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Planning and Executing Successful TransactionsKey Highlights From Protiviti’s Merger, Acquisition and Divestiture Playbook

Planning and Executing Successful Transactions: Key Highlights From Protiviti’s Merger, Acquisition and Divestiture Playbook · 1protiviti.com

Few merger, acquisition and divestiture (MAD) transitions1 qualify as successful — and no transition is seamless. MAD teams must keep their eyes wide open to every detail and manage everyone’s expectations throughout the entire process. This is no small undertaking.

To help guide organizations through the MAD lifecycle, Protiviti offers a unique approach based on decades of hands-on corporate leadership roles in MAD transitions. Our approach covers all components of the MAD lifecycle and can be applied to enterprises of any size and any level of experience with MAD events.

While our approach is comprehensive, it is also a bit unconventional. We address some aspects not typically considered in MAD transitions — from culture and fraud assessments to cybersecurity. We work with companies to apply it in a way that fits their needs,

their target and the circumstances specific to the deal.

We approach the MAD lifecycle through five phases — Strategizing, Decisioning, Operationalizing, Transitioning and Stabilizing, and 14 components as outlined in the figure below. Each component features broad and deep processes and subprocesses that enable a successful transition. To be successful, a company must consider all of these components diligently and in a manner that recognizes their interdependence. Protiviti helps companies address the challenges and risks throughout the lifecycle, offering broad and deep services with a focus on planning, executing

and integrating a successful transaction.

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The Protiviti MAD Approach

1 In this brochure, “transition” refers to the planning and execution work that takes place before and after the MAD deal is finalized with signatures (the “transaction”).

2 · Protiviti

It is well known that MAD transitions require seasoned management skills and expertise across multiple functional areas. Organizations should keep the following high-level principles in mind when conducting process-intensive MAD work:

Ensuring Successful Transactions

• Successful execution of a MAD transition depends

on recognizing that everything depends on

everything else. The quality and depth of work

conducted at any point in the lifecycle determines

the work necessary during parallel and subsequent

phases and components.

• MAD transitions are inherently disruptive; rigor

prevents them from becoming destructive.

Steering committees and transition management

teams must recognize that disruption is unavoidable

but a thorough approach can prevent disruptions

from leveling destruction.

• Set expectations early, manage them throughout.

The rationale for a potential MAD deal is set out

clearly in the beginning of the strategic decision-

making process. The rationale defines the value the

organization intends to achieve by investing in this

decidedly high-risk, disruptive activity.

• Avoid the “deal zone,” the “transaction zone” and

the “transition zone.” MAD missteps arise from a

siloed mindset which ignores the interdependency

of components and processes.

• Continually strive to make intangibles tangible.

Planning and executing a successful MAD transition

requires a practical mindset. The team managing

the transaction and subsequent transition should

vigilantly identify and address sources of uncertainty

and confusion.

• Focus on execution and keep it practical.

Managing all the moving pieces of a MAD transition

requires in-the-trenches thinking and change

management work. Continually ask and answer

candid questions, such as: What are we doing? How

are we going to manage the transition? Where do we

need more help?


The work that takes place during the Strategizing phase

has powerful ripple effects that can greatly influence

an organization’s future value. Put simply, the purpose

of this phase is to identify the “what”: What do we want

to do? Grow organically or through acquisition? Scale

operations or divest back to core operations?

The two primary activities in this phase — ideation and

screening — help the business chart its future course,

identify the external factors likely to affect the journey,

and determine which vehicles can get the organization

to its desired destination in an optimal fashion.

Component 1: IdeationIdeation is the process whereby the board of directors

and the executive leadership team convene to decide

which direction the company should take. The company

will rely on the decisions made in this component to

reach its desired state.

We work with company leaders to develop scenario

plans, brainstorming collaboratively and testing

assumptions in a constructive manner before deciding

on a course of action. This scenario planning allows the

leadership team to pressure-test plans and forecasts

while producing insights that can better equip the

business to handle unexpected changes and events.

Component 2: ScreeningScreening identifies the criteria for determining an

optimal merger, acquisition, alliance or joint venture

target — or, in the case of divestiture, a component

of the business to divest. During this process, we

develop a target management plan to enable the

organization to identify and assess targets and

develop a target risk profile. The criteria for target

companies should reflect the strategies and

objectives identified during ideation.

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4 · Protiviti

The essential purpose of the Decisioning phase is to

lay the groundwork for identifying the “who”: Who

should we engage with? Who should we acquire? Which

portion of our business should we divest? This groundwork

consists of three principal components: evaluation,

due diligence and transition readiness.

Component 3: EvaluationThe evaluation process serves as an initial, scaled-

back version of the much more involved due diligence

activities that follow. During evaluation, the MAD

team determines valuation methodologies and

scenarios and assesses key risk areas that can affect

the valuation of the target or its viability. The team

also identifies potential revenue enhancements

beyond cost reductions, and potential synergies

resulting from the transaction.

