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© Patrick Hehir BVG Intl LLC An M&A Case Study
Improving the Chance of Success for
M&A activity :
Real Lessons Learned
© Patrick Hehir BVG Intl LLC An M&A Case Study
Two High Level Models:
It is common purpose that during companies integrati...
© Patrick Hehir BVG Intl LLC An M&A Case Study
Case Highlights:
The following are the brief highlights of the Top 10 eleme...
© Patrick Hehir BVG Intl LLC An M&A Case Study
integration there was NEVER any momentum lost. And
yes there were mistake...
© Patrick Hehir BVG Intl LLC An M&A Case Study
7. Incentives, motivations and key
leadership ‘On-Boarding Program’
The p...
© Patrick Hehir BVG Intl LLC An M&A Case Study
DIRECTLY with the Customers and shared committed
plans as to what was occ...
© Patrick Hehir BVG Intl LLC An M&A Case Study
Who We are:
Business Value Group are specialists in organizational change...
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  1. 1. © Patrick Hehir BVG Intl LLC An M&A Case Study Improving the Chance of Success for M&A activity : Real Lessons Learned from $12B successful acquisition: Most research suggests that up to 70% of M&A activity fails to achieve or deliver on expected value. Sometimes that is based on overvaluing the acquisition, other times it is caused by not being realistic in terms of synergies that can be achieved and more often it is due to an ineffective integration process and underestimating the people aspects of that process. This high level paper is being written as a result of the lessons tested and learned in a very successful acquisition and integration that occurred in the Electronics Manufacturing Services Industry (EMS) in 2007. In 2007/2008 Flextronics International then $21Billion + in revenues acquired Solectron International then $12B in revenues. Both organizations had in the region of 30 plus manufacturing and design operations on 5 continents with combined employee count of well over 200,000. Without getting into all the details of the history of this low margin industry (gross margin approx 6 to7% and Op income in the 2-3% range) , the acquisition essentially played a major role in providing some desperately needed industry consolidation. It is worth noting that the EMS industry went through its massive expansion in the 1990’s, principally as a result of the incremental acquisitions of the manufacturing operations of their customers. These acquisitions for sure provided significant practice for the integration processes and stripping of excess overhead. However many of those acquisitions were relatively small and the conditions leading up to them were mostly favorable. The acquired operations generally understood the need for the divestiture/acquisition and had the desire to get integrated effectively, as many felt discarded by their previous owners. They often viewed their new owners more favorably than the company that divested them. This is significant as it strongly influences/explains some of the mood and motivations of the acquired employees. Solectron (SLR), was at one stage the industry leader. Many EMS industry experts gave SLR credit for establishing high quality operations and for in fact giving the industry much respect and credibility. Flextronics (Flex) was viewed as the faster growing and more dynamic entity. The acquisition by Flex of SLR took many in SLR by surprise, but it effectively combined the best of both companies and post integration (post 90 days) assessments of effectiveness got remarkably high scores of an average of 8.8 on a scale of 1 to 10, using a change process assessment tool. Additionally Customer satisfaction in the subsequent year increased over 15% and there was negligible customer attrition or revenue loss which is a tremendously positive occurrence in these kinds of acquisitions In preparation for the acquisition, we studied extensively before we implemented our plan and we were extremely cognizant and aware of the industry failure rate so all our actions were very conscious and deliberate.
