The ABC

1
The ABCs of Merger Integration
2
Agenda

• Merger Integration as a Competitive Advantage
• The ABCs of Merger Integration
• Align the business model
• Be quick
• Culture is key to success
• Define synergy targets
• Execute the plan
• Focus the organization

3
Many mergers fail to deliver the expected value
Principal Challenges

• How do you capture synergies
• Personnel reduction
• Sourcing/purchasing
• Facilities consolidation

• while integrating
• Systems
• Customers
• Management
• Suppliers
• Processes
• Employees

• Integration facts
• Synergies not achieved in 70 of cases
• Only 23 of cases earn their cost of capital
• 47 of executives leave by end of year 1 75 by
  year 3
• First 4 to 8 months productivity reduced by 50

• and building a strategic platform
• New customer value proposition
• New processes
• New organization

• without negatively impacting
• Customers
• Employees
• Shareholders
• Vendors/Suppliers
• Financial performance

Must integrate the acquisition and capture
synergies while maintaining current business
momentum and operating within FTC and EU
constraints
Source Deloitte Consulting MA survey (2000) DC
analysis
4
Companies can create a competitive advantage by
proactively developing an internal merger
integration capability

• Reduce MA transaction lifecycle
• The ability to complete and rapidly integrate
  transactions will allow companies to benefit from
  the acquisitions sooner.
• The key to speed and synergy capture is a robust,
  proven approach that is well understood and
  supported by the management team.
• Reduce MA cost structure
• A well-documented, widely understood, and
  repeatable process executed by trained resources
  reduces the organizations dependency on outside
  advisors.
• Strengthen credibility with key constituencies
• Proven integration capability strengthens
  managements case to the Board of Directors,
  rating agencies and the target and shows that the
  company has the ability to execute and deliver on
  transactions.
• More effectively capture integration synergies
• Strong correlation exists between an
  organizations ability to effectively integrate
  and the extent to which their process has been
  defined and documented.

Documented capability increases probability of
success.
5
The ABCs of Merger Integration
6
Align the business model of the new merged
company to leverage strengths and meet customer
requirements
Blend of customer and functional/ separation of
unique models
Customer/market-focused
Functional/product line
Newco
Newco
Newco
Mkt. A
Mkt. B
Mkt. C
Mkt. D
Mkt. E
Prod. 1
Prod. 2
Prod. 3
Prod. 4
Prod. 5
Mkt. A
Mkt. B
Mkt. C
Mkt. D
Prod. 1
Prod. 2

• Key Criteria
• Establish clear roles and responsibilities for
  senior management
• Provide incentives to talented management to show
  there is a place for them in the new
  organization
• Avoid lame duck positions catastrophic for
  building strong organizational buy-in
• Develop senior level organization structure to
  establish clear ownership of synergy capture
• Regardless of the model selected, incentives and
  accountabilities must be clear and must reward
  behavior

Mergers create opportunities to make fundamental
changes in the business model that support the
strategic rationale of the deal
7
Be quick with your integration so you can get
back to running your business

• Define end state develop a roadmap
• Phase in small 30-day chunks
• Set tangible targets measure performance
  celebrate early wins
• Manage priorities to focus organization

Announcement
Close
Pre-Close Integration
Pre-Close Integration
0 100 Days
100 200 Days
n Days
Integration Framework
Rapidly Manage
Capture Sustainable Value
Reinvent
Win
Win
Win
Win
Win
Well-defined and managed integration process
increases speed
8
Culture is key to success eliminate uncertainty
Commitment

• It is the right thing to do
• We will succeed

EarlyEuphoria
Adaptation
Fear/Uncertainty

• Change is exciting
• Our company is taking a bold step

• The train is leaving, I better get on
• Its hard, but we can do it

• What does this mean for me?
• What are my priorities now?

Organization Momentum
Paralysis
Withdrawal

• I cant act with all this uncertainty
• My highest priority is to stay on top of the
  integration news

• Ill do what is necessary to survive

Departure

• This is not something I want to be a part of

Time
Address culture and model behavior through
day-to-day business events
9
Define synergy targets and set accountability for
achieving them
Category
Duplication Avoidance
Human Resources
Created Savings
Economies of Scale
Operations
Expenditure Avoidance
Information Systems
Would not be available except for the merger
Operational Efficiency
Logistics
Prioritize
Skill Transfer
Product Development
EnabledSavings
Practices Adoption
Technology Transfer
Potentially unlocked through the merger
Organizational Streamlining
Spans of Control
Work Reduction
Activity Avoidance
DevelopedSavings
Performance Realignment
Centralization
Could be accomplished absent the merger
Contractual Arrangements
Outsourcing
Best Practices
Information Systems
Capturing the full value of the deal requires a
detailed assessment of the potential synergy
opportunities
10
Execute the integration plan
Rapidly stabilize and prep for Day One
Capture sustainable value
5 Close
150
120
90
60
30
30
360
720
Day 1
High- Level Milestones
Phase 1 (Analysis)
Phase 2 (Design and Build)
Phase 3 (Implement)