Component 4: Due DiligenceDue diligence represents one of the most time-

consuming and potentially costly components

within the entire MAD lifecycle. However, this

component is one of the most, if not the most,

important and valuable components thanks to

its acutely interdependent nature. Protiviti’s due

diligence services include performing a number

of detailed due diligence assessments (financial,

accounting, cultural, anti-corruption and more).

This work requires a fair amount of technical expertise,

data repository prowess and governance capacity to

meet the rigorous requirements of a successful due

diligence process. Workflow tools are commonplace

in due diligence activities and often spell the difference

between an efficient and comprehensive process and

one that is ineffective and extremely costly.

Component 5: Transition ReadinessTransition readiness provides organizations with

valuable insights into the work to be conducted during

the Transitioning and Stabilizing phases of the MAD

lifecycle, essentially answering the question of “how.”

Leading industry publications indicate that companies

that invest early and sufficiently in this work have

dramatically higher odds of conducting a successful

transition later on. Protiviti performs pressure tests

to assess transitioning fitness, evaluates organizational

talent (both of the acquirer and the target), assesses

the ability of the organization to perform the transition

using current governance and staffing models, and

performs a multidimensional impact assessment

of the MAD transition on the organization.

Decisioning Phase

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The Operationalizing phase is the time in the MAD

lifecycle when organizations select which part of the

business they will divest or which company they will

merge with or acquire. Savvy organizations also will

begin planning for the transition during this phase —

the process that begins once the MAD transaction is

finalized. This phase’s key components are: determining

the deal structure, negotiation and transition planning.

Component 6: Deal StructureThe objective of the deal structure is to maximize

the net result from a financial, operational, risk and

tax perspective. Achieving the objectives of the buyer

and seller requires a clear focus on the transaction

value drivers.

Component 7: NegotiationComponents 1 through 6, when leveraged appropriately,

can inform and positively impact the negotiation process.

Component 8: Transition PlanningTransition planning is an overarching component in

this phase, and should commence in parallel with deal

structure activities. Protiviti’s services, which are

significant in scope, include:

• Defining a transition governance structure

supported, in most cases, by a steering committee,

which provides oversight, and a core transition

management office (TMO), which executes

the transition.

• Defining the transition strategy, to be used by the

TMO to guide the transition and by the steering

committee to govern the activities.

• Developing and implementing a change

management plan.

• Developing a target operating model (TOM) blueprint.

• Developing detailed Legal Day 1 (LD1) plans and

high-level LD1+ plans.

Operationalizing Phase

TMO Structure

TMOLeadership

Change Management

Communications

Customer Advocates

Tiger Teams

TSA Management

Employee Ambassadors

Customer-Facing Workstream Program Leaders Non-Customer-Facing Workstream Program Leaders

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6 · Protiviti

The Transitioning phase of the MAD lifecycle is squarely focused on how two distinct organizations will be brought together or how a unit will be carved out. It spans the period before the closing of the deal (pre-Legal Day 1, or pre-LD1, activities), the closing itself, the LD1 execution,

and the activities following the execution.

Component 9: Pre-LD1Pre-LD1 (often referred to as T-60) activities give the TMO a final opportunity to finalize and test plans. Processes include implementing the governance structure, instituting management frameworks and escalation paths, assigning key workstreams to TMO staff members, and more. This component also includes the TMO kickoff, in which leaders and managers are educated on what to expect during the next 30, 60 and 90 days, and a TMO sit-down with the functional and business leaders to lay out the daily tasks for each function or business line during

the transition.

Component 10: ClosingThe closing effectively begins the actual combination or separation of companies. This component includes a waterfall analysis to determine, among other things, how funds from the sale price, once they enter the acquired organization, will cascade to various parties and obligations before the owners receive the remaining balance. A closing balance sheet is also created at this time to show what the new organization will look like on the closing date from a finance and accounting perspective. This prepares the organization to produce accurate financial statements and file taxes on time

once the deal closes.

Other activities include preparing the first month-end report subsequent to closing, which bridges the financials immediately before and after the transaction, and preparing financial reporting

templates for the new organization.

Component 11: LD1 ExecutionThe pressure-packed LD1 execution is perhaps the most intense 24 hours in the MAD lifecycle. Critical activities at this stage include implementation of controls and procedures related to finance and accounting, and cybersecurity. Processes and protocols related to corporate governance, business continuity management capabilities and more should also be

implemented at this time.

Component 12: LD1+LD1+ activities, more commonly referred to as T+100, can continue for up to 24 months or more, depending on the scope and complexity of the MAD transaction. These activities include consolidating TMOs, uploading LD1+ plans into the workflow tool, executing the transaction services agreement and performing the talent audit. Other key processes include a culture integration risk assessment (identifying critical aspects of organizational culture that could be affected during the transition) and assimilating acquired employees and related third parties into the company’s anti-

corruption compliance program.

