Aon hewitt


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Aon hewitt

  1. 1. The Transformative Role of Human Capital inMergers, Acquisitions, and DivestituresThe 6th Annual Conference on Mergers and AcquisitionsJuly 2012
  2. 2. Aon Hewitt: A Snapshot • Aon Mergers & Acquisitions Solutions Aon Corporation Aon Risk Solutions Aon Hewitt Aon Benfield • Retail Brokerage • Corporate Transactions • Treaty Reinsurance • Captive Management • Talent and Rewards Consulting Brokerage • Affinity Programs • Employee Communication, • Facultative Reinsurance • Select Personal Lines Engagement, and New Media Brokerage • Premium Finance • HR Business Process • Capital Markets Outsourcing • Financial Advisory • Total Rewards • Analytics &Technical Services • Claims Management Aon Hewitt Overview Core Strengths Valued by Our Clients #1 Human capital consulting and outsourcing firm in the world • Aligning complex situations to strategy • Balanced and holistic approach across IT, 90 Number of countries in which Aon Hewitt operates people, process, and organization 330 Number of Aon Hewitt offices around the world • World-class consultants and methods 29,000 Number of Aon Hewitt colleagues around the world • Best-in-class change management and$8.5 billion Aon revenue (2010 corporate) engagement through transitionsAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 2
  3. 3. Aon’s M&A Solutions: Capabilities SummaryAon is the leading provider of HR-related M&A services globally and manages over 200 transactions per yearincluding the largest and the most complex and successful business combinations over the past 5 years. Our People Our Experience and Expertise Our Market PresenceDedicated group of M&A Overall Acting as HR M&A partner to Cisco Hired as ongoing global HR M&Aspecialists – M&A and On average, our consultants have providing support for multiple partner. Provided due diligencerestructuring are all we do; over 20 years experience working transactions, including $3.2B and integration support for multiplefocused on delivering end-to- with some of the world’s most acquisition of Tandberg (35+ transactions as well as HR M&Aend capability for major sophisticated organizations countries); working directly with HR training for GE employees globallyorganizational change events including GE, HP, Nokia, UPS, M&A Leader IBM, Abbott, Cisco,Industry leading experts – Providing strategic support for global Provided due diligence and Wal-Mart, among othersPractice-leader level consultants expansion, specifically growth in Latin integration support for multiple Worked on 500+ transactions informerly with largest America (Brazil); working directly with transactions in addition to past 5 years, including some of thecompetitors, joined together to Global Business Integration executive providing HR M&A training for most complex acquisitions indeliver distinctive value within Finance organization Philips employees globally recent historyGlobal expertise – Worked on Depth and Breadth of Services Leading HR due diligence efforts for Provided HR M&A integrationtransactions involving every Provide services throughout the Comcast‘s 51% ownership stake in support on multiple transactions inregion of the world; specialize in transaction lifecycle – Due NBC Universal (joint venture with GE). addition to HR M&A training andaddressing human capital issues diligence, integration planning, $30B transaction involving 45+ HR partner for numerous jointin complex global deals post-merger integration and countries; working closely with SVP ventures restructuring Comp & Benefits and business strategyIndustry Expertise – Expertise in Integrated set of expertise across a leadera multitude of industriesincluding transportation, media, broad range of HR domains Leading transition efforts to stand up Hired as Joint Venture HR M&Afinancial services, healthcare, including benefits, compensation, HR programs and operations for the partner for Ricoh/ Global Infoprinthigh technology, manufacturing, communications & change joint venture entity; working directly joint venture in addition toretail management, HRIS, HR with EVPHR from NBCU and providing HR M&A training for IBM operations, HR policies, leadership executives from GE and Comcast employees globallyHolistic Skill Set – HR technical selection and staffing, organization(e.g., benefits, employment law, design, payroll, training & Hired as ongoing HR M&A partner for Led global compensation &compensation), organizational development HP MADO and have provided due benefits integration support for(e.g., culture, change diligence and integration support in Abbott’s $7B acquisition ofmanagement, organization Methods, Tools and Technology multiple transactions, including $13B Solvay’s pharmaceutical unit, onedesign), and business Leverage proprietary methods, acquisition of EDS (320,000 of the largest pharmaceutical dealsstrategy/operations (e.g., tools and technology to deliver employees in 60 countries) completed in 2009business strategy, operational consistent M&A solutions across allprocess design) domains and around the world Aon Hewitt | Global Aon Mergers and Acquisitions Solutions Proprietary & Confidential 3
