frontline partners m & a approach 2011
DESCRIPTION
Provides overview of approach to successfully managing merger integrations in the real estate and financial services industryTRANSCRIPT
Discussion Document 1 CONFIDENTIAL AND PROPRIETARY
M&A and Integration Services
Strategic Business Combinations and Post Merger Integration Approach
This document is confidential and is intended solely for the use and information of the client to whom it is addressed.
www.frontlinepartners.net
Discussion Document 2 CONFIDENTIAL AND PROPRIETARY
FrontLine Partners Overview
FrontLine Partners (www.frontlinepartners.net) is a real estate consulting firm that works with banks, institutional investors, lenders, owners, intermediaries, and service providers in the commercial real estate and financial services industry to help them accelerate growth of their business.
FrontLine Partners offers a number of services ranging from strategy formation, corporate and business development, mergers and acquisitions, capital sourcing, and interim executive and operations management.
Discussion Document 3 CONFIDENTIAL AND PROPRIETARY
Tran
sact
ion
Val
ue
Target Acquisition
Maximizing Acquisition Deal Value Companies must accelerate value capture from proposed and identified synergies, and could leverage FrontLine Partners to examine changes and options leading to unidentified synergies.
Market-discounted combination premium
represented by Company X’s offer to buy the target company.
Unidentified Synergies
Company X Revenue = $4.7BN
“Su
gg
este
d”
Syn
erg
y V
alu
e Portfolio of monetized initiatives
Identified Synergies
FrontLine Partners will work with Company X to realize
identified synergies and find unidentified synergies to extract additional value.
Discussion Document 4 CONFIDENTIAL AND PROPRIETARY
FrontLine Partners supports the core lifecycle of strategic business combinations and post-merger integration.
= possible transaction
Transaction Assessment
Stra
tegy
&
Opp
ortu
nity
Rev
iew
Initial Due Diligence
Company/Market Opportunity
Target Screening/ Fit Assessment
Transaction Management
Valu
e D
efin
ition
& E
nhan
cem
ent
Deal Structuring/ Negotiations
Due Diligence
Financial/ Operations Review
Operations/ Risk Plan
Capital Sourcing/ Structuring
Closing/ Post-Closing
Integration Management
Valu
e C
aptu
re
Integration Planning
Pre & Post Closing Implementation
Program Manage-ment Office
Disciplined Execution Plan
Strategy and assessment
phase enables the best deal to come out of the
funnel.
7-15%
2-5%
20-30%
Acquisition and Post-Merger Integration Lifecycle
Successful execution of
Business Plan and Value Capture
Discussion Document 5 CONFIDENTIAL AND PROPRIETARY
Merger Expectations Focus on pre and post merger work ensures our clients realize the full value from acquisitions.
People Strategy
Operating Strategy
Financial Strategy
Technology Strategy
Market Strategy
Acquisition Expectations …
» Expectations for public companies are often set high by investors and Wall Street Analysts.
» They can overvalue and over play potential synergies and economies of scale, leaving the acquiring company on the hook for delivering difficult value from the transaction.
» Company X will have to bring the people, process, and technology strategies together from both companies to achieve required returns/value.
Key Components of a Successful Acquisition Roadmap/PMI Approach
Discussion Document 6 CONFIDENTIAL AND PROPRIETARY
Focus on Pre and Post Integration Efforts
Key Company X Acquisition Components
Asking the difficult questions up-front will help staff focus on the important tasks and help achieve a successful acquisition.
People Strategy
Operating Strategy
Financial Strategy
Technology Strategy
Market Strategy
» Are there clear objectives and guidance?
» What will our future “HR picture” look like?
Document Focus
» Does the market understand the combined company strategy?
» How does the combined portfolio align with our vision?
» What additional value does an acquisition give Company X?
» Can we capture cost savings and improve ROI with better processes?
» How do we position our technology resources?
» What key assets require focus from management?
Discussion Document 7 CONFIDENTIAL AND PROPRIETARY
Company X Integration Needs Companies want to create maximum value in acquisitions for shareholders and create an environment where there is a clear path to value creation (not erosion).
Deal Break Even
SLOPE Transaction Gap
Component
TIME
Com
pany
X D
EAL
VALU
E C
REA
TIO
N /
CAP
TUR
E
Destroy Value
Value Company X Wants
Typical Deal Outcome
TIME Transition &
Transformation Gap Component
Create Value Value comes
down to people, process, and technology
Deal Value to Time Framework
Discussion Document 8 CONFIDENTIAL AND PROPRIETARY
M&A Performance – Critical Success Factors Industry studies have identified pre and post deal critical success factors to ensure merger & acquisition success.
