Merger & Acquisition Services

Making the deal work

Perspectives on driving merger and acquisition value
 Making the Deal Work


Dear reader,

Whether you’re contemplating your first merger, consider yourself an M&A

expert, or are a serial acquirer, this compendium is for you. It is full of lessons
Deloitte has gleaned from our work with deals of every size and across every
industry. It’s our experience that everyone can learn something new.

M&A is an opportunity to improve your performance dramatically, but it

can be fraught with risks. It has the potential to affect everything about how
your business operates – and then some. The truth is, there’s nothing easy
about M&A.

If you’re looking ahead to important transactions or trying to

consolidate past acquisitions, this collection of articles can jumpstart
your thinking about moving forward.

Deloitte is here to help you whether this is acquisition #1 or acquisition

#100. And if you’re looking for a sound advisor with real-world experience,
please call us.

Trevear Thomas Punit Renjen John Powers

Principal Principal Principal
Deloitte Consulting LLP Deloitte Consulting LLP Deloitte Consulting LLP
Tel: +1 713-982-4761 Tel. +1 206-716-6285 Tel. +1 908-673-5555
[email protected] [email protected] [email protected]
Making the deal work
Perspectives on driving merger and acquisition value

Edited by Joshua B. Steiner and Tamara L. Carleton

About this publication
This publication contains general information only and Deloitte
Consulting LLP is not, by means of this publication, rendering
business, financial, investment, or other professional advice or
services. This publication is not a substitute for such professional
advice or services, nor should it be used as a basis for any decision
or action that may affect your business. Before making any decision
or taking any action that may affect your business, you should
consult a qualified professional advisor. Deloitte Consulting LLP, its
affiliates, and related entities shall not be responsible for any loss
sustained by any person who relies on this publication.
 Making the Deal Work

Table of contents
1 Introduction

M&A Strategy
5 Avoiding merger failure

6 The rise of the carve out

10 Corporate fight back: Five disciplines to win in M&A

23 Merging alliances: Ignore at your own risk

Integration – Program Management

27 Seven things your mother never told you about succeeding as an
integration manager: Simple ideas that can make a big difference

30 Navigating a global merger: Six important tips to help overcome challenges

Integration – Synergies & Cost Reduction

35 Putting synergies to work: Realizing the value from M&A integrations
and divestitures

37 The pricing on the cake: Making price management a priority can make
the difference between success and failure in M&A

41 The hidden tax value in divestitures: Why looking beyond the deal can
pay off big

43 Using FIN 48 to improve your merger integration efforts: The potential

silver lining of new accounting rules for uncertain tax positions

Integration – Customers, Markets & Products

47 Achieving integration value through customer and market focus

vii
 Making the Deal Work

viii
 Making the Deal Work

Integration – 360˚ Communications

51 Taking the lead during a merger: How leaders choose to communicate
during a merger is key to realizing the value of the deal

52 The secrets of successful mergers: Dispatches from the front lines

Integration – Organization & Workforce

57 The myth of the black box: Corporate culture is serious business – how
building it can build your bottom line

64 Effective leadership transition

67 Keeping what’s yours: Retaining trade secrets during a change of ownership

69 The transition “from big to smaller”: Meeting the challenges of

becoming the core business unit

71 Leading practices for an effective transition: A litmus test for your

business integration plan

73 From signing to close

Integration – Functional Integration

77 Post-merger indigestion: Incomplete integrations
can be hazardous to your company’s health

81 Set your sights on the M&A endgame: How an enterprise

blueprint can help you navigate multiple M&A challenges

Integration – Location & Facilities

89 Managing M&A facilities integration

Appendix
91 About the contributors

97 Merger & Acquisition Services

ix
 Making the Deal Work

10
Introduction
Deal-making is back – big time. In fact, M&A deal value in 2006 Our research suggests that there will be accelerating activity in 2007
surpassed the $3.33 trillion record set in 2000, the last time deal and 2008 as companies strive to meet their strategic objectives and
making was on fire.1 And it’s not just in the U.S. Globally, M&A extend their geographic footprints overseas. While interest in cross-
activity is up 31 percent over the past two years alone, with hot industry plays is waning, we are seeing that cross-border deals are
spots igniting all over North America, Asia and Eastern Europe.2 on the rise, with a shift of interest towards emerging markets like
India and China.
But unlike earlier years, the experience has shown that today’s deals
are being structured in bold and different ways. Cash has replaced
stock as the preferred mode of payment, and cheap credit has fueled
Too hot to handle?
the market to the boiling point. Experts continue to debate the numbers on M&A success rates,
but there’s no denying that many of the deals in the latest wave of
What’s more, deal values are skyrocketing. Mergerstat reports that activity will struggle to deliver promised results. The basic reality is
out of 29,000 global deals announced in 2006, 465 deals exceeded that acquisitions are complex, difficult undertakings. Though much
the billion dollar mark. In 2004 and 2005 combined, that number progress has been made in identifying pitfalls and highlighting
was only 334. The top 20% of deals in 2006 contributed to 92% effective practices, big disappointments still befall eager acquirers.
of the worldwide cumulative deal value.3 Even the most sophisticated M&A team may be just one deal away
from a major misstep.
We believe deals are also getting more complicated. The growth in cross-
border transactions, in particular, has triggered a new level of complexity That’s why many companies are taking a much more structured
in due diligence, structuring, and integration. Of the top 100 deals in approach to their merger and acquisition activities – bringing
2006, 26 were multinational, compared to only 14 in 2005.4 discipline and focus to every step of the M&A lifecycle through an
integrated methodology.
While technology, media and telecommunications are still the
largest segments for M&A activity, the deal flow is now broadly The lifecycle begins with the quest for answers: How can we
diversified across virtually every industry. win against a new competitor? How to reduce costs? Where to
manufacture? What to buy or sell and to whom? How to reduce
costs even more? Who are the best acquisition targets? Where are
the hidden pitfalls? What’s the right price?

Deloitte Merger & Acquisition Methodology

Program Management

Synergies & Cost Reduction

Customers, Markets & Products

M&A Target Due Transaction Integration Divestiture 360o Communications

Strategy Screening Diligence Execution

Organization & Workforce

Functional Integration

Location & Facilities

This compendium is organized by the phases of the Deloitte M&A methodology, focused on M&A Strategy and Integration.


 Making the Deal Work

One problem, of course, is that your major competitors are likely asking
similar questions. Every company considering M&A is zeroing in on the
About this book
same base of attractive targets – which, we have seen can lead to hotly Making the Deal Work is a compendium of the collective wisdom
contested battles and escalating prices, with winners paying a lot more of some of our most experienced M&A practitioners. The articles
than originally planned. highlight what we believe are critical parts of the integration
process and provide insights and options you should consider
In other cases, an acquirer and a target may actually come as you blaze your own trail through the often volatile and
together and mutually agree on the merger. They strike a deal, unpredictable deal landscape.
make a big announcement on Wall Street, and set about getting
the deal closed. However, those who have been through mergers As a leader in M&A services worldwide, Deloitte brings to the
before know that these steps are just the beginning of a long and table the experience of thousands of professionals in audit, tax,
challenging process. valuation and consulting that can help increase your chances
of capturing strategic value from your next deal. Here are the
To integrate an acquisition into alignment with your strategy is highlights in this collection:
a daunting task – especially with Wall Street analysts and active
shareholders holding management to a higher level of accountability. M&A strategy
• Avoiding a Merger Failure shows how getting a few basics
We believe one of the most important performance imperatives is an right will dramatically increase the likelihood of achieving the
issue-free Day One. The mantra here is “speed over elegance” – and results you want. It underscores the importance of discipline,
the goal is to increase the probability of an effective merger quickly because if one thing misfires, problems multiply and cascade.
and with limited resources. But to move with that kind of agility, • The Rise of the Carve-Out explains the value that a carve-out
companies must grapple with a host of organizational, behavioral creates and why buyers and sellers are eager to pursue this
and attitudinal barriers. Smart companies recognize that large-scale strategy. It also identifies potential problem areas with carve-
change is as much about the journey as the destination – and that outs and the ways to circumvent them.
part of what makes the journey meaningful is the opportunity for
new teams to integrate, learn, grow, and discover their own truths • Corporate Fight Back outlines the five core disciplines essential
about what’s possible in the new organization. in establishing an integrated and fast-moving M&A capability
that is increasingly at the top of the boardroom agenda.
Major transactions aren’t limited to mergers and acquisitions. • Merging Alliances: Ignore at Your Own Risk provides tips for
Over the past six years, there have been 488 divestiture transactions taking care of allies and partners throughout the integration
valued at greater than one billion dollars each.5 We have seen that phase. Because most transactions involve dozens or even
successfully executing a large-scale divestiture has become highly hundreds of strategic business relationships, an awareness
complex, especially with companies operating in matrix structures of the risks involved is critical if you want to avoid damaged
that are deeply integrated within functions and across business relationships, confused customers, and even legal and
units. Even when the business being divested is largely independent, regulatory complications.
there are still challenges with transaction timing, regulatory
requirements and market perception – all magnified by diverging
agendas between parent and spin-off.

Whether you’re doing a deal for the first or hundredth time, the
rewards of mergers, acquisitions and divestitures demand every
bit of attention you can muster. And so do the risks. A disciplined
approach, which doesn’t cut corners, is the most sensible way to go.


