Value Creation by Integrating in an effective way newly
integrated companies

Jan Christiaens
Philips Corporate Investment...
Agenda
•
•
•
•
•
•
•
•
•

Introduction
Philips and its acquisitions
The New Venture Integration team
The M&A process and i...
Acquiring and integrating companies
- the importance of doing it right

 Studies show that ~80% of M&A deals don´t boost ...
Our acquisitions are spread geographically and across our
three sectors
Interactive Medical Developments (2008)
Sectra (20...
Our acquisitions are spread geographically and across our
three sectors
Interactive Medical Developments (2008)
Sectra (20...
Our acquisitions are spread geographically and across our
three sectors
Interactive Medical Developments (2008)
Sectra (20...
Our acquisitions are spread geographically and across our
three sectors
Interactive Medical Developments (2008)
Sectra (20...
Amsterdam:
3x Program Manager
1x Project Assistant

NVI global footprint

Eindhoven:
1x Head of NVI
1x Assistant
2x F&A Ex...
M&A process & NVI Involvement
Deal Financials & Data & Acquisition Metrics

M&A Process

Strategy ->
Target
Screening &
Id...
Post Merger Integration Metrics, Tracking and Feedback loops
PMI Metrics & Tracking

PMI Process
•

•

Closing & PMI
Kick-...
Drivers of successful post-merger integration*
*MARC J. EPSTEIN – “Organizational Dynamics”

•
•
•
•
•

11

Coherent integ...
Five steps towards successful integration
Overall objective

Deliverables before close
Integration
strategy

Successful
in...
Objectives when integrating companies
- create value by realizing synergies, ensuring that:
People


Employees are consta...
Key lessons learned
• It is difficult to compensate for stand alone delay via synergies
• Cross selling in a global compan...
Food for thought…
Value Creation:
•
•

Which companies measure value creation consistently?
How do you know what the ‘scor...
Questions?
NVI supports the acquisition process from the beginning
with…
Annex 2

Acquisition rationale
• 'Why we do the deal'
(defin...
New Venture Integration

Annex 3

- roles and responsibilities

• Work closely with the Business and Mergers & Acquisition...
… and these roles and responsibilities in the integration execution
phase
Annex 1

Teams
Integrati
on
strategy

Project ro...
High level PMI Cascading reporting structure
Reporting mechanism
Tracking tool

Progress reporting

Report to
workstream
m...
Regularly (monthly) reporting per Workstream
Workstream Lead:

Date
Status is stable

On target

Status is improving

Slig...
Integration Audit
•
•

All acquired companies go through a Corporate Integration audit after 9-18mths after close
Dependin...
Closing the PMI phase
• Conditions to close PMI:
1. Due Diligence Risks
2. Project Planning
3. Project Planning changes
4....
Post-Calc

Post Calculation:
• After PMI close Corporate Controls audits the results
• Audits focus on 3 areas:
• Stand al...
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Jan Christiaens, CFO Corporate Investments at Royal Philips Electronics - Value creation by integrating in an effective way newly acquired companies

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Jan Christiaens, CFO Corporate Investments at Royal Philips Electronics - Value creation by integrating in an effective way newly acquired companies spoke at the CFO Event UK 2013

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Jan Christiaens, CFO Corporate Investments at Royal Philips Electronics - Value creation by integrating in an effective way newly acquired companies

