The key message here is: “ You need to transfer the energy from the small team which made the deal to the teams who will drive delivery - without losing focus and slowing the whole process down”
Points to make are: That while top management should know what the intent of the acquisition is, it might not be exactly what they’ve told the financial markets or their own employees, and the acquiree will not necessarily be aware of the agenda Circumstances can change between the bid being accepted and the deal being completed and the acquirer always finds an extra bit of value or risk The strategy dictates to a large extent the focus of effort for the integration programme. The integration approach will depend on the characteristics of the two organisations, along with the analysis of where the value lies (the motive for the deal). There are many stakeholders to engage and the key messages for each will be different Supporting Notes: PA’s research - ‘Creating shareholding value from acquisition integration’ - shows that there is no significant increase in shareholder value where cost savings were the prime motive “ Cost reduction shouldn’t be the sole goal; the most successful companies will be those that can grow as well. When we make acquisitions, therefore, our real aim is to create larger platforms for growth” Raj Gupta Chairman and CEO, Rohm and Haas - Lessons from Master Acquirers: A CEO Roundtable on Making Mergers Succeed, Harvard Business Review May/June 2000.
Define the total value This can be used generically but, whenever possible, should be populated with “real” numbers (or at the least best guesses) based on PA research. This enables us to put a value based proposition along this lines that “if you have to extract £/$/€ X m of value, then it is worth paying PA Y% of that (where Y is 1-5%) to help ensure you get it” Prioritise and focus There will not be limitless resources, so it will be necessary to prioritise based on: Value of the possible integration project (calculated on a risk reduced basis, net present value basis) The degree to which the project will contribute to the end state vision (e.g. it may be necessary to do some projects which do not deliver benefits themselves in order to align the organisations) Benefits Model Keep it simple - avoid complicated accounting measures of benefit Supporting Notes The “integration costs” include all the costs of achieving the integration, such as restructuring costs (redundancies and the like) and the cost of the integration team Be careful when applying the “value to be extracted” argument in a merger situation - where no premium is paid.
Planning & Quick Wins In the initial stages of the integration, there will be much uncertainty, thus, the need will be to direct the team to plan the integration programme and to deliver the quick wins. Integration Programme During the execution of the programme there will be a defined set of objectives and programme of work. The emphasis will therefore need to switch from “directing” to controlling, monitoring and communicating as the integration progresses. Embedding Here the integration programme is complete. However, to get the full benefits, the new organisation, work processes and culture must now be embedded. This requires coaching, facilitating and supporting by the integration team Key Points In designing the integration process, you need to strike the right balance between doing things quickly to get early benefits, while sticking at it long enough to make the changes stick It is important to design the best programme to deliver benefits, not by functional silos or for operational convenience. For example on one large integration programme, a £2MM pa benefit was achieved by closing down the acquirer's mainframe. Initially, labelled as an IT project, within a short space of time it was clear that it was totally dependent on legal, premises and HR activities Defining “islands of change” will allow the intermediate states of the organisation to be visualised more clearly The benefits model must be directly tied to the programme of activities which deliver them
People and communications are at the heart of most integrations. Key areas are: Appointments to key integration roles are on the basis of experience and potential (i.e. a proving ground for the emerging “stars”, rather than a home for surplus “dead wood”) Providing significant integration incentives increase the chances of successful integration. Many integrations are constipated by cumbersome appointments processes for getting people into jobs - this is a task for which you can gear up in advance Be clear who is leading the integration and who is responsible for delivering each and every benefit (single point responsibility) Genuine two-way communication with all stakeholders Early dialogue to involve and re-assure key staff Recognise and plan for any cultural differences via a detailed HR plan Case Study Examples: : Lloyds - TSB. Thought Leadership: : Assimilating acquisitions: a study among the world’s major food and drink companies of the human resource implications of successfully assimilating acquisitions - Susan Johnson Integration: how to hit the ground running - Bridget Skelton.