 Making the Deal Work

Integration – Program management Integration – Organization & workforce

• Seven Things Your Mother Never Told You about Succeeding as • The Myth of the Black Box explains how to enhance your success
an Integration Manager covers seven simple ideas that can help in sustaining a high-performing culture throughout the challenges
you build on your strengths to improve your personal effectiveness of merger and integration.
– and lift your organization’s performance.
• Human Resource Management Handbook for Acquisitions
• Navigating a Global Merger is a guide to the complicated business outlines the multiple roles that Human Resources must fill during
of cross-border transactions, with special emphasis on integrating any transaction – from leading decision processes to executing
multinational deals. the transaction to preparing the business for integration.
• Effective Leadership Transition outlines effective management and
Integration – Synergies & cost reduction communication measures for avoiding the costly distortion and
• Putting Synergies to Work shares eight lessons learned about how confusion that can arise when corporate ownership changes hands.
to drive more value through improved merger integration. It’s
• Keeping What’s Yours presents rules of thumb for retaining trade
essential reading for CFOs who are often responsible for driving
secrets during a change of ownership, which is critical to preserving
execution of the merger integration activities.
market value and competitive advantage. It also explains why M&A
• The Pricing on the Cake uncovers opportunities that emerge when activity significantly magnifies the risk of trade secret loss or theft.
companies make price management a priority during integration.
• The Transition “From Big to Smaller” discusses the HR challenges
Pricing provides the potential to realize quantifiable benefits in as
associated with spin-offs and divestitures. The article offers guidelines
little as 12 months – and the opportunity to improve gross margins
for minimizing the disruption of operations – and of employees – as
by 10 percent or more.
a unit shifts from being a division of a multi-business company to
• Hidden Tax Values in Divestitures recommends steps to avoid becoming the primary business of a new enterprise.
leaving significant money on the table when planning a spin-off
• Leading Practices for an Effective Transition provides five proven
or carve-out. Many divesting companies tend to overlook this
practices – along with practical suggestions for implementing
group of tax-saving opportunities.
them – that can enhance the likelihood that your transition will
• Using Fin 48 to Improve your Merger Integration Efforts be fast and productive, reducing the loss of time, money, talent,
pinpoints how recent tax regulations can be applied in and momentum.
reanalyzing financial accounting for income taxes. Many
• From signing to close helps you understand how to minimize
businesses have to dedicate substantial internal resources to
employee disruption and dissatisfaction during an ownership
properly address these new requirements.
change by developing an integrated transition roadmap. This
roadmap should span every stage of the deal, detailing major
Integration – Customers, markets & products milestones and their sequence across important HR functions.
• Achieving Integration Value through Customer and Market Focus
discusses core customer, market, and product-oriented strategies
Integration – Functional integration
essential to the effective realization of both cost and revenue
• Post-Merger Indigestion: Incomplete Integrations can be Hazardous
synergies during a merger or integration.
to Your Company’s Health discusses the signs and symptoms of
acquisition-driven complexity and offers remedial solutions.
Integration – 360° communications
• Set Your Sights on the M&A Endgame describes how the timely
• Taking the Lead During a Merger gives guidance to leadership about
development of an “enterprise blueprint” – a clear end-state
how to communicate effectively during any major transaction to
vision for how the new entity will operate after integration – can
avoid cultural conflict and maximize the value of the deal.
help companies better pursue synergy targets, meet customer
• The Secrets of Successful Mergers. Given the historically high and shareholder expectations, and realize the transaction’s
failure rate for M&A, the big question facing any C-level executive expected marketplace value.
contemplating a merger is simple: how to ensure success. This
chapter outlines the strategies of three companies that undertook
Integration – Location & facilities
mega mergers – and won.
• Managing M&A Facilities Integration explores the key components
of integrating a combined entity’s physical facilities and offers
guidance on how companies can effectively approach this
important and very visible task.

Notes
1 Paul Lamont, “Bubbles and Crowd Madness – Internet Bubble 2.0 – 2007 compared with 2000”.
Feb 01, 2007. http://www.marketoracle.co.uk/Article293.html.
2 FactSet Mergerstat LLC, 2007.
3 ibid.
4 ibid.
5 Research conducted by Deloitte Consulting LLP.


 Making the Deal Work

M&A Strategy
Program Management

Synergies & Cost Reduction

Customers, Markets & Products

M&A Target Due Transaction Integration Divestiture 360o Communications

Strategy Screening Diligence Execution

Organization & Workforce

Functional Integration

Location & Facilities


 M&A Strategy

Avoiding merger failure

By Douglas J. Lattner and Punit Renjen

It’s clear that 2006 is a big year for M&A deals, which is good news. 2. When pursuing cost synergies, avoid cuts that detract
But CEOs need to recall an important corollary: 2007 must be a big from value.
year for delivering on M&A promises. This is sobering because deal
Look hard for downside possibilities. Companies that aren’t
execution is a problem for many companies.
careful about linkages can shut down programs or slice budgets
that are crucial to revenue production. This happened in a
The M&A numbers are impressive. The value of deals in the U.S. is
technology-sector deal when the acquirer cut employees of the
at $925 billion – up 11 percent over 2005 at the same point in the
acquired company because its own engineers thought they could
year. That’s despite a decline of 7 percent in the number of deals.
take over operation of a key facility integral to customer service.
It’s the same story in Europe – deal volume is down, but deal value
It turned out the facility required more specialized expertise than
is up 57 percent to $946 billion, according to Mergerstat.
the acquirer’s engineers anticipated.
Why is grasping the benefits of these deals troublesome for many
3. Create a common enemy.
companies? After all, the elements of M&A integration aren’t that
difficult, and there’s broad agreement on how it should be done. If you focus both companies on a mortal threat in the outside
world, less energy will be spent fighting each other. An obvious
Based on our experience with more than 600 M&A engagements candidate for the villain role is a competitor. Often, the reason for
in the U.S. and abroad, we believe that some executives miss a an M&A transaction is to counter a specific competitor. If that’s your
key point. Although the individual tasks aren’t rocket science, the situation, warn your people that making the deal work is the only
process as a whole is complex. If one thing misfires, problems defense against this foe. Portraying a rival as out to get your job and
multiply and cascade. Much can go wrong. mine often works because it’s true. A leading technology company
is currently losing ground to competitors who are exploiting the
However, experience also shows that getting four things right will company’s missteps during the merger.
increase the likelihood of achieving the desired results.
4. Manage the process meticulously.
1. Keep your deal strategy brief and to the point. In the integration of two aerospace contractors, stringent project
Given the turbulence typical of M&A integration, it’s essential to management made it possible to blend IT operations across 28
define plainly what the deal is about. Resist the temptation to entities and exceed cost reduction targets by 76 percent. Tight
compile a wish list that covers everything from launching new control is imperative. Don’t accept one-year plans to realize
products to improving R&D to cutting overhead. Making it happen merger benefits. Demand one-month plans that each lead to
is tough when there’s doubt about the “it.” Realistically, you’ll be some important and measurable outcome. Keep re-prioritizing
able to achieve only two or three major goals, so which will they as you learn more.
be? Applying the simplicity principle, two pharmaceutical companies
focused on a single strategy for taking costs out of their distribution M&A integration is daunting for any management team, and one
networks and exceeded their goals by 95 percent. of the main pitfalls is underestimating the challenge. By doing a few
things well, your company can improve its chances of delivering the
targeted benefits in 2007.

Originally published in Chief Executive, Oct/Nov 2006.

Reprinted with permission.


 Making the Deal Work

The rise of the carve-out

By Stephen Taub

For example, in early August, Royal Philips Electronics agreed to sell

Carve-outs, which involve the divestiture of a business unit an 80.1 percent stake in its semiconductor unit to a group of private
or product line from a parent company to establish a stand- equity companies, including Kohlberg Kravis Roberts & Co., Silver
alone company, have become an increasingly appealing type Lake Partners and AlpInvest Partners NV, for $8.2 billion.
of transaction for private equity (PE) firms.
In late July, France Telecom confirmed it is discussing the sale of its
54 percent stake in yellow pages service PagesJaunes to Kohlberg
According to Deloitte Consulting LLP, carve-outs represented roughly Kravis Roberts & Co. for $4.2 billion.
35 percent of total private equity deal value for the first half of
2006, outpacing all other PE deal categories. This compares with Last year, Agilent Technologies Inc. (itself a carve-out from
less than 30 percent in 20041. Hewlett-Packard Co.) sold its Semiconductor Products Group
to Kohlberg Kravis Roberts & Co. and Silver Lake Partners for
The growth in average transaction value for private equity carve-outs about $2.7 billion.
provides even more striking evidence of the growing popularity of
this transaction type. Whereas the average transaction value for PE
deals overall grew by only 2 percent between 2004 and 2006 to date, Why sellers and buyers are interested
the average value for carve-out deals has grown by 70 percent, far According to Weirens, sellers are embracing carve-outs for a number
eclipsing the general average, despite shrinking deal volume in the of reasons. In many cases, they perceive a lack of strategic fit with
total market. In fact, the average transaction value for PE carve-out their core business. Often, they also want to simplify their business
deals has exceeded the average PE deal value overall in each of the model. Other sellers may want to create shareholder value if, for
last three years2. example they perceive a particular business unit or product line is
worth more to an outsider. Still others may want to unload troubled
The large, well-known private equity firms comprise a bulk of the or problematic assets.
buyers, according to William Tarry, Principal at Deloitte Consulting and
a leader of its Private Equity Services practice. Mr. Tarry has driven the Couture notes that buyers typically see carve-outs as an opportunity
development of the firm’s capabilities to provide services in support of to acquire a company’s non-core business and then give it the
its clients’ efforts to evaluate and execute carve-outs and has provided attention that the larger parent company wasn’t providing, either in
consulting services related to numerous such transactions. terms of management time or resources. A number of the sectors
within TMT that have experienced significant activity, such as yellow
Private equity firms are also taking on larger carve-out deals as a pages operations that have been divested from large telecom service
result of the investment firms’ growing experience with carve-outs providers, are especially appealing to private equity buyers due to
and increased pooling of PE funds in buyer consortiums in general. their steady cash flows.
The roughly 500 divestitures that were completed within the past six
years were valued above $1 billion, on average3.
Identifying and overcoming challenges – the
“There was a little spike in terms of the valuation being paid because
of private equity money,” notes Jeffery M. Weirens, Principal at
seller
Deloitte Consulting and national leader for its Carve-Outs and Deloitte Consulting points out that carve-outs, whether or not they
Divestitures practice. are in one of the three TMT sectors, pose a unique set of challenges
and risks for both the buyer and seller that don’t generally appear
One broad industry sector that is especially ripe for carve-outs when entire companies are sold. After all, carve-outs involve the
is Technology, Media and Telecommunications (TMT). “It is a slicing away of a part of a larger entity, which, in many cases,
consolidating industry that is right-sizing,” explains Dave Couture, had been responsible for services across all of its businesses,
Principal at Deloitte Consulting and a leader of the TMT Merger, including information technology, back-office operations (such as
Acquisition & Divestiture practice with specific focus on services payroll, human resources, employee benefits) and in some cases,
related to private equity acquisitions of corporate carve-outs. After manufacturing as well. “The more connective tissue you need to
the boom of the 1990s and the subsequent bust of the early 2000s, cut apart, the higher the risk, complexity, and cost to separate the
companies in each of the three TMT industry segments are re-shaping business,” explains Weirens.
themselves for the next leg of growth, he notes. “How do they shake
the trees a different way to position themselves for the next
10 years?” Couture asks. “By re-shaping the portfolio.”