  2. 2. © Patrick Hehir BVG Intl LLC An M&A Case Study Two High Level Models: It is common purpose that during companies integration there are often competing views on the most effective methodologies to improve the effectiveness and improve the likelihood of delivering on the benefits/value/synergies that motivated the acquisition in the first place. In addition to that, there are lots of functions competing internally to be in positions of strong influence to assert their view of what can define success. One of the keys for us was the creation of an open environment that led to the leveraging of two high level processes. Change Management Process We leveraged heavily off an 8 step change management process (similar to the one below) and it proved crucial. It was used as a touch stone to ensure that we eliminated as much risk and uncertainty as possible for the organization and all people affected. It helped all teams to confidently and successfully navigate through the change. We also used it for the post 1st 90 days assessment to measure both sides view of the effectiveness of the acquisition. The BVG Change Model and Diagnostic tool: Integration Process We leveraged an integration process after contracting for an extremely short period of time (6 weeks) with a large consulting group that helped us develop a very effective integration process which was then owned and driven by internal teams. i.e. we leveraged expertise but retained ownership while we had mentorship and advisors always available. The BVG Acquisition Integration Process Fig 1.0 Fig 2.0
  3. 3. © Patrick Hehir BVG Intl LLC An M&A Case Study Case Highlights: The following are the brief highlights of the Top 10 elements that were deemed to have been the most important and that contributed to the successful integration of Solectron into the Flextronics Organization in 2007/2008 1. BOTH companies were in a heightened state of organizational readiness. Prior to the acquisition, Flextronics had just undertaken a comprehensive transformational re-organization which began in 2005 as plans were made for a new CEO to be appointed. The organization was comprehensively re- structured and we committed to a business unit or market specialized focus. In addition to that, the organization was essentially re-purposed and a fresh new vision was set for the company. Due to the level of change and uncertainty within the company there had been tremendous efforts expended to clearly establish a new management system that essentially defined the anchors of how the company was designed to function. The culture was codified in such documents as Vision, Purpose, Traits and Values. There was also a Blueprint to explain how to achieve the vision which was combined with the top non-negotiable’s in terms of how each company and each business should run. This was also to be applied to any future acquisitions. We essentially had a book to follow that listed who we were, where we were going, how to function and what is expected in order to succeed. On the Solectron side, they had just undergone a somewhat similar revamping or transformation of their organization as they seriously committed to shedding excess capacity, committing to a comprehensive business excellence program and getting their financials in order. Additionally there existed a recent power gap or organizational void as the CEO that drove the transformation had just resigned and moved to another company. Solectron was essentially in need of some new direction, new leadership and new energy. The timing was PERFECT. 2. Clarity of who’s in charge, the reason for acquisition and the vision were all clear plus it was easy to explain and understand. One key decision that we made early on (which we leveraged from the Seagate acquisition of Maxtor that both played in the low margin disk drive space) was that we made it clear that this was an acquisition and not a merger. Flextronics was BUYING Solectron. While being very respectful, we did not want to have any doubt whatsoever about who was in charge. Additionally we decided NOT to follow a strategy of trying to get the best executive team as a result of reviewing talent on both sides, regardless of how tempting that was. We felt that we needed certainty and confidence on the Flextronics side and that all the executives could feel assured of their positions. We wanted people focused on making the integration successful We did not want any second guessing and that is EXACTLY what we got. 3. Speed of integration, clear strategy and quick decisions Companies that struggle with acquisitions have often been surveyed and interviewed. Almost invariably the executives report that the single biggest regret was that they wish they executed the integration faster. It is a case where perfection is the enemy of good. There WILL ALWAYS be mistakes and imperfections. While that can never be used to justify avoiding trying to make the best decision possible, actually making decisions and moving forward even when there is uncertainty is more important. Things MUST keep moving and in this
  4. 4. 4 © Patrick Hehir BVG Intl LLC An M&A Case Study integration there was NEVER any momentum lost. And yes there were mistakes made. Some people slipped through the cracks in terms of clarifying their status for the future and it was unsettling and unfortunate. But it was the minority and when mistakes were discovered they were rectified quickly. Not always to peoples liking, but at least uncertainty was replaced with certainty which is what people cherish most during times of change. 4. Strong Executive Driver and detail oriented Integration Manager. It is difficult to articulate the value that these two elements brought. Firstly the Executive sponsor was the master architect of the financial mechanics of the deal and had a keen and non emotional/objective view of what was required. He then had an exceptionally detail oriented Integration Manager that managed the central control tower for all activities. He had a tremendously well organized data warehousing system and comprehensive master plan with checklist, documents and spreadsheets where every detail required was tracked and controlled. There was a handpicked set of strong integration team leaders, which he led. There was then a team assigned to every function. The team dynamics and performance was engaging, collaborative and exceptionally hard working. There were significant levels of authority given to enable quick decisions and forward progress. They were also handsomely compensated and rewarded for all their efforts. 5. Insulation of non affected businesses. Due to the earlier re-organization of Flextronics there were large segments or divisions that essentially were not impacted by any of the integration activity. This was of tremendous importance and reassurance as well as validation that the segmentation strategy worked. We were in fact able to keep over 40+ % of the revenue of company actually functioning as normal. Many times when there is an acquisition of companies of similar size and scale, it can paralyze or partially stall the operational activities of both entities. It can often give the competition the window to take advantage of market opportunities during the time of significant internal distraction. This never occurred with this acquisition and an additional part of the reason is the manner in which we effectively managed our communications with the Customer base. 6. Integration Process and Change management combined. Listed above in Fig 1.0 and Fig 2.0 are models of the change process and an integration process. The majority of the integration team were never involved in an integration of this magnitude before. We conducted as much research and learned as much as was possible in a short period of time. We began to learn about the importance of a strict timeline and that during the time between the announcement and the actual deal close is where most of the seeds of success are sown. Everyone got familiar with the concept of Day One or Go Live deliverables. i.e. what was critical to be in place on day one when Solectron employees officially became Flextronics employees. There was a massive level of information shared during this period. This required significant levels of trust as there was competitive information that was very sensitive and needed to be protected and released in stages as regulatory approval hurdles were crossed. As each approval milestone was hit, more and more information was shared and exchanged. People also got familiar with the 1st 90 to 100 day plan and the tie in of all their activities to the achievement of the synergy goals which were ALL hit. The fact that the synergy goals were hit was a remarkable achievement given the scale and complexity of the acquisition and much credit needs to be given to the initial accurate financial assessment. The Integration process was then essentially integrated with the change management process which meant that the whole change was also viewed NOT purely through the lens of achieving financial synergies, but also through the lens of enabling people to cope with and deal with this change.
