, verification and searches (land and properties); get external consultants to do the verifications and searches, details of tangible properties. (Assets), certificate of incorporation – pre- merger, articles and memorandum- post-merger; 5- year financial reports of the merging companies; 2-3 years projection of the companies and scheme documents. Certified true copy of court ordered meetings, list of directors and top management of merging groups list of shareholders, list of staff (staff strength), verification of shareholders fund, minutes of board meetings, and minutes of management meetings / committees. Lists of contracts/agreements (audit committees), list of creditors’ obligations, contingencies, risk assets, portfolios. What We Need Help With List of intellectual properties. Phase II: Documentation During Integration Questions to Continuously Ask Best Practices to Apply FHC Rules SEC Regulations - Nigerian Stock exchange - CAMA CBN rules and regulations Federal Ministry of Commerce & Industries, e.g., registration of Logo’s for new identity. Due diligence check Transparency Accountability: Implementation of corporate governance principles Harmonization of products Training and retraining of employees Technology integration Manual of operating procedures Procedure for integrating various units of the organization Manual of training Diagram/organizational chart of the organization Harmonization of operational manual © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 11
  • 19. The Access Kit, 2005 Management succession plan Harmonization of succession plan at all levels Building of the human resource manual Harmonization of human resource policy Phase III: Documentation During Business Building for Growth No discussion at workshop. Notes: © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 12
  • 20. The Access Kit, 2005 Negotiation and Dispute Management Phase I: Negotiation and Dispute Management During Due Diligence Questions to Continuously Ask 1. What are the areas we expect to have disputes? 2. Do we have a structure to address the listed disputes? 3. What do we do about disclosure issues, e.g., wrong valuation? 4. What do we do about dissenting shareholders (SEC position on dissent)? 5. Is there culture compatibility, internally? 6. In the negotiations, what are the things you do not want to let go of: Branches, leadership? 7. In the negotiations what are the things you can compromise: Culture, people, physical assets, align the financials, decide the IT platform and software, and synchronize accounting records. Best Practice to Apply Current Include arbitration clause in all legal agreements (Mediation), (MADREP) Systems compatibility for IT and process Placement of staff and management in the merged organization There is an emerging trend towards mediation: All disputes can be resolved by mediation. There is a cultural inhibition to mediation in modern commercial transactions. Assets/liabilities: Age analysis; near cash Analysis of positions and people fit Branch locations determined by market forces One accounting system What We Need Help With Human capital: External consultants required to determine who should go from the merged banks after establishing bench mark for skills, character, etc. Human capital – Skills, performance evaluation, redundancy. Phase II: Negotiation and Dispute Management During Integration Questions to Continuously Consider 1. How do you choose a mediator? 2. How to choose the type of mediation: MADREP, Multi-Door, ICC? 3. How do you integrate mediation and dispute resolution? © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 13
  • 21. The Access Kit, 2005 Best Practice to Apply Current Insert a clause in the MOU or confidentiality agreement, on how to resolve disputes that may arise (negotiation-mediation-arbitration-litigation) Timeframe for any of the tools chosen Draw up a timetable for dispute resolution When to choose a mediator: Ahead of or at dispute Phase III: Negotiation and Dispute Management During Business Building Questions to Continuously Ask 1. Should the meditative role of the Ethics & Professional Sub Committee of the Banker’s Committee be made mandatory? Best Practice to Apply Current Define clear conflict resolution procedures/mechanisms Set up internal conflict resolution team in advance, so it is ready to go when needed Dispute resolution clauses (ADR) should be inserted in all agreements between the organisation or third parties, whether formal or informal agreements, offer letter, loan agreements, account opening, documents, LPO’s, service agreements Emerging/Requested Practice There must/should be legal sector/judicial reform Commercial courts be established nationwide Establish multi-door courthouses nationwide Establish specialized courts Notes: © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 14
  • 22. The Access Kit, 2005 Capabilities and Core Competencies Phase I: Capabilities, Core Competencies During Due Diligence Questions to Continuously Ask 1. Can the gap in skill, knowledge, know-how be easily bridged? 2. What are the types of technology that exist? 3. What knowledge is required to drive the new organization? 4. What type of competitive compensation structure should be in place to attract and retain best hands in the industry? Best Practice to Apply Establish goals and objectives for added capacity in IT, skills and rules Identify gaps – what is vs. what is required Carry out capacity/resources audit; identify resource persons Identification and evaluation of current recruitment trends/process, e.g., key capabilities to be developed by external recruiters, and bank recruitment and training. Phase II: Capabilities, Core Competencies During Integration Questions to Continuously Ask 1. How do we learn to always be asking the right question, at the right time? 2. Could the various IT infrastructures co-exist or harmonize? 3. Do the people have required competence? 4. How could the various culture be harmonized or develop a new culture entirely? 5. How do we learn to harmonize coalitions within branches? Best Practice to Apply Current Analyzing the strength and weaknesses of the branches Product harmonization and re-branding New product development process Staff-audit to identify areas of need Re- orientation and training of staff Effective communication Harmonizing policies and procedures Competitive remuneration Structure for staff retention Harmonization of IT infrastructures © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 15