 M&A Strategy

While back-office operations and infrastructure are commonly Weirens notes that the map is typically broken down into a series
shared in large companies, shared services often extend to sales of 30-day “chunks,” complete with clear milestones and owners.
and marketing as well. Challenges are often faced in unwinding the “By having a clear roadmap, no one should be standing by the
carved-out company from the former parent’s brand and associated water cooler wondering what’s going on,” he explains.
market relationships. It is also often difficult to unravel a sales force,
especially one that spans multiple counties, because many of them The roadmap ideally should be linked to an executive dashboard
are aligned by country or region and not by business. and communications plan that provides the executive and work
teams with a clear snapshot of progress, upcoming activities, and
Sellers frequently underestimate the amount of time that is necessary potential issues.
to catalogue all of their dependencies and quantify headcount and
costs associated with the entity to be divested. There is frequently Next, sellers should define their carve-out strategies and what
excess strain on organizations as they try to define a business that can Weirens calls the end-state blueprints. He suggests that sellers
be carved out as a stand-alone operation. develop business and function-specific carve-out strategies, as well
as the detailed plans that support those strategies. These business
In many instances, sellers can also experience higher than expected and functional blueprints should define the expected future state
operating costs in the ongoing company after the transaction is of the company, including organizational and financial impact in
completed because the carved-out company most likely had been areas that are affected by the carve-out, such as closing the books
sharing a number of services with the parent. Tarry notes that it is and filing financial reports. “Decide which activities to migrate and
not uncommon for a company that unloads, say, 35 percent of its which to eliminate,” he adds.
revenues to another company in a divestiture to still end up retaining
a much larger percentage of the general and administrative expenses. It is also important for sellers to plan, prioritize and certify Day 1
readiness. This entails confirming that all of the critical elements for
There are also frequent needs for transition service agreements an effective Day 1 are in place by running a certification program.
(TSAs). These are arrangements whereby the buyer of the carved-out Weirens says this program can be a formal, site-by-site walkthrough
company pays the seller a fee to continue to provide services, such as of key business processes and activities, or a simple checklist review
technology and back-office operations, for a specified period of time of critical, non-negotiable items. “Be sure you can close the books,
after the transaction closes. These are often difficult for the seller to pay your employees and invoice your customers,” he stresses.
manage because providing these services to a “third party” is not
part of its business. They are essential to the buyer in order to provide Weirens explains that the goal of the certification program is to
uninterrupted quality service to the standalone company. identify and address the most critical activities well in advance of
the transaction’s close. Examples of these critical activities include
Weirens explains the current business model often transforms into an confirming regulatory compliance, documenting customer and
interim state with TSAs linking the parent and carved-out company supplier contracts and terms potentially requiring renegotiation,
until two operationally independent companies emerge. He stresses safeguarding organizational assets, retaining key employees,
that TSAs should be viewed as necessary evils and only used for the supporting IT systems readiness and outlining branding changes.
most critical activities, and for a minimal amount of time. They tend to
be high-cost options for both parties, sometimes resulting in sub-par Finally, sellers must right-size the remaining infrastructure.
service for the carve-out and a continued distraction for the parent. Weirens points out that a carve-out creates an opportunity for
both the parent and spin-off entity to re-align their cost structures
As such, buyers should seek to document the TSAs carefully with the new respective business models.
and define exit plans clearly. Both buyers and sellers should seek
to minimize TSA, but buyers in particular should be careful to For the parent, this means examining its selling, general and
negotiate comprehensive, detailed TSAs to provide uninterrupted administrative (SG&A) costs, as well as shared services costs, and
and high-quality service for the carve-out. increasing the likelihood that they do not balloon. While a focus
on cost reduction sounds intuitive, Deloitte Consulting’s experience
So, how can buyers and sellers assure that carve-outs work as planned is that these costs are “sticky” and the company must undertake
and achieve the expected results after the transaction is completed? rigorous actions to achieve cost neutrality. “For this reason, we
recommend a formal cost-reduction program that targets cost
Sellers should first focus on developing a carve-out roadmap, neutrality and identifies ways to deliver a leaner and more efficient
counsels Weirens. This roadmap should lay out all of the major organization,” Weirens adds.
separation activities and key interdependencies, including legal and
regulatory hurdles, operational and functional separation activities,
cost-reduction efforts and internal/external communications.


 Making the Deal Work

Buyers then should define prospective standalone company

Identifying and overcoming strategies, including business- and function-specific plans to address
challenges – the buyer how services previously provided by the parent will be replaced or
eliminated. This focus should touch all areas of the business: finance,
What are the keys to achieving desired results for buyers of carved-out
IT and human resources, for example, are commonly shared functions
companies? “An acquisition of a company under a carve-out scenario
that are primary cost drivers in the stand-alone entity.
offers a set of risks in terms of execution that is vastly different from
buying a stand-alone company,” notes PE services principal William Tarry.
Deloitte Consulting notes that recreating previously shared services in
the stand-alone company tends to be a complex process, so starting
Buyers face their own set of challenges. They frequently have
early helps the buyer achieve its timing objectives and accelerates the
an insufficient understanding of the carved-out company’s
buyer’s ability to focus on pursuing cost-saving opportunities.
dependencies with the parent company that has undertaken the
divestiture. In the case of private equity buyers, they also have no
Deloitte Consulting believes that building an appropriate
infrastructure to replace what the parent previously provided and
infrastructure to support the stand-alone company is an imperative
therefore are required to rebuild.
for the buyer from the sign date. “Take a fresh view and build what
is important and appropriate,” recommends Tarry. Alternatives exist,
First of all, they should carefully perform their due diligence on the
such as rebuilding or outsourcing. Migration paths can differ as well,
shared functions and activities with the parent to understand better
depending on the situation. For example, systems can be cloned,
the business requirements, ongoing costs and one-time setup costs
which is often quick, but it leaves the stand-alone company with
for the stand-alone company. The relative independence from the
much of both the “good and the bad” of its prior environment.
parent of a business unit planned for a carve-out varies greatly, and
even in very independent situations, many services are shared with
Systems can also be rebuilt from the ground up for the stand-
other business units or are provided by the parent. Uninterrupted
alone company, which usually leaves it with a more appropriate
business operations depend on the buyer’s ability to maintain the
infrastructure, but it is more costly. In Deloitte Consulting’s experience,
availability of these services. Deloitte Consulting believes that it is
these alternatives require balancing several factors: appropriateness
essential for the buyer to put in place aggressive plans to replace
of the systems environment to the stand-alone company, the strategic
services formerly provided by the seller. It is equally essential that
importance of the systems and the cost of transition.
appropriate transition arrangements be put in place to bridge the
stand-alone company until adequate infrastructure can be put in
Tarry says the key factors to weigh before making this decision are:
place to replace these services.
“How quickly do you want to do it, how much money do you want
to spend and how different do you want the infrastructure to look
Upon agreement to buy a business unit, the buyer must quickly
in the future relative to how it looks now?”
identify a capable management team and be prepared to transfer
responsibility for Day 1 readiness decisions early. This is critical to the
Similar to sellers, planning, prioritizing and certifying for Day 1
ultimate results of the transaction.
readiness is an important next step. Buyers should confirm that
all of the critical elements for an effective Day 1 are in place by
After all, throughout the carve-out process, many transitional issues
running a certification program. This could be a formal, site-by-site
arise, and a large number of decisions must be made regarding the
walkthrough of key business processes and activities or a simple
future of the operations of the stand-alone company. As the deal
checklist review of critical, non-negotiable items.
moves closer to completion, these decisions generally cannot be
postponed, and the result of making the wrong decisions is often
Buyers should keep in mind that the objective of the certification
a lengthy rework process and higher than necessary employee
program is to identify and address the most critical issues well in
turnover. “The eventual managers of the stand-alone company will
advance of the transaction’s close.
selfishly make the most appropriate decisions for the new business,
and the sooner they can be put in place, the better chance the new
company has for quick results,” says Tarry.


 M&A Strategy

Of course, often the new stand-alone company also has the

opportunity to build capabilities matched to its specific needs and,
thereby, help reduce the cost from the level that was charged by the
parent. While scale arguments suggest that the new stand-alone
company might have higher general and administrative costs, Deloitte
Consulting’s experience indicates that often there is an opportunity
to reduce the cost of general and administrative (G&A) activities in
a stand-alone environment. In today’s highly competitive, global
business environment, there are many opportunities for outsourcing
and other low-cost service provision that could allow the stand-
alone company to achieve some of the scale economies that larger
companies typically enjoy.

Finally, buyers should carefully plan for what Deloitte Consulting

calls the post-Day 1 activities – life as a stand-alone company.
Deloitte Consulting stresses that there is little room for errors in the
current, hypercompetitive global economy. This implies that the new
stand-alone company should have a detailed plan for its early days.

This is especially important for the sponsoring private equity firm to

keep in mind. “Don’t just focus on the transaction and then walk
away and let things fall into place,” warns Deloitte Consulting.

Stay focused on objectives

In general, Deloitte Consulting advises both the buyer and the
seller to stay focused on their overall objectives. The separation
negotiations can be very painful for both sides, especially when
they drill down to specific issues like the facilities, IT systems,
and historically shared assets.

Buyers and sellers should always remember the ultimate goal

– the completion of the deal under mutually beneficial terms.
“It’s unrealistic to win every one of the hundreds of negotiating
points across each functional area,” says Couture. “Understand
your primary value drivers and know where to give and take in
between those boundaries. This will allow the entire process to
proceed in a much smoother and timelier manner.”

Originally published in The Deal, 2006. Reprinted with permission.


 Making the Deal Work

Corporate fight back

Five disciplines to win in M&A
By Chris Gentle

Executive summary
Foreword A new era of M&A
Mergers and acquisitions (M&A) are a key driving force of A new era of M&A has emerged, which is changing the face of
today’s business environment. Few of the companies that corporate Britain. Over the last three years the M&A market has
dominate UK corporate life today have been able to make their leapt back to life. Three forces – private capital and in particular PE,
journey without a successful history of transactions. Over the investor activism and globalization – have converged to reshape
next decade, M&A is likely to remain a key issue, climbing the the fundamental dynamics of the M&A marketplace. First, PE
corporate agenda steadily. has grown rapidly so that over the last few years it is frequently
outmaneuvering corporates in transactions. Further, we believe that
New forces have combined to reshape the M&A landscape the influence of private capital over the transaction marketplace
dramatically. Private capital, most notably in the form of private is likely to grow significantly over the next three years. Second,
equity (PE), has refashioned the way deals are transacted and recent years have seen (institutional) investors taking a much more
vastly expanded its capacity to do deals. proactive interest in the ability of public companies to get the most
value out of the portfolio of corporate assets they control. Finally,
Similarly, the investor community has become much more active globalization has come to the fore for many companies in recent
in scrutinizing the strategy and capabilities of public companies history. Allied with fewer opportunities to grow from a domestic
to nurture their portfolio of businesses. When you also factor in base, companies are increasingly looking to enter overseas markets,
the tremendous growth in cross-border activity fuelled by the often through acquisitions. We have found that many UK public
process of globalization it is easy to see how M&A is driving new companies have M&A capabilities that are inadequate to compete
patterns of behavior amongst public-listed companies. successfully in tomorrow’s transactions marketplace.