• Implement Newco organization
• Implement performance metrics
• Monitor

Strategic Framework

• Vision/mission
• Integration approach

• Operating model
• Organizational design

• Performance metrics

L O C K D O W N

• PMO setup
• Workplan close
• Staff teams

• Manage execution of projects
• Manage interdependencies

• Implement FastTrack decision-making process
• Monitor and coordinate all plans and resources
• Report status, manage interdependencies and
  facilitate decision making
• Track synergy progress

Program Management

• Design lockdown session

• Validate/develop synergies
• Prioritize synergies
• Develop projects

• Implement synergy projects
• Track synergy capture
• Capture 50 of synergies by T360 100 by T720

• Launch select clean teams design, prototype,
  select synergy areas

ValueCapture
Integration Disciplines

• Define must have requirements risk points
• Prioritize

• Develop projects

• Implement System 3
• Plan and implement long-term system and process
  changes

• Prototype

• Certify Day One Readiness

Organizational Preparedness

• Launch select clean teams

• Define business future state

• Conduct baseline assessment

• Develop migration plan

• Develop organization plan

Communications Change Management

• Develop communications strategy plan

• Develop and coordinate internal and external
  messages

• Develop transition tools and methods

• Conduct transition training

• Notify 100 of impacted employees by T30

Regulatory/ Closing

• HSR filings
• Second requests
• Proxy

• Contingency planning
• Shareholder approval

• Deliberation

• Close
• Regulatory approval

• Develop HR processes payroll, benefits, etc.

• Change of ownership and executive contracts

• Detailed HR plan selection process

• Implement

Human Resources
RISC Review
11
Focus the organization on the integration
Challenges
Five Focus Areas
Outcome

• Control the integration
• Gain control by installing rigorous toolset and
  process and making all organizational data
  transparent
• Develop clear governance and PMO structure and
  processes

How do you capture synergies while
integrating systems, processes and building
a strategic platform without negatively
impacting customers, financial performance

• Clear accountability
• Speedy integration

1

• Capture synergies
• Drive detailed bottoms up synergy estimates and
  focus on front-loading capture

• High bar
• Synergy capture on Day One

2

• Plan for issue-free Day One
• Identify and prioritize critical systems and
  processes that must be in place for Day 1
• Develop Day One Readiness requirements

• Clear and focused priorities
• Issue-free Day One

3

• Finalize organization design and transition
• Define strategy/approach to for appropriate
  integration of business units and functions
• Minimize disruption from workforce transition

• Portfolio analysis
• Workforce transition
• Functional integration

4

• Address culture immediately and communicate
  frequently
• Proactively work to align leaders and individuals
• Develop and deliver proactive communications

• Management team alignment
• Commitment at all levels
• Workforce retention

5
12
Challenges to building a merger integration
process

• Merger integration must be viewed and accepted as
  a strategic business process
• Develop a consistent approach and focus across
  all business units
• Structure and discipline is needed to capture the
  full value of the transaction synergies can be
  elusive
• Recognize small isnt necessarily easier, faster,
  or more successful
• A formal, open process is needed to learn from
  our success and failures

13
Successful acquirers proactively develop their
internal merger integration capability through an
iterative process
Knowledge and Capability Transfer
Define End State
Develop MA Tools
Rollout Methodologyand Tools
Learn by Doing

• Collaboratively define deliverables
• Perform As-Is diagnostic to incorporate MA
  activity to date
• Define process considering deal challenges(

• Structure PMO
• Organize program and processes
• Create support tools and protocols Make
  specific
• Develop education and knowledge transfer plan

• Solicit review and comment
• Ensure understanding of scope and identification
  of cross-functional issues
• Create learning imperative
• Identify barriers and enablers
• Determine training and orientation requirements
• Launch training and communications
• Determine performance measurements

• Follow process
• Manage and drive discipline
• Drive ownership to integration team s
• Support teams and drive results
• Monitor progress and capture learnings
• Incorporate comments and feedback be open to
  input

• Share learning with integration team
• Build a library of information for future use
• Use lessons learned session to discuss process
• Share information and learnings
• Take action to educate and share Insight

Emphasis was placed on hands-on learning and
knowledge transfer.