M & A : The art of making it work

– Case Studies of successful

Mergers and Acquisitions

Prabir Jha
4 July 2008
Safe Harbor Statement

This presentation includes forward-looking statements, as defined in the US Private Securities

Litigation Reform Act of 1995. We have based these forward-looking statements on our

current expectations and projections about future events. Such statements involve known and

unknown risks, uncertainties and other factors that may cause actual results to differ

materially. Such factors include, but are not limited to, changes in local and global economic

conditions, our ability to successfully implement our strategy, the market acceptance of and

demand for our products, our growth and expansion, technological change and our exposure

to market risks. By this nature, these expectations and projections are only estimates and

could be materially different from actual results in the future

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Theme

Successful M&A
integration requires that
you plan before M&A
integration starts

Merger - transaction that results in a wholly new firm

Acquisition - transaction in which one firm is absorbed by another
Dr. Reddy’s Experience…

4
 Due Diligence – Pre and Post Deal
Before the M&A
Pre-deal
due
diligence

Sniff Test
• Opportunistic vs. Post-deal due diligence
Strategic
• Economic Sense
• Cultural Compatibility Post-close execution
• Leadership
• Governance
•Understanding everything you can about
the
Target
• Develop Project plan and refine cost,
value How to deal with
and schedule estimates challenges within agreed
• Implement Program Management and time frame with available
Governance resources
• Determine your organization and people
strategy
Integration Challenges

Financial Operational
Challenges Challenges

Key Integration Challenges

Information
Technology Communication
integration

Human Resource
integration
 Communication Challenges
Anxiety and Uncertainty among the employees of the acquired company

Continuous Inculcating sense of

Communication from top Pride
Management

• Handling situation with sensitivity yet being tough on results

• Building a open culture/ open door policy yet discouraging
grapevine
• Share the vision, big picture
• Build ownership, inspire ( WIFM)

Building Trust
HR Integration – People Diligence

Transition
Leadership Org. Structure
Team

Importance
Pace of Culture &
Integration Values

Priority

Workforce
Rationalization Retention

Policies & Band/Work

Processes Level/
designation
 Leadership Challenges
• Identify Leaders quickly
– To maintain focus on the business
– Enable a smooth transition process

• Leaders not only be from the acquirer company

– Assign a high-caliber, respected senior manager to manage the integration full-time
– Important to recognize Talent in both companies

• Deal with anxiety of tenure / top management changes

• Offer big retention incentives to top-level Hi potential executives

• Keep the performance pressure on

• Restore stability ASAP

• Run smaller focused integration teams which “reach the top” – “Don't let the army in
immediately”
Organization Structure

• Important to finalize the organization structure for the merged

entity in context of changed size of operation

• Incorporate learning’s from different structures and approaches

• Focus on broad top line structure

• Centralization & Decentralization

• Configuration of broad functions - with sub functions

• Detailed structures can evolve subsequently

• Detailing of roles and responsibilities

Culture and Value Integration

Awareness Building Monitoring Specific actions

Performance to reinforce
desired culture

Internal Communication • Through Appraisals • Planned global cascading

Forums : for key initiatives and
• Through levels of employee
Processes
• Open House engagement
• Involving key stakeholders
• Values dissemination • Through dip stick survey
in major decisions design
• CEO’s address • Through informal meetings processes (eg. OD)
• Cross cultural e- • Through Connecting with • Rigorous induction and
handbooks people across levels orientation programs about
• Cultural sensitivity, company’s culture and
etiquette training, language value system
training • Planned exchange of
people across geographies/
businesses
 Transition Teams
• Identify a core transition team involved in integration

• Multifunctional Team

• Talent for both the companies in that Team

• Role of Transition team

– Planning the Transition

– Suggest Change Initiatives

– Provide Oversight Through Process

– Focus on communication

– Building trust of Key opinion leaders

Workforce Rationalization

Time in a
Sensitivity
Phased Manner
In Handling
If The Issue Is
Redundancies
a large One

Timing To Be
Balanced
With Employee
Morale
Performance Management, Policies &
Processes
• Study & Compare HR policies and processes of both entities & Identify areas of commonality

• Ensure Minimum Loss to Employees on account of change in policies

• Consider Costs Carefully

• Setting the performance metrics and communicating the same at the time of integration

• Explaining the philosophy and rationale behind change in policies , processes and systems
 Retention
• Employee Engagement & Inclusively

– Keeping all employees highly motivated and meaningfully engaged

– Managing aspirations

– Managing ambiguity

• Balancing change with continuities

– Integrating new ways of doing things, while retaining our unique

culture and identity

• Talent scale up in the Critical areas of

– Global leadership

– Specific cutting edge capabilities

Thank You.
 Backup Slides

17
Some Key Rules

• Have a clear vision and get buy in from your people

• Find the holes in the ice

• There is no such thing as a merger of equals

• Integrate fast

• Get the right people in the right jobs

• Communicate. Communicate. Communicate

• It’s never over

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 Financial Challenges
 Management of Control  Accounting

 Governance Structure  Reconciliation to main company GAAP

 Integration of Business Processes and statements

 Existing Grant of Authority Vs  Reconciliation of accounting year

Company wide policies  Alignment/Roll-out of accounting policies

 Communication with employees and transactions

and business associates  Proforma financials for previous years

 Execution Challenges  SOX/ Compliance

 Delivering Synergies as per board  Significant Vs Non Significant Entity

mandates  Changing process
 Managing cash flows and return  Creating a Control Mindset
expectations
 Risk Management
 Complying with debt covenants

 Tax and Transfer Pricing

Operational Challenges

• Too much democracy

– Trying to please everyone

• Poor processes
– Reinventing the wheel

• Conflicting processes
– Allowing divergent initiatives

• Lack of facts

• Lack of Statutory/ Compliance Awareness

• Inadequate resources
– Using-part time players
Information Technology Challenges

• Getting everyone on the same platform

• Information flow across locations

• Capturing data/information real time

• Integrating systems and processes

• Accessibility and Connectivity