Our research suggests this shift in behavior is likely to have Beaten to the punch?
major implications for corporates. It is increasingly unlikely that Most elite, world-beating companies are built through savvy,
many listed companies and their management will be able to well-executed, M&A strategies. Regardless of sector, getting
survive and prosper in the new world of M&A, unless they fight to the top involves an astute management of a portfolio of
back. To do this they will have to build world-class M&A teams. businesses. However, pressure to optimize future parenting
power of corporates’ business assets continues to build. Although
The two key challenges for corporates to respond to if they are strong in many areas, our research reveals a significant variation
to win at M&A are: between average performance and upper quartile in terms of M&A
• satisfy growing investor demands to improve the way they organizational performance with listed corporates. This in turn is
nurture their portfolio of the businesses; likely to translate into poor financial performance in transactions,
• improve their ability to extract value from transactions. meaning the senior management team is at risk. We found many
UK-listed companies lack the required focus and have overly
Consequently, this report is a call to action for UK corporates to fragmented decision making processes, which may well affect their
build a best practice M&A organizational capability. ability to be successful in future M&A transactions. Further, well over
half of UK-listed corporates agree the complex structure of such
We hope you find this report commercially insightful and useful businesses is a major inhibitor of M&A success. Clearly then there
for provoking debate in the boardroom. is a requirement within most UK-listed corporates to become more
fleet of foot in M&A by building a focused transaction capability.
John Connolly
Senior Partner & Chief Executive
Deloitte UK

10
 M&A Strategy

Pressure on all sides Companies should be able to explain why they are the ‘best
The new M&A environment poses some stiff challenges for the parent’ of the business they run. Where they are not the best
management of listed corporates. Corporates are under pressure parent they should be developing plans to resolve the issue1.
from all sides. First, our research shows that in open auctions for Hermes Investment Principles.
UK companies, PE was successful in 74 per cent of bids in 2005
compared with only 30 per cent in 2001. Second, during recent A new era of M&A?
years more UK-listed corporates have conducted deals outside their A defining force of corporate success today is M&A. Few, if
normal geography or product area, especially overseas. We found any, of the world’s major companies have arrived at the apex
between 2002 and 2005 there was a 78 per cent increase in deals of corporate success without a top-notch M&A capability and
outside corporates’ existing geographical market or sector. conducting a vast range of transactions. GlaxoSmithKline, HSBC,
RBS, Vodafone and WPP are among the biggest, most successful
Also, we polled the views of CFOs finding that they score PE capability companies in the United Kingdom. Some of them have been
significantly higher than corporates across most parts of an M&A around for a long time; some are relative newcomers. Without
transaction, including being more skilled in using the capital markets, exception all have changed beyond recognition in the last two
in the tactics of bids/ auctions and in moving at the required speed. decades due to successful M&A strategies.
Further, our research shows that poorly executed M&A transactions
are a leading cause of distress for under performing businesses. All these companies have built a world-class, M&A, organizational
In order to pursue a growth strategy led by M&A, it is imperative capability. M&A is a vital strategic lever for public companies.
corporates enhance their ability to win deals. Our extensive, year-long Many listed corporates in the United Kingdom have good, but
research has distilled from the best of corporate and PE practice five arguably not world-class, transactional skills and capability. In
key disciplines to provide a foundation for success. the future, however, it will be essential to improve this capability
vastly – to extract value and improve their ability to parent the
Five disciplines for success businesses they run.
Making sure that a company develops a focused, faster moving,
M&A capability for the long-term should be top of the boardroom The M&A market has leapt back to life over the last three years.
agenda. In the face of increasing firepower from private capital, Deal volumes are up, so too is the value of deals. But today’s market
the top management needs to act with urgency around the has very different dynamics to those of the boom of the dot.com
following five disciplines: era. This new era of M&A is been shaped by a quicker pace and
greater sophistication of buyers and sellers. Corporates need to raise
1. Clarity of purpose: Too few businesses see M&A as a core their game, or they will lose out on key deals.
discipline. Further there is a lack of clarity around responsibilities
for transactions. By contrast, best practice organizations exhibit Three forces – PE, investor activism and globalization – have
clarity and rigor across all phases of every transaction. converged to reshape the fundamental dynamics of the M&A
marketplace (Figure 1).
2. Parent power: Success requires corporates to beef-up their
parenting prowess. Financial institutions are stepping up the
pressure on listed firms to demonstrate they are the best owners Figure 1. A new era of M&A

of their portfolio of companies. More importance should be

placed on the discipline of exiting businesses at the right time
and for the right price. Globalization

3. Know your prey: Given the pace at which M&A activity is

conducted, corporates need to devote significant resources to
identifying targets well ahead of them coming into play. This
smart execution of appropriate deals will allow them to compete
effectively for transactions. Investor activism PE

4. Incentives to execute: Nothing shows the difference in approach

between the PE house and the corporate world more than the
sequence of events that follows the completion of a deal. In the Source: Deloitte, 2006

best run PE houses there is intense early action and a huge focus on
setting the near term objectives that will lead to a profitable exit.

5. Integration: The ability to extract maximum value from a transaction

is a must for corporates. Too few treat the integration as a separate
part of the overall transaction. Best practice firms start planning for
the integration in the pre-deal phase.

11
 Making the Deal Work

Figure 2: Beyond home front

Analysis of 1065 transactions by UK listed corporates 2001-2006

Existing geography/ Existing geography/ Existing product/ New geography/

Existing product New product New geography New product
2001 70% 14% 8% 8%
2002 70% 17% 4% 8%
2003 73% 15% 7% 6%
2004 70% 18% 10% 2%
2005 65% 18% 9% 8%
2006 54% 28% 10% 8%
Ave (2001-2005) 69% 16% 8% 6%
Source: Thomson Financial and DataStream; Deloitte analysis, 2006

Firstly, the relentless rise of PE, a defining force of the last five years, Thirdly, globalization has had a significant impact on deal making.
will accelerate over the coming years. PE houses will continue to All corners of business have been influenced by the rapid rise of
sharpen their capability to make complex deals work. Certainly emerging markets. In terms of global investment, one dollar in every
their capital backers seem convinced of this. The capital flowing four now involves China or India8. In the world of M&A we have
into PE, much of it from traditional pension funds, has reached an seen emerging market multinationals playing a bigger role. This
astonishing scale. For example, in the United States around $750 was led by the acquisition by Mittal (the world’s number one steel
billion has been invested by public pension funds over the last five producer, from India) of Arcelor, and Lenovo’s (a Chinese computer
years2. We believe that the influence of private capital over the maker) takeover of IBM’s PC division. Further the tenfold rise in the
transaction marketplace is likely to grow significantly over the next number of cross-border deals over the last 15 years allied with lower
three years with up to €1 trillion at the disposal of PE in Europe3. growth at home, means that UK corporates will need to be more
Given the emergence of club deals, very few of Europe’s listed involved in foreign transactions in the future9.
companies are now out of range for PE bidders.
This shift in the fundamental forces governing M&A markets will
Our research of UK transactions over the last five years shows the continue to bring changes both in terms of market dynamics
increasing success of PE. Between 2001 and 2005, PE won on and, more importantly, UK corporates’ deal-making behavior. Our
average just over half of all auction deals. The change over this analysis of over 1000 deals across the last five years shows UK
period has been dramatic from a success rate of 30 per cent in corporates are changing the types of deals they do in response to
2001 to 74 per cent in 20054. Further we polled CFOs of FTSE 350 the pressures of the new era of M&A.
companies about the impact PE funds have on driving deals in their
industry. Nearly half the corporates polled assessed the impact as Traditionally FTSE 350 companies have tended to undertake corporate
high or very high. Further, when asked the same question about the transactions in the same geographical and product domains in which
future, around three-quarters believe the impact will grow5. they already operate. We gained a deeper understanding of these
changes from this established position by mapping deals over a matrix
Secondly, recent years have seen a rise in investor activism. based on the principal market of the acquired entity and the business
Across financial markets there has been growing interest in area. Figure 2 shows how UK public-listed firms are beginning to
the ability of listed companies to improve the parenting of the move away from their comfort zone.
businesses they run. This section starts with a quote from the
recently published ten investment principles issued by Hermes, The profile of transactions over five years shows an average of 69
the UK institutional investor, which is just one example. The per cent of deals in the same market geography and product area.
bitter proxy contest at HJ Heinz in the United States is another This compares with 16 per cent in new product lines but in the
excellent example. Activist investor Trian Fund wanted a bigger same geography, in other words, the United Kingdom. However,
say in the strategic direction of Heinz. A bitter battle has ensued within the former category, between 2003 and 2005 there has been
over control of the direction of corporate strategy. a fall from 73 per cent to 65 per cent. Further, the mid-year data for
2006 shows a fall into the mid-50s.
It is now common practice for investors to criticize management
openly for underperformance, suggest strategic changes and ask for Interesting insights in the shift underway can also be gained from
a seat on the board6. This can have positive impact on a company’s analysis of size and market capitalization of transactions. Figure 3
share price. A recent report found that companies where funds had shows the largest average size of transaction takes place when firms
been active displayed stock price increases averaging almost ten per buy in a similar product market but a new geography – these tend
cent in the month following a fund’s position being made public7. to be higher risk deals.

12
 M&A Strategy

Figure 3. Size matters – Analysis of 1065 deals of M&A transactions by

UK-listed companies Market cap vs number of deals & average value of deals

Number of deals

900

700
136.6

500

300

100
127.4 348.2
337.6
0

0 5 10 15 20 25 30 35

Market Cap (£bn)

Bubble size = Average value of all the deals within each of the 4 categories (£bn)

Market Cap < £5 bn £5-10 bn £10-15 bn £20-30 bn

Source: DataStream; Deloitte Analysis, 2006

There is a dramatic polarization between firms with a market For instance, the proportion of profits that HSBC derives from retail
capitalization of greater than £10 billion and those below that banking has grown from one per cent to 30 per cent over two
threshold. In the former, where the average deal size is around decades, fuelled by purchases like Household in the United States
£350 million, the average number of deals is around one per year. and Midland Bank in the United Kingdom10. Undoubtedly, corporates
By contrast, acquiring firms below the £10 billion threshold have are rising to the challenge of a new era of M&A. Are they changing
deal sizes nearly a third smaller, but on average are transacting five quickly enough, however? Or are they likely to be caught flat-footed
times more deals a year. as this dramatic shift sweeps through M&A markets?

The dramatically shifting centres of gravity within M&A markets are

having profound implications for corporates. We believe the focus
needs to be on their organizational M&A capabilities to parent
Flat-footed corporates?
businesses and extract value from transactions. Pressure to use M&A
as a vital lever in building corporate success will continue to build.
Meeting the best practice challenge
Best practice shows how listed corporates can successfully change Recently, M&A markets have become faster moving and more
their business model through M&A. competitive. PE houses and the best corporates are forging ahead
in their ability to do deals. And, more importantly, they have built
slicker M&A machines within their organizations. These best practice
firms are setting the pace: too often conventionally structured,
listed companies are left flat-footed at best and at worst, both
management and company are extremely vulnerable.

13
 Making the Deal Work

These profound shifts demand organizational improvements between those before and after 2002. For instance, UK companies
and capabilities to compete. But given the changes in the M&A exhibit three dimensions of becoming more prepared during the
environment corporates need to adopt a new benchmark to integration phase once a deal is complete. Firstly, companies are now
measure their performance. At present, our assessment is that the three times more likely to have developed a plan for the integration
gap is widening between the upper quartile and average public of the acquired firm three months before the start of the merger.
company based on the research and analysis performed for this
report. Further, Deloitte researched 40 mergers in the United Secondly, the appointment of a full-time manager with responsibility
Kingdom. The study found that over half of businesses had a failed for managing the integration is twice as likely three months prior
M&A transaction as the chief cause of their problem. In 40 per cent to the deal. Finally, listed firms are also now more likely to have
of cases the acquired business was subsequently sold11. developed a detailed communications plan ahead of a transaction14.

