m a deal killers and best practices

8/2/2019 M a Deal Killers and Best Practices

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M&A Integration:M&A Integration:Deal Killers and Best PracticesDeal Killers and Best Practices

Mark Herndon, PresidentParkwood Advisors, LLC

[email protected]


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2Copyright 2005 Mark Herndon, Parkwood Advisors, LLC

Some background . . . Why are we here?

M&A is back, and in a big way!M&A is back, and in a big way!

Lots of private equity money now being deployedLots of private equity money now being deployed

Economic confidence triggers dealsEconomic confidence triggers deals

Most executives have been theredone that!Most executives have been theredone that!

Many timesMany times unpleasant experiencesor worseunpleasant experiencesor worse

Diverse experiences should be leveraged through a common framewoDiverse experiences should be leveraged through a common frameworkrk

What we can learn from M&A Best PracticesWhat we can learn from M&A Best Practices

M&A is a process versus an eventM&A is a process versus an event

M&A is a skill that must be developedM&A is a skill that must be developed

M&A capabilities must be in place before the train leaves the sM&A capabilities must be in place before the train leaves the s tationtation


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What can go wrong?What can go wrong?

Key principles and best practicesKey principles and best practicesto really get it rightto really get it right

Primary focus today will be on integrationPrimary focus today will be on integration

More company leaders involved at this stageMore company leaders involved at this stage

More potential complications at this stageMore potential complications at this stage

Case study:Case study: Can This Merger Be Saved?Can This Merger Be Saved?

This session will cover. . .


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Lets start with the realities . . .

70% of M&A deals fail to achieve70% of M&A deals fail to achieve

anticipated synergiesanticipated synergies

50% report overall drop50% report overall drop--off inoff in

productivity in first 4productivity in first 4--8 months8 months

47% of acquired company executives47% of acquired company executives

leave in the first yearleave in the first year 75% leave75% leave

within the first three yearswithin the first three years

Just 23% of all acquisitions earn theirJust 23% of all acquisitions earn their

internal rate of returninternal rate of return

On average, management grade theOn average, management grade the

financial performance of theirfinancial performance of their

acquisitions as a C minusacquisitions as a C minus

58% of mergers fail to create58% of mergers fail to create

substantial returns to shareholderssubstantial returns to shareholders

(A. T. Kearney)(A. T. Kearney)

DealDeal

AnnouncedAnnounced

Sources: The Wall Street Journal, Forbes,

Fortune, CFO Magazine


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Failure Can Occur in Any Phase of the Process!

Lack of Compelling Strategic Rationale

Lack of Rigorous Target Decision Criteria

Lack of Disciplined M&A Process

Inadequate and Incomplete Due Diligence

Unrealistic Expectations or Excessive PriceNot Thinking About Integration Until Too Late

Overconfidence In Ability To Change Or Turn-around

Delay and Ambiguity

Lack of Shared Vision andStrategy

Conflicting Corporate orNational Cultures

Inadequate Resources

Bad Execution

Strategy &

Targeting

DueDiligence

Acquisition

Integration

Uncontrolled AndInadequate IntegrationPlan / Process

Failure to Pay Attention toCustomers andOperations

Lack of Attention toAlignment and Change


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Employees have heard it all before . . . .

. . . And, STILL only care about ONE thing



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The Big Lies

This will be business asThis will be business asusual.usual.

We dont anticipate any majorWe dont anticipate any majorchanges.changes.

This will be an autonomous,This will be an autonomous,

standstand--alone division.alone division.

This will be good for all of us.This will be good for all of us.

This will be a merger ofThis will be a merger ofequals.equals.

Well take some time to get toWell take some time to get to

know everyone, and then wellknow everyone, and then wellget back to you. But dontget back to you. But dontworrytheres plenty ofworrytheres plenty ofopportunityopportunity


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Change is a good concept . . .

. . . until it comes to my door



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Acquirers often create their own obstacles tochange

Barrier to ChangeBarrier to Change Typical Employee PerceptionsTypical Employee PerceptionsWe /They Attitude . . . . . . . . . . we do it this way . . . the right way

Arrogance. . . . . . . . . . . . . . . . . . if you guys are so good,

why didnt you buy us

Process Change Confusion. . . . . where are these new forms

supposed to be anyway?

Delay Deficit. . . . . . . . . . . . . . . . theyve been saying we dont

know yet for so long - I think

theyre just not telling us

Ambiguity/Indecision. . . . . .. . . . . this is the third time theyve

changed their minds this month


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Frankly, their efforts to keep me were too little, too

late. . . . I cant stick around forever just wondering.



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Marriages ofConvenience

Seldom Last



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EXPECTEXPECT productivity to drop by 50%.productivity to drop by 50%.

When people are anxious and scared

about their futures, they are focused on

themselves not on customers, quality

service, costs and speed.