  • 23. The Access Kit, 2005 Emerging or Requested Practice Capacity development areas to consider: IT skills and technology, HR/ people, branch development, product development Formulating integrated strategies and structures Continuous hands-on training Phase III: Capabilities, Core Competencies During Business Building No discussion at workshop. Notes: © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 16
  • 24. The Access Kit, 2005 Systems and Technology Phase I: Systems, Technology During Due Diligence Questions to Continuously Ask 1. How would we assess the effectiveness of the technology system and capabilities? 2. What capabilities do the various systems possess? Best Practices to Apply Current Conduct a system review of the merging entities vis-à-vis the objectives and strategies of each entity What We Need Help With Do an inventory of technology systems for both core and non-core business areas. Appoint consultants to determine the level of compatibility Review current legal agreement of the various institutions with vendors Phase II: Systems, Technology During Integration Questions to Continuously Ask 1. How long is the transition period between when the merger takes place and when a new system has been agreed and deployed? 2. How do we best assess capacity of IT infrastructure to serve merged banks? 3. Which one can support operational efficiency? Best Practices to Apply Current Acquire middleware that will enable the disparate system to shake hands. Software – banking application. Operation system, other applications, networking system. Hardware-PC brand, server HR capabilities – To drive IT functions Use HR capabilities to drive IT functions. Emerging or Requested Practice How do you bridge gaps: Outsourcing or Lease? What We Need Help With Identify IT gaps © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 17
  • 25. The Access Kit, 2005 Phase III: Systems, Technology During Business Building for Growth Questions to Continuously Ask 1. Are there any conflicts that will come up in the merging technologies? 2. Will regulators have an input into the industry? 3. Wide technology in use, e.g., Globus, Flex Cube? 4. Will there be major benefits from outsourcing? Best Practice to Apply Current Adjust new technology to accommodate merging systems with minimal stress Identify ideal post-merger entity desired in order to determine technological system needed; ensure capabilities meet possible future requirements; keep in mind the possibility of acquiring new software and starting again. Evaluate existing capabilities that can be adapted to meet ideal merged entities needs. Assess existing universal competitor trends. Identify and remove any form of stress to the integration of systems. Emerging or Requested Practice Identify preferred systems/universal. Assess whether developing systems will meet our objectives, benefits, problems, costs, implementation, and requirements for utilization. What We Need Help With Human capital is required to drive the “new” post-merger technology system. Training that is hands on and practice-based. Number of people (more of less) will change: How do we do it with the least disruption. Notes: © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 18
  • 26. The Access Kit, 2005 Valuation Phase I: Valuation During Due Diligence Questions to Continuously Ask 1. What methods should be used in valuing the companies? 2. What are the current practice tools: Collect all financial statements of the companies, understand the internal process of the companies, and verify the financial statements? Best Practice to Apply Current Use discounted cash flow method (There is a data gathering constraint) Net asset basis Comparable model Liquidation model Due diligence: full disclosure, transparency, integration of financials, registration of process, status of professional advisers/consultants, guided by business norm, use of consultants to carry out due diligence, consultants must be registered and the registration must be valid throughout the duration of the process; consultants must be familiar with all regulatory requirements must also be familiar with the judicial process. What We Need Help With Appoint competent consultant to advice the companies. Phase II: Valuation During Integration Questions to Continuously Ask 1. What are the key points for growth? 2. What do we consider feasible? 3. How to attract foreign funding/strategic alliances? 4. How to identify the core business focus of the intending merging partners? 5. What are the best practices identified with the areas of comparative advantages of each? 6. Think out of the box: What will the market need? 7. How do we integrate key business building issues of: Business culture, business model and business process system? 8. Think of how best to ensure a business strategy? 9. What are the areas of strength of each bank? © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 19
  • 27. The Access Kit, 2005 Best Practice to Apply Current From the core business focus, establish the competencies of each comparative advantage Will the N25 billion focus on the un-served markets (e.g., consumers business) and retail management and capture at least 2 new Nigerian markets? Evolution of a distinct culture for merged entity 300 branches to have a presence in each local government in Nigeria Deposits and total assets Alternative changes ROA – achieve 10% ROA in 2 years What We Need Help With Local banks to manage foreign resources of Nigeria Get foreign banks to buy into the (mega) new banks Skill acquisition with respect to project finance and structured trade Consumer findings Retail finding on population size Phase III: Valuation During Business Building for Growth No discussion at the workshop. © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 20
