Post Merger Integration (PMI) Best Practice Framework

Post Merger Integration (PMI)
Best Practice Framework

To achieve growth, companies must combine resources in such a way
that "one plus one makes more than two"
3
Merger result: 1 + 1 = 2 Merger result: 1 + 1 = >2
1
1 2
Company A Company B Combined
company
• Growth does not occur naturally by adding up the sales
of two companies that were separate before the merger.
• A strategy of merely exploiting cost synergies and growing
by adding one plus one will only achieve a maximum of two.
1
1
>2X
Company A Company B Combined
company
• Growth is triggered when the right merger partner is found and
when the company does more to exploit efficiency synergies.
• The combined company must be positioned to offer new products,
make quantum leaps in engaging new technologies, go after new
customers or even create a new industry.
Growth
Standard Merger Ideal Merger
PMI BEST PRACTICE
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Successful mergers link effective strategy formulation, pre-merger
planning and post-merger integration
6
• Ensure integration activities are
in line with the acquisition strategy
• Ensure acquisition strategy is at the forefront of target identification,
due diligence and the final merger decision
Post-merger
integration
Merger and acquisition process
Corporate
strategy
Acquisition
strategy
Scan of
acquisition
targets
Detailed
review of
acquisition
targets
Due diligence
Approval and
announcement
Post-merger
planning
Closing
• Determine an acquisition strategy
that fulfils the acquirer's corporate
strategy/vision
• Identify and target companies with the desired capabilities
• Determine if there are any barriers to the deal
• Acquire data that will allow the companies to identify and measure the sources of value
from the transaction
• Create detailed plans on value capture that will become action plans for the PMI
process
• Determine leadership, responsibilities and establish operating model
• Build a strong integration structure
• Prioritise opportunities and implement quick wins
• Actively address cultural issues
• Establish open, frequent and timely communication
• Rigorously manage risks
Companies that specifically focus on each of these three activities are able to keep the vision at the forefront, know where the value will come from and therefore
negotiate the right price and, thus, use this information to guide the post-merger integration process
Acquisition strategy
Pre-merger identification and planning
Post-merger planning and integration
PMI BEST PRACTICE

…the underlying logic of the specific integration projects differs, and
should be reflected in the approach and timing of the various projects
9
Value segments
(Customers)
Value proposition
(Assortment)
Complementary Overlapping
Value levers and nature of synergies
Value system
(Delivery system)
Who do
we target?
What is
our offering?
How do
we deliver?
• The integration focus and logic varies
in the different divisions and between
the specific integration projects
• The varying logic normally involves
different integration approaches
– Integration of overlapping business
areas is typically cost oriented,
top-driven and involves relatively
few people
– Integration of complementary
businesses is typically more
opportunity driven and involving
• Therefore, the focus and integration
approach of the various projects
should be tailored
Division A Division A
PMI BEST PRACTICE

12
Announcement Post-merger planning
Post-merger
integration
Closing
4. Actively address cultural issues
5. Establish open, frequent and timely communication
1. Determine leadership, assign responsibilities and establish operating model
3. Prioritise opportunities and implement quick wins
2. Build a strong integration structure
Post merger integration Framework
6. Rigorously manage risks
The PMI framework has 6 key steps
PMI BEST PRACTICE - FRAMEWORK

A Corporate “Control Tower” ensures that the guiding principles are
adhered too and the integration progress is actively monitored
15
Corporate “Control Tower”:
• Establish a steering committee made up of senior executives to ensure that the
guiding principles of the merger translate into clearly identifiable and
measurable targets
• Establish an office of the brightest employees to support the steering committee
• This becomes the centre of the integration process and is used to:
– Frame overall integration plan and timing
– Coordinate activities across business units
– Monitor progress
– Maintain consistent processes, and
– Drive specific corporate project activities and teams
Business Unit Project Teams
• Drive business unit integration projects
Suggested integration programme organisation Purpose and Responsibilities
Corporate
Project Teams
BU Project
Teams
Corporate
management
Business
Unit A
Business
Unit D
Business
Unit B
Business
Unit C
Corporate
“Control
Tower”
Corporate Project Teams
• Drive corporate integration projects

Companies only have a limited time to capture the value from
integration, thus should initially focus on the highest priority initiatives
18
In most cases a company has just two years to make
a deal work with the first year producing the greatest
result
The initial focus of integration should be on those
initiatives that have the greatest impact with the lowest
effort requirement
Value capture of top performing merger integrations
75
25
Year 1 Year 2
Cumulative
value capture,
Per cent
Deal
close
Impact
• Revenue
synergies
• Cost
synergies
Effort
• Ease of implementation
• Time frame required
• Resources required (capital, people etc.)
High Low
Low
High
Integration prioritisation framework
Longer term
initiatives
(actively work to
reduce required
effort)
Priority
implementation
initiatives*
Unattractive
initiatives
(hold to last)
Low value
initiatives
(pursue
opportunistically)

Expectations should also be managed to ensure positive shareholder
value creation and maintained employee motivation
21
Integration
targets
Actual
implemen-
tation
Planned
implemen-
tation
Internal
targets
Synergy
targets
communi-
cated
publicly
Stretch
target
Exceed market
expectations
Internal
synergy
achieve-
ment
Synergy
achieve-
ment
communi-
cated
publicly
Exceed timing
expectations
Value creation through aggressive target setting
Time
• Conservative yet realistic
integration goals should be
established early, but
should be skilfully
communicated to ensure
they are achieved or ideally
exceeded
• This will result in increased
external and internal
confidence in the merged
organisation, thereby
increasing shareholder
value and employee
motivation/morale

24
Management realised that cultural differences
would present a challenge…
… but seemed to have underestimated the
immense cultural differences…
… and management's desire to merge the two
cultures was not anchored in the organisations
"Beer in office vending machines and
lederhosen on casual dress day"
Chrysler engineers' suggestion of how post-
merger Chrysler culture would change
• Compensation
focus on perks
• Formal culture
(closed door
approach)
• Strong hierarchy
• Risk aversion
• Compensation
focus on salary
• Informal culture
(open door
approach)
• Flat hierarchy
• Risk-taking
awarded
"The challenge that faces us […] is to meld two
strong dynamic companies into one that can
keep growing and evolving without missing a
beat. To do that, we must blend not only our
management and our organisations, but we
must blend out cultures and work styles"
DaimlerChrysler Press Release, May 1998
"It is unthinkable for a Chrysler car to be built in
a Mercedes Benz factory […] Only over my dead
body will a Mercedes be built in a Chrysler
factory"
Senior Daimler-Chrysler Executive
• Massive confusion among staff on
new organisation's culture
– Key employees left
– Projected synergies were
unrealised
… but the difficulties integrating the two cultures had been underestimated

27

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