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Ten Principles for Integration Success

1.1. Start with strategyStart with strategy

2.2. Focus on what matters mostFocus on what matters most

3.3. Best practices are where you find themBest practices are where you find them

4.4. Move fastMove fast

5.5. ReRe--recruit before you have torecruit before you have to


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Ten Principles for Integration Success, continued

6.6. OverOver--communicatecommunicate

7.7. Culture mattersCulture matters

8.8. Structure the chaosStructure the chaos

9.9. Deal with the me issuesDeal with the me issues ASAPASAP

10.10. M&AsM&As must be led, not managedmust be led, not managed


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Without a clear strategy, integration will quicklydissolve into conflicting, incompatible projects

General Strategic Rationale

Consolidation /

overcapacity

Product line or

geographic expansion

Acquire R&D / talent

Industry convergenceEssentialEssential

Value Drivers?Value Drivers?

Integration Strategy Framework

Structure and staffing

Level of integration /

governance

Brands / products

Operations

IT / service delivery

Performance and metrics

Process redesign

HR alignment

Culture and knowledge

transfer


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Ruthless prioritization and relentlessaccountability prevent distraction

CaptureCapturesynergiessynergies

Hit performanceHit performanceexpectationsexpectations

BuildBuild

integrated systemsintegrated systems

KeepKeepyour customersyour customers


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Beware the Not Invented Here syndrome . . .

1098

76543

210

-1-2-3-4

Best Superior Average Inferior

Self Perception of Business Unit PerformanceSelf Perception of Business Unit Performance

Willingness toWillingness to

Accept BestAccept BestPracticesPractices

Source: Harvard Business School Study

. . . And aggressively search out bestpractices regardless of whos buying who


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The speed of integration is critical to success

Percentage of respondents that reported improvementPercentage of respondents that reported improvementin these measures through ain these measures through a fastfast integration processintegration process

Customer Focus

Clarity of Company Direction

0 10 20 30 40 50 60 70 80 90 100

Speed to Market 62%62%

Technological Progress 71%71%

Employee Commitment 76%76%

76%76%

71%71%

Employee Turnover 76%76%

Sources: Management Review


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At the time it seemed like we were going too fast,

but for employees and customers, it must haveseemed like forever.

Why emphasize speed over precision?Because the costs of delay exceed the costs of mistakes.

Percy Barnevik, former CEO, ABBQuoted in Harvard Business Review

SPEED OUTWEIGHSSPEED OUTWEIGHSACCURACYACCURACY

DELAY CREATESDELAY CREATES

UNCERTAINTYUNCERTAINTY

USE THE 80/20 RULEUSE THE 80/20 RULE

KEEP IT STRICTLYKEEP IT STRICTLY

SIMPLESIMPLE

THE LONGER ITTHE LONGER ITTAKES THE MORETAKES THE MOREIT COSTSIT COSTS

CUSTOMERSCUSTOMERSDONT TOLERATEDONT TOLERATE

DISRUPTIONSDISRUPTIONS



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Re-recruiting means:show me MORE than the money

1. Lack of opportunity for advancement

2. Dissatisfaction with company management

3. Dissatisfaction with compensation

4. Conflict with co-workers or manager5. Lack of recognition or appreciation

6. Uncomfortable work environment

7. Inadequate opportunities to develop career skills

8. Lack of respect or fairness

9. Conflict with family or personal needs

10. Dissatisfaction with benefits

Source: Strategic Rewards 1999/2000, Supplemental Survey of Top-Performing Employees

Top 10 Reasons High-Performing Employees Resign


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90%

CommunicationIs

Important

43%

CommunicationIs

Successful

Why

doesthisgap

exist?

Communication is consistently rated the mostimportant factor, yet most dont do it well

Top reasons communications wereTop reasons communications wereineffectiveineffective Inadequate resourcesInadequate resources

Too slowToo slow

Inadequate senior management attentionInadequate senior management attention Not all groups were communicated toNot all groups were communicated to

The messages were inconsistentThe messages were inconsistent

Launched too lateLaunched too late

Not well plannedNot well planned

Not frequent enoughNot frequent enough

Ended too earlyEnded too early

Source: Watson Wyatt Worldwide, Global

Survey of Experienced Acquirers


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Source: Watson Wyatt Worldwide Study: Assessing and Managing Human Capital: A Key to Maximizing the M&A Deal Value

Culture issues are rated among the top failure factors,

yet rated last in the type of information gathered during

due diligence

Percentage of companiesPercentage of companies

citing the type of informationciting the type of information

gathered during duegathered during due

diligencediligence

46%

49%

56%

56%

71%

75%

86%

90%

0 10 20 30 40 50 60 70 80

Organizational culture and

dynamics of change

Workforce potential

HR policy matters

Major shareholders

Management capabilities andwillingness to cooperate

Financial aspects of HR function

Market share, distribution

Hard assets

90 100

Technological and businesscompetencies 78%


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All integration activities must be coordinatedthough a program management approach to

