Professional Documents
Culture Documents
What can go wrong? Key principles and best practices to really get it right
Primary focus today will be on integration More company leaders involved at this stage More potential complications at this stage
Deal Announced
70% of M&A deals fail to achieve anticipated synergies 50% report overall drop-off in dropproductivity in first 4-8 months 4 47% of acquired company executives leave in the first year 75% leave within the first three years Just 23% of all acquisitions earn their internal rate of return On average, management grade the financial performance of their acquisitions as a C minus 58% of mergers fail to create substantial returns to shareholders (A. T. Kearney)
Lack of Compelling Strategic Rationale Lack of Rigorous Target Decision Criteria Lack of Disciplined M&A Process Inadequate and Incomplete Due Diligence
Due Diligence
Unrealistic Expectations or Excessive Price Not Thinking About Integration Until Too Late Overconfidence In Ability To Change Or Turn-around
Acquisition Integration
Delay and Ambiguity Lack of Shared Vision and Strategy Conflicting Corporate or National Cultures Inadequate Resources Bad Execution
Uncontrolled And Inadequate Integration Plan / Process Failure to Pay Attention to Customers and Operations Lack of Attention to Alignment and Change
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This will be business as usual. We dont anticipate any major changes. This will be an autonomous, stand-alone division. This will be good for all of us. This will be a merger of equals. Well take some time to get to know everyone, and then well get back to you. But dont worrytheres plenty of opportunity
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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
Copyright 2005 Mark Herndon, Parkwood Advisors, LLC
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Frankly, their efforts to keep me were too little, too late. . . . I cant stick around forever just wondering.
Copyright 2005 Mark Herndon, Parkwood Advisors, LLC Copyright 2005 Mark Herndon, Parkwood Advisors, LLC
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Copyright 2005 Mark Herndon, Parkwood Advisors, LLC Copyright 2005 Mark Herndon, Parkwood Advisors, LLC
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When people are anxious and scared about their futures, they are focused on themselves not on customers, quality service, costs and speed.
EXPECT productivity to drop by 50%.
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6. Over-communicate 7. Culture matters 8. Structure the chaos 9. Deal with the me issues ASAP 10. M&As must be led, not managed
Copyright 2005 Mark Herndon, Parkwood Advisors, LLC
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Without a clear strategy, integration will quickly dissolve into conflicting, incompatible projects
General Strategic Rationale Consolidation / overcapacity Product line or geographic expansion Acquire R&D / talent Industry convergence
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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Capture synergies
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. . . And aggressively search out best practices regardless of whos buying who
Copyright 2005 Mark Herndon, Parkwood Advisors, LLC
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Percentage of respondents that reported improvement in these measures through a fast integration process
Employee Commitment Employee Turnover Customer Focus Clarity of Company Direction Technological Progress Speed to Market
Sources: Management Review
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20 30
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50 60
70
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90 100
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At the time it seemed like we were going too fast, but for employees and customers, it must have seemed like forever.
Why emphasize speed over precision? Because the costs of delay exceed the costs of mistakes. Percy Barnevik, former CEO, ABB Quoted in Harvard Business Review
Copyright 2005 Mark Herndon, Parkwood Advisors, LLC
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1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
Lack of opportunity for advancement Dissatisfaction with company management Dissatisfaction with compensation Conflict with co-workers or manager Lack of recognition or appreciation Uncomfortable work environment Inadequate opportunities to develop career skills Lack of respect or fairness Conflict with family or personal needs Dissatisfaction with benefits
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Communication is consistently rated the most important factor, yet most dont do it well
90% 43%
Communication Is Important
Communication Is Successful
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Culture issues are rated among the top failure factors, yet rated last in the type of information gathered during due diligence
Hard assets Market share, distribution Technological and business competencies Financial aspects of HR function Management capabilities and willingness to cooperate Major shareholders HR policy matters Workforce potential Organizational culture and dynamics of change
90% 86% 78% 75% 71% 56% 56% 49% 46% 0 10 20 30 40 50 60 70 80 90 100
Percentage of companies citing the type of information gathered during due diligence
Source: Watson Wyatt Worldwide Study: Assessing and Managing Human Capital: A Key to Maximizing the M&A Deal Value
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All integration activities must be coordinated though a program management approach to structure the chaos
USE RUTHLESS PRIORITIZATION PURGE THE NICE-TO-HAVES NICE-TOBUSINESS AND INTEGRATION MEASURES
Success is never final. Failure is seldom fatal. Its execution that counts.
Copyright 2005 Mark Herndon, Parkwood Advisors, LLC
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Under-managing the me issues will destroy value even in the most strategic and reasonably priced deals
Staggered Experiences
Productivity
Employees
Time management must address these issues from where the organization is at, not from where they are at
Copyright 2005 Mark Herndon, Parkwood Advisors, LLC
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Integration Manager Quote: Nothing much happens until the organization is set.
DEL N MO IO IZAT ANIZ IGN ORG ND DES A
MAKE M AKE THE T OUGH DECISIONS TOUGH DECISIONS
WO R PO KFO L IC RC I ES E S AN TAB D PR I LI ZA OG TI RA O N MS
AG CRE AT G T IM RE S E EL SI V INE E S
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Survey results: The complexities of acquisitions require bold and decisive leadership
Percentage of companies citing reason for success
Leadership Well planned communication throughout the deal process Early resolution of What will happen to me? employee issues Expedient integration Cultural compatibility Mutual agreement of road map by partners Shared responsibility of costs involved 9% 0 10 20 30 40 50 60 70 80 90 100 51% 44% 41% 35% 32% 73%
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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 and technologies
Mark formerly served as U.S. Region Leader for Merger and Acquisition Services with Watson W yatt Worldwide, a global consulting firm with approximately $750 million in annual revenue, where h is clients included: American Express Financial Advisors, Amoco, Boeing, British Petroleum, Cessna Aircraft, Chevron, Dell Computer, Dow Chemical, Equistar Chemicals LP, First Interstate Bank, General Electric, Hoechst-Celanese, J C Penney, Komatsu -Dresser, Lyondell Petrochemical, Magma Copper, McNeil Consumer Products, Northern States Power, Occidental Chemical, Quaker Oats, Shell Oil, 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 Support M&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 S econd Edition of this book is scheduled for release in 2007. Mark earned the distinction of Top Ten Graduating Seniors at Oklahoma State University where he completed a Bachelor of S cience 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 States Department of Education. He subsequently earned the Executive Masters of Business Administration degree from the University of Texas at Dallas, where he currently serves as Executive in Residence for the Graduate School of Management.
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