Full Text of Interview with  ThisDay Newspapers“Industry Consolidation and Mergers & Acquisitions”                        ...
I’ve stated all this to say that globalization, levered by technology, has in effectincreased the pace of industry consoli...
spiralling dimension, compulsorily beyond the control of any single entity -governmental or corporate, or even a combinati...
On the Economic front, which works in tandem with the Political, we haveobserved that:1)     There are fewer barriers to t...
This takes us back to where we started when we said that current leaps in technology have fundamentally redefined the shap...
as well as investments, enabled by the new cabotage regime in the maritime sector, which are in turn expected to rise dram...
Transcontinental Air Transport and Western Air Express merged to form what came to be known as Trans World Airways (TWA). ...
Before the close of 2005, there was indeed a frenzy, a near-panic among banks to merge to meet the regulatory requirement....
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Dr. Glenn S. Prince-Abbi on Industry Consolidation and M & a interview with this day

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Dr. Glenn S. Prince-Abbi on Industry Consolidation and M & a interview with this day

  1. 1. Full Text of Interview with ThisDay Newspapers“Industry Consolidation and Mergers & Acquisitions” March, 2006 Dr. Glenn S. Prince-Abbi, international consultant and strategy expert, is Executive Consultant/CEO Espera Global Corporation. He deploys a robust depth of insight in corporate strategy and institutional development and is widely referenced as an original thinker and a highly effective driver of organizational transformation. A successful international speaker and executive trainer, he led the groundbreaking international seminar on Mergers & Acquisitions in September 2004 to help build capacity on M & A in the Nigerian financial sector as follow-up of the Central Bank of Nigeria regulation announced Q2 2004 requiring consolidation via Mergers & Acquisitions for Nigerian Banks. The CBN then gave a deadline of only 18 months. He spoke to Godwin Haruna of ThisDay on the current trends in Mergers and Acquisition, Industry Consolidation and broad issues of corporate strategy, global business development, crossborder investment and alliances and his company’s Strategic Business Incubation plans. Excerpts This takes us back to where we started when we said that current leaps in technology have fundamentally redefined the shape of business. Time, in its erstwhile-defined form has become irrelevant and meaningless in a world that has crumbled to the size of a grape. Today, all activities in business insist on happening at the same time for them to be meaningful and to render good value, by today’s standards. We call it Real-time. This would have been pure laughable science fiction to our grandsires! Speed, made possible and rendered fundamental by current technology, has become a key factor in business. The face and structure of business across the globe has undergone a deep transformation in the past decade or so in a way it never underwent in one thousand years! **** Technology is the high-power lever in this whole process of transformation. Spurned by current technology, which has enabled a wide array of business and economic possibilities, the face of business as hitherto known has metamorphosed dramatically, and growth trends in emerging markets of the world have intensified. These have in turn contributed tremendously in leapfrogging the pace of globalization, which itself has been on the rise in the past two decades and more intensively in the past decade in particular. As a matter of fact, from the on-set of the 21st century, the pace of globalization as a formidable economic force, impacting every sphere of engagement, assumed a spiralling dimension, compulsorily beyond the control of any single entity - governmental or corporate, or even a combination of both. Believe me, everything we think or say, and every way we decide or act in business is, in most cases, both the cause and consequence of globalization! Dr. Glenn Prince-Abbi’s interview on Industry Consolidation Page: 1 and Mergers and Acquisitions
  2. 2. I’ve stated all this to say that globalization, levered by technology, has in effectincreased the pace of industry consolidation and mergers and acquisitions in allsectors: banking, insurance, IT, consumer goods, manufacturing, automobile,aviation and infrastructure. This is the trend in global markets. Nigeria is justrising up to it. *** _______________Sir, you delivered a major international seminar on Mergers andAcquisitions in 2004, what are your current thoughts on IndustryConsolidation via Mergers and Acquisitions as it is now in the Nigerianbusiness environment?The consolidation agenda set in 2004 for the banking industry by the CentralBank of Nigeria, has essentially concretized into reality on ground. At themoment, almost all stakeholders, if you like, have realized that this option is thebest for the economy in general. As we argued last year in the midst of thedebate and protestations that followed the announcement by Professor CharlesSoludo, the Governor of CBN, it has been clearly confirmed that global trendsstrongly