structure the chaos

USE RUTHLESSUSE RUTHLESSPRIORITIZATIONPRIORITIZATION

DEDICATE THEDEDICATE THE

RIGHT INTEGRATIONRIGHT INTEGRATIONLEADER AND TEAMLEADER AND TEAM

RESOURCESRESOURCES

PURGE THEPURGE THENICENICE--TOTO--HAVESHAVES

BUSINESS ANDBUSINESS ANDINTEGRATION MEASURESINTEGRATION MEASURES

EXECUTE THEEXECUTE THEHAVEHAVE--TOTO--DOSDOSEXTREMELY WELLEXTREMELY WELL

JOINT TASK FORCESJOINT TASK FORCESTO PLAN AND EXECUTETO PLAN AND EXECUTE

DISCIPLINED PROJECTDISCIPLINED PROJECTMANAGEMENTMANAGEMENT

AND ACCOUNTABILITYAND ACCOUNTABILITY

Success is never final. Failure is seldom fatal.

Its execution that counts.



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Under-managing the me issues will destroy value even in the most strategic and reasonably priced

deals

Staggered ExperiencesStaggered Experiences

management must address these issues from where the management must address these issues from where theorganization is at, not from where they are atorganization is at, not from where they are at

Time

Productivity Senior Mgmt.

Middle Mgmt.

Employees


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WORKFORCESTABILIZATION

WORKFORCESTABILIZATION

POLICIESAND

PROGRAMS

POLICIESANDPROGRAMS

ORGANIZ

ATIONMO

DEL

ORGANIZ

ATION MO

DEL

ANDDES

IGN

ANDDESI

GN

FAIRSELE

CTION

FAIRSELE

CTION

PROCESSPROCESS

CREATE

CREATE

AGGRESSIVE

AGGRESSIVE

TIMELINES

TIMELINES

Integration Manager Quote: Nothing muchhappens until the organization is set.

MAKE THEMAKE THETOUGH DECISIONSTOUGH DECISIONS


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Percentage of companiesciting reason for success

Shared responsibility of costs involved

Early resolution of What will happen

to me? employee issues

9%9%

44%44%

32%32%

41%41%

51%51%

73%73%

Cultural compatibility

Mutual agreement of road mapby partners

Expedient integration

Well planned communicationthroughout the deal process

Leadership

0 10 20 30 40 50 60 70 80 90 100

35%35%

... to help the organizations focus, coordinate and implement

Survey results: The complexities of acquisitionsrequire bold and decisive leadership


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Ten Principles for Integration Success

1.1. Start with strategyStart with strategy

2.2. Focus on what matters mostFocus on what matters most

3.3. Best practices are where you find themBest practices are where you find them

4.4. Move fastMove fast

5.5. ReRe--recruit before you have torecruit before you have to6.6. OverOver--communicatecommunicate

7.7. Culture mattersCulture matters

8.8. Structure the chaosStructure the chaos

9.9. Deal with the me issuesDeal with the me issues ASAPASAP10.10. M&AsM&As must be led, not managedmust be led, not managed


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About The Presenter

Mark Herndon serves as President of Parkwood Advisors, LLC, a diversified professional services firmfocused on merger and acqusition strategy and integration; investment banking and private equityfinancing; and the development of early-stage technology-oriented companies.

Mark specializes in a broad range of strategic and business effectiveness initiatives, including:

M&A strategy, due diligence and integration management Strategy formulation and execution

Strategic communications of large-scale change; culture assessment and integration Financing and capital formation for early stage companies

Business development and strategic planning for technology oriented start-ups Stategic marketing and positioning of new products a nd technologies

Mark formerly served as U.S. Region Leader for Merger and Acquisition Services with Watson WyattWorldwide, a global consulting firm with approximately $750 million in annual revenue, where hisclients included: American Express Financial Advisors, Amoco, Boeing, British P etroleum, CessnaAircraft, Chevron, Dell Computer, Dow Chemical, Equistar Chemicals LP, First Interstate Bank,General Electric, Hoechst-Celanese, J C Penney, Komatsu-Dresser, Lyondell Petrochemical, MagmaCopper, McNeil Consumer Products, Northern States Power, Occidental Chemical, Quaker Oats, ShellOil, The Toledo Hospital, TRW, and Willamette Industries among others.

Mark is the co-author of The Complete Guide To Mergers and Acquisitions: Process Tools to SupportM&A Integration at Every Level, (John Wiley / Jossey-Bass Publishers), which has been translated into

five languages and is used as a foundational guide for various consulting firms and university programs.A Second Edition of this book is scheduled for release in 2007.

Mark earned the distinction of Top Ten Graduating Seniors at Oklahoma State University where hecompleted a Bachelor of Science degree. While in college Mark served as the National President of the

Future Farmers of America, a 500,000 member educational organization funded by the United StatesDepartment of Education. He subsequently earned the Executive Masters of Business Administrationdegree from the University of Texas at Dallas, where he currently serves as Executive in Residence forthe Graduate School of Management.

Parkwood Advisors, LLC

Office / Fax: 214-296-9248 Mobile: 214-280-3486

[email protected]

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