Where do corporates stand today? Most finance directors we polled Any review of an M&A capability must start with an honest
thought their M&A capability was above average in all aspects of a assessment of potential weaknesses. Our research shows the
transaction. For instance, asked whether they could respond quickly biggest area of focus is improving accountability and co-ordination
if a company came ‘into play’, CFOs rated their business on average across a transaction. Fuzziness and fragmentation of responsibility
above four out of five. Similar ratings were given to the capabilities across the transaction can increase the chances of dropping the
around the rigour of aligning M&A and corporate strategies, their baton. Figure 4 shows little consistency across the FTSE 350 as to
ability to execute a deal and finally the fact that they regularly who owns the merger process at particular stages. The range of
review their portfolio of businesses12. M&A-responsible positions within listed companies is significant at
both the approval and execution phases. In most instances this is
Nonetheless, a more critical assessment of corporates’ M&A capabilities likely to reduce the effectiveness of the process.
is required. In spite of their favorable selfratings, UK corporates need to
be much more objective in assessing their real capabilities in the face It is true that corporates do need to have a more phased approach
of a rapidly evolving M&A marketplace. Corporates do acknowledge to integration due to their complexity. However, without a more
some areas for concern. Around 60 per cent agree that more complex holistic approach to mergers, corporates are unlikely to be able to
structures in corporates can inhibit transactions13. Clearly the evidence compete in increasingly aggressive and sophisticated M&A markets.
cited earlier in this report – the growing likelihood of PE to win in
auctions and the growing pressure from money managers. Recognizing this point many larger corporates have been hiring top
M&A personnel from investment banks – Ford, Novartis and Aviva15,
Our own work does provide evidence of some improvement in the to name just a few. And so the gap between PE/upper quartile
skills corporates deploy around transactions. Analysis of over 150 corporates and average public companies is growing wider.
mergers spanning more than a decade shows a marked difference

Figure 4: Too many cooks?

Who has responsibility for M&A deals in FTSE 350 companies?
Approval Execution Integration
Board (38%) Other (29%) Relevant Divisional Head (72%)
CEO (23%) Head of M&A (17%) Other (16%)
Other (12%) CEO (12%) CFO (3%)
Head of M&A (11%) Business Development Director (11%) COO (3%)
Financial Director (6%) Relevant Divisional Head (11%) CEO (3%)
CFO (5%) Finance Team (8%) Executives (3%)
Business Development Director (5%) CFO (6%)
Financial Director (6%)
* Other = management category other than those defined
Source: IpsosMori/Deloitte analysis, 2006

14
 M&A Strategy

However, Smiths’ arguably still faces challenges, notably on two

Case study: Smiths Group fronts. Firstly, some commentators argue that it could be more
Frequent flyers are likely to be familiar with Smiths’ products aggressive at extracting value. Secondly, some City activists who are
without realizing it. In every airport security check, the chances are opposed to conglomerates suggest Smiths’ has moved a little too
that some of its technology is being used. far in this direction.

Smiths’ Group is a company that has transformed itself over the last It is important to note, however, that not all best practice in M&A
five years. A core part of this development has been building an resides in major corporates and PE houses. Across the spectrum of
experienced and skilled M&A capability. CEO, Keith Butler-Wheelhouse, listed firms there are examples of companies building capabilities
has pursued an explicit strategy of using transactions to power that compete with the best. The case study on page 7 illustrates
company growth and has done over 50 deals in the last half decade. how Smiths’ Group has developed a successful M&A engine
With market capitalization rising 50 per cent between 2003 and 2006, over the last five years. Such examples show how smaller public
its professional M&A capability has played an important role in driving companies can overcome some of the inherent weaknesses
this growth. Four key components have set the Smiths’ team apart: of corporates, such as complexity, but focus on the synergies
generated from integration opportunities.
1. Alignment of M&A strategy with corporate strategy. Although the
business is made up of a number of divisions the M&A team works
across the business preparing future transactions. For instance, it Fit for the future?
is common practice for the M&A team to work with the divisional New norms for corporate behavior are being set by the best practice
heads of the business on several pre-approval business cases for exhibited by PE houses and major corporates. The way these
board approval. This negates the need for frenetic board-meetings organizations value companies, execute acquisitions and subsequently
and approval processes in the heat of a deal. deliver value through a well-orchestrated exit process is changing the
face of corporate Britain. Clearly PE houses have different motivations
2. Core team with mandate across the business. Smiths’ has built for doing deals and operate under different constraints than public
a multi-disciplinary core M&A team. This involves a blend of companies. Nevertheless there is nimbleness and a focus about the
experienced business heads with professional advisers from way acquisition is executed in PE that makes a positive difference to
the worlds of accountancy and PE. This team works across the the chances of success in a competitive auction.
business with a mandate across the entire transaction from
screen to integration. The spectrum of practice in the way deals are conducted is
broadening. As the pace and sophistication of dealmaking forges
3. Continuous screening of potential deals. The M&A team acts ahead, too many listed companies risk falling behind – and this
as a catalyst across the business, continuously updating target shift matters. Figure 5 illustrates the differences we have observed
screens, preliminary screens and pricings ranges. This ongoing in the initial phase of deal-making capability between best practice
dialogue enables the business to move rapidly into gear once a and average organizations. Adoption of best practice has two main
transaction launches. benefits. First, the speed and efficiency of the process can make the
difference between winning a deal or not.
4. Continuity. Frequently, staying too long in the M&A team at a
public company can inhibit career progression. More importantly
the lack of a continuous process of screening targets means
executives do not necessarily build up the expertise they could.
Smiths’ has avoided many of these pitfalls and created a virtuous
circle. The full-time process of screening and executing deals allows
the team to build experience across transactions. High deal volumes
attract professionals from both within and outside the business.
This continuity has built a robust and unique M&A capability.

15
 Making the Deal Work

We estimate that it can take an average public company up By highlighting examples of good practice among PE houses and
to three times longer to prepare for a transaction. Second, the the best corporates, we have created a road map for corporates
excessive friction during a deal in the organization can lead to seeking to build a leaner, more professional and effective M&A
future problems. One executive remarked “our non-executives machine. This pinpoints the five disciplines that can improve how
resent being repeatedly forced to the altar to do deals, due to lack corporates transact and implement deals.
of planning”16. Companies need to be able to pursue a successful
M&A strategy if they are to reach their full potential. They need
to examine, understand and learn from best practice in M&A and
incorporate the best and most relevant techniques in order to raise
their game. But where should they begin?

Figure 5: Mind the gap

The growing divide between best practice and average corporate
Best Practice (2-8 weeks) Average Corporate (6-18 weeks)
Phase 1: Target • Establish and review target list. • No strategy, reactive process.
• Rolling review. • No rolling review.
• Opportunities feed.
• Define exit strategy.
Phase 2: Credit Approval • Build business case based on • Little planning.
IRR (Internal Rate of Return). • Fragmented process across
• Structure finance. investors and stakeholders.
• Continuous check with decision makers.
Phase 3: Preparation • Background search. • Slow background search.
• Refine financing based on modelling. • Often few advisers appointed.
• Appoint best professional advisers
Phase 4: Final Approval • Robust business case. • Weak business case.
• Rubber stamping. • Prolonged process with board and executives.
Source: Deloitte, 2006

16
 M&A Strategy

Another example of where clarity of purpose plays its part is in

Five disciplines of M&A best practice cash and working capital management. Our research revealed
1. Clarity of purpose much anecdotal evidence that suggested corporates frequently left
value on the table through poor cash control. In PE, ‘cash is king’,
Few businesses see M&A as a core discipline. Further there is often as there is a focus on servicing the debt package that is part and
a lack of clarity around responsibilities for transactions. By contrast, parcel of most buyouts. Focusing on optimizing the supply chain
best practice firms exhibit great clarity and rigour across all phases and managing cash collection carefully allows PE to create value.
of every transaction. There are ancillary benefits too. Close monitoring of cash creates
an improved level of discipline in compliance and will increase the
We have found a huge variation in the set-up and operations of likelihood of fraud being detected.
corporates’ M&A departments. Too often the M&A function is an
uneasy compromise between several different executive groups. Finally, the set up of the M&A department is the source of many
Part of this problem is a relative lack of experience. It is possible to of the concealed problems leading to a lack of effectiveness.
find a great deal of skill and competence in corporates but they Clearly defined responsibilities between the centre and the divisions
can still fall short against the best practice benchmark because are vital in building the foundations of doing successful deals.
they simply do not do enough deals, so there is neither the same
collective memory, nor the same accumulation of experience.

Preparation and research is one area where PE houses, for example,

Action points:
demonstrate best practice. PE carries out heavy, but very focused, • Interpret and agree the implications of the corporate
investment in due diligence very quickly – often three per cent of strategy for M&A. This should be the basis for a clear set of
the projected cost of the deal according to Deloitte analysis. Partly objectives for the M&A team.
this is required by a lower level of familiarity with the industry than • Set up the M&A team with key metrics against this set of
that enjoyed by a trade buyer, and the need to secure debt funding. objectives, and have a mandate across the business, with
However, this research is also central to the decision-making well-established links to the board and strategy team.
process in PE, providing the information with which the investment
committee of the PE house can challenge the deal sponsors and • Clearly define roles and responsibilities in the deal execution
subject the acquisition case to rigorous testing. process, including whose approval is required at each stage.

Rigour is further ensured by the extensive use of third parties from

outside the business to test and challenge investment assumptions. 2. Parent power
The entire process is designed to isolate precisely those factors that
drive the cash generation, market dynamics and profit margin, and Most companies buying a business expect to own it for ever.
plot their volatility and variability through different phases in an Disposal is not seen as a natural step towards the creation of value.
economic cycle, because this can affect value. However, City institutions are increasingly stepping up the pressure
on listed companies to demonstrate they are the best owners of
Corporates tend to have a more complex and fragmented their portfolio of companies. Equal importance should be placed on
decision-making process. Given the number of participants within exiting as acquisition.
a corporate, there is a higher risk of slowing progress down, or
making serious errors in the process. Best practice shows it is Best practice corporates we spoke to believe they do have a rigorous
important that the handovers are made effectively across the process to confirm that M&A strategy is aligned with corporate
organization throughout the transaction. strategy. They regularly review their portfolios of business and,
when they do decide to sell, they are good at executing the deal.

For instance, focus can generate returns. Our research reveals that
proactive de-mergers create rather than destroy value. An analysis
of 118 mergers over the last ten years shows that the majority of
these deals created significant increases in shareholder value17.