corroborate the CBN’s position. That is why of course our firm decidedto set the pace for providing the competency and expertise needed in the industryin the area of Mergers and Acquisitions and Post-Merger Integration Dynamicsthrough our international seminar. We felt compelled to bring that seminar toNigeria - a seminar which our firm usually conducts in New York - owing tothe obvious dearth of skill and expertise in M & A and post-merger integrationin Nigeria. The Securities and Exchange Commission, whose Director for M &A Mr. Sylvester Akele, benefited from the training, responded very creativelyand packaged a follow-up seminar for further capacity building in the industry inNovember of the same year and invited me to be the key speaker on Mergers &Acquisitions and Integration Dynamics. The lecture I delivered wasenthusiastically received and widely circulated. At the moment, I’m particularlytroubled that post-merger integration concerns have been largely relegated to theback-burner, as a number of operators worked up their mergers in near-panic, allto meet deadline. It’s not done that way. The all too crucial task of making themerger or acquisition deliver expected value to shareholders is confrontingoperators right now. They must get it right. The challenge is actually a solidpost-merger integration strategy expertly executed. In my judgment, a number ofthe merged entities will actually achieve true synergy and real traction only aftertwo years or so. It happens.Sir, there is so much transformation occurring everywhere, how willcompany executives approach all of this?Technology is the high-power lever in this whole process of transformation.Spurned by current technology, which has enabled a wide array of business andeconomic possibilities, the face of business as hitherto known hasmetamorphosed dramatically, and growth trends in emerging markets of theworld have intensified. These have in turn contributed tremendously inleapfrogging the pace of globalization, which itself has been on the rise in thepast two decades and more intensively in the past decade in particular. As amatter of fact, from the on-set of the 21st century, the pace of globalization as aformidable economic force, impacting every sphere of engagement, assumed aDr. Glenn Prince-Abbi’s interview on Industry Consolidation Page: 2and Mergers and Acquisitions
  3. 3. spiralling dimension, compulsorily beyond the control of any single entity -governmental or corporate, or even a combination of both. Believe me,everything we think or say, and every way we decide or act in business is, inmost cases, both the cause and consequence of globalization!I’ve stated all this to say that globalization, levered by technology, has in effectincreased the pace of industry consolidation and mergers and acquisitions in allsectors: banking, insurance, IT, consumer goods, manufacturing, automobile,aviation and infrastructure. This is the trend in global markets. Nigeria is justrising up to it. And as it matures, it will open more avenues for FDI.What then do you foresee from the trends?You compel me to go full throttle on these themes . . . ok let me explain. Wecan look at global business scenarios in key categories. As a strategy firm, wetraditionally conduct series of scenario planning sessions which have enabled theclarification of global trends and their implications for business across the world,including, of course, how they are apt to impact businesses in emerging marketsas well as teething or slow-growing economies, if you like, in sub-SaharanAfrica, for instance.Scenario planning work, is a major component of our strategy formulationprocess. In the process, we have attempted to segment global trends under keyoperative rubrics, namely, political, economic, social-cultural and technologicalcharacteristics. These are the key factors around which any business inpractically any industry should be structured. Corporate Strategy, includingstrategies for Mergers and Acquisitions will do well to be woven around thesefactors.Under Political Trends for instance, we have observed that: 1) there is a growing acceptance of the benefits of free trade and foreign investments 2) Government protection of domestic firms and industries is decreasing and becoming less effectiveFirst, this pattern of political trends in emerging markets has very clearly openedup domestic businesses and rendered them more susceptible to outside businessrealities. Secondly, it has also increased the tendency towards broadertransnational collaboration by corporate organizations as well cross-bordermergers and acquisitions, in particular. Our projection is that this pattern (Imean, of cross-border alliances and collaboration of businesses and also ofcross-border Mergers and Acquisitions) will fully play out incrementally acrossindustries, i.e. banking, insurance, telecommunications, oil and gas, technology,infrastructure and, of course, aviation. The agenda has been set and the mostfocused organizations with very strong strategic guidance will make intelligentstrategic choices and smartly derive the best advantage from the process. I’mafraid, companies that tend to resist it by not seeking ways of pooling resources(be it technology, skills and competencies, finance, infrastructure or businessdevelopment capabilities) may come to grief. The aviation industry in Nigeriafor instance is in need of a lot of re-jigging or some players may actually crash(sure you understand I don’t mean air crashes; I mean corporate collapse!!).Dr. Glenn Prince-Abbi’s interview on Industry Consolidation Page: 3and Mergers and Acquisitions
