1ACQUIRING FAMILY OWNED COMPANIESCASE STUDIES AND LESSONS LEARNED FROM AN HR ANDORGANISATIONAL PERSPECTIVE4 Regional IntegrationManagement ForumAmsterdam, Sheraton SchipolNovember 16th, 2012Francesco Picconi
2Introducing Francesco PicconiGroup Head of HR at Falck, ItalyHR Director, South Europe & Africa, Areva T&D, ItalyHR Director, BU Corus Colors, Corus Group, UKGroup OD Director, Indesit Company, ItalyHR Director BU, Transolver/Fraikin, Fiat Iveco, FranceOD Manager, Automotive Lighting, Fiat Magneti Marelli, GermanyHR Manager Global Marketing and Sales, GE Oil&Gas, ItalyBUT MOST IMPORTANTLY……A Multicultural HR passionate for M&A, JV, Post-Mergers Integrationin International/ Global contextsit.linkedin.com/in/francescopicconi/Phone +39 335 53518752
3Multinational companies acquiring family owned companiesMultinational company (MNC): to acquire or not to acquire?“Over the past 20 years, US takeovers by large firms have led tolosses of more than $ 200 billion for stakeholders. However, thisresult is dominated by the big losses experienced by shareholders inbig companies” (NBER Working Paper n. 9523)Family company owner: family succession or selling?More than 50% of all owners are 50 years of age or older.Family succession is risky: 70% of all owners fail to successfullytransition their business to their direct heirs.(Brownstone Capital Advisors LLC)
4Having successors ready within the family is not sufficient to ensurelong-term sustainability of a family owned company. Trends like:Market globalizationBusiness diversificationNew technology developmentsrequire capital investments which may be difficult/too expensive tobe obtained by leveraging debt (f.i. credit crunch in SouthernEurope economies)Therefore, raising equity capital can be the only option to financeincreasingly capital-intensive companiesConclusion: more and more profitable and promising family ownedcompanies are for saleFinancing options for family owned companies in crisis times
5Financing options for family owned companies in crisis times1. The stock exchange option: creating a public company byfloating a minority or a control stake.But: is it a real choice in today’s depressed stock market?2. The private equity option: opening up to financial partners.But: equity investors are increasingly selective in today’sless liquid market. Unless a control stake is released, suchdeals are today less rewarding than few years ago.3. The industrial partner option: today MNC’s are constantlyconsidering family owned companies for acquisitions.
6Selling a family owned company to a MNC:the owner’s perspectiveAs industrial partners, MNC’s are normally familiar with thebusiness to be acquired and can better understand its challengesand opportunities.The acquired company can be placed within a larger industrialcontext, where its unique strengths can be put at service of alarger Group (f.i. new technology/innovation, distribution networks).The business/industrial knowledge of MNC’s may result in alonger perspective and/or a better risk assessment incomparison to a purely financial partner.Family company owners usually care for the future of their“creature” and for their employees. In times of crisis, they mayconsider that a MNC may ensure a better future for them.Of course, there are exceptions…
7Case HistoriesOBJECTIVES:Introducing the case history of a MNC (Areva T&D) acquiring twofamily owned companies in Italy (Passoni & Villa and VEI ElectronicIndustries)The reverse perspective: introducing a family owned company(Indesit Company) acquiring part of a MNC (GE Hotpoint) in the UKEach case history is presented in terms of: case description integration approach lessons learned
9AREVA T&D acquires PASSONI & VILLA and VEIIn 2007 Areva T&D, the Transmission & Distribution business of theFrench multinational Areva, acquired Passoni & Villa, a 80 year-oldcompany based in Milan with 30ml € sales and 130 employees from thedescendants of the foundersAreva T&D rationale for buying: among other products, P&V had aglobal leadership in HV and UHV insulators (n.3 worldwide after ABB andSiemens). Areva T&D wanted to focus exclusively on theseproducts, creating a global central of excellence for the GroupP&V rationale for selling: P&V had a strong “technological nugget” (HVand UHV insulators) and an outstanding global market potential (mainlyChina, India, the U.S.). However huge capital investments were neededto develop this technology. Moreover, the owners were in their 70sCASE DESCRIPTION: THE PASSONI & VILLA ACQUISITION
10In 2008 Areva T&D acquired from the founder VEI Electronic Industries, a 40year-old Company based in Piacenza, with 46ml € Sales and 360 employeesAreva T&D rationale for buying: VEI had a strong market positioning inItaly, Spain, Saudi, South East Asia, Russia. Plus, VEI had a technologicalleadership in some MV Equipment (Gas and Air insulated switchgears).Again, Areva T&D wanted to focus exclusively on these products/marketsP&V rationale for selling: the founder was in his late 70’s and no familymembers were in condition to take over. Moreover, there was a strong moralcommittment to ensure the long-term development of the company and thewell-being of the employeesAREVA T&D acquires PASSONI & VILLA and VEICASE DESCRIPTION: THE VEI ACQUISITION