17
 Making the Deal Work

There is a clear difference in attitude between best practice and most When a target appears corporates should know from previous
other companies. A best practice organization sees the sale of a research whether or not it is one they want to pursue, how much
business as an opportunity to create value and looks forward to it as it is worth to them and therefore whether they should bid. They
the successful completion of a period of ownership and investment. should know too, when price may not be the dominant issue, and
where they will be disadvantaged if an asset subsequently becomes
On the other hand a company making a sale too often does so owned by someone else.
out of a sense of failure. The business has failed to live up to
expectations, is no longer wanted and is therefore to be disposed In other words, corporates need to know their prey well and be fast
of quickly, with the minimum of fuss. to act. This is more likely to be achieved where there is a central point
of authority that will help deliver the clarity and consistency needed.
There are exceptions, of course. For example, businesses that That authority has to be agreed throughout the organization, so that
rigorously examine their portfolios on a systematic and regular basis what the board has decided is in harmony with what is required at a
and genuinely question whether they are the best owners for the divisional level. It is however more than simply a matter of authority.
subsidiary or whether it might be worth more to someone else.
Being the right parent for an asset two years ago does not make For most companies M&A is a secondary activity, because the prime
it right now. Changes in market and economic cycles can radically function of any executive team is to manage what they have and
change the picture. The best businesses do this without sentiment deliver value from the assets already under ownership. Getting
and perhaps for that reason such groups know how to sell well and head office and the divisions into alignment is not easy. Nor is it
know too that selling does not have to be immediate. The decision easy to build an effective M&A origination and execution capability.
in principle can be taken, but the execution delayed until pre-sale Therefore, the challenge to all corporates is for the head office
preparations are complete and the market conditions are right for to have sufficient feel for divisional markets to know whether to
value to be maximized. support their M&A proposals or hold them back, to know whether
to back them in acquisition-led or in organic growth. And such
broad agreement is not the end of the matter.
Best practice: Best practice shows the assessment of management is a key part
• Continual reviewing of portfolios – testing whether there is of the process. The buyer needs to have confidence in whatever
still further value to be extracted or whether the business team is given authority. It requires both owner and management
would be worth more to others. to understand clearly what the objectives of the business are, and
how it is going to achieve them. Such clarity is harder to achieve in
• Start ‘packaging’ the business for sale – maybe 18 months
the corporate sphere.
before the event itself.
• Seek the right point in the business cycle to put the business Our research also reveals it is important to carry out friendly or
on the market. hostile deals if possible. Our work reveals lukewarm transactions are
• Run a highly efficient auction with properly prepared vendor three times more likely to destroy value, compared with those which
due diligence. are friendly or hostile18.

• Consider bringing in interim management to run the To match the pace at which best practice corporates and PE houses
business up to the point of sale. can get deals done, listed companies need to review their processes,
to ensure there is clear ownership of the entire M&A proposition,
from origination through to integration.
3. Know your prey
It will no longer be enough for corporates to rely on superficial
research on potential targets. Given the pace at which corporate Action points:
activity is conducted, corporates need to devote significant
• Use a well-researched dossier to provide the springboard for
resources into building an origination capability.
action once a target comes into play.
To meet the challenge from the smartest buyers with most effect, • Brief non-executive directors on potential targets prior to the
corporates need to be quick off the mark. They should have deal to obtain pre-approval.
identified and be familiar with their potential targets well in • Be flexible when consulting the board on these issues.
advance of their coming available. This means knowing your prey.
• Agree terms and conditions with advisers on a rolling basis.

18
 M&A Strategy

4. Incentivise execution It may be that incentives should instead be focused on the

performance of the acquired business alone. Incentives should also
Nothing shows the difference in approach between best practice
concentrate on the period that is relevant for delivering value in the
and typical corporates more than the incentives to execute.
business following the deal, which may not follow the typical, three-
Particularly in PE, management incentives can be brutally simple,
year rolling pattern of corporate incentive plans. In order to reinforce
focusing on achieving the required internal rate of return and value
this message, corporates should ensure that where performance is
at exit. Corporate remuneration on the other hand has to serve a
not delivered, management does not get rewarded.
range of purposes with the impact being more diffused. There are,
however, lessons that can be learned.
Corporates should also ensure that incentives are focused on those
who are actually involved in the deal, with the power to make it
Finance directors in our poll recognized that PE tends to be better
work. This is not only a question of incentives. It can be more difficult
at delivering profit improvements after deals. They attribute
to generate value from a merger because of the different interest
this largely to the fact that PE management can be given large
groups within a business, giving the possibility of multiple objectives,
incentives to deliver.
which may or may not have been prioritized. Successful acquirers
identify those who are responsible for delivering against clear and
This is certainly true. PE houses put in place management and
measurable targets and empower them to do so. Targeted incentives
employee incentives that tend to be single minded in their focus
can be used to reinforce this message, for example by asking
– getting their value through an internal rate of return or threshold
management to put some ‘skin in the game’, by investing some of
price. Once the required returns have been delivered, PE houses
their own money, in return for participation in the new plan.
are generally happy for incentives to deliver significant payments to
management. The amount delivered, however large, is irrelevant,
Finally, and perhaps most importantly, corporates should worry
so long as management has delivered the required return. This
less about market practice and more about what is right for the
provides management with a clear focus on what it is expected to
business. Corporates need to accept that there may not be a
deliver. On the other hand, incentives do not pay out if the targets
one-size-fits-all model for pay and incentives, and that bespoke
have not been met.
arrangements for the acquired company may be the best way to
drive the performance of business.
These simple goals are not so readily available in the corporate
sector, where incentives have to fit within the wider corporate
structure. This means balancing the need to incentivise alongside
other ongoing goals, such as retention, alignment with shareholders Action points:
and market practice.
• Identify clear measurable targets across the transaction.
However, corporates can learn lessons from PE best practice about • Keep it simple. Overly complex incentive packages within a
the style of incentives used and how pay can drive performance corporate regime and hierarchy can be a recipe for problems.
in the period following the deal: by identifying what success looks • Clearly define who is accountable for delivering the deal and
like, and by directing reward to those responsible for delivering this structure incentives accordingly.
success. The key in this process is simplicity.

In terms of the definition of success, experience shows that there is

often a mismatch between what is judged to be a success and what
is actually measured. Incentives provide an opportunity to identify
what the key drivers of success are and ensure that these are clearly
communicated to management. This may involve moving away from
senior management participation in the primary, long-term, incentive
arrangement of the corporate, where performance is based on
measures such as total shareholder return or earnings per share.

19
 Making the Deal Work

5. Integration Further, upper quartile performers consistently demonstrate a

combination of four factors at play to make the integration successful:
The ability to extract the maximum value from a transaction in
the shortest timeframe is a must for corporates. Too few treat the
• Clarity of purpose – required prior to the completion of the deal.
integration as a separate part of the overall transaction. Best practice
Building a clear understanding of the rationale and vision for the
firms start planning for the integration in the pre-deal phase.
merger; selecting strong leaders to sponsor, manage and lead
the program; implementing the top-level organization structure
Mergers can easily become high-risk growth strategies with little
and identifying and prioritizing the sources of benefit is critical to
guarantee of success. Indeed all too often companies pop the
creating and maintaining momentum throughout the integration.
champagne corks on completion of a deal and fail to pay enough
attention to the integration. Experience shows that in this situation,
• Control – ensuring that the integration programme does not divert
the merger will ultimately hit the rocks, not because the company
attention from managing day-to-day operations is paramount for
has chosen the wrong business, although some do, but due to poor
success. Implementing robust planning, programme management,
integration of the acquisition. Experience also shows that at the
benefit tracking and reporting methodologies, which are both
point when the ink dries on a contract, it is often possible to tell if
pragmatic and adequately resourced will give management
the merger will succeed. Further, the demands of the new M&A era
confidence in and visibility of the programme. This coupled with
mean that public-listed companies need to adopt and understand
the ability to tackle risks and issues quickly and take the tough
the value extraction habit.
decisions early helps to ensure that the programme is both
structured and controlled.
Failure to integrate separate corporate cultures saps staff
morale and proves to be a distraction to senior management.
• Managing people – businesses that recognize that mergers
Getting the merger of two organizations off to a good start and
increase uncertainty and ambiguity for employees on both sides
capturing the momentum of the deal is critical to extracting
are halfway to removing these issues caused by implementation.
the maximum potential value. Planning the integration before
Best practice businesses prepare their HR team early on and
the completion of the deal is imperative to ensure that the
ensure it is skilled and fully resourced; they identify and recognise
companies do not fall into the trap of relaxing and thinking the
cultural differences and plan for change at all levels.
hard work is over; the opposite is nearly always true and the
toughest decisions are still to be made.
• Communications – also key across the deal, with upper quartile
companies being better prepared to communicate the key parts
Best practice shows that change must be driven through quickly.
of the integration than average corporates. This phase tests if the
Typically, an integration has a 90-day, post-deal window in which
necessary processes are in place to ensure effective engagement
to succeed or fail, but it is usually determined by the quality of the
of internal and external stakeholders.
planning, which can start well before the day the deal closes. As
a guide most merger activity should be planned and costed over
the 90-day period prior to the first operational day of the merged
business. Clearly the integration will not be complete at this Action points:
stage. However, the merger blueprint or strategy, financial goals,
• Ensure planning starts well in advance of the deal;
operational delivery plans and communication plans should have
companies that are well prepared tend to deliver greater
been developed and agreed so that the maximum benefit can be
shareholder value.
derived straight from ‘the off’.
• Appoint an integration director to work as part of the M&A
team at least three months prior to the completion of the deal.
• Handle the softer ‘people and communication issues’ with
equal ranking to hard edged financial issues.

20
 M&A Strategy

Corporates intent on building their business prowess and a successful

Conclusion: Fighting back in M&A future must enhance their M&A capabilities. The question they must
Fundamental changes are taking place in the nature of M&A activity pose is: are they really fit for the fight ahead?
in the United Kingdom – making the whole process faster and more
focused. Most corporates will need a successful M&A strategy to All but a few of Britain’s elite corporates have gained their place at
deliver the growth their shareholders expect but our research shows the top through M&A. There are some extremely useful lessons to
in many instances they are increasingly slow off the mark. As a result, be learnt from the behavior of the best corporates and PE players.
there is a clear need for many UK-listed companies to build an M&A The five disciplines we have outlined attempt to capture the most
machine that can build the confidence of institutional investors and important issues for corporates. As a matter of urgency we believe
extract greater value from deals. boards should review their M&A infrastructure and processes, to
build a cutting edge M&A machine as a key ingredient of future
This is very much an organizational, rather than a financial issue. In corporate success.
this report we have identified five best practice disciplines that should
be adopted by listed corporates to add a cutting edge to their M&A
capability. In the face of the dramatic changes in the M&A market,
corporates need to incorporate these disciplines into a new M&A
Methodology
This report is based on an extensive research programme.
machine to become agile, athletic and win in M&A.
To investigate fully the issue of improving corporates’ M&A
capabilities we have undertaken the following four work-streams:
In essence, corporate centres provide three main services to
companies: compliance and governance, operation of shared
• Analysis of 1065 transactions between 2001 and 2006
services and value-adding activities. The creation of a high
involving UK-listed companies worth more than £113 billion
performance M&A machine should sit within the latter of these
in 11 different sectors, to understand how the dynamics of
categories. There are several aspects to establishing a cutting edge
deals are changing
function, but three fundamentals are worth mentioning:
• Case studies based on face-to-face interviews with over
1. M&A core operation: The M&A team must have a well
20 Heads of M&A at leading FTSE 350 corporates on the
articulated, value-adding proposition. Efficiency at both buying
application of PE best practice
and selling companies is central to this proposition. An established
team, of at least three to five years’ standing, is likely to have a
• Commissioned Ipsos-Mori to interview independently
positive impact on the quality and approach to deals.
65 FTSE 350 CFOs or Finance Directors on the M&A
capabilities of UK-listed corporates
2. Must be wired to the corporate strategy: Any M&A team must
be constantly linked to the corporate strategy and be able to
• Appraisal of 64 deals over the last several years on
translate the implications for the M&A strategy. Typically this
the preparedness of corporates to extract value from
would focus on the targeting of key markets or revenue streams,
transactions through integration.
growth areas and geographic expansion.
This year-long research project attempts to synthesise each
3. M&A team structure: A key to success lies in the building
of these separate strands into a coherent set of insights
of a multidisciplinary team, which has a combination of
and actions to enable corporates to improve their M&A
professional adviser experience and business expertise. Typically
transactional capability.
a corporate should look to have a core team of two or three
M&A practitioners. Working out how to inject M&A best
practice from PE houses or investment banks should be high
on the corporate agenda. In addition, the core team should
be supplemented by two or three high flying executives who
rotate into the team every couple of years.