  4. 4. About AKT The largest HR Consulting firm in Israel In business since 2001 +90 associates and partners Expertise Growing and profitable Customer base include +150 of Israel’s leading companies • Talent Management Strategic partnerships include: • Total Reward – AON-Hewitt – SuccessFactors • Corporate – LHH (DBM) Transaction &and DBM (LHH Transformation • Learning • HR Excellence • Career Transitions • HR TechnologiesAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 4
  5. 5. M&A Environment Through First Quarter 2012Source: 2012 Merrill datasite/monthly M&A Insider Mark 2012, we expect activity to increase during the yearAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 5
  6. 6. Sustained Shareholder Value Creation Remains Challenging Were all Transaction Goals Achieved? Yes 22% 78% NoDistribution of Total Return to Shareholder versus Industry Benchmark (TRS measured 24 months after deal announced) Source: 2008, Aon Hewitt/ M&A Transaction and the Human Capital Key to Success – Global ReportSignificantly value-destroying deals Significantly value-creating deal(TRS less than -20%) (TRS greater than 20%) Factors Contributing to Deals not Meeting Goals 22% Frequently Rated High Frequently Rated Low 39% Cultural integration issues Payroll integration/ Inconsistent/ unclear implementation issues communication of synergy Compensation integration/ 20% objectives implementation issues Value-destroying deals Integration/ implementation took Benefit integration/ (TRS less than zero) longer than expected implementation issues 19% Insufficient attention/ priority to HR operations integration/ workforce/ people issues implementation issues Value-creating deal Insufficient/ incorrect employee Staffing selection issues Source: Accenture analysis (TRS greater than zero) communications Aon Hewitt | Global Aon Mergers and Acquisitions Solutions Proprietary & Confidential 6
  7. 7. One Possible ExplanationAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 7
  8. 8. Human Capital Issues Remain a Huge Tripwire in Global Transactions Top 10 drivers of deal failure (% of respondents) The top drivers for deal failuresIntegration took longer thanexpected 41% are Human Capital issues, but only 15% of time in dueCultural integration issues 33% diligence is spent on HR &Inconsistent communicationof synergy objectives 32% Communications.Insufficient attention/ priority 30%to workforce/ people issues Percent of time spent on each functionPoor/ misinformed strategy 28% during due diligence OtherRisks/ liabilities not identified 26% 10%during due diligence Communications Finance 5% 25%Insufficient execution 26%capability/ competency Sales and Marketing 10%Leadership “infighting” and/ 22%or buy-inPrice paid for target was too 10% 20% Humanhigh Resources 20%Failure to implement an Business Line/ 18% Operationsappropriate org. structure 20% Legal 0% 10% 20% 30% 40% 50% Source: 2009 Aon Hewitt/ The Deal Human Capital StudySource: 2012 Aon Hewitt/ Culture Integration in M&A, Survey Findings Aon Hewitt | Global Aon Mergers and Acquisitions Solutions Proprietary & Confidential 8
  9. 9. Cost and Growth Synergies Always Involve Human Capital Value of Synergies (Assumed) Growth …depend + on business – – + + strategy and workforce Transaction Integration Costs = ability/ Costs Value of willingness Target Maximum to execute it Value of Price For Costs Acquirer Enterprise Metrics of Success Objectives Methods to address HR issues Identification of HR and Risk Liabilities Pay the Right Growth synergies are almost exclusively Purchase price adjustment Price Obtain protection for HR/ Risk liabilities and cost driven by Human Capital — physical assets, process reengineering, or tech Retain key talent infusion are enablers of growth. Achieve Growth Retool workforce Synergies Minimize disruption Improve processes and efficiency The “winners” are those firms that can build execution capabilities and Identify HR/ Risk cost savings measure outcomes around growth Manage Cost Estimate severance and restructuring synergy capture Capture economies of scale in purchasing goods/ service Minimize litigationAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 9
  10. 10. Due Diligence Snapshot
  11. 11. Sources of Human Capital Risks Talent Risk Reputational Risk Evaluation of individual leaders from CEO down against Due diligence of business entities, owners and management competencies critical to success in post-deal environment teams, potential board members and key hires, and JV partners. Application of range of valid, sound, and target-appropriate tools delivered by highly experienced, professional global team. Fact- Proxy fight and hostile takeover defense support based talent value assessment on which to base compensation Results translate into real benefits including prevention of and retention offers reputational damage, increase in critical negotiating leverage, Due diligence of team effectiveness of leadership team; and reduced financial losses