  • 28. The Access Kit, 2005 Core Values Phase I: Due Diligence of Core Values Questions to Continuously Ask 1. What is? Or what should be the core values? Obtain in-house documents of values. Verify core values – survey, discussions, observations, actual practice, watch out for conflict situations. 2. Core values are the base from which agreements are crafted. How do we evolve core agreements as agreed to practices in action from values? Best Practice to Apply Current Creative problem solving has to be a core value. Before integration, parties must agree on core values of enlarged entity during negotiations. This means that once you join the company, you abide by terms of the relationship, i.e., core values and non-compliance sanctions. Watch out for areas of conflicts that will block integration. Phase II: Core Values During Integration Questions to Continuously Ask 1. Which values do we hold as core? 2. Should our core values be subject to change or realignment? 3. Should core values be allowed to evolve or be crafted from onset? 4. How do you deal with dominant culture during integration of equals? Best Practices to Apply Current Identify and agree on core values from new vision and mission. Communicate core values internally to work force. Define behaviors expected from values, in detail. Appoint culture champions to jump-start an enterprise wide acculturation process. Build culture toolkits for individual value assessment to measure culture gaps. Conduct training and re-orientation on core values and business processes. Complete staff re-alignment for purposes of retention and or elimination. Deploy post-integration feedback mechanisms. Install performance measurement and appraisal system. Define organizational structure to support overall strategy. Identify manning levels, jobs description and specific staff skills assessment to identify best fit. © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 21
  • 29. The Access Kit, 2005 What We Need Help With There are many new things to learn. Negative reactions and how to deal with them. Establishment of post-integration feedback mechanisms. Cultural misfits, culture shock: How do we deal with it? Articulate policies to address redundancies by using attractive severance benefits, and entrepreneurial skills training, etc. Develop HR policies for merged entities: HR manual, recruitment policies, performance management, career progression. Phase III: Core Values During Business Building for Growth Questions to Continuously Ask 1. What will guide the selection of our technology? 2. What is the best practice and professionalism in excellent corporate governance? How do we actualize professionalism that is proactive, creative and innovative in developing highly skilled and trained staff? 3. How do we build capacity in the brand new organization for a culture of excellence? What do we do about technology with bad capability in a performance-driven organization? 4. What values should guide us in: Human resources, society, resources, people, service, and culture? Best Practice to Apply Current Core values: Excellence in human resources, technology, customer service, presence- national and regional Need to invest in the training of staff and capacity building must be central to the essence of the organization Take banking to the locals with professional banking business, e.g., to combat money laundering: Issues to agree upon are integrity, core values that will build a lasting growth organization, and ethical corporate governance; leadership by example that is highly ethical; compliance that is well defined process and policies for the business, people, and technology Notes: © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 22
  • 30. The Access Kit, 2005 Cultural Alignment Phase I: Culture Alignment During Due Diligence Questions to Continuously Ask 1. How to investigate culture from multiple perspectives: Human resources, performance management, customer relations, core values, products/services management, styles and effective communication strategy? 2. How do you capture the culture of different organizations? Best Practice to Apply Current Carry out surveys with questions that will assess culture. What We Need Help With 1. Engage and retain consultants to capture and investigate the individual culture of the merging entities. 2. Investing in seminars and workshops aimed at imparting the defined culture of the new entity to the workforce as opposed to current practice of the individual institutions doing it their own way based on subjective need. Phase II: Culture Alignment During Integration Best Practice to Apply Avoid the use of legal names during the post merger period to help staff consciously let go of their old cultures. Focus on efficiency of cost. Conduct one-on-one sessions with key staff. Conduct a culture audit. HR Practices: Performance management recruitment, retention policies, appointment of culture integrators/champions, and communicate, communicate, communicate. What We Need Help With Hold a retreat for key department heads to understand the culture of merging companies. Conducting a culture audit to understand the practices of merging companies and identify culture misfits and exit them. Setting standards for the emerging institutions. © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 23
  • 31. The Access Kit, 2005 Phase III: Culture Alignment During Business Building for Growth Questions to Continuously Ask 1. How do we establish a culture of quick and efficient service delivery, customer satisfaction? 2. How to target goals setting? 3. How to reaffirm champions at all levels? Best Practice to Apply Conduct continuous staff re-orientation and training of core values and culture policies that are clearly articulated. Develop HR policies and operations manuals that include disciplinary measures. Create a caring environment that encourages healthy competitiveness and recognizes excellence. What We Need Help With Continually communicate vision, core values mission – through newsletters, weekly info and staff retreats. Performance driven compensation packages, competitive salary, 5 top best paying banks, annual customer survey and feed back, employee surveys. Notes: © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 24