Pre-Deal
» Securing the right target or partner, at the right price
» Assessing potential for value creation
» Valuing apportionment in the deal
Post-Merger Integration (PMI)
» Realizing the full benefits of integration
» Value creation
» Time value
» Maintaining momentum
Pre-Deal Success = f (Right Strategy x Right Candidate x Right Price)
Post-Deal Success = f (Right End State x Right Speed x Right Process)
Discussion Document 9 CONFIDENTIAL AND PROPRIETARY
M&A Performance – Root Cause Analysis Difficulty linking the acquisition’s strategic drivers through a fast track and well thought out integration management effort is a root cause of performance issues.
47%
20%
14%
4%
10%
35%
49%
SoundStrategy on
Day One
ClarifyingExpectations(Synergies)
PriceDepends on
Future Profits
Entering When Price Is
Lower
MotivatingEmployees
BreakingCulturalBarriers
MasteringIntegration
Strategic Link
[1] Source: ATKearney - Total shareholder returns (% over/ under performance) vs. industry index (from three months prior - 24 months after merger announcement)
Merger Success Factors (% of Companies Surveyed [1] )
Discussion Document 10 CONFIDENTIAL AND PROPRIETARY
The M&A Value Gap Although mergers and acquisitions are increasing, historical experience suggests the deals do not often yield expected returns, creating a “value gap” between expected and achieved results.
TRANSACTION GAP
TRANSITION / TRANSFORMATION GAP
VALUE G
AP
Expected Value True Potential Value Achieved Value
Discussion Document 11 CONFIDENTIAL AND PROPRIETARY
What Drives the Value Gap?
TRANSACTION GAP
TRANSITION/TRANSFORMATION GAP
VALU
E GA
P Expected
Value True Potential Value Achieved Value
Transaction Gap
» Weakness in Pre-Transaction Success: f(x) of (Right Strategy x Right Partner x Right Price)
» Internal vs. external focus
» Multiple agendas and perspectives
» Internal and external time pressure
» Limited access to information
» Clarity/precision on value drivers
» Failure to assess implementation considerations
» Lack of prior experience in acquisition analysis and negotiation
» Ego
Transition/Transformation Gap
» Weakness in Post Transaction Success: f(x) of (Right End State x Right Speed x Right Process)
» Lack of leadership, vision
» Inadequate integration planning/execution
» Determinism, inflexibility
» Failure to maintain customer focus
» Loss of control
» Loss of momentum/speed
» Organizational confusion and division
» Flight of key talent and knowledge
» Poor cultural assimilation
Since most transactions are not “cookie-cutter”, variations in deal characteristics and integration execution have the greatest impact on the value gap.
Discussion Document 12 CONFIDENTIAL AND PROPRIETARY
FrontLine Partners’ Approach for M&A / Integration
Company X Strategy
and Culture
FrontLine Partners’ M&A methodology and approach for integration is holistic in scope, integrating Organizational Culture, Process, and Technology in a systematic fashion using real estate specific expertise.
Market Strategy
People Strategy
Operating Strategy
Technology Strategy
» Customer Feedback
» Summary Measures
» Messages/Forums
» Controls
» Workflows
» Roles & Responsibilities
» Measures
» Policies / Procedures
» Organizational Structure
» Rewards / Compensation
» Competency Model
» Employee Development
» Performance Measurement
» Applications
» Databases
» Hardware
» Communications
Discussion Document 13 CONFIDENTIAL AND PROPRIETARY
PHASE I - Transition Planning & Design PHASE II - Implementation
Program Management
Change Management
Program Planning &
Start-up
Project Team
Planning
Systems Integration
Process Realignment
Organization Realignment
Day 1 Operations
Systems Integration
Process Realignment
Organization Realignment
Day 100 Operations
» Assess the current state
» Define the future state
» Develop functional transition plans
» Integrate functional plans into cohesive master plan
FrontLine Partners’ Approach to Merger Integration
Pre-Closing Plan Optimization Stabilization
We approach merger integration utilizing a two phased approach.