  5. 5. 5 © Patrick Hehir BVG Intl LLC An M&A Case Study 7. Incentives, motivations and key leadership ‘On-Boarding Program’ The people that were key to ensuring the integration went well, fit into a number of groups. 1. Those that would be remaining employed. 2. Those that would be leaving, but that were needed in the interim to ensure success. 3. Those that were co-opted temporarily from their existing day jobs to work on the integration. 4. Lastly, as in all acquisitions there was the group that were destined to be excess to requirements. Significant resources were allocated for the management of each of these groups and there was a big effort to ensure that all were treated with dignity and respect. Much effort and thought went into the most effective way to ensure appropriate motivation for all people. Incentives were put in place to ensure appropriate retention for those that were needed in an interim basis as well as those directly involved in the integration process. Additionally there was a moratorium of sorts put in place for people staying as they were guaranteed to receive their same salaries and benefits while a longer and more robust and transparent process was developed for converting people over to the same salary and benefits grading system . Overwhelmingly people watched and saw Flextronics trying to do the right thing and not mess with arguably the most sensitive element for any employee (after employment) i.e. salary and benefits. Additionally one of the MOST important events that was developed was a senior leadership on-boarding event. We organized an offsite location and brought in approximately 50+ of the top global and most influential leaders of Solectron that were remaining in leadership positions around the world. We designed a trade show style of event, where groups of 8 people would cycle through a booth or set of presentations from the key central functions of the company such as Finance, HR, Legal, Materials e.t.c We strived to maximize interaction and learning as well as prevent death by PowerPoint. We wanted to convene and have dialogue as opposed to talking AT people. We then followed this up by a social session where people got to mingle, have a few beers and get to know each other in an informal setting. Each attendee also received a packet of materials that provided a detailed outline of how each function was organized and what their key operating principles and non-negotiables were. Each leader was then asked to go back to their organization with a communications plan and share the information that they had learned with their employees. Then directly afterwards, a team of two Executives visited each new site and delivered a synopsized presentation to significant population groups (mostly non direct labor employees). We explained the Flextronics Vision and Culture and had an open forum for questions. It too was warmly received by all sites as it was one of the first times that site staff had met and engaged with Snr Execs from Flextronics and it seemed to ease tensions A LOT. On subsequent surveys and feedback sessions, the on boarding sessions proved to be viewed as one of THE most valuable to the new leaders and this meeting was conducted within the first weeks after the close so there was minimal time for anxiety and uncertainty. 8. Synchronous communication to all stakeholders e.g. Customers, Suppliers As mentioned earlier, the communications plan within the combined companies was tremendously important. But just as important were the other external stakeholders and clearly the Customers were of paramount importance as we were anxious to be able to assuage any of their nervousness or insecurity. So extremely early on, just after the announcement, the exec team went to work to outline what were the likely events that would occur in terms of differing sites and divisions. We anticipated the questions and concerns of all of our Customers and had a plan developed and ready to be rolled out once the deal closed. Personal phones calls and meetings were set up to gauge the feel for any concerns that existed. The very day the deal closed, a highly co- ordinated blitz began where Flex leaders spoke
  6. 6. 6 © Patrick Hehir BVG Intl LLC An M&A Case Study DIRECTLY with the Customers and shared committed plans as to what was occurring and what it meant to the customers involved. Many of our Customers were extremely impressed with the level of thought that was given to the strategy which minimized their concerns and fears. In fact many were excited and had a lot of hopeful anticipation. It turned out to be a very positive activity. It resulted in minimal customer interruption and almost no preventable attrition. There was a similar effort in terms of the communications with the supply base as there was always going to be the worry of some supplier consolidation taking place and we needed to ensure continuity of supply. 