Integration: Mergers, Acquisitions, and Business Alliances by 8aCt3p


									  Integration: Mergers,
Acquisitions, and Business
Course Layout                     M&A and Other

         M&A           M&A Process              Deal           Alternative
      Environment                            Structuring      Restructuring

       Motivations      Business &             Public &       Divestitures,
        for M&A       Acquisition Plans    Private Company    Spin-Offs, &
                                               Valuation      Carve-Outs

    Common Takeover   Search Through          Financial       Bankruptcy &
      Tactics and     Closing Activities      Modeling         Liquidation
       Defenses                              Techniques


                                           Tax & Accounting
            Current Learning Objectives
• Primary learning objectives: To provide students with
  knowledge of
   – Factors critical to successfully integrating businesses,
   – Post-merger integration planning, and
   – Key activities that make-up the integration process
• Secondary learning objectives: To provide students with
  knowledge of
   – Post-merger integration organizations
   – How to develop communication plans
   – How to create a new organization
   – How to develop staffing plans, and
   – Integrating corporate cultures
      Factors Affecting Successful
•   The pace of integration
•   Integration planning
•   Effective communication
•   Customer focus
•   Making the tough decisions early
•   Focusing on the highest leverage issues
    Viewing Integration as a Process
•   Integration planning
•   Developing communication plans
•   Creating a new organization
•   Developing staffing plans
•   Functional integration
•   Integrating corporate cultures
                    Integration Planning
•   Use due diligence to determine post-closing sequencing of events
    necessary to realize potential savings
•   Resolve contract-related transition issues in purchase agreement
      – Employee payroll and benefits claims processing
      – Seller reimbursement for products shipped before closing for which
        payment not received
      – Buyer reimbursement for vendor supplies/services received before
        closing for which payment had not yet been made
•   Ensure contract closing conditions include those necessary to facilitate
    integration (e.g., employee contracts, agreements not to compete)
•   Develop post-merger integration organization (management integration
    team “MIT”) consisting of both target and acquirer managers to
      – Build a master schedule of what should be done, by whom and by
        what date
      – Establish work teams to determine how each function and business
        unit will be combined
      – Establish post-closing communication strategy for all stakeholders
      Developing Communication Plans
• Employees:
   – Address the “me too” issues immediately
   – Communicate frequently and honestly how the merger will
     affect employees
• Customers:
   – Under-commit and over-deliver
   – Acquisition-related customer attrition
   – Meet commitments to current customers
• Suppliers: Develop long-term vendor relationships

• Investors: Maintain shareholder loyalty by presenting a
  compelling vision.

• Communities: Build strong, credible relationships
          Creating a New Organization
• Learn from the past: Prior organization charts for both firms
  provide insights into individual expectations concerning future
  reporting relationships
• Business needs drive organizational structure:
   – Structure facilitates decision making, provides internal
       controls, and promotes desired behaviors
   – Basic structures include functional, product, or divisional
   – Decentralized versus centralized structures
• Integrate corporate culture: Balance need for control with need
  for flexibility
   – Merging corporate boards (outsiders improve effectiveness)
   – Integrating senior management (select managers from both
       companies best suited for implementing strategy)
   – Once selected, senior managers should be given full
       responsibility for selecting their direct reports
            Developing Staffing Plans
• Personnel requirements:
   – Determine what functions are needed by the combined
   – Project personnel requirements by function
• Employee availability: Consider current employees as well as
  those within communities in which new company has operations
• Plans and timetables: Match skills of current employees with
  those needed by new firm to determine “gaps”
• Compensation: Consider base pay, incentive plans, and special
  contractual arrangements.
• Integrating compensation plans: Extent of integration depends
  on whether target to be managed separately or wholly
• Personnel information systems: Integrate to achieve operating
  efficiencies unless plan to divest units at a later date.
                Functional Integration
• Due diligence data revalidation: Verify assumptions
• Performance benchmarking: Compare actual performance with
  industry “best practices”
• Functions
   – Manufacturing and operations (facility consolidation)
   – Information technology (90% of acquirers combine
   – Finance (implement internal controls and financial reporting)
   – Sales (implementing cross-selling frequently a challenge)
   – Marketing (avoid brand confusion)
   – Purchasing (potential 10-15% reduction in purchasing costs)
   – Research and development (set priorities consistent with
   – Human resources (decentralizing hiring & training; centralize
     benefits administration, management systems and planning)
         Integrating Corporate Cultures
• Cultural issues: Differ by
   – Size and maturity of company (start-ups versus mature)
   – Industry (high tech versus finance and retailing)
   – Geographic location (domestic versus foreign)
• Cultural profiling: Using employee surveys and interviews, identify
   – How the target and acquirer cultures are alike and how differ
   – Characteristics of both cultures that are to be encouraged
• Techniques for integrating corporate cultures: Establish shared
   – Goals to foster desired behavior
   – Standards based on “best practices”
   – Services such as accounting, legal, public relations, internal
     audit, benefits planning, R&D, and information technology
   – Space by co-locating employees
           Mechanisms for Integrating
              Business Alliances
• Leadership: Establish a shared vision.
• Teamwork and role clarification: Establish teams with clearly
  identified roles and responsibilities
• Coordination: Exert control through coordination rather than
• Policies and values:
   – Ensure employees understand how decisions are made.
   – Communicate who will be held accountable and how
      rewards are determined.
• Consensus decision making: Give all participants opportunity for
  ample input, but make decisions within a reasonable time frame.
• Resource commitments: Partners should live up to
  commitments to contribute high quality resources.
               Things to remember...
• Post-closing integration is a critical phase of the M&A process
• Integration can be viewed as a process consisting of six
• Except in highly complex situations, combining companies
  should be done quickly to
   – Minimize key employee, customer, and supplier turnover
   – Eliminate redundant assets, and
   – Achieve returns expected by shareholders
• Successfully integrated M&As are those whose management
  candidly and continuously communicate a clear vision, set of
  values, and unambiguous priorities to all stakeholders
• Unlike M&As, integrating business alliances is usually a lengthy
  process because of shared control and the overarching need to
  gain consensus on key decisions

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