  4. 4. On the Economic front, which works in tandem with the Political, we haveobserved that:1) There are fewer barriers to trade, investments, and financial flows;2) There are increased trade and investments flows3) There are improved institutional frameworks for business, trade, and investmentAgain, this pattern portends well for cross-border collaboration or alliances andmergers and acquisitions, particularly in highly technical and capital-intensivesectors, such as aviation where there is now a growing concern.Let’s examine our observations under the rubric of Social-Cultural trends inemerging markets. 1) There are increasingly educated, trained, and competent consumers and populations 2) There is continuing convergence in consumer needs, desires, and wants 3) Disposable income, in spite of the often celebrated harsh economic realities, is growing rather than shrinking - this is striking 4) There is easier and greater movement of skilled manpower across regions These trends What do they indicate? These are definite trends in emerging markets and growing economies. What do they indicate? Increased business activities, of course, and greater business opportunities for players across industries. Taking advantage of these opportunities means that there must be increased investments in all industry sectors. I mean bold investments which should deliver real value to shareholders in the medium and longer term. In this regard, a viable option in high-potential, developing economies, such as Nigeria, remains that of consolidation, mergers and acquisitions and in a number of cases, smartly structured diversification strategies supported with excellent processes and delivery systems. This will strengthen and enlarge the capacity of firms and position them solidly as viable enterprises ready to deliver new levels of competitive value to investors. This pattern, having long taken a foothold in North America and Western Europe as sophisticated markets, is assuming a firmer structure in the emerging markets of Asia. It will certainly take a grip also in Africa, and Nigeria is moving towards that direction - rapidly. Finally, examining Technological Factors and Characteristics, our scenario planning sessions throw up the following existing trends, namely, 1) That there have been more rapid and disruptive changes in technology 2) That emerging economies have clearly demonstrated greater readiness and ability to utilize and absorb technology 3) That “make or buy” decisions are changing fast and the corporation’s boundaries are increasingly less defined 4) That there is widespread diffusion of information and communications technologies, allowing broader geographic dispersion and integration of business activities.Dr. Glenn Prince-Abbi’s interview on Industry Consolidation Page: 4and Mergers and Acquisitions
  5. 5. This takes us back to where we started when we said that current leaps in technology have fundamentally redefined the shape of business. Time, in its erstwhile-defined form has become irrelevant and meaningless in a world that has crumbled to the size of a grape. Today, all activities in business insist on happening at the same time for them to be meaningful and to render good value, by today’s standards. We call it Real-time. This would have been pure laughable science fiction to our grandsires! Speed, made possible and rendered fundamental by current technology, has become a key factor in business. The face and structure of business across the globe has undergone a deep transformation in the past decade or so in a way it never underwent in one thousand years! That’s amazing . . . Oh yes, that’s like it! We have today, whether we appreciate it or not, a business universe without borders and boundaries. It is in this sense that we foresee a deep ingraining of cross-border industry consolidation and mergers and acquisitions, since we are talking about that subject matter. The fact is: this phenomenon will affect every aspect of business. It speaks volumes about how grand strategy at the corporate level or business strategy in specifics should be configured. As I had said on some other occasions in time past, globalization is here, global competitiveness for business organizations in any industry or on any terrain is becoming a pressing necessity as a prerequisite for growth and further survival. No serious business can afford to think in terms of its local context alone. The local context of a business is now a direct product of global business trends. A fundamental departure from this mindset would be mean committing corporate hara-kiri! You clearly have been in full support of the agenda for industry consolidation from the moment it was announced by the Central Bank Governor, Charles Soludo. What are your thoughts on industry Consolidation in other sectors such as Insurance and Aviation? Sure I’ve been in full support the industry consolidation agenda; those who oppose it are simply manifesting the natural human