21
 Making the Deal Work

Notes
1 The Hermes Principles, Hermes Fund Management, London.
2 Financial Times, How US public funds fuel private equity, 28 August 2006.
3 Based on €300 billion equity, €300 billion debt and €300-€400 billion matched
funding by 2009.
4 www.mergermarket.com
5 Deloitte & Touche LLP/IpsosMori: CFO M&A Survey of UK FTSE100 &
250Corporates, 2006.
6 Financial Times, Active investors can go where others
fear to tread, 23 August 2006.
7 Citigroup report, 2005.
8 UNCTAD World Investment Report, 2005.
9 ibid.
10 Speech by Michael Geoghegan – CEO, HSBC:
Deloitte GFSI Summit, Athens, May 2006.
11 Financial Times, Why mergers are not for amateurs,
12 February 2006.
12 IpsosMori/Deloitte Survey, 2006.
13 IpsosMori/Deloitte Survey, 2006.
14 Deloitte, Doing better, getting harder –
merger’s state of health, 2006.
15 Financial News, Companies Shun M&A Advisers,
4 September 2006.
16 Executive Interview, May 2006.
17 Deloitte research, 2005.
18 Deloitte and Cass Business School, 2005.

22
 M&A Strategy

Merging alliances
Ignore at your own risk
By Douglas Tuttle

With U.S. companies pursuing alliances, joint ventures, and/or Whoever you choose, remember that he or she must also be given
partnerships in record numbers, most merger & acquisition (M&A) the authority, resources (both money and people), and time he or she
transactions are bound to involve dozens if not hundreds of strategic will need to deal with the unique challenges alliances pose. Simply
business-to-business relationships (which we’ll call “alliances” for finding out who has what alliances with whom, for example, can
short). Yet few merging companies devote as much time and effort be tricky in an environment where one or both merging companies
to integrating alliances as they do to combining personnel, processes, might have lacked central alliance coordination, relationship owners
technology, and physical facilities. The potential price: damaged may have been terminated during post-transaction restructuring,
relationships, confused customers, possible legal and regulatory and most people are too worried about the changes to the internal
complications, and an erosion of the marketplace leverage the business to spare much thought on alliances. If your alliance network
alliances were meant to provide in the first place. is especially complex, you might consider deploying a dedicated team
to help coordinate and staff the project.
The good news is that a little foresight and planning can go a
long way toward getting your newly merged entity’s alliances
under control. Here are six tips that can help you overcome some
2. Investigate legal and risk issues sooner
common alliance-related pitfalls in a post-transaction integration. rather than later
Pre-transaction due diligence rarely includes reading all the fine print
1. Pick someone to lead the charge in both companies’ alliance agreements. Now that you’ve officially
merged, your legal and risk management professionals will want to
The single most helpful thing you can do for your new entity’s
carefully examine each alliance agreement for any issues they might
alliance portfolio is to designate, as early as possible, a senior-level
have missed before the transaction was closed. You’ll also need to
executive to be responsible for alliance integration. The reason
evaluate your alliance contracts against the new entity’s legal and
is simple. Like every other part of the business, alliances must be
risk approach and, if necessary, renegotiate contracts with alliance
integrated with the new entity’s strategic direction in mind. A senior
partners you wish to keep.
executive can not only provide that guidance, but make and enforce
the necessary decisions along the way. On a more pragmatic level,
assigning a “point person” to alliances, even if only on an interim
basis, is an excellent way to safeguard against their falling off the Getting organized
radar in the rush to Day One.
Who are all of your company’s alliance partners? What about
Who’s the right person for the job? If one or both legacy companies the alliance partners of the company you’re integrating with?
had an alliance leader, you might simply select one of them to If you don’t have a consolidated inventory of all your alliances
continue in that role. The choice is less clear, though, if the legacy and their objectives, now would be the time to create it.
companies left alliance management largely up to the business units This is not always an easy task, and there will likely be some
or even individual relationship owners. debate as to whether a relationship is actually an alliance.
Our advice: Cast the net wide, talk with many people in both
Depending on the number and significance of your alliance legacy organizations, and circulate the list of alliances you’ve
relationships, the person you select to lead alliance integration identified to everyone you have talked with – they’re bound
should be both senior and respected in the merged organization. to suggest a few more.
Additionally, he or she should be able to cross functional and
business boundaries within your company as well as at the alliance
partners’ organizations. Diplomatic savvy and a willingness to make
and enforce tough decisions are essential, as the alliance integration
leader may be called upon to mediate difficult negotiations or
conflicts between alliance partners.

23
 Making the Deal Work

Because alliances tend to be more complex and more interdependent

than simple vendor-buyer relationships, expect to spend correspondingly
4. Communicate early and often – even if
more time and effort on sorting out alliancerelated legal and risk issues. there’s no new information
Alliance agreements often test the boundaries of what organizations are
The typical integration plan devotes an entire team to managing
willing to explore, and if the integration process isn’t properly handled,
communications with employees, analysts, investors, and
a merger or acquisition may strain an already delicately balanced
customers – every stakeholder group except, almost always, the
relationship to the breaking point.
company’s alliance partners. Yet your alliance partners are just as
hungry for information as any analyst, customer, or employee,
What’s more, because each alliance is unique, each must be
and they’re likely to be just as important to your new entity’s
examined individually for contractual nuances that may affect
success. In most cases, your alliance partners did not ask to be
your current relationship and future plans. Be especially alert for
part of a merger integration process, and it’s only natural for
any changes that may be needed to what each company is willing
them to have concerns and questions about the possible impact
to put at risk, as well as the criteria for defining and measuring
on their own businesses.
performance. Intellectual property issues are also often a significant
area of concern. And don’t forget to discuss what will happen
Getting the right message to your alliance partners takes both
to the alliance in the event of another merger, acquisition, or
strong central coordination to facilitate message consistency
divestiture. Laying the ground rules now will make things much
and a certain amount of flexibility in how the messages are
easier for both of you the next time around.
delivered to individual partners. If your company, like most,
has an “upfront” communications policy with regard to the
3. Tie alliance rationalization to product and integration, you might begin with an initial message expressing
management’s commitment to alliances in general (if this is
service rationalization true), while acknowledging that the restructuring will have an
The primary purpose of most alliances is to help develop, promote, as-yet-unknown impact on a number of alliance relationships. It’s
and/or sell a company’s products and services. A very effective way important to keep each alliance partner informed as to its status
to rationalize alliances after a merger, therefore, is to map them to with the new entity even if – in fact, especially if – that means
the combined entity’s new product and service mix and decide how sending repeated “no new news” bulletins. The longer it takes to
the alliance portfolio needs to change to support it. decide an alliance’s ultimate fate, the more important it is to keep
the communications flowing, if only to reassure your alliance
In practice, surprisingly few merging companies succeed in partner that it hasn’t been forgotten.
connecting product/service rationalization and alliance rationalization.
Some may need to streamline their alliances before they have time to Individual relationship owners play a vital role in the communication
finalize the new product and service mix; others may simply overlook process. They’re the first people your alliance partners will turn
the need to link the two processes. To the extent they rationalize to for answers, and they’re the ones usually best placed to tailor
alliances at all, many companies base their decisions on factors more the delivery, if not the content, of your messages to each partner.
appropriate to routine alliance “housekeeping” (whether one alliance Assuming they’re doing a good job, it can be helpful to preserve
duplicates another, the cost and returns of maintaining a particular legacy relationship owners to give your alliance partners a sense of
relationship, and so on) than to the broader question of supporting continuity. If you transfer or terminate a relationship owner, be sure
the new entity’s marketplace strategy. to give the alliance partner plenty of notice as well as an immediate
replacement contact. In all cases, it’s important to educate the
Housekeeping, of course, is fundamental to any well-run alliance relationship owners as to the messages you want to convey and arm
portfolio. But when you’re making major changes to your product them with the information to answer your partners’ questions. The
and service mix, it’s far better to tie any alliance adjustments point is not to micromanage the communication process itself, but
to the changes in the goods and services they support than to to give your relationship owners the tools and knowledge they need
rationalize alliances in isolation. Examining alliances alongside your to deliver a consistent message.
new product and service roadmap allows you to readily identify
and eliminate duplicative and no-longer-needed alliances. More
importantly, it can give you an important time-to market advantage
by uncovering areas where alliances can fill in “white spaces” in
your product and service mix.

24
 M&A Strategy

5. Renegotiate performance metrics and 6. Don’t quit while you’re ahead

alliance partner compensation Once you finish integrating your alliances – having rationalized your
relationships, resolved any outstanding legal and risk issues, updated
Most alliance agreements include performance-monitoring
contracts, and aligned the entire portfolio with your merged
provisions that specify how each party will measure the alliance’s
company’s strategy – it’s time to think about how you’re going
benefits and, if necessary, redistribute the gains. As the new entity’s
to keep your alliances network synchronized with the business’
alliance strategy takes shape, some of the arrangements carried
evolving goals. Fortunately, the work you’ve done to integrate your
over from the legacy companies may no longer be appropriate.
alliances gives you a solid foundation on which to build an ongoing
alliance management program. You may choose, for instance, to
Your alliance partners, too, may decide that the changes to your
formalize top-level alliance accountability by appointing a “chief
organizational structure call for adjustments in the way the alliance
alliance officer” or equivalent. Key contributors to the alliance
is monitored and compensation awarded.
integration process could also be given permanent alliance oversight
responsibilities. Corporate-level alliance leaders should have at
The first step is to establish a clear alliance strategy for the
least three important responsibilities. The first is to periodically
merged organization and set goals against which to judge each
review the company’s entire alliance portfolio to assess its value
alliance’s performance. If you’re lucky, one or both of the legacy
and strategic alignment, weed out rogue alliances and otherwise
companies will have a well-defined alliance strategy to use as
unproductive relationships, and perform other basic housekeeping
a starting point. If not, you can start by asking yourself exactly
duties. The second is to proactively identify opportunities to add,
what you want to accomplish through alliances, how you’ll know
modify, end, or redirect alliance relationships to better support the
if you are succeeding, and how much alliance-related risk your
company’s objectives. And the third – least visible but perhaps most
company is willing to tolerate. The answers will point you toward
important – is to create an infrastructure that helps everyone at your
an organization-wide alliance strategy that can inform performance
company treat alliances in a way that’s consistent with your overall
measurement and compensation practices for each relationship.
alliance strategy. Among other things, this can involve establishing
formal policies around why, when, and with whom alliances can
Even with an overarching alliance strategy, expect your
be formed; assigning dedicated relationship managers to your
alliancerelated metrics and compensation procedures to vary
most important alliances; and publicizing existing alliances and
much more widely than the metrics and compensation schemes
their purposes among your employees to prevent duplication and
within your company’s four walls. Alliances with different strategic
encourage alliance utilization.
purposes will require different metrics and procedures, and each
alliance relationship will have a slightly different way of achieving
To sum up: your strategic alliances are, well, strategic – and it pays
the desired result. So don’t worry if you can’t develop a single set of
to treat them that way. A post-transaction integration can be a
metrics to regulate an inherently heterogeneous group, as long as
fine opportunity to not only streamline the alliance portfolio, but
you can be confident that every alliance has the right measures and
also install the leadership and management processes to keep your
procedures to monitor and reward its particular contribution.
alliance activities on track, today and for the long term.