  • 32. The Access Kit, 2005 Hidden Messes Phase I: Due Diligence of Hidden Messes Questions to Continuously Ask 1. What is the psychology of investors when there is no alternative or loss of confidence of customers? 2. Is it possible for merging companies to understand each other? 3. Can most psychological problems be identified at the negotiation stage? 4. Breakdown in communications, dialogue around current regulations – ISA & SEC rules, inconsistencies & confusing regulations and law reform review; ADR mechanism; due diligence transparency; structural re-alignment; frank discussions amongst parties; business re-focusing and repositioning of client; being alive to sensitivities of egos, cultures, power change and position; relationship issues like loss of client confidences; investors interests -- what is the possibility of finding these issues within the time frame. Phase II: Integration of Hidden Messes No discussion at workshop. Phase III: Business Building with Hidden Messes No discussion at workshop. Notes: © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 25
  • 33. The Access Kit, 2005 Continuous Change Process Phase I: Due Diligence of the Continuous Change Process Questions to Continuously Ask 1. Changes required/not required? 2. Is there any past resentment? 3. How to live with past resentments and solve them? 4. Are all members fully in on this? 5. People to let go? 6. Is there any duplication of efforts? 7. Who does each of the past functions? 8. Is the reward system adequate? 9. Are there conflicts in corporate vision/mission? 10. Are there personality conflicts –egocentric problems? 11. Are there issues of culture, IT, people, risks, business development, risk management, admin/logistics and corporate affairs? Best Practice to Apply Culture shock and managing it New things to do and get Cultural integration Change processes System integration Local environment sensitivities Collaboration Phase II: Integration of the Continuous Change Process Best Practice to Apply Develop strengths and business opportunity profile of the merged entity. Identify best industry practices for business growth. Develop core competences based on strategy focus and identified business opportunities. Do training and re-training. Do continuous staff development. Co-ordination of regulatory framework to enhances business growth. Know the organization’s structural imperatives for business capacity building. Co-ordination of capacity building service providers in the financial services industry. Provision for additional terms in the main contract. Phase III: Business Building with Continuous Change No discussion at workshop. © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 26
  • 34. The Access Kit, 2005 The Merger Role Play Three workshop participants sat as a group representing the experience of a real first meeting about a merger. The three had met at a party and liking each other, decided to meet ASAP. This role- play is their first meeting. After the role-play, we extracted answers to these questions for all participants to digest: 1. What would have been your pre-meeting work? Who was in on the discussion: Top management, beyond the managing director, etc? Consultants engaged? 2. What issues were not discussed that should have been discussed based on what you have learned from this workshop? 3. What advice does the audience have? 4. What are your next challenges: What would you have done post-meeting? 5. Your top five merger issues to address, in order of most-to-least in importance? Pre-Meeting Work – What to do Before a First Meeting “I want to know the shareholder structure; the major decision makers regarding a merger, especially if one or two people will dominate the process; and who has the authority to take on the merger process.” “I would determine if the balance sheets added up equal 25 billion; is there synergy and can I cope with it; and chemistry among shareholders.” “I want to know the critical drivers; can we work together; a complete background check on all management regarding culture and values; come in with some idea of the entity you most want to be part of – in effect, what do we want it to be?” Issues Not Discussed in Role Play Confidentiality. Come with a win-win mind. The current process must be exclusive with no additional talks going on. As a forced merger, I want people I can really think and work with. How do we use an effective third eye in the process because it is forced and not by our wills? Use a non-binding agreement with principles and not a MOU – keep the lawyers out of the discussion for as long as you can. We have to learn to do things right without lawyers. Disputes are a real part of the process as opportunities to strengthen partnership. © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 27
  • 35. The Access Kit, 2005 Advice from Audience What are the ground rules for the process and for meetings? Too much focus on who should get what, how and when. Avoid bringing up intentions until we identify specific interests. Get beyond the 25 billion -- too focused on it. Ensure you have thought through how to get control over your survival. There was no focus on clients and there must be. Understand the different customer bases before the first meeting. Continually brush up on negotiation skills. Or use a MOU, it is a best practice. Remember all directors have to be on board with no owner left out. Identify issues we can agree on and who can help us through what muddy water. Leave the rest for lawyers. We need something to bring to our boards to demonstrate progress. By June 2005, we must be able to tell a new story about our new bank or a new story will be told for us. Next Challenges After the First Meeting How do I determine competence and trust of others? Who is going to help me since no one in Nigeria has done this before? At what points in time do you bring in a consultant? Collect the financials. Meet with management to establish more details and identify more banks. Form a committee based on what has to get done and who is best at what. The committee is charged with coming up with a statement of interests and a value proposition. Do a background check. Identify the conflict points going forward. Determine the decision-making capacity of the potential partners. Establish the regulatory road map and where we are at on the map. Observation from Roundtable International Six process steps to consider: 1. Determine the strategic alignment and reciprocal synergy you are looking for. 2. Do a scan of the environment and industry in order to identify candidates that fit your strategic alignment and reciprocal synergy profile. 