Transitioning Phase

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The Stabilizing phase is about returning to solid

footing following the (sometimes) controlled chaos of

Transitioning activities and deadlines. It is the start

of long-term transitioning activities and, in some

cases, marks the formal closure of the TMO and the

transitioning of accountability to the business units.

This phase has two key components: transformation

and post-transformation assessment.

Component 13: TransformationTransformation focuses primarily on the future and

addresses the key question: What do we need to do now

to achieve the underlying objectives of the transaction in

the days ahead?

The primary processes here focus on assessments, and

testing and rationalizing of key controls. Among the

assessments conducted at this stage are: operational

assessment, assessment of synergies and value drivers, a

cultural impact assessment and a fraud risk assessment.

A leading practices audit may also be conducted at this

time. This audit should be conducted as objectively

as possible to evaluate TMO performance, customer

experience and employee/associate experience. TMO

performance should be assessed in several areas, including

program management and change management.

Component 14: Post-Transition AssessmentThe post-transition assessment looks back at the

entire process, asking: How well did we perform the MAD

transaction and transition, and how can we improve our

capabilities for future MAD transactions?

Objectivity is key in this assessment, and in most

cases, all or most of it is conducted by a third party

with extensive MAD experience. Typically, Protiviti’s

assessment includes:

• Transition review. What could the organization

have done better throughout each phase of the

MAD lifecycle?

• Look-back assessments. How effective were the

earn-out and claw-back provisions negotiated

and included in the transaction agreement?

• Reverse due diligence. Were the various due

diligence activities the organization conducted

during the Decisioning phase sufficient?

• Cultural impact assessment. How well did the

organization identify its mission-critical cultural

traits and was it able to preserve, share and fortify

these traits during the transition process?

• TOM assessment. Did the target operating model

(TOM) conceived, planned and executed during

previous phases perform as planned?

• Regulatory assessment. Did the organization

meet all of its regulatory compliance obligations

throughout the MAD lifecycle?

Stabilizing Phase

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8 · Protiviti

This brochure represents all of the components of the MAD lifecycle and Protiviti’s services related to each

component in a condensed and succinct manner. To learn more about our approach and service offerings

throughout the MAD lifecycle, visit www.protiviti.com/playbook.

How Corporate and Private Equity Firms Engage Us

CORE SERVICES

Financial: pre- and post-investment

IT: organization, infrastructure, governance, process

Operational: L1 and L2 core processes

Regulatory compliance

Fraud and corruption

Human capital

Cultural

Develop TOM

Establish governance structure

Review pre-announce and LD1 activity

Review Day 1 execution

Perform resource requirement gap assessment

Conduct readiness workshops

Perform human capital and cultural assessments

Assess and align TOM

Assess governance structure

Set up transition management office

Develop detailed execution plans

Manage transition program

Human capital optimization

Staff augmentation

Manage specific workstreams and programs

Operationalize “master plan”

Identify and validate synergies

Partner with other external service providers

Resource leveling

Staff augmentation

Working capital optimization

Strategic cost reductions

Technology: strategy and delivery

Operations: revenue enhancement, core processes, supply chain

Process and control rationalization

Financial management: core functions and policy development

IPO readiness

Due Diligence Transition Readiness Transition Management

Workstream Management

Performance Improvement

Learn More

9 · Protiviti

ABOUT PROTIVITIProtiviti is a global consulting firm that delivers deep expertise, objective insights, a tailored approach and unparalleled collaboration to help leaders confidently face the future. Protiviti and our independently owned Member Firms provide consulting solutions in finance, technology, operations, data, analytics, governance, risk and internal audit to our clients through our network of more than 70 offices in over 20 countries.

We have served more than 60 percent of Fortune 1000® and 35 percent of Fortune Global 500® companies. We also work with smaller, growing companies, including those looking to go public, as well as with government agencies. Protiviti is a wholly owned subsidiary of Robert Half (NYSE: RHI). Founded in 1948, Robert Half is a member of the S&P 500 index.

Jim RyanGlobal Transaction Services [email protected]

Randall CoxworthGlobal Business Performance [email protected]

David HauflerGlobal Mergers & Acquisitions Leader [email protected]

Charles GoldsteinDue Diligence Leader [email protected]

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EUROPEAnneke [email protected]

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JAPANTakehito [email protected]

CHINABerry [email protected]

AUSTRALIAMike [email protected]

TRANSACTION SERVICES LEADERS

REGION LEADERS

© 2017 Protiviti Inc. An Equal Opportunity Employer M/F/Disability/Veterans. PRO-0717-101097a Protiviti is not licensed or registered as a public accounting firm and does not issue opinions on financial statements or offer attestation services.

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