9. Keeping what works and SENSIBLY leveraging the best of both. (knowing what to change). While I mentioned earlier that we never brought uncertainty into the ranks of the Executive leadership of Flextronics by the threat of merging and finding the most competent Executive from either side, we did however clinically assess where the best sites and capabilities were. It turned out that the level of Customer overlap was exceptionally low and that there was a natural expansive market segment fit between both companies. So this led to not as much consolidation as might have otherwise happened. Flextronics was generally viewed to be supporting the higher volume lower complexity, vertically integrated and lower complexity customers. Solectron were serving the needs of higher end medium volume and complex customers. Soon after the announcement a small team visited each Solectron site to make strategic assessments of their competencies and capabilities and a master footprint map was created in conjunction with the Flextronics global map. There were also strategic assessments of some of the systems, tools and processes that Solectron used VS those at Flextronics and many best practices from Solectron were adopted en-masse around the company. Best case in point was Solectron’s business excellence organization. In fact in some cases Flextronics manufacturing sites were closed or consolidated into Solectron’s site if it was deemed to provide the best and most effective or strongest market offering to Flextronics customers. These actions were generally viewed favorably by all stakeholders. It was seen particularly by Solectron employees that the strategic decisions were thoughtful, understandable and to the most part, sensible and intelligent. 10. Post integration Leadership Meeting One of the final events that proved to be of great value was a large Leadership conference for approximately 250 of the top leaders in the company and it was the first time that both the leadership of Flextronics and the by then nonexistent Solectron, convened. We had embarked on a leadership conference program every 6 months during the transformational change of Flextronics from 2006 onwards and this acquisition provided a pinnacle moment where Flex had come from revenue of $14B to a run rate of approximately $35B. These events always had interactive working sessions where we leveraged on the competence and ideas of the attendees and this event was no exception. One key agenda item specific to this meeting was a conversation on the cycle of change and the importance of mourning, paying respect and then of letting go. We essentially tried to architect a unifying event and set a course of new direction where we were all finally on the one boat with a clear direction charted.
  7. 7. 7 © Patrick Hehir BVG Intl LLC An M&A Case Study Who We are: Business Value Group are specialists in organizational change and restructuring. We believe that effective change needs both a business mindset and a people mindset. In many respects it is often the soft stuff that ends up being the most difficult. This is particularly true where there are big Ego’s involved who believe that they have all the answers and are unwilling to listen. Our team profile is listed on our web site What we do! Integration Management Support: We never take over the implementation of an integration project. However what we do is to enable those that are chartered with the responsibilities, to be more prepared and more confident by following established well proven methodologies and processes. We specifically help in areas such as the following:  Business and Organizational Assessment. Including global divisions and sites.  Organizational and Executive competency assessment.  Cultural Analysis of company, divisions, sites and functions to anticipate and prevent problems.  Executive Coaching and Support  Master Plan development including the leveraging of a proven Integration process  Setting up of Integration teams and PMO (Project Management Office) equivalent.  Ongoing risk assessment and reporting preparation to stakeholders such as Board and Public community.  Comprehensive access to detailed M&A integration checklist for all typical functions IT, Finance, HR, Operations e.t.c.  Synergy tracking and reporting development and ongoing assessment.  Master change management program development and management.  Teams and overall organizational effectiveness (objective assessments and advice plus interventions as appropriate as teams emerge and work together). i.e. manage breakdowns.  Development of communications and messaging plan for all stakeholders e.g. Customers, employees, suppliers e.t.c.  Organizational Re-Purpose and Vision development for newly combined entity.  Design and development of integration packets to support accelerated integration.  Design and development of Leadership on- boarding process and events. For Further Information: If you would like further information on the lessons learned or need support on your next big acquisition, please feel free to contact us via the information below. Patrick J Hehir MBA, MSOD President Business Value Group Intl LLC BVG Intl LLC Saratoga CA 95070 +1-408-904-8195