resulting from misrepresentations. Assessment of depth of bench strength and succession risk Identify and avoid financial losses resulting from Identification of performance and retention risk, lending results misrepresentations. to quantification of potential retention considerations in Identify possible trailing litigation or regulatory issues transaction value Gain a more complete understanding of involved parties Analysis includes a competency profile of each individual along with recommended actions to address lacking areas and drive results Culture Risk Compliance Risk Evaluation of a properly calibrated risk environment that Evaluation of compliance programs across all functional encourages leaders and employees to make business areas that is appropriately documented, communicated, decisions that maximize the risk/return trade offs within the risk implemented and reported. tolerance of the company Due diligence on compliance related policies and Due diligence on risk environment and governance focusing on procedures, compliance communications, ethics and assessment, monitoring, and control environment and likelihood compliance training, whistle blower programs, compliance for reckless behaviors hotlines, processes for treating alleged incidents; risk assessments; and business and compliance review Analysis of internal policies and practices and governance processes. model e.g., does management demonstrate active commitment to risk management policies and practices? Does the company culture and pay practices support the operational risk management environment that is appropriate?Aon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 11
  12. 12. Global Due Diligence: Focus on Key Workforce and ComplianceIssues People Assets Adverse Margin Impacts People Costs Workforce Flexibility Profile key management Understatement of Benchmark jobs and Goodwill issues/morale Organization chart ongoing program costs people costs Procedure steps Skill profile Severance payments Benchmark staffing Legal barriers Commitments to future levels Demographic Union/Work Council characteristics cost increases issues Collective agreement Temporary/contract commitments workers Expatriates Relocation expenses Asset Liability Impacts Adverse Revenue Impacts Organizational Fit Compliance Change of control Sales incentive design Cultural barriers Programs and triggers Likely employee turnover Incompatible job processes Pension, welfare Retention plans definitions Illegal payments liabilities understated Incompatible reward Discrimination Pending industrial Contracts with disputes structures Acquired rights executives may contain Incompatible process Payroll & HRIS future liabilities and structure Collective agreements Book accruals Duplicate jobs understated, e.g. Employee commitments vacation, sales commissionAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 12
  13. 13. Address Country-Specific Labor and Compliance Issues Many countries have local laws and practices that can have a significant effect on the price of a deal Brazil China France Germany Israel Japan Pension Employment Triggering of Triggering of Complex Complex underfundin laws vary by Individual and acquired rights labor laws compensation g province union rights programs Variation in Increasing Plan tax Some Post-retirement pension duties for Variation in status benefits are medical and life valuation social pension set by law methods security valuation Minimum Termination methods health Unrecognize indemnities Restrictions on General benefits d benefit asset transfers trend over Restrictions on Early retirement costs and the last retirement plan Termination incentive plans Eliminate liabilities decade of changes indemnities pension Formal and “legalization Constraints discrimination Restrictions on Small group informal ” of the on policies/practice asset transfers insurance severance plans workplace severance s costs Employee practices Employee Recent Implementing housing housing legislation retirement plan subsidies subsidies increasing mergers protection of Minimum legal Complex labor Complex labor employees benefit levels environment environment Legal limits on Individual reductions in employment benefit levels contractsAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 13
  14. 14. Integration Drill Down
  15. 15. Define an Overarching Integration “Philosophy” POSSIBLE INTEGRATION “PHILOSOPHIES” Limited Integration Dominant Player Absorption Holding Company A Company Dominance Company Company A B Company B Very little integration of A & B B’s assets are fully integrated into A Mutual Best of Both Integration Transformation to New Company Integrated Integrated Best of Best of Best of Best of New New Company A Company B Company A Company B Company Company Full merger of best practices from A External New Company & B to create a new entity Best Practices Best Practices Best of Both integration that also incorporates external and new company best practicesAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 15
