FrontLine Partners M & A Approach 2011
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FrontLine Partners M & A Approach 2011

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Provides overview of approach to successfully managing merger integrations in the real estate and financial services industry

Provides overview of approach to successfully managing merger integrations in the real estate and financial services industry

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FrontLine Partners M & A Approach 2011 FrontLine Partners M & A Approach 2011 Presentation Transcript

  • FrontLine Partners Viewpoint Series Strategic Business Combinations and Post Merger Integration Approach Acquisition and Merger Integration Services www.frontlinepartners.netDiscussion Document 1
  • Maximizing Acquisition Deal Value Companies must accelerate value capture from proposed and identified synergies, and could leverage FrontLine Partners to examine changes and options leading to unidentified synergies. Unidentified Synergies FrontLine Partners will work Synergy Value “Suggested” with Company X to realize identified synergies and find Portfolio of unidentified synergies to Market-discounted extract additional value. monetized Identified combination premium initiatives Synergies represented by Company X’soffer to buy the target company. Transaction Value Target Acquisition Company X Revenue = $4.7BN Discussion Document 2
  • Acquisition and Post-Merger Integration Lifecycle FrontLine Partners supports the core lifecycle of strategic business combinations and post-merger integration. Transaction Transaction Integration Assessment Management Management 20-30% Company/Market Opportunity Review Deal Structuring/ Integration Opportunity Negotiations Planning Value Definition & Enhancement Strategy & Value Capture Target Screening/ 7-15% Pre & Post Closing Due Diligence Fit Assessment Implementation 2-5% Initial Due Financial/ Program Manage- Diligence Operations Review ment Office Operations/ Disciplined Risk Plan Execution Plan Strategy and assessment Capital Sourcing/ phase enables Structuring the best deal to Closing/ come out of the Post-Closing funnel. Successful execution of Business Plan and Value Capture = possible transactionDiscussion Document 3
  • Merger Expectations Focus on pre and post merger work ensures our clients realize the full value from acquisitions. Key Components of a Successful Acquisition Roadmap/PMI Approach Acquisition Expectations … Financial » Expectations for public companies are often Strategy set high by investors and Wall Street Operating Analysts. Strategy » They can overvalue and over play potential People synergies and economies of scale, leaving Strategy the acquiring company on the hook for delivering difficult value from the Technology transaction. Strategy Market » Company X will have to bring the people, Strategy process, and technology strategies together from both companies to achieve required returns/value.Discussion Document 4
  • Focus on Pre and Post Integration Efforts Asking the difficult questions up-front will help staff focus on the important tasks and help achieve a successful acquisition. Company X Key Acquisition Components » What additional value does an acquisition give Company X? » Are there clear objectives and Financial guidance? » Can we capture cost savings and improve ROI with better Strategy » What will our future “HR processes? Operating picture” look like? Strategy People Strategy Technology Strategy Market Strategy » How do we position our » Does the market understand technology resources? the combined company » What key assets require focus strategy? from management? » How does the combined portfolio align with our vision? Document FocusDiscussion Document 5
  • Company X Integration Needs Companies want to create maximum value in acquisitions for shareholders and create an environment where there is a clear path to value creation (not erosion). Deal Value to Time Framework CAPTURE Company X DEAL VALUE CREATION / SLOPE Transaction Gap Component Value Company X Wants Value comes down to people, Create Value process, and technology Typical Deal Outcome Deal Break Even TIME Transition & Transformation Destroy Value Gap Component TIMEDiscussion Document 6
  • M&A Performance – Critical Success Factors Industry studies have identified pre and post deal critical success factors to ensure merger & acquisition success. Pre-Deal Post-Merger Integration (PMI) » Securing the right target or partner, » Realizing the full benefits of at the right price integration » Assessing potential for value » Value creation creation » Time value » Valuing apportionment in the deal » Maintaining momentum Pre-Deal Success = f (Right Strategy x Right Candidate x Right Price) Post-Deal Success = f (Right End State x Right Speed x Right Process)Discussion Document 7
  • M&A Performance – Root Cause Analysis Difficulty linking the acquisition’s strategic drivers through a fast track and well thought out integration management effort is a root cause of performance issues. Merger Success Factors (% of Companies Surveyed [1] ) 49% 47% Strategic Link 35% 20% 14% 10% 4% Sound Clarifying Price Entering Motivating Breaking Mastering Strategy on Expectations Depends on When Price Is Employees Cultural Integration Day One (Synergies) Future Profits Lower Barriers [1] Source: ATKearney - Total shareholder returns (% over/ under performance) vs. industry index (from three months prior - 24 months after merger announcement)Discussion Document 8
  • The M&A Value Gap Although mergers and acquisitions are increasing, historical experience suggests the deals do not often yield expected returns, creating a “value gap” between expected and achieved results. VALUE GAP TRANSACTION GAP TRANSITION / TRANSFORMATION GAP Expected Value True Potential Value Achieved ValueDiscussion Document 9