3. Conduct initial evaluation of candidates fitting your profile 4. If candidates pass initial evaluation, seek your board approval to initiate discussion with candidate 5. Initiate discussion with candidate following board approval. 6. Conduct a more critical evaluation with primary focus on : synergies, open issues and prohibitions. © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 28
  • 36. The Access Kit, 2005 Top Five Issues in order of Importance From our three role players: Role Player 1 Role Player 1 Role Player 1 1 Shareholder structure and governance 25 million Strategy 2 The business focus Synergy of the business Get the financials to 25 billion 3 Make sure 25 billion is not an issue The fate of my people to be part of the merged entity Shareholders, staff and customers are taken care of 4 Time constraints and ensure process will last My customers and the benefits of a bigger organization 5 Who gets what: The snake swallows the frog Investors protected © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 29
  • 37. The Access Kit, 2005 Participant Learning Priorities The topics of the priorities correspond to the elements in the access kit. Each participant wrote three needs or questions on “post-its” that he or she most want help with going forward. A need was a skill, practice, or tool. The needs were clustered as 41 groupings then each person had five priorities to pick among the 41 options. Formulating and Executing Strategy Building Synergy 13 We need help on how to manage the change arising from coming together. How to achieve the optimal synergy? What is the best way to go forward? How do we go about achieving a successful merger? How do I get banks that will meet my defined criteria, considering time limitation and a forced merger condition? Design of Strategy 12 It is clear a merger or acquisition should be for market advantage or cost reduction. What should be the way forward for a holding company that has market presence in the same location? Needs: Strategic future possible scenario that positions us for a better market. How does one develop and adopt a differentiation strategy? How can we create or design a strategy for business growth at the business-building phase? What do we want to become? How do we get there? How do you handle post acquisition products integration? How can we harmonize the strategic intent amongst more than two banks in a takeover or merger? What business model do we want to adopt? How can I make sure we have the best strategy? Post merger strategy/business model. Most effective strategy to achieve the picture of the future: high performing, creative, customer-delighting bank. Post Merger – Return to Shareholders 10 What new opportunities are available that can justify the investment of 25 billion? 25 billion is the driver of the present merger: What business opportunities will be available to ensure good returns to shareholders if the 25 billion is successfully achieved? People as a Strategic fit 5 Strategic change as it effects the human aspect of the organization. How would you deal with culture shock between the merging parties and eradicate a superiority complex? Professional/Advisory Consulting Support on Strategy 3 We need help with how to pick professionals/consultants to develop appropriate strategy in an M & A process. We need to evaluate consultants to use to drive the strategy process of the merger. We need professional help to get the relevant manpower to facilitate a successful merger process; prepare a workable strategy; identify a capable leader to pilot the process; assistance of professional values; CBN/regulators to assist in funding the cost of documentation: How to identify the core values; how to deploy appropriate technology; and ensure appropriate dispute resolution. The choice of a consultant that is acceptable to all merging partners. © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 30
  • 38. The Access Kit, 2005 Leadership Process for Continuous Change Putting in Place a Code of Conduct for Leadership 21 Need to adopt a proper code of corporate governance. How can we ensure the right blend of leadership? What checks should be in place to monitor and guide the merger? Determining Leadership Qualities Required for the Merged Institutions 10 Leadership to be charismatic with integrity: how do we find it? How do we determine who becomes what in the new organization when the fact is we are all executives in our different organizations and markets and this is a forced merger? What criteria determine who leads the merged entity and what drives the change process? What are the right qualities required to lead the type of merge bank we contemplate? How do I get competent leaders at all levels in the bank’s structure to take the new entity to the envisioned heights? How can we get agreement on the leadership style to put in place? How to Negotiate Your Ideas in the Merger Process 6 Leadership is a strategic core value to the institution, but suppose the other side does not see it that way. Needs of merger/acquisition are negotiation skills. Power and influence in a merger and acquisition: How to control it? Strategy to Retain key Employees 5 As a leader, what strategy could one deploy to ensure that your best employees do not leave in the process of the merger? As a leader, how to effectively re-orientate