Discussion Document 14 CONFIDENTIAL AND PROPRIETARY
Integration Planning / Execution / Optimization
Pre-Close Planning “Day 1 Functionality”
Stabilization “Short-Term Goals”
Optimization “Long-Term Goals”
Synergy Focus
Strategic Focus
Tactical Focus
Tactical
Strategic
» Program Management Office
» Integration Planning
» Risk Management
» Communications
» MIS
» Identify Synergies
» Cost Take-out
» Eliminate Redundancies
» Identify Cross-selling Opportunities
» Customer Value
» Cost Savings
» Revenue Increase
» Growth Focus
FrontLine Partners applies its merger integration methodology to both short term tasks and long term strategic vision for an optimal outcome.
Phase I Phase II
Discussion Document 15 CONFIDENTIAL AND PROPRIETARY
Size of Opportunity
0
1
2
3
4
5
3 6 9 12 15
Sav
ing
s /
(C
apit
al +
Exp
ense
)
Time to Complete (Months)
< $1 MM
$1MM-$5MM
$1MM-$5MM
< $10MM
“Must Do” Initiatives
Priority Initiatives
Savings/(Capital + Expense) vs. Time to Implement
Priorities are then mapped against a timeline to execute in order to create a matrix of critical initiatives both pre and post close.
Critical Initiative Matrix
Discussion Document 16 CONFIDENTIAL AND PROPRIETARY
Initiative Prioritization FrontLine Partners works closely with its clients to prioritize initiatives to drive “showcase” outcomes.
Depending on Resource Availability and
Other Constraints
High Potential for Success, Early Benefits
Poor Use of Resources
High Risk Areas Address Early
Ease
of
Im
ple
men
tati
on
Value Creation Potential Low
High
Select
Avoid
Showcase
Tackle
High
Discussion Document 17 CONFIDENTIAL AND PROPRIETARY
Integration Management Process and Tools Our projects start with a well defined process that is communicated effectively to all participating parties.
ActivitiesActivities
ProjectCommunication
Plan
KnowledgeManagement
Tools
IssuesTracking &Resolution
Risk Management
& QualityAssurance
DeliverablesDeliverables
P R O J E C T
M A N A G E M E N T
Project Planning• Project Workplan
• Project Charter
• Project Standards
• Project Kickoff Meeting
• Project Budget
Project Management Tools• Scope Management Procedures
• Knowledge Management Tools
• Issues Tracking and Resolution Tools
• Risk Management & Quality Assurance Program
Project Communications Plan
Status Reporting and Budget Management
Procedures
Resource Management
Ongoing
StatusReporting/
BudgetManagement
ResourceManagement
ProjectPlanning
ProjectManagement
Tools
OperateOperate
Project ManagementProject Management
Risk ManagementRisk Management
Deploy-ment
Deploy-ment
SolutionBuild
SolutionDesign
SolutionStrategy OperateOperate
Project ManagementProject Management
Risk ManagementRisk Management
Deploy-ment
Deploy-ment
SolutionBuild
SolutionDesign
SolutionStrategy
Scope management is key to ensuring the
project stays on schedule and budget.
Technical Infrastructure
Project Framework Project Controls and Guidelines
Leadership /Sponsorship
Leadership /Sponsorship
Information Flow
PMPM
ModuleModulePMPM
ModuleModulePMPM
ModuleModulePMPM
ModuleModulePMPM
ModuleModulePMPM
ModuleModulePMPM
ModuleModulePMPM
ModuleModulePMPM
ModuleModulePMPM
ModuleModule
ValueManagement
KnowledgeManagement
ContinuousLearning
Program Leadership
RiskManagement
Strategic Vision and Plan
Tactical Plan
LeadLead
PlanPlan
ManageManageProgram Management
Project Portfolio
Project Portfolio
Project Portfolio
Project Portfolio
Project Portfolio
Project Portfolio
Information Flow
OverviewOverview
Activities Activities
Standards CreationWorkplan & Charter Scope ManagementRisk ManagementResource ManagementKnowledge ManagementTraining and CoachingProject CommunicationsProject Issues Resolution
Program ManagementManaging the Portfolio of Projects
Discussion Document 18 CONFIDENTIAL AND PROPRIETARY
Integration Management Process and Tools One key component of successful merger management is establishing the integration approach and organization structure early.