  • What Drives the Value Gap? Since most transactions are not “cookie-cutter”, variations in deal characteristics and integration execution have the greatest impact on the value gap. VALUE GAP TRANSACTION GAP TRANSITION/TRANSFORMATION GAP Expected True Potential Value Achieved Value Value Transaction Gap Transition/Transformation Gap » Weakness in Pre-Transaction Success: f(x) of » Weakness in Post Transaction Success: f(x) of (Right Strategy x Right Partner x Right Price) (Right End State x Right Speed x Right Process) » Internal vs. external focus » Lack of leadership, vision » Multiple agendas and perspectives » Inadequate integration planning/execution » Internal and external time pressure » Determinism, inflexibility » Limited access to information » Failure to maintain customer focus » Clarity/precision on value drivers » Loss of control » Failure to assess implementation considerations » Loss of momentum/speed » Lack of prior experience in acquisition analysis and » Organizational confusion and division negotiation » Flight of key talent and knowledge » Ego » Poor cultural assimilationDiscussion Document 10
  • FrontLine Partners’ Approach for M&A / Integration FrontLine Partners’ M&A methodology and approach for integration is holistic in scope, integrating Organizational Culture, Process, and Technology in a systematic fashion using real estate specific expertise. Market Operating Strategy Strategy » Workflows » Customer Feedback » Roles & Responsibilities » Summary Measures » Measures » Messages/Forums » Policies / Procedures » Controls Company X Strategy and Culture Technology People Strategy Strategy » Applications » Organizational Structure » Databases » Rewards / Compensation » Hardware » Competency Model » Communications » Employee Development » Performance MeasurementDiscussion Document 11
  • FrontLine Partners’ Approach to Merger Integration We approach merger integration utilizing a two phased approach. PHASE I - Transition Planning & Design PHASE II - Implementation Pre-Closing Plan Stabilization Optimization Program Management Change Management Program Day 1 Process Day 100 Process Planning & Operations Realignment Operations Realignment Start-up Project Organization Systems Organization Systems Team Realignment Integration Realignment Integration Planning » Assess the current state » Define the future state » Develop functional transition plans » Integrate functional plans into cohesive master planDiscussion Document 12
  • Integration Planning / Execution / Optimization FrontLine Partners applies its merger integration methodology to both short term tasks and long term strategic vision for an optimal outcome. Strategic Optimization “Long-Term Goals” Strategic Focus Stabilization » Customer Value “Short-Term Goals” » Cost Savings » Revenue Increase Synergy Focus » Growth Focus » Identify Synergies Pre-Close Planning » Cost Take-out “Day 1 Functionality” » Eliminate Redundancies » Identify Cross-selling Opportunities Tactical Focus » Program Management Office » Integration Planning » Risk Management » Communications » MIS Tactical Phase I Phase IIDiscussion Document 13
  • Critical Initiative Matrix Priorities are then mapped against a timeline to execute in order to create a matrix of critical initiatives both pre and post close. Savings/(Capital + Expense) vs. Time to Implement 5 “Must Do” Initiatives 4Savings / (Capital + Expense) Priority Initiatives 3 Size of Opportunity < $1 MM 2 $1MM-$5MM $1MM-$5MM 1 < $10MM 0 3 6 9 12 15 Time to Complete (Months) Discussion Document 14
  • Initiative Prioritization FrontLine Partners works closely with its clients to prioritize initiatives to drive “showcase” outcomes. High Select Showcase Depending on Resource High Potential for Availability and Success, Early Benefits Implementation Other Constraints Ease of Avoid Tackle Poor Use High Risk Areas of Resources Address Early Low Value Creation Potential HighDiscussion Document 15
  • Integration Management Process and Tools Our projects start with a well defined process that is communicated effectively to all participating parties. Project Controls Project Framework and Guidelines Project Management Overview Strategic Vision and Plan Overview Plan Plan Solution Strategy Solution Design Solution Build Deploy- Deploy- ment ment Operate Operate Risk Management Risk Value Scope management is Technical Infrastructure Management Management key to ensuring the Program project stays on schedule Leadership Activities Deliverables Knowledge Continuous Activities and budget. Deliverables Management Learning  Project Planning Program Management Manage Manage Tactical Plan Ongoing • Project Workplan P • Project Charter R Project O Knowledge • Project Standards Project Project Project Planning J Management Portfolio Portfolio Portfolio Tools • Project Kickoff Meeting E C Status • Project Budget Lead Lead T Reporting/ Budget  Project Management Tools M Management Project Issues • Scope Management Procedures A Management Tracking & Activities Activities Leadership / Information Flow Program Management N Tools Resolution • Knowledge Management Tools Leadership / A Sponsorship Managing the Portfolio of Projects • Issues Tracking and Resolution Tools Sponsorship G Standards Creation • Risk Management & Quality Assurance Program E Workplan & Charter M Scope Management Risk  Project Communications Plan E Management Resource Risk Management Project N & Quality Management  Status Reporting and Budget Management Communication PM PM PM PM PM PM PM PM PM PM Resource Management T Assurance Plan Procedures Module Module Module Module Module Knowledge Management Module Module Module Module Module Training and Coaching  Resource Management Project Communications Information Flow Project Issues ResolutionDiscussion Document 16