tendency to resist change. Industry consolidation has great benefits if done right. It creates a basis for small players to more easily emerge as big players, as they could gradually crawl on the global scene with improved capacity. If you follow well the scenarios I have earlier attempted to put forward and clarify, you would see that industry consolidation via mergers and acquisitions is an important and wholesome strategic agenda. As insurance companies in Nigeria face consolidation in that industry, the advantages are immediately obvious. A substantial volume of underwriting business in Nigeria is still lost to foreign competitors as a result of capital inadequacy and poor risk management capability. This will be immediately reversed, as the emergent companies after consolidation will be in a firm position to take on those deals. In fact, the regulatory requirement for consolidation in the insurance industry is particularly timely and advantageous. This is because large volumes of businesses in high-capital sectors, such as oil and gas, are coming up rapidly as foreign investment flows in that sector are reaching an all-time high. This complements the heavy and still-growing investments in telecommunications,Dr. Glenn Prince-Abbi’s interview on Industry Consolidation Page: 5and Mergers and Acquisitions
  6. 6. as well as investments, enabled by the new cabotage regime in the maritime sector, which are in turn expected to rise dramatically. There is every indication too that investments in infrastructure are bound to gradually grow. The yawning gaps in infrastructure in Nigeria are clear and this will attract investments under various packages in Public Private Partnership programmes, among others. Talking about aviation and infrastructure, I’m told somebody is building a new airport in Lagos. It’s part of the trend. This all-round trend of upswing in investments clearly opens up unprecedented opportunities for underwriting business, and industry consolidation through mergers and acquisitions, and the attendant enlarged capacity it will confer on the emerging players will bolster robust business growth in insurance. The snag is that there is at the moment a lack of the skills, the managerial depth as well as the strategic institutional development drive that is critical to achieving sound success in the emerging opportunities. That is where the challenge is, but I think it is easy to tackle, if insurance companies will secure the needed expertise to help them in the area of rapid institutional capacity-building and strategic direction. . . And I do not want to advertise our firms services in this talk. And what about consolidation in the Aviation Sector? Consolidation in the aviation sector is clearly a viable strategic option. I had mentioned that in a previous forum, shortly after the fateful Bellview air crash in October 2005. Let’s look first of all, dispassionately at global trends. Industry consolidation in the aviation industry characteristically poses unusual challenges. For instance, a merger between America West and US Airways was announced early last year (2005). The general thinking, going by previous experience with regard to post-merger integration traumas, is that it would be a difficult one. For this reason, a holding company arrangement is being proposed from certain quarters as an option for the merger. A similar merger of a wide international scope was achieved in 2004 between Air France and KLM. Considering, we can safely assume, the irreconcilably disparate cultures and systems, as well as the powerful brand equity each of the two entities command, this particular merger was accomplished through a holding company, making room for the two airlines to be managed independently and to retain their distinct identities. These are all options which are proving efficacious in the process, just as the option of merging confers deep synergies that are adjudged to be of strategic importance for growth and enhanced profitability. It is accepted in global markets, particularly in the United States, where the Airline industry has suffered a deep slide since 9/11, that mergers are needed today to bring some financial stability to the troubled airline industry. The America West/US Airways merger is only one in a series of mergers to come. Beside this, the U.S. airline industry in its history has itself undergone quite a dose of mergers and acquisitions. After going through four different mergers and acquisitions, Bonanza Airlines, a Phoenix-based regional carrier in the 1960s, was finally acquired by Northwest Airlines in 1985. In 1930,Dr. Glenn Prince-Abbi’s interview on Industry Consolidation Page: 6and Mergers and Acquisitions