the staff to focus on the vision of the new entity. Core Values, Agreements and Culture Define and Harmonize Culture 18 How do we select the most relevant value that will lead to our picture of the future? How do we marry the different cultures of the merging organizations to come up with a common and acceptable culture? How do I merge conflicting cultures with four banks to produce and then evolve one that supports high performance in the new entity? How do I go about the integration and harmonization of the different cultures of the merging parties? How to mange the need to merge divergent cultures and core values to become the shared values and culture of the new entity? Manage Culture Shock 8 What is the best strategy to address culture shock in post-merger integration? How do you ensure culture shock is properly addressed? How should cultural integration be done seamlessly? Culture Assessment 5 How to actually have the true understandings of the prospective parties? How can we conduct a culture audit for all merging parties to assess the culture gap? How to get to the heart of the matter: Core values and agreements? How do you assess values when most bank staff has only practical experience in the banks? © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 31
  • 39. The Access Kit, 2005 Culture Alignment of Values 5 What will form the core values in the merged entity? How do you mange the diversity in culture and values? How do we align cultures or creating cultures at the business integration stage? Aligning core values agreements and culture following post-integration. How do you get common institutional acceptance of diverse cultures and values? We need help to ensure, at the end of the merger process, the people and the process are streamlined for greater return to shareholders. Values – Trust 1 Core Value is trust: Very challenging to fully know deeply enough to say, it is present and measurable! Valuation and Financials Full Disclosure 18 Need for full disclosure by all partners. Determine the true state of affairs of the merging banks in view of this tendency for creative accounting. I would need help in this regard so that my organization gets its due worth and also to ensure that the party/entity it wants to merge with or acquire is actually, worth what it claims it is. How do we ensure that all financials are put within the same parameters and ensure fair basis of valuation. How can you deal with off balance sheet transactions, i.e., hidden liabilities? How to Determine the Share Price 10 How do we set the price for respective shares of the merging banks where they are up to four banks? What is the equilibration of the shares/values of the merging entities? How to Determine Strengths 4 Learn to fully understand the valuation/financials to enable me to know the strengths that I am bringing to the negotiation table. Method of Valuation 3 What basis or method is best to use? I need negotiation and dispute management to ensure uniform valuation. I need further explanation on the comparable and liquidation models of company valuation. Help me understand analysis and valuation of individual assets. How do I determine the most appropriate valuation method/principle that will give my bank the best position in the merger? Valuation of the merging outfits net worth. Which is the best method of valuation that would be effective in about four to five merging parties? Who should do the Valuation? 4 A mutual, third party should do this. © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 32
  • 40. The Access Kit, 2005 Regulatory and Documentation Concessions 9 What monetary concessions will the regulators grant to ensure an effective M&A process? Regulatory Framework 4 The laws may need review. It takes time to do this right. Documentation in Process 4 There is a need for the regulating authorities to monitor appropriately and ensure due compliance. Will the regulatory authorities give waivers in the end in the face of false, but undocumented identification? Need to know the required documents for an M and A with the SEC. Criteria for Audit Committee 4 Define criteria for qualification into the audit committee. Monitoring 4 What is the detailed monitoring procedure for mergers and acquisition? Regulatory Issues 3 How do we limit the regulations particularly with regard to fees payable so that we do not destroy the banks before the end of the process? CBN must give guidance on the minimum requirements of information or areas to be covered at the due diligence stage and contents of an MOU. Too Much Paper 2 Regulation documentation is just too much. Disputes and Mediation Trust 6 There is a need to build trust as part of the alternative-dispute-resolution mechanism amongst consolidating parties and stakeholders (staff and shareholders). Need a grievance-settling infrastructure for the integration stage to address dispute emanating from cultural clashes. How do you handle issues that will arise in management integration? Mediation 6 If the court of arbitration fails to offer a solution to a dispute, what then is next? We need help in using mediation in dispute resolution to be effective. Transformation in Process 3 The present dispute resolution system needs transformation of objectives regarding the policy on disputes. Need to adopt an efficient flexible quick means/mode of dispute resolution. Legal and Teamwork 2 We need to evolve an effective dispute resolution process outside the court, e.g., an M&A dispute tribunal. Need to ensure an effective legal process that unites and supports dispute resolution. © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 33
