The Integration Of Culture In M&A V7

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  • The Integration Of Culture In M&A V7

    1. 1. Achieving the Goal in M&A Transactions Scott McLean and Mike Kelly Leadership Capital Group October 17, 2003
    2. 2. Reasons to Combine Forces <ul><li>Eliminate overcapacity </li></ul><ul><li>Geographic roll-up </li></ul><ul><li>Product or market extension </li></ul><ul><li>Using mergers as R&D </li></ul><ul><li>Industry Convergence </li></ul>
    3. 3. The Goal of M&A Transactions <ul><li>The Goal of a Merger or Acquisition is to achieve a state of </li></ul><ul><li>Productive Combination : </li></ul><ul><li>When organizations join forces in a manner that enhances the capacity of the combined entity to achieve its desired strategic and financial objectives </li></ul>
    4. 4. “ Merger Outcome Continuum” “ Productive” Combinations + Complete and Utter Failure Lowest Common Denominator Sum of Parts Best of Both “ Breakthrough” Combinations Value
    5. 5. The Goal is Seldom Achieved <ul><li>Up to 75% of mergers fail to achieve their goal of Productive Combination </li></ul><ul><li>Reasons Deals Fail to Achieve goal </li></ul><ul><ul><li>Strategy (1970’s Conglomerates) </li></ul></ul><ul><ul><li>Target (1990’s Mattel, Quaker) </li></ul></ul><ul><ul><li>Price (1980’s LBO’s) </li></ul></ul><ul><ul><li>Execution (Multiple Examples) </li></ul></ul><ul><ul><li>Timing (2000’s Economy, Technology) </li></ul></ul>
    6. 6. Executing the Merger <ul><li>Clarify strategy and rationale </li></ul><ul><li>Perform due diligence </li></ul><ul><li>Develop a “shared vision” of the future </li></ul><ul><li>Identify critical success factors </li></ul><ul><li>Identify transition management candidates </li></ul><ul><li>Create and implement communication plan </li></ul><ul><li>Implement transition management structure </li></ul><ul><li>Refine strategy </li></ul><ul><li>Align organization to implement strategy </li></ul><ul><li>Integrate operational processes </li></ul><ul><li>Implement critical success factors </li></ul><ul><li>Manage culture clash </li></ul><ul><li>Measure and monitor implementation of strategy </li></ul><ul><li>Measure and monitor completion of critical success factors </li></ul><ul><li>Assess cultural processes and reinforce behavior </li></ul>Post-Merger Merger/Integration Pre-Merger
    7. 7. Why Focus on Execution? <ul><li>According to a Forbes Study, the following reasons are given most frequently: </li></ul><ul><ul><li>Cultural incompatibility </li></ul></ul><ul><ul><li>Clashing management styles and egos </li></ul></ul><ul><ul><li>Inability to implement change </li></ul></ul><ul><ul><li>Inability to forecast </li></ul></ul><ul><ul><li>Excessive optimism with regard to synergy </li></ul></ul><ul><li>Culture has a big impact on execution </li></ul>
    8. 8. What is Culture <ul><li>The “Way things are done around here” </li></ul><ul><ul><li>The way we deal with customers </li></ul></ul><ul><ul><li>The way we treat each other as employees </li></ul></ul><ul><ul><li>The way leaders and managers in the organization motivate, reward and develop people </li></ul></ul><ul><li>Culture has been directly linked to return on equity, return on investment, sales growth, market share, quality, and a host of other variables that impact your bottom line </li></ul>
    9. 9. Why Cultures Clash <ul><li>Cultural Clash Process </li></ul><ul><ul><li>Perceived differences </li></ul></ul><ul><ul><li>Magnify differences </li></ul></ul><ul><ul><li>Stereotypes </li></ul></ul><ul><ul><li>Put Downs </li></ul></ul><ul><li>Cultural winning and losing </li></ul><ul><li>Absence of discussion around new organization </li></ul><ul><li>Inadequate dissemination of information </li></ul>
    10. 10. Four Primary Areas <ul><li>Lack of trust </li></ul><ul><li>Lack of joint identity </li></ul><ul><li>Lack of commitment </li></ul><ul><li>Lack of results </li></ul>
    11. 11. Continuously Address Culture <ul><li>Perform due diligence </li></ul><ul><li>Develop “shared vision” of the future </li></ul><ul><li>Identify transition management candidates </li></ul><ul><li>Create and implement communication plan </li></ul><ul><li>Implement transition management structure </li></ul><ul><li>Align organization to implement strategy </li></ul><ul><li>Manage culture clash </li></ul><ul><li>Assess cultural processes and reinforce behavior </li></ul>Post-Merger Merger/Integration Pre-Merger
    12. 12. Pre-Merger Phase <ul><li>Early stages: </li></ul><ul><ul><li>Perform cultural due diligence </li></ul></ul><ul><ul><li>Develop a “shared vision” of the future </li></ul></ul><ul><li>Later stages: </li></ul><ul><ul><li>Identify transition management candidates </li></ul></ul><ul><ul><li>Create and implement communication plan </li></ul></ul>Post-Merger Merger/Integration Pre-Merger
    13. 13. Cultural Due Diligence
    14. 14. Cultural Differences Combination Outcomes Degree of Cultural Differences Positive Negative Low High Medium
    15. 15. Merger/Integration Phase <ul><li>Implement transition management structure </li></ul><ul><ul><li>Create cross-functional teams </li></ul></ul><ul><ul><li>Announce new roles as quickly as possible </li></ul></ul><ul><ul><li>Invest in employees </li></ul></ul><ul><li>Align organization to implement strategy </li></ul><ul><ul><li>Reevaluate and communicate critical success factors </li></ul></ul><ul><ul><li>Develop cultural rules aligning organization and workers with goals and success factors </li></ul></ul><ul><ul><li>Discuss other changes in the organization </li></ul></ul>Post-Merger Merger/Integration Pre-Merger
    16. 16. Merger/Integration Phase <ul><li>Manage culture clash </li></ul><ul><ul><li>Educate people on culture clash process </li></ul></ul><ul><ul><li>Learn about and respect other culture </li></ul></ul><ul><ul><li>Revisit desired culture </li></ul></ul><ul><ul><li>Focus on “Four Primary Areas” </li></ul></ul><ul><li>Use levers to build culture </li></ul><ul><ul><li>Day to day actions of leadership </li></ul></ul><ul><ul><li>Constant and consistent communication of message </li></ul></ul><ul><ul><li>Reinforce desired behaviors </li></ul></ul>Post-Merger Merger/Integration Pre-Merger
    17. 17. When to Combine Importance to: Strategy Savings Synergy High Low Easy Difficult Ease of Integration Combine quickly Combine as needed Coordinate, combine slowly Combine carefully Separate
    18. 18. Post-Merger Phase <ul><li>Assess cultural processes and reinforce behavior </li></ul><ul><ul><li>Use levers to anchor desired behaviors </li></ul></ul><ul><ul><li>Celebrate successes </li></ul></ul><ul><ul><li>Continue consistent communication </li></ul></ul><ul><ul><li>Perform post merger cultural surveys </li></ul></ul><ul><ul><li>Make necessary adjustments </li></ul></ul><ul><li>Learn from process for future mergers </li></ul><ul><li>Disband transition management team </li></ul>Post-Merger Merger/Integration Pre-Merger

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