25
 Making the Deal Work

Integration – Program Management

Program Management

Synergies & Cost Reduction

Customers, Markets & Products

M&A Target Due Transaction Integration Divestiture 360o Communications

Strategy Screening Diligence Execution

Organization & Workforce

Functional Integration

Location & Facilities

26
 Integration – Program Management

Seven things your mother never

told you about succeeding as
an integration manager
Simple ideas that can make a big difference
By David Carney and Douglas Tuttle

Ever since your company made that big acquisition announcement,

you’ve been expecting that tap on the shoulder. Now, it’s happened: For executives: how to
leadership just officially appointed you “integration manager,”
the executive responsible for melding the two formerly separate pick the right person for the job
companies into a cohesive whole. If you’re like many integration Wondering whom to entrust with that all-important integration
managers we’ve worked with, the excitement of being chosen may manager position? You already know you want an experienced,
have been swiftly followed by that uneasy “now what?” feeling. well-respected executive with a reputation for being able
It was a great honor to be asked – but what exactly does it take to to get things done. Those are all table stakes – but to find
succeed in the integration manager role? someone who can truly bring the new entity together, look for
a person who excels at the skills described in this discussion.
Of course, it’s not hard to find high-level advice on what makes You should identify a person who is comfortable with chaos,
for a successful integration. According to many of the books and has a broad knowledge of his or her own organization, and
articles written on the subject, the characteristics of a successful possesses strong decision-making ability when presented with
integration include an unyielding focus on key value drivers, an incomplete or limited information. Above all, we feel that
issue-free Day 1, and an aggressive plan to exceed the synergy you need someone who excels at perceiving and channeling
targets your CFO announced to the Street. the emotional currents that can pervade the organization at
this potentially turbulent time. After all, effective integration
What these books and articles don’t tell you, though, is that management is as much about navigating political minefields,
accomplishing these things usually takes more than great project defusing conflict, and providing emotional grounding as it is
management skills. Deloitte Consulting LLP (Deloitte Consulting) has about keeping the integration team’s noses to the grindstone.
provided services in support of hundreds of successful integrations,
and we have worked closely as trusted advisors to many integration
managers just like yourself. Here is what we tell them. If the integration goes well, you will not only have demonstrated
that you can be counted on to get results, but you’ll probably
have developed working relationships with many executives that
1. Enjoy the ride! can help to further your career. Many integration managers are
Especially in a significant merger or acquisition, the integration later called upon to integrate other acquisitions or assist the
manager role can make or break the effort. And as you’ve probably organization in high-visibility, high-risk but high-value projects such
already realized, being put in the integration manager role can make as new ventures. So remember: as long as you’re effective in the
or break your career. But while the job is not without enormous role – and the following tips should help you with that – this could
stress, and may bring you within inches of being fired on a daily be the toughest job you’ve ever loved.
basis, there are some significant potential rewards to be reaped if
you do an effective job. The role can give you a very high degree of
visibility at the most senior levels of the combined organization.

27
 Making the Deal Work

2. Find your second-in-command early 4. Guard your teams, your scope, and your
We believe that there are at least two good reasons to find and cost center
mentor an understudy to be your second-in-command as soon as
We often see a “pile-on effect” in larger post-merger integrations
possible in the integration project. First, there’s so much work to
in which various other groups attempt to latch on to the integration
be done, usually in a very compressed timeframe, that it’s vital for
project, claiming that their own projects are part of the larger
you to have qualified help. And second, if you’re pulled off the
integration effort. However, an integration manager must maintain
original integration project to work on a newer one – which is a real
a laser-like focus on managing the efforts that were originally
possibility at large companies that do multiple, sometimes back-to-
identified as yielding the desired results. Projects piled on beyond
back acquisitions – your second-in-command, having experienced
the original scope not only tend to slow down the integration
“on-the-job training” while working with you, should be well
process but can also dilute the potential synergies, adding costs
prepared to take charge of the first integration effort.
without yielding short-term savings. What’s more, if you allow
extra projects to ride the integration’s coattails, others outside
There is a high degree of risk in not completing the work on one
of the project will quickly see that the merger integration efforts
acquisition before a second acquisition is layered on to the core
are attracting the “cats and dogs,” and they may question your
business. Consequently, the identification of a second-in-command,
commitment to achieving the original objectives.
especially one who is familiar with the original project, can help
provide the continuity to complete the first integration even if a
So don’t let yourself be distracted by add-on projects unless the
second deal is already in the works.
sponsors can demonstrate to your satisfaction that the additional
activities will add real value to the integration. For every extra
3. Be the decision accelerator project that is proposed, ask for a quantitative business case that
details how much of a return it might provide and how soon it can
Integrations generally demand thousands of decisions on
be expected for the effort and money expended. A rule of thumb
strategy, products, services, organization design, cost reduction,
we often use: if the extra project doesn’t yield at least a twofold
investments, communications, information technology (IT)
return on its cost, it probably doesn’t make sense.
applications, and many other areas, all to be made in a very short
timeframe. How will you get all that done? Certainly having a
strong team and adequate resources is part of the answer. But the 5. Play nicely if you’re one of “two in a box”
most important factor can be rapid decision-making – and that
In some large post-merger integration efforts, especially those that
means that you will have to set the pace.
are considered a merger of equals (as opposed to a large company
acquiring a much smaller one), executives staff the integration
You can accelerate decision-making in several ways. First, set clear
manager role using the “two-in-a-box” technique – that is, they
deadlines for decisions and hold your team accountable for meeting
appoint two integration managers, one from each of the legacy
them. If they resist the pace you set, explain that if they don’t make
companies, to jointly lead the project. As an integration manager,
the decision, either you will, or you will have an executive make it
you may not have a choice of whether you share the sandbox with
for them. Second, structure the agenda for your executive steering
another. If you find yourself with a co-lead, we would suggest that
committee meetings as a collection of options, recommendations,
you focus your energy on making the relationship work. You don’t
and decisions. Use the meetings to drive key decisions from executives
both have to attend every meeting or make every decision together,
rather than simply to update them on integration status. Finally, host
but you do have to communicate openly, often, and completely, as
cross-functional decision-making workshops. If your integration team
well as divide the work in a way that makes sense. Most importantly,
can’t agree on how to integrate quota-setting and sales compensation
don’t let the organization play the two of you against each other
processes, for example, sponsor a well-facilitated workshop with Sales,
– which, unfortunately, is a real possibility in some cases. More than
Finance, Human Resources, IT, and other key stakeholders … and don’t
likely, you will quickly realize that each of you brings knowledge and
let them leave the room until they’ve made a decision.
skills that complement each other in a very difficult role.

28
 Integration – Program Management

Less obvious, but no less important, is to seize the opportunity to

6. Manage by walking the halls harness the excitement that acquisitions and integrations can bring.
As integration manager, you’ll likely find yourself drowning in There will probably be many potential change leaders both inside
seemingly endless planning, discussions, and meetings to coordinate and outside your integration team – formal and informal influencers
the many groups required to carry out the integration. But remember, who are well respected in many different areas of the organization.
you need to do more than manage everyone’s effort. You also need Help them paint a compelling picture of the future and ask them to
to continuously communicate progress and direction, providing the talk it up. Share positive news about the integration progress with
emotional grounding that is often so important for companies in a them first, and ask them to get the word out to their constituents.
time of transition. You can also ask them to occasionally take the pulse of the
organization and get that feedback to you.
To keep issues from blowing out of proportion, and to help the
entire organization understand the decisions and direction of the To sum up: The challenges of managing an integration can provide
integration, you need to continuously keep your ear to the ground an excellent opportunity to build on your strengths and to take your
by walking the halls, talking with people, and taking their pulse own effectiveness – and your organization’s – to a higher level. You
on sensitive topics. Make the time to do it between meetings and already have the reputation, the ability, and the authority to get
calls, even if it means that you have to be at work earlier and leave things done; that’s why you were chosen to lead the integration in
later than everyone else (which you’ll probably be doing anyway). the first place. Now, you have the chance to demonstrate that you
Even if there is no clear answer to an issue, it’s important that the can get things done in the time-pressured, volatile, often chaotic
integration manager proactively acknowledge that it’s been raised environment of a post-merger integration. Draw on your strengths
and is being considered. and keep our seven tips in mind – and enjoy the ride!

7. Pay attention to amygdalas

In our brains, the neocortex, the “thinking” part, governs reason Notes
and analyzes facts. The amygdala handles all basic emotional 1 Daniel Goleman, Emotional Intelligence: Why It Can Matter More Than IQ,
Bantam Books, 1995.
reactions, such as fear, anger, and excitement. People who are
exceptionally aware of their own and others’ emotional responses
are said to be “emotionally intelligent.”1 To be effective, we believe
that integration managers need this trait in spades.

Obviously, an acquisition can give rise to a host of negative emotions

that can easily be amplified by rumors and hearsay. It’s important
to be prepared to face uncomfortable situations and to be sensitive
to how these are managed. For example, when planning a major
organizational redesign, think carefully about who will gain, lose,
or otherwise change responsibilities and power, and anticipate how
certain individuals will react to those changes. Try to reduce anxiety
by explaining how the integration team will design the organization
and how the selection process will work, as well as by clearly
communicating the timeline for change.

29
 Making the Deal Work

Navigating a global merger

Six important tips to help overcome challenges
By Punit Renjen, Bruce Westbrook, Don Kohut, Bryan Talbot and Joshua Steiner

Current economic data suggests that relentless growth pressure, The next step is to help the company establish short-term operating
strong balance sheets, and cheap borrowing rates are fueling a policies that will help guide the integration at the local level and
frenzy of acquisitions in every part of the world – and the deals help country leaders run their companies in the interim. These types
are becoming larger.1 In Europe alone, the total value of deals of policies should be developed regionally, and then adapted by
announced during the first two months of 2006 was up 360 each country operation. Examples of such guidelines include:
percent from the previous year.2 Many of these large acquisitions
have a significant international component. And while most mergers • Managing key customer relationships during the transition period
can present significant integration challenges, the challenges tend • Handling customer calls until the service functions are combined
to increase exponentially when the effort spans multiple countries. • Consolidating financials until the back-office systems are integrated
• Coordinating sales activities until the sales forces are combined
Think of the integration issues that typically arise when combining (including policies for cross-selling)
disparate business