Develop Organization Structure and Responsibilities
Build Integration Capabilities
Develop Management Plans
Develop and Manage Integrated Plans
Governance
» Steering committee must be active, meet often, resolve conflicts
» Guiding coalition must be continually expanded
Communication
» Needs strong perception of CEO backing
» Requires connection between new vision and corporate success
Measurement
» Requires an agreed baseline
» Needs a definition of project success
Organization Politics
» Requires quick resolution to critical issues
» Demands a high level of sensitivity to the “new and old” ways
Week 11/2
7
12/4
12/1
1
12/1
8
12/2
5
1/1
1/8
1/15
1/22
1/29
2/5
2/12
2/19
TasksTransition Assessment & Planning
Establish project management and structure Division visits Project planning
Organizational RealignmentOrganizational Structure Roles/Responsibilities Physical Space
FacilitiesMoving CoordinationFile storage and archivalAdministration
Data Conversion Data Conversion Programs Data Scrubbing/Data Needs Assessment Data Mapping Data Conversion Testing Convert Data & Validate
Operational RealignmentDefine/Identify future-state ValidationProcess ImplementationPost-merger integration support
CorporatePurchasingCorporate accountingCorporate reportingTransaction CloseHuman resourcesLegalWebsite
Training Determine training methodology Determine training logisticsEnd-user support strategy development Documentation development End-User Training Post merger training support
Technical Infrastructure Change Management/Communication Program MgmtCurrent Initiatives
Steering Committee
Project Sponsor
Project Management
Corporate/Reporting
Location – 1A
Location – 2AController
Location – 2DController
Merger Integration ProjectOrganization Chart
Location – 2CController
Location – 1B
Project Director
Location-2 Regional Lead
Location – 2BController
Technical InfrastructureData Conversion
Corporate/Regional
TrainingFunctional Processes Location-1 Location-2
Discussion Document 19 CONFIDENTIAL AND PROPRIETARY
Integration Management Process and Tools – Risk Management Another key component of a successful acquisition project is a rigorous process for identification and resolution of critical integration challenges.
Risk Guidance and Monitoring Framework
Steering Committee
Senior Project Leadership
Project Management
Project QA
Project Risk Prioritization Framework
Imp
act
of R
isk
High areas of risk and likelihood of occurring are moved to the risk guidance and monitoring framework
Likelihood of Occurring Low
High
High
Issues that present project risk are identified and managed within a tight
framework.
Discussion Document 20 CONFIDENTIAL AND PROPRIETARY
FrontLine Partners understands the importance of maximizing the impact of Company X deals and minimizing the “value gap”. We partner with you to:
» Focus on the changes that need to be made to capture the value of your integration
» Change business practices to optimize transaction strengths
» Accelerate the business transformation to increase the speed to value
Integration Value Framework
» Reduce the costs of your infrastructure
» Quickly realize economies of skill and scale
» Create comprehensive integration models that map the entire process
» Leverage market positions and customer relationships
» Exploit the best practices of both organizations
» Use leading practices from other companies
» Change the way the entity operates
» Create new competitive advantages
» Create new business opportunities
VALUE ADDED
DIF
FIC
ULT
Y
Capture the Value of the Integration
Leverage Strengths
Transform
Discussion Document 21 CONFIDENTIAL AND PROPRIETARY
Clear and deep understanding the real estate market
FrontLine Partners has experience with PMI in the
REIT market
Sessions that accelerate key
strategic integration decisions
Track Record that enables clients to realize
extraordinary results
Real Estate Industry Knowledge / Expertise
Custom project management to ensure linkage
among all business initiatives
Integrated Tools and Methods
PMI Experience
Work-Out Sessions
FLP’s Value Proposition for Acquisition and Merger Integration FrontLine Partners brings both a depth of real estate market knowledge and breadth of transaction management expertise to help clients accelerate value capture from Strategic Business Combinations and Post-Merger Integration (PMI).
Discussion Document 22 CONFIDENTIAL AND PROPRIETARY
FLP’s Company X Engagement Scoping for Acquisitions and Merger Integration FrontLine Partners knowledge of real estate/financial services industry positions it well to help maximize the value of transactions.
Pre-Close Planning Stabilization Optimization
Due Diligence
Valuations
Financial & Operational Risk
Regulatory
Tax and Legal Structures
Integration Management Office
Strategy Articulation
Project Team
Structure
Risk Management Performance
Synergy Planning
Integration Team Deployment
Organization Alignment
Organization Design
Cultural Alignment
Compensation Mgmt.
Process Integration
Customer Retention
Supply Chain
Procurement Communication
Technology Integration
Governance Communication
FLP can lead for Company X
FLP in support role Company X Resources/ External SME’s LEGEND:
Back Office Integration