  • 41. The Access Kit, 2005 Negotiation System 1 What is the right size and composition of each party’s negotiation team that would allow for effective negotiation? We need strong and reliable negotiation and dispute management systems. Non-Disclosure 1 How do we deal with disclosure issues that come up only after the merger? Timelines 0 This would present an attraction so we know where we want to be included. Mutual Agreements 0 How can we use bilateral agreements to resolve disputes during and after the merger process? The parties must know the modalities and mindfulness for the dispute resolution process. Preventing the Process from Stalling 0 How to resolve differences amicably? How do we resolve issues without stalling? Dispute resolution tools to ensure the process is not held up, unduly. Technology, Core Competence and Systems Technology Platform 9 How do we achieve a seamless system among the various IT platforms? How do we interface our IT systems and ensure minimum cost utilization in the process? Information technology is highly technical: We need capability in information technology infrastructure. When we name and verify technical platforms, we will need to align all the platforms to assume the integrity of financial records and related reports based on use. Inventory the Know How of People and Best Practice 4 How to assess the people competence in all companies and deploy them appropriately? How do we do business integration to bring together the bodies of knowledge and best practices? Capabilities and core competence: What to do to realize our combined potential? Accounting Software 3 Getting the right software to make interface of accounting system smooth. There is a need to integrate the various systems that each bank would bring to the M & A. Business Process 2 Challenges associated with integrating business process/systems. Technology Training and Development 1 We need to do M/A implementation of competency development/training. Training is needed on technology to ensure compatibility of systems of merging companies. Current Vendors/Contracts 0 How do we deal with existing service/vending agreements with IT consultants if the merger will entail doing away with each system/agreement? © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 34
  • 42. The Access Kit, 2005 Hidden Messes or yet to be Categorized Financial Validation/Disclosure Issues 10 We need a sound M/A consultant to handle all cases of hidden psychological messes. How can we get at the true and full picture of the bank financials and claims? We need to learn how to align the workforces of the separate entities to the structure of the merged one. We need to get at true valuation of the worth of shares in the merged organization. What is the regulatory framework that will give us full disclosure of all material facts? How can we avoid the use of just any financial tool, rather than best practice? Need for financial advisors to value the assets of the organization. Unknown People Related Issues 5 What is likely to facilitate the cultural integration for best performance? Among the merging partners is a formerly government owned bank with a culture that is completely different from that of the dominant parties. How do you resolve the people issues? One of the most hidden psychological messes is compensation for employees that lose out in the M & A arrangement. Help is needed in handling people or relationship issues. What level of disclosure is appropriate to all parties? We need to learn how to work with people in multi-ethnic merger/acquisition situation. Ownership/Liability Issues 4 How to take care of issues not disclosed at the negotiation stage. Can the director’s be required to execute personal guarantees (as a liability) of any non-full disclosure items? Unidentified Fears 5 Hidden messes: What can possibly happen? There is so much uncertainty? What do we do when we find hidden liabilities after the merger? How do I deal with hidden messes if discovered after merger process has been concluded? How do we handle them when they eventually manifest? Legal Regulatory Issue 4 There must be a Legal framework to support CBN amnesty. Need for CBN to have a contingency plan if more time is evidently required. Valuation/Financials 2 We need to know how to repackage the bank for merger or acquisition in view of bad financials. Choice of the Right Consultants 0 How to figure out which consultant is best at: People issues, cultural alignment, shareholder value, equity of financials, and business growth? © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 35
  • 43. The Access Kit, 2005 The Truth about Mergers & Acquisitions Companies have placed their faith in mergers and acquisitions in order to increase revenue, profits and stock price. In the United States, 90,180 mergers and acquisitions were announced from 1996 to 2003. However, most mergers and acquisitions fail, be it in South Africa, The Pacific Rim, Europe or America. A few may succeed, but most on the average either destroy or do not add to shareholder value. Companies share prices fell by between 0.34% and 1% in the ten days after they announce mergers and acquisitions according to three recent studies in the Strategic Management Journal. Acquiring firms experience a wealth loss of 10% over five years after the merger completion according to a study in the Journal of Finance. Some of the reasons for the failure of banking sector M&A include: Very few commercial banks have a real competitive advantage outside their home market against well-managed local banks. Acquirers usually overestimate the value they can add and the longer time frame and investment it takes. Failure to win the game at the execution level. Failure to understand the longer time frame needed to effect change. Banks continue to overestimate their real value added and underestimate the timeframe and difficulty of achieving synergies. The Roundtable International congratulates CBN for its foresight and fortitude in initiating a strategic and globally aligned banking sector reform. Given the challenges and rather bleak prospect of M&A, how can the Nigerian banking sector hedge its bet relative to the move towards a M& A culture. © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 36