  7. 7. Transcontinental Air Transport and Western Air Express merged to form what came to be known as Trans World Airways (TWA). And most recently, in 2001, American Airlines fully acquired TWA, finally erasing that name from commercial aviation history. Mergers and acquisitions in the US airline industry intensified with the introduction of deregulation in the late 1970’s, and so before the end of the 1980s, U.S airlines went through series of mergers and acquisitions to achieve rapid and sustained competitive advantage up to the point which we have now known them to be. At the moment, the cycle is about to repeat itself - though not with the same intensity as was the case two decades ago. You may ask me, what are the possible lessons for the aviation industry in Nigeria in the light of global trends. There are a lot. My position is that there is need for focused capacity-building among Operators in the Nigerian aviation industry. Really, in any environment where vast opportunities lie untapped, just as the case in Nigeria, a Merger or Acquisition option for players could offer great synergies and accompanying economies of scale. This has strong strategic value for companies. There are yet unexplored opportunities in the Nigerian aviation industry. Incentives were provided by the Federal Government through (Federal Airports Authority of Nigeria (FAAN). For instance, a 50 per cent waiver on landing/parking fees for a period of 6 month is being granted to encourage the development of routs. Lots of opportunities have been identified for specialized segments such as cargo and tourism, supported of course by incentives from government. The existing capacity of operators in the sector still fall way behind the opportunities offered on ground. A similar need for capacity-building can be identified when we consider the need for domestic airline operators to achieve world-class standards in service delivery and operational efficiency. This is particularly important for moving forward. Operators will do well to seek, or position themselves to attract, foreign investments and to pool resources to enable them achieve new competitive levels of service delivery and operational performance. Doing that, they will also be able to take the most creative advantage of all that the industry offers. All of this calls for focused and visionary leadership, strength of managerial depth and strategic behaviour among the operators in an industry which should be run at world-class levels by every consideration. Nothing short of that is acceptable. Sure you understand? It appears quite good, but in your experience, how will such mergers work? I was actually coming to this crucial issue. We have repeatedly said that hardly will any Merger or Acquisition work without a well formulated and prosecuted post-merger integration strategy. A number of companies in practically all industries have discovered much to their chagrin that they over-looked or treated lightly the need for putting in place a solid integration programme. The right expertise must be sought to achieve this. This is important for the merger or acquisition to succeed. Aviation industry players in the dispensation to come, if you like, will do well to consider this.Dr. Glenn Prince-Abbi’s interview on Industry Consolidation Page: 7and Mergers and Acquisitions
  8. 8. Before the close of 2005, there was indeed a frenzy, a near-panic among banks to merge to meet the regulatory requirement. Strategic issues, such as post- merger integration to lead to competitive value delivery, were not in the front- burner of concern among the banks. At best what I see being put across by merging entities are mere rationalizations about strategic fit and all that. For me, this is particularly worrying. The need for synergy capture and that of unlocking all the expected value foreseen before the merger, calls for a sound management of the integration process. Factors having to do with post-merger integration dynamics must be factored in right at the stage of due diligence. In general, it is rather intriguing that while companies seek financial consultants to put together the M & A deal, they treat the integration aspect rather lightly and either decide to do it themselves without the skill or seek advisors that lack the required competency in strategy and institutional development or culture integration. It is a far trickier process than is being realized. It is not surprising then that far less than 50 per cent of mergers really succeed. The fact remains that the process of integration is where the success of the merged entity lies. After investing billions in a particular merger or acquisition it is important that a foolproof process of managing the post-merger integration dynamics be put in place to ensure success. This is simply elementary wisdom. But the lack of it has characteristically accompanied most M & A deals and therefore the disappointing failure rate recorded globally. I assume that this lesson will be smartly learnt by firms in the Nigerian business environment as consolidation gains ground in various industry sectors. As a matter of fact, there are other offerings in the horizon. Take it that from this self-same consolidation framework across industries, will emerge channels and platforms for cross border investments and alliances by which smarter parties would take creative advantage of more of the renown opportunities which our country offers as a locus of investment among developing countries, as global investors look to such locations to extend their growth strategy. As a company we are steadily shifting and moving our gaze towards this very horizon through what we call strategic business incubation (SBI). _______________Dr. Glenn Prince-Abbi’s interview on Industry Consolidation Page: 8and Mergers and Acquisitions

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