  16. 16. Integration Success is Linked to Sustained Focus on Leadership andKey Talent Utilize leadership practice strategies and approaches on a consistent and sustained basis than underachievers Extent* to which the leadership practices are utilized 100% 94% 81% 82% Underachiever 80% 80% Overachiever 75% 73% 71% 68% 68% 62% 63% 60% 60% 58% 57% 56% 50% 40% 20% Identification Assessment Selection Use of formal Coaching/ Having leaders Onboarding Having and retention of leaders/ and leadership mentoring and key talent of leaders/ leaders/key of leaders/ key talent placement competency leaders and lead key talent key talent of leaders/ model for key talent participate in talent participate in integration ongoing key talent transactions teams leadership development programs *Responses of 4 and 5 was considered where 5 indicate “Always” Source: Aon Hewitt M&A Research DatabaseAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 16
  17. 17. Leadership Assessment and Selection Key drivers for leadership assessment Best practices to engage and retain leaders and selection in acquisitions Limited or questionable data is provided about Engagement begins with orientation, but requires key leaders from the acquired organization continued conversations and engagement by the acquirer Early assessments are often inaccurate – especially when provided under severe time Executives require more than retention packages constraints (e.g., competitive compensation and benefits, career development, strategic vision) Political considerations may play a key role (e.g., would target CEO’s assessment be the Targeted development and reward strategies for key same as yours?) technical and functional experts Business objectives and strategies may be “Mentoring” relationships between acquired leaders different requiring a different type of leadership and peers in the business who have been “acquired” (e.g., transformational vs. transactional change) GE Best Practice: Performance-based retention targeted at achieving business financial targets (including synergies) plus non-financial actions such as mentor or IDPAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 17
  18. 18. Acquirers are Increasingly Using More Comprehensive Leadership Assessment Tools and MethodsAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 18
  19. 19. Understanding National Cultural Differences Is Essential to theSuccess of the Transaction Linear-Active, Multi-Active Reaction Variations Hispanic America MULTI- ACTIVE Italy and Spain Africa Russia Arabs France Iran and Turkey BELGIUM INDIA Australia and Denmark Indonesia and Philippines Netherlands and Norway Korea U.S.A. China LINEAR- Switzerland REACTIVE Vietnam ACTIVE U.K. Sweden Finland CANADA Singapore Hong Japan Germany Kong Source: When Cultures Collide, Richard Lewis, Third Edition.Aon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 19
  20. 20. National Culture Recognizing differences - IsraelValues :Obsession to surviveCourageEnergyOpinionated viewsImpatienceMoralityModernityPractical & pragmaticInformal peoplePoor listenersFriendly atmosphere butbusiness like.Full use of high technologySeeking innovation andimprovementsstraightforwardSource: Richard D. Lewis Aon Hewitt | Global Aon Mergers and Acquisitions Solutions Proprietary & Confidential 20
  21. 21. Addressing Organizational Culture is Highly Correlated withSuccess What defines How it is culture demonstrated Leadership What they attend to, measure, reward and control; role modeling and coaching Customer Experiences Employee Experience Organizational Structure Mission, Objectives, Shareholder Value Values and Strategies. Formal statements, charters, creeds Brand Promise Business Partner Programs, Policies, Relationship Practices Criteria for recruitment, promotion & exit Work Environment Business Results Design of physical space; Socialization PattersAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 21
  22. 22. Culture Must Align With Strategic Priorities and Drive Value Major Strategic Priorities Efficiency Quality Innovation Customer Service Company Image Cultural differentiators* by strategy in financial high-performance companies Safety focus Teamwork/BP sharing Diversity of thought Career development Shared understanding Structure/process Process quality focus Supervisor relations Performance of company direction/ efficiency Empowerment Stimulating management brand Training Training environment Local flexibility Shared values/pride Coordination Long-term orientation (physical) Positive working Integrity Data orientation Understanding Stimulating relationships Leadership Performance customer’s quality environment Supportive service Belief in P/S quality management expectations (interpersonal) environment Focus on priorities Data orientation Information sharing Customer knowledge Involvement Collaboration/ Service orientation Workload/resourcing teamwork Values Physical conditions Support for risk taking Learning/information Customer Rewarding innovation sharing understanding Bias for action Belief in P/S quality Anticipating customer needs Flexible work arrangements Credible leadership *Differentiators derived from employee research into the survey questions and topics on which financially successful companies excel versus their peers.Aon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 22