  • Integration Management Process and Tools One key component of successful merger management is establishing the integration approach and organization structure early. Develop Management Plans Develop Organization Build Integration Structure and Responsibilities CapabilitiesMerger Integration ProjectOrganization Chart Project Sponsor Governance Project Director Steering Committee » Steering committee must be active, meet often, resolve conflicts Project Management Functional Processes Location-1 Training Location-2 » Guiding coalition must be continually expanded Develop and Manage Location – 1A Location-2 Regional Lead Corporate/Reporting Corporate/Regional Integrated Plans Location – 2A Location – 1B Controller Location – 2B Controller Measurement Communication 11/27 12/11 12/18 12/25 12/4 1/15 1/22 1/29 2/12 2/19 » Needs strong perception 1/1 1/8 2/5 Technical Infrastructure » Requires an agreed Week Data Conversion Tasks Location – 2C Transition Assessment & Planning Controller Establish project management and structure of CEO backing Division visits baseline Project planning Organizational Realignment Location – 2D Organizational Structure Controller Roles/Responsibilities Physical Space Facilities » Needs a definition of » Requires connection Data Conversion Moving Coordination File storage and archival Administration project success between new vision and Data Conversion Programs Data Scrubbing/Data Needs Assessment Data Mapping Data Conversion Testing corporate success Convert Data & Validate Operational Realignment Define/Identify future-state Validation Process Implementation Post-merger integration support Corporate Purchasing Corporate accounting Corporate reporting Transaction Close Organization Politics Human resources Legal Website Training Determine training methodology Determine training logistics End-user support strategy development » Requires quick resolution Documentation development End-User Training Post merger training support Technical Infrastructure to critical issues Change Management/Communication Program Mgmt Current Initiatives » Demands a high level of sensitivity to the “new and old” ways Discussion Document 17
  • Integration Management Process and Tools – Risk Management Another key component of a successful acquisition project is a rigorous process for identification and resolution of critical integration challenges. Risk Guidance and Monitoring Framework Project Risk Issues that present project Prioritization Framework risk are identified and High managed within a tight Steering Committee framework. High areas of risk and likelihood of occurring are Impact of Risk moved to the risk guidance and monitoring framework Senior Project Leadership Project Management Low High Project QA Likelihood of OccurringDiscussion Document 18
  • Integration Value Framework FrontLine Partners understands the importance of maximizing the impact of Company X deals and minimizing the “value gap”. We partner with you to: » Focus on the changes that need to be made to capture the value of your integration » Change business practices to optimize transaction strengths » Accelerate the business transformation to increase the speed to value DIFFICULTY Transform Leverage Capture the Value Strengths of the Integration » Change the way the entity operates » Leverage market positions and customer relationships » Create new competitive » Reduce the costs of your infrastructure advantages » Exploit the best practices of » Quickly realize economies both organizations » Create new business of skill and scale opportunities » Use leading practices from » Create comprehensive integration other companies models that map the entire process VALUE ADDEDDiscussion Document 19
  • FLP’s Value Proposition for Acquisition and Merger Integration FrontLine Partners brings both a depth of real estate market knowledge and breadth of transaction management expertise to help clients accelerate value capture from Strategic Business Combinations and Post-Merger Integration (PMI). Real Estate Industry Work-Out Knowledge / Expertise Sessions Clear and deep Sessions that understanding of the accelerate key real estate market strategic integration decisions Track Record that enables clients to realize Integrated extraordinary results PMI Tools and Methods Experience Custom project management to FrontLine Partners ensure linkage has extensive PMI among all business experience initiativesDiscussion Document 20
  • FLP’s Engagement Scoping for Acquisitions and Merger Integration FrontLine Partners knowledge of real estate/financial services industry positions it well to help maximize the value of transactions. Pre-Close Planning Stabilization Optimization Integration Due Diligence Organization Alignment Management Office Strategy Risk Organization Cultural Compensation Valuations Performance Design Alignment Mgmt. Articulation Management Project Financial & Operational Risk Communication Governance Team Process Integration Structure Supply Customer Regulatory Synergy Planning Communication Chain Retention Procurement Tax and Legal Back Office Technology Integration Team Deployment Integration Integration Structures FLP can lead for FLP in support role Company X Resources/ External LEGEND: Company X SME’sDiscussion Document 21
  • FrontLine Partners Overview FrontLine Partners (www.frontlinepartners.net) is a management consulting firm that works with banks, institutional investors, lenders, owners, intermediaries, and service providers in the commercial real estate and financial services industry to help them accelerate growth of their business or repositioning of their business model and assets. FrontLine Partners offers a number of services ranging from strategy formation, corporate and business development, mergers and acquisitions, capital sourcing, loan work-outs and corporate restructuring. Refer to our website at www.frontlinepartners.net for additional information. For further information on your unique needs, please contact our Managing Partner - Jim Vincent at 214.369.2085 – for a free initial consultation.Discussion Document 22