Post Merger Integration Principles
Guiding principles for acquisition integration <ul><li>Get the integration strategy right for the deal </li></ul><ul><li>Design the programme around the benefits case </li></ul><ul><li>Provide shape and focus through outstanding programme management </li></ul><ul><li>Rapidly engage the people in both organisations </li></ul><ul><li>Manage the risks to the business as well as the programme </li></ul>Successful Integration Strategy Programme Design Programme Management Risk Management People & Communications
Get the integration strategy right for the deal Spell out the rationale for the deal, the benefits sought, along with key complexity factors Determine the integration approach and strategy Studies indicate that there is no ‘one approach’ for all acquisitions <ul><li>The integration strategy must be driven by the strategic rationale for the deal (i.e. achieving the ‘1+1=3’) </li></ul><ul><li>Key stages in the journey need to be defined in terms of the business model and the performance of the combined organisation. This enables success to be measured as the integration progresses </li></ul>Have a clear view of the ‘end game’ – along with the stages in the journey <ul><li>The integration strategy is: </li></ul><ul><li>How deeply will we integrate? </li></ul><ul><li>How quickly will we integrate? </li></ul><ul><li>How many do we need to involve in the process? </li></ul><ul><li>The approach may vary across the organisation </li></ul>cultural compatibility (different) geographic presence (overlapping) relative size (similar) resource valuation base (pinkware) produce positioning (competing) acquirer preparedness (not ready) sector concentration (high) Level of involvement Depth / Degree Pace Performance Time Benefits Delivery $ improvement FTE Reduction Cost Reduction Revenue Growth Economy of scale Extension of presence Bundling of capabilities NO GO ZONE
Design the programme around the benefits case Always keep sight of the benefits case - if you’re not keeping the score, you are unlikely to deliver <ul><li>IT will be either crucial or unimportant </li></ul><ul><li>Less obvious topics - e.g. real estate – can contribute up to 20% of savings </li></ul><ul><li>Ruthlessly review existing projects – Acquirer and Target. </li></ul><ul><li>Not all projects need to be done at the same time </li></ul>Confirm the total value which must be extracted Identify the areas that will deliver the most value - prioritise and focus efforts as appropriate Time to deliver <ul><li>Value extraction targets should be broken down and allocated to individual projects </li></ul><ul><li>A robust cash-based benefits model is required – measuring things that make sense to operational staff. </li></ul>Install strong leadership to ensure commitment to achieving the benefits <ul><li>Clear governance and single point accountability are key </li></ul><ul><li>The integration delivery structure must be firmly tied to the ‘business as usual’ structure </li></ul>time Transition Transform Quick Win Opportunities Benefit Integration Steering Group Programme Manager Programme Director Programme Office People & Organisation Communications Real Estate Commercial Systems Finance Business Integration Business Integration Managers
Provide drive and focus through outstanding programme management On the road to integration, priorities will change as the programme progresses Manage the work as an integrated programme to maximise business benefit Deliver the benefits at the micro level, monitor at the macro level <ul><li>You must also change management styles - to reinforce desired behaviours and embed the new culture </li></ul><ul><li>You must stick at it long enough to deliver the full range of benefits available. </li></ul>Individual project managers cannot manage conflicting priorities by themselves Integration Implementation Programme <ul><li>Progress on the achievement of the benefits case is the number one agenda item for each Steering Group meeting </li></ul>-0.20 -0.10 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Year Revenue Costs Benefits Business operations Current business Business strategies Projects Projects Projects Stage Review Stage benefits Stage benefits Future business Stage Review Transformation Theme: Coaching & Facilitating Transition Programme Theme: Controlling, Monitoring & Communicating Planning & Quick Wins Theme: Directing Time Benefits 100 days (20-30%) 3 years (100%) 300 days (80%) Performance Time
Manage the risks to business as well as to the programme Business <ul><li>Rapidly gain control of the operational business </li></ul><ul><li>Use a “smoke detector” of high frequency performance metrics to monitor business results </li></ul><ul><li>Expanding markets will present a particular challenge </li></ul>Programme <ul><li>Identify the key risk areas for benefit delivery </li></ul><ul><li>Establish formal risk management processes </li></ul>Confidence Matrix Inadequate resourcing is often the biggest risk SB.1998.DM2/2 Scope/Plans Quality Resource Communications Ops System Mngmt Systems Integration Testing Implementation ? ? ? ? ? ? Work Elements Control Elements Risk Identification Take Action Risk Control Framework Developing the Risk Profile Modelling & Simulation Risk Assessment & Prioritisation Risk Review Monitor & report <ul><li>Input to: </li></ul><ul><ul><li>Rate of return for business case </li></ul></ul><ul><ul><li>Project strategy </li></ul></ul><ul><ul><li>Methods for project scoping </li></ul></ul><ul><ul><li>Contingency requirements </li></ul></ul>Project Categorisation Risk Mitigation Planning Contingency Planning Integrated with the Project Control Cycle
Rapidly engage the people in both organisations <ul><li>Identify and engage the key stakeholders to understand their attitudes and personal ‘wins’ </li></ul><ul><li>Capture “hearts and minds” through the communication process </li></ul><ul><li>Ensure cultural differences are recognised in the HR plan - even for apparently similar cultures. </li></ul><ul><li>Produce an HR plan to ensure that the right people are appointed to jobs quickly - a task that is often underestimated. </li></ul><ul><li>For staff required on a temporary basis only, lock them in via bonuses linked to activity achievement – rather than time </li></ul>Taking advantage of the window of opportunity to make the big changes Select, build and incentivise the integration team - using staff from both organisations Engage people throughout the organisation Target communications appropriately with all key stakeholders to begin to build support Owners and Corporate Key Clients Suppliers Employees Key Influencers Analysts and Press <ul><li>Integration programmes don’t fail through over-communication. </li></ul><ul><li>Communicate, communicate and communicate again </li></ul><ul><li>The New Company </li></ul><ul><li>Key Line Staff </li></ul><ul><li>Project Teams </li></ul>Company A Company B Stakeholder Mapping Share of Voice (degree of influence) Buy-in (attitude to project)