  1. 1. Value Creation by Integrating in an effective way newly integrated companies Jan Christiaens Philips Corporate Investments & New Venture Integration
  2. 2. Agenda • • • • • • • • • Introduction Philips and its acquisitions The New Venture Integration team The M&A process and integration Drivers of success Objectives of integration Key lessons learned Monitoring and review Q&A
  3. 3. Acquiring and integrating companies - the importance of doing it right  Studies show that ~80% of M&A deals don´t boost shareholder value  Daimler-Benz acquired Chrysler for $38 billion and seven years later sold it for only $7.5 billion  Quaker Oats purchased Snapple for $1.7 billion and three years later sold it for $0.3 billion  BHP Billiton spent $875 million pursuing three major deals that subsequently collapsed  Integration is key to achieving value creation  Acquiring companies tend to focus on which targets to pursue without a clear understanding of how to integrate them into their organizations  Too often the transaction itself absorbs most of the company's energy: CEO and organization focus on consummating the deal, not on making it work  Value is created not in the transaction itself but in successful implementation: Catastrophic failures are rare, but failing to realize the potential value of the merger is common
  4. 4. Our acquisitions are spread geographically and across our three sectors Interactive Medical Developments (2008) Sectra (2011) Traxtal (2009) Dameca (2011) medSage (2010) Genlyte (2008) Somnolyzer (2010) Street Controls(2010) SEM PACs (2010) Raytel (2007) Indal (2012) Saeco (2009) Burton (2010) Teletrol (2009) Visicu (2008) Optimum (2011) Lighting Technologies (2007) InnerCool Therapies (2009) Discus (2010) AllParts Medical (2011) Medel (2008) Respironics (2008) Luceplan (2010) WhebSistemas (2010) Emergin (2007) Meditronics (2008) Ilti Luce (2009) Alpha X-Ray (2008) Apex (2010) NCW (2010) Povos (2011) VMI-Sistemas Medico (2007) Dynalite (2009) Dixtal Biomedica e Technologia (2008) Preethi (2011) Tecso Informatica (2010) Healthcare Shenzhen Goldway (2008) Selecon (2009) Lighting Consumer lifestyle
  5. 5. Our acquisitions are spread geographically and across our three sectors Interactive Medical Developments (2008) Sectra (2011) Genlyte (2008) Traxtal (2009) Dameca (2011) medSage (2010) Street Controls(2010) Indal (2012) Raytel (2007) Burton (2010) Saeco (2009) Somnolyzer (2010) SEM PACs (2010) Teletrol (2009) Lighting Technologies (2007) Optimum (2011) Discus (2010) Luceplan (2010) InnerCool Therapies (2009) AllParts Medical (2011) Visicu (2008) NCW (2010) Ilti Luce (2009) Povos (2011) Apex (2010) Medel (2008) Meditronics (2008) Respironics (2008) Alpha X-Ray (2008) Dynalite (2009) WhebSistemas (2010) Emergin (2007) VMI-Sistemas Medico (2007) Preethi (2011) Dixtal Biomedica e Technologia (2008) Tecso Informatica (2010) Healthcare Lighting Shenzhen Goldway (2008) Consumer lifestyle Selecon (2009)
  6. 6. Our acquisitions are spread geographically and across our three sectors Interactive Medical Developments (2008) Sectra (2011) Genlyte (2008) Traxtal (2009) Dameca (2011) medSage (2010) Street Controls(2010) Indal (2012) Raytel (2007) Burton (2010) Saeco (2009) Somnolyzer (2010) SEM PACs (2010) Teletrol (2009) Lighting Technologies (2007) Optimum (2011) Discus (2010) Luceplan (2010) InnerCool Therapies (2009) Visicu (2008) NCW (2010) Ilti Luce (2009) Meditronics (2008) Alpha X-Ray (2008) Dynalite (2009) WhebSistemas (2010) Emergin (2007) VMI-Sistemas Medico (2007) Povos (2011) Apex (2010) Medel (2008) Respironics (2008) AllParts Medical (2011) Shenzhen Goldway (2008) Preethi (2011) Selecon (2009) Dixtal Biomedica e Technologia (2008) Tecso Informatica (2010) Healthcare Lighting Consumer lifestyle Emerging Markets
  7. 7. Our acquisitions are spread geographically and across our three sectors Interactive Medical Developments (2008) Sectra (2011) Genlyte (2008) Traxtal (2009) Dameca (2011) medSage (2010) Street Controls(2010) Indal (2012) Raytel (2007) Burton (2010) Saeco (2009) Somnolyzer (2010) SEM PACs (2010) Teletrol (2009) Lighting Technologies (2007) Optimum (2011) Discus (2010) Luceplan (2010) InnerCool Therapies (2009) Visicu (2008) NCW (2010) Ilti Luce (2009) Meditronics (2008) Alpha X-Ray (2008) Dynalite (2009) WhebSistemas (2010) Emergin (2007) VMI-Sistemas Medico (2007) Povos (2011) Apex (2010) Medel (2008) Respironics (2008) AllParts Medical (2011) Shenzhen Goldway (2008) Preethi (2011) Selecon (2009) Dixtal Biomedica e Technologia (2008) Tecso Informatica (2010) Healthcare Lighting Consumer lifestyle Emerging Markets
  8. 8. Amsterdam: 3x Program Manager 1x Project Assistant NVI global footprint Eindhoven: 1x Head of NVI 1x Assistant 2x F&A Expert 1x HR Lead 1x Communications Business Partner 1x Procurement Business Partner Boston: 3x Program Manager Seattle: 1x IT Business Partner Shanghai: 1x Program Manager Delhi: 1x Program Manager Healthcare Lighting Consumer lifestyle Emerging Markets