11INTEGRATION APPROACH An in-depth “hard” HR due diligence supported by a local consultingcompany identified several potential liabilities(consultants, agencies, social contributions, executive compensation). In a “soft” HR due diligence, HR interviewed the Key Managersidentifying potential cultural issues with Areva T&D management style . Areva T&D focused intensively on securing and “converting” the twoGM’s, planning the retirement of one of them after one year. As the managerial pipeline was dry, in one year both Management Teamswere rebuilt with external or Areva T&D Managers. A “not without you”approach was chosen, persuading the former Key Managers to stay withAreva T&D, accepting to report to a new Manager with MNC culture.AREVA T&D acquires PASSONI & VILLA and VEI
12LESSONS LEARNED WHEN MNC’s ACQUIRE FAMILY OWNEDCOMPANIESDUE DILIGENCE PHASE Invest time and money in an in-depth “hard” HR due diligence, possiblywith a local consultant: dealing with family owned companies mayhighlight potential liabilities which can even become dealbreakers. In anycase their early identification may avoid future issues. Invest time in an in-depth “soft” due diligence through structuredinterviews with Key Managers: MNC’s often have structuredprocesses, matrixed organisations, complex decision-making difficult tobe understood and followed by a family owned company culture.AREVA T&D acquires PASSONI & VILLA and VEI
13LESSONS LEARNED WHEN MNC’s ACQUIRE FAMILY OWNEDCOMPANIESPOST-MERGER INTEGRATION PHASE If possible, ensure a smooth transition of 1-2 years. It would be ideal to“convert” the GM (if exists) and let him/her lead the transition phase In any case, an external GM must gain his/her credibility: often family ownedcompanies have rhytes and myths connected with charismatic leaders (thefounder and his/her heirs, their trusted GM). Quickly identify potential “ready-now” successors for all key roles, within oroutside the family owned companies: cultural issues are normal andpossible Key Managers resignations in the first year should be anticipated. Family owned companies’ organisational model is often “solar”, with theentrepreneur or his/her trusted GM at the hearth. As a consequence, theManagement Team could often be weaker than expected in terms ofmanagement/commecial/technical relations and skills.AREVA T&D acquires PASSONI & VILLA and VEI
15INDESIT COMPANY ACQUIRES GE HOTPOINTCASE DESCRIPTION In 2002 Indesit Company, a listed company controlled by the Merlonifamily and Europe’s n. 2 in the Household Appliances industry, acquiredGE Hotpoint, market leader in the UK and Ireland. GE Hotpoint at the timehad around 1bn € sales, about 6.000 employees and 6 plants in the UK. Indesit Company rationale for buying: decision to better penetrate theUK mature, sophisticated, service-oriented market by acquiring the marketleader. Moreover, some products typical of the UK market (f.i. tumble-dryers, double oven) could have a larger niche market in Europe. GE Appliances rationale for selling: GE was reconsidering its presencein the European market, a mature, relatively low margin business, with amedium-level technology. Focus on the top level high margin segment.
16INTEGRATION APPROACH Over the years, Indesit Company had become familiar with the UK andIreland market by setting up a relatively limited commercial and logisticsorganization, with Service largely outsourced. Over the years the localmanagement was ready to take some key leadership roles in Hotpoint. A “breed” of Italian Key Managers moved to the UK from Russia, whereIndesit had just finished to integrate Stinol, its last large acquisition. TheStinol CEO, trusted by Merloni family, became CEO at the Hotpoint andwas later nominated Group CEO.INDESIT COMPANY ACQUIRES GE HOTPOINT
17INTEGRATION APPROACH In the first phase, few new processes were introduced in Hotpoint, largelytied to Finance, Administration and Control. GE Manufacturing, ProductDevelopment, Sales and Service processes were basically kept inplace, while other processes (f.i. Six Sigma) were simply dismissed. After 3 years of market experience, Indesit Company restructuredHotpoint, reorganizing its businesses along the Group’s global businesslines (Washing, Dishwashing, Cooking, Cooling, Service), closing down 2plants and streamlining all the administrative/ transactional functions. The Company focused on Manufacturing efficiency, the Sales, Serviceand Distribution network, in an effort to get “back to basics”.INDESIT COMPANY ACQUIRES GE HOTPOINT
18LESSONS LEARNED WHEN A FAMILY OWNED BUSINESSACQUIRES A MNC Family owned companies tend to have a less structured Due Diligenceprocess, where HR rarely plays a key role. They tend to spend less moneyin local consultants for DD purpose. However MNC’s tend to follow rigorouspolicies and guidelines, and therefore potential liabilities are normally low. In the integration process, family owned companies tend to rely more ontrust than on processes: Key Managers are trusted because of their long-term service and their previous successes in acquisitions integration. Theprocess tends to be less formalized and more flexible/adaptable. Family-owned companies tend to refocus the acquired MNC businesses“back to basics”. Transactional processes are simplified, top-down HQ-driven initiatives are dismissed. Not all Key Managers from MNC being acquired by family-ownedcompanies will withstand the “cultural shock”. Careful succession planningshould be implemented as soon as possible.INDESIT COMPANY ACQUIRES GE HOTPOINT