  • 44. The Access Kit, 2005 Recommendations From the Workshop Consultant Team 1. Mechanisms must be created within which the questions asked and the learning priorities articulated by the participants in this workshop of “facilitated conversations” can be addressed and resolved. On a micro level, each bank will use such mechanisms to begin to articulate, develop, implement and sustain its strategic positioning relative to the current banking reform articulated by CBN. A bank that approaches a merger or acquisition as a facilitated process will have a foundational orientation which promises longevity based on the ability to continually add value and develop an agile response to the changing dynamics of its environment. On a macro level, these mechanisms will provide the regulatory authorities with the realistic and outcome-based strategies crucial to the creation of an effective banking environment. 2. There is an urgent need to develop a comprehensive, widespread, unrelenting and consistent marketing campaign designed to prevent a “bank run” (a panic response which occurs when a large number of people rush to take their money out of banks because of fear, in this case, that the banks will be unable to satisfy the new capitalization requirement). 3. The regulatory authorities must come to terms with the fact that there will be casualties in the banking sector. A plan needs to be developed to handle: assets and liabilities of banks that will collapse and displace workers. 4. When the dust settles, there will be a few mega banks left with a traditional propensity to focus on “big deals.” The regulatory authorities must ensure that each bank’s portfolio will be consistent with the nature, scope and depth of the Nigerian economy. Nigeria’s economy is dominated by micro and small businesses and therefore the banks’ portfolios must be indicative of this. 5. It is hoped that the mega banks will no longer lose the “big deals’” to foreign financial institutions. However, the current reality is that Nigerian banks cannot compete with their Asian, European and American counterparts relative to the interest rates charged for these “big deals.” Hence the fundamentals affecting interest rate needs to be examined with the ultimate objective of making Nigerian banks globally competitive relative to interest rates charged for “mega deals” in Nigeria. 6. The emergence of large, complex banking organizations raises questions about the adequacy of banking regulations. Jerry Jordan argues that regulatory reform must proceed from three principles: (1) a level playing field, (2) functional regulation and (3) value- added supervision. A level playing field means that all types of financial service providers ought to be subjected to the same regulatory regime and rules. Functional regulation means that regulation must focus more on functions and less on institutions. Value-added supervision suggests that regulators should be less concerned about playing “financial cop,” and more concerned with helping banks work safely and efficiently. © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 37
  • 45. The Access Kit, 2005 7. Is the current regulatory apparatus now in place adequate to oversee and supervise the emerging Nigerian banks post M&A? Nigeria’s present system of supervision and regulation is the product of historical development, past legislation and evolutionary change. However, the structure of the banking industry emerging due to the current mandate has been anything but evolutionary. Perhaps a lesson could be learned from the United States Federal Reserve (led by Chairman Greenspan) that established teams of examiners and other experts to oversee each of the thirty largest banks in the U.S, with a senior Federal Reserve official heading up each of these teams. 8. The current consolidation mandate makes Nigerian banks answerable to a host of regulatory organizations with different structures, compliance requirements, paperwork and legalities. The process is complex, cumbersome and time consuming. The requirements of these authorities could be streamlined and automated in order to create an integrated “one- stop” shop with each regulatory organization’s requirement incorporated in a single process flow. This does not require the creation of a new organization but rather the consolidation and systemization of all the regulatory requirements occasioned by M&A. Need for a Comprehensive Approach: Banking and Business Reform Together Resolving corporate sector, financial sector and external debt problems require a comprehensive and integrated approach. Since successful companies are necessary if an economy is to have good banks, corporate restructuring must be linked to bank restructuring, which in turn must be linked to settlement of external debt problems. The costs to government of bank recapitalization are high. Financing these costs is likely to increase government borrowing, thus increasing interest rates and further slow the recovery of the corporate sector. © 2005 The Roundtable International, Inc • 56 Pine Street• Providence RI 02903 • mail@roundtableint.com 38
  • 46. (Continued from front) Mergers and Acquisitions: The business impact of a merger or acquisition is a critical consideration in any kind of M&A decision. Our M&A practice goes beyond the preliminary due diligence to include: a long term process of increasing profitability, cultural integration, process integration of the merged entities and business building for growth. SME’S – Small and Medium Enterprises: constitute a critical economic engine for building a local economy. Our SME services focus on establishing enabling local SME policies and the development and growth of businesses that contribute to local wealth creation and community empowerment. Technology: Our information technology mining, delivery, evaluation, process mapping practice allows our clients to integrate disparate systems and lead the industry. For more information on our approach, clients and our management team visit our website or send in your correspondence to: Robert J. Leaver, Chairman The Roundtable International, Inc. 56 Pine Street, 2B Providence, RI 02903 USA tel: 401.274.5069 fax: 401.351.7158 www.Roundtableint.com mail@roundtableint.com The Roundtable International, Inc “Developing World Class Performance in People, Teams, Communities and Organizations” 56 Pine Street • Providence RI 02903• USA • tel: 401.274.5069 fax: 401.351.7110•