  9. 9. M&A process & NVI Involvement Deal Financials & Data & Acquisition Metrics M&A Process Strategy -> Target Screening & Identification Project Intake Form (Start NVI Involvement) • • • Preliminary Due Diligence Build Initial Valuation Negotiate Letter of Intent Non-Binding Offer Negotiate Final Deal Integration & Transaction Closing Preparation Closing & PostMerger Integration Binding Offer & RFA document Transfer of Ownership / Start Closing Post-Close RFA Validation Definitive Due Diligence & Valuation Full Due Diligence Term Sheet Early involvement PMI in planning/business case & synergy definitions & validation Sales & Standalone numbers ownership/Assigning ownership during pre-close RFA (Request For Approval) business case benchmark
  10. 10. Post Merger Integration Metrics, Tracking and Feedback loops PMI Metrics & Tracking PMI Process • • Closing & PMI Kick-Off Start Detailed PMI planning Executing Post-Merger Integration Tracking & Reporting PMI performance Tracking Close PMI Integration Audit Integration Audit 1224mths Capture Lessons Learned PMI Post-Close RFA Validation Post-Calculation Post-Close Value Calculation After sign/close Go in and validate: • Synergies • Restricted Areas; R&D pipeline/Customer/Prices etc • Unknowns; auctions/listed • Conclusion: is our original case still alive or does it need adjusting? • Share/discuss PMI assumptions with the target! PMI Metrics: everything we consistently check & measure in relation to the PMI Results and Approach
  11. 11. Drivers of successful post-merger integration* *MARC J. EPSTEIN – “Organizational Dynamics” • • • • • 11 Coherent integration strategy Strong integration team Communication Speed in implementation Aligned measurement
  12. 12. Five steps towards successful integration Overall objective Deliverables before close Integration strategy Successful integration Value creation of combined company exceeds what both parts could achieve as independent firms Organization and key person retention/ succession Cultural integration and change mgmt / communication • Integration objectives aligned with acquisition rationale • Translation of integration objectives in prioritized initiatives/workstreams and targets • Business leadership team in place and embedded in Philips organization • Key integration team roles identified • Retention/ succession plan in place • Change management plan in place based on culture assessment • Communication plan in place Detailed planning • Day 1 plan in place • Detailed plan per workstream, including responsibilities, milestones, targets and key actions Execution and tracking • Kick-off fully prepared • Tracking and monitoring tools and process in place
  13. 13. Objectives when integrating companies - create value by realizing synergies, ensuring that: People  Employees are constantly informed, motivated and feel part of our company  The right leadership is put in place  Key talent remains with the business to protect company-specific knowledge Business goals  Best practices from both companies are shared before choosing which ones to follow  The new company is provided with all necessary tools to perform  Goals are set early, properly tracked and fully achieved  The new business incorporates Philips’ global general principles
  14. 14. Key lessons learned • It is difficult to compensate for stand alone delay via synergies • Cross selling in a global company is time and resource consuming and we must account for regulatory approvals, adaptation of product specifications/ documentation, sales resources, sales training • Detailed integration planning before closing makes it possible to take advantage of excitement immediately after the deal closes to build momentum • Retention of (key) people is a critical success factor, especially in small businesses and solution focused businesses • Injecting our people into newly acquired companies soon after close can significantly improve employee engagement, communication and cultural integration • Cultural integration and communication continue to be critical success factors
  15. 15. Food for thought… Value Creation: • • Which companies measure value creation consistently? How do you know what the ‘score’ is? Metrics vs KPI’s: A Key Performance Indicator is a Metric that helps the business know if things are on track or if something is about to change. How many KPI vs Metrics do you have? How many are truly leading/forward looking indicators?
  16. 16. Questions?