  23. 23. Aligning Culture with Strategy Leads to Better Engagement andRetention Outcomes Strong Culture Alignment 7% 35% 51% 7% 44% more employees are engaged in companies where culture is aligned with strategy Low Culture Alignment 9% 20% 42% 29% 71% of employees in companies with misaligned cultures are either 0% 20% 40% 60% 80% 100% passive or actively disengaged Highly Engaged Moderately Engaged Passive Actively Disengaged 1% Strong Culture Alignment 51% 30% 5% 13% 2X the number of employees will stay with companies where culture is aligned with strategy Low Culture Alignment 25% 36% 19% 3% 18% 75% of employees are likely to 0% 20% 40% 60% 80% 100% leave companies where culture is not I have no plans to leave Would consider another job offer aligned with strategy Actively looking for another job Made plans to leave Plan to retire in the next few years Source: Aon Hewitt’s Engagement 2.0 StudyAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 23
  24. 24. What are M&A Overachievers Doing Differently?Answer: Less analysis, more action! Assess Current State Culture 75% 89% Underachievers Define Future State Culture 70% spend more time 89% assessing culture Analyze Current/Future Culture Gaps 75% 89% Make Organization Structure Changes 100% 78% Redesign HR programs 90% Overachievers 67% spend more time 90% Managing culture. Conduct Team Building Interventions 78% Ie, the “How” Communicate Regarding Culture 85% 78% 50% 60% 70% 80% 90% 100% Overachievers UnderachieversSOURCE: Aon Hewitt’s Culture Integration in M&A StudyAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 24
  25. 25. Culture Integration to Aim Towards a High Performance Culture Indicators of a successful culture Mistakes to avoid during culture integration integration In the longer term, the success of culture Often integration leaders not held accountable for integration is does not lie in the similarity of culture integration merging businesses, but in building a High Lack of urgency in addressing culture Performance Culture. Executives do not see the need to address culture at all Following activities should be included in culture integration plan Leaders (often managers/supervisors) not skilled at leading change Leadership role modeling of desired behaviors What employees experience does not match what they’re told Communication of performance expectations Relegating culture to HR; treating it as “soft” stuff Conduct assessment but ignore ongoing change Talent and skill development process Reinforcement with formal mechanisms Ignoring subcultures, which invariably existAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 25
  26. 26. Reduce Risk and Cost of Disengagement and Accelerate Financial Value of Changes The Individual Change PathUnderstanding Preference Value Adoption = Behavior Integrating Rationalizing (shortest duration possible) TestingResistance Over- Confidence Letting Go Disengagement “valley of despair” The “change curve” is unavoidable and expected as employees learn and grow through the change event. The depth and duration of disengagement can be managed and minimized. Aon Hewitt | Global Aon Mergers and Acquisitions Solutions Proprietary & Confidential 26
  27. 27. In Transactions, Employees have a Raft of Pressing Questionsabout how They are Impacted Personally Employee My Company communication should address these concerns. My Team My Work My Career My Money My Future What will What will What will How will my What will What will happen to happen to my happen to day-to-day happen to the happen to my me? ability to earn opportunities work change people I work Company? money … for my career … short term? with? short- and … long term? long-term?Aon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 27
  28. 28. Amiad – Arkal Integration – Israeli Case studyAon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 28
  29. 29. Amiad – Arkal PMI Case Study April May June July Aug. Sept. Oct. Nov. Dec.Area PMI Planning & approval I General Planning Leading teams assignment Communication II Comm. D-Day On-going communication planning comm. Key People KP retention activities: Dialog, Engagement, Professional challenges, Risk mgt.III Identify KP retention KP retention meetings Streams check lists + Gap analysis reportIV Gap Analysis Ext. leading team Orientation Early suppliers unification Vision & strategic planning Vision, Structure & High level Organizational structure V Management assign. Management R of O-Org. structure Assign. Working processes design Identify Key Customers CustomersVI Co-meetings Focus on effective Customer Service retention company EE Orientation Mix. Business teams ValuesVII Cultural Merger Professional Global Re- Trainings Branding QC & Mid processVIII Employee survey conclusions
  30. 30. Thank You!Aon Hewitt | Global Aon Mergers and Acquisitions SolutionsProprietary & Confidential 30