  17. 17. NVI supports the acquisition process from the beginning with… Annex 2 Acquisition rationale • 'Why we do the deal' (defined in the M&A process) Set integration objectives and translate into initiatives • Core integration objectives to realize value creation potential • First view on initiatives to meet the integration objectives (business initiatives and key enablers/ must-do's) • Build first view on key risks • Prepare for due diligence Establish structure Prioritization of initiatives and high level planning Build detailed planning/ milestones and tasks • Verify initiatives and prioritize • Verify risks during due diligence and identify mitigating actions • Build high level planning including responsibilities, planned value creation and project costs • Plan initiatives in detail (workstreams), including responsibilities, tasks, mil estones, tracking etc. • Build day 1 plan Planning Detailed planning Due diligence Non-binding RFA Binding RFA Implement and track • Implement workstream plans and monitor milestones and KPIs of initiatives Deal close Implementation
  18. 18. New Venture Integration Annex 3 - roles and responsibilities • Work closely with the Business and Mergers & Acquisitions to effectively realize the value from acquisitions • Lead the preparation of an overall integration plan • Link the integration process and priorities to the strategic rationale and the size/ maturity of the Roles & Responsibilities acquired company • Organize the timely introduction of functional processes and expertise • Build and maintain a competence center by capturing, learning, sharing and developing knowhow, standardized tools and metrics on acquisition integration • Track progress and report to Sector / Business Management, ExCo, Supervisory Board • Acquiring Business Main Stakeholders • Acquired Company • Sector / Business Mgt • ExCo, Supervisory Board, Audit Committee • Corporate Functions • M&A
  19. 19. … and these roles and responsibilities in the integration execution phase Annex 1 Teams Integrati on strategy Project roles Business process integratio n Integratio n project managem ent Integration steering committee Integration management team Functional workstreams Country teams Communication Culture & change management Communications team Culture team • Steering committee – Incl. NVI member • • • • Business integration leader (Philips) Integration manager (target) Program manager (NVI) Project Office • Workstream leaders (Philips + target) • Functional experts (e.g. NVI, country or sector function) • Project and/or Country manager (in scope of HR workstream) (in scope of HR workstream) Key responsibilities • Key decision making • Project resource management • Daily project management • Overall decision making • Report to Steering Committee • Implement workstream plans • Report to integration management team • Implement communication plan and support workstreams • Implement culture & change management plan & support workstreams
  20. 20. High level PMI Cascading reporting structure Reporting mechanism Tracking tool Progress reporting Report to workstream management/ PMI leadership Steering Committee Frequency Continuous • • • • Monthly • Financial performance target – Including synergies and project costs • Milestone reporting • Key issue resolution Monthly • Financial performance target – Inc. synergies and project costs • Progress report • People retention • Customer satisfaction (NPS) • Link to Original Business Case/RFA BBSC Philips ExCo Discussion Topics Overview milestones Tasks Synergies Issue recognition and resolution
  21. 21. Regularly (monthly) reporting per Workstream Workstream Lead: Date Status is stable On target Status is improving Slightly behind Status is deteriorating Overall status: Significantly delayed Milestones/Key Activities current period: Milestones/Key Activities next period: Major issues/risks - issues or risks that will impact upon your project Description of issue/risk: Action Owner:
  22. 22. Integration Audit • • All acquired companies go through a Corporate Integration audit after 9-18mths after close Depending on the business size the audit takes 1-4 weeks and will: • Assess the efficiency and effectiveness of the key business processes of the acquired business • Do a risk assessment along with Management in order to short-list the high risk, critical processes • Perform an in-depth process review of some of the high risk processes. Audit Example: • • • 22 Each observation is given a 1-3 star rating indicating criticality Target & PMI team need to address all items within a 6 month window Key leanings from Integration audits are fed back into PMI approach
  23. 23. Closing the PMI phase • Conditions to close PMI: 1. Due Diligence Risks 2. Project Planning 3. Project Planning changes 4. Corporate Internal Audit 5. Other compliancy issues 6. Synergies 7. Lessons Learned 8. Transfer to operation Example closing report:
  24. 24. Post-Calc Post Calculation: • After PMI close Corporate Controls audits the results • Audits focus on 3 areas: • Stand alone • Synergy realization • Strategic rationale and fit • Original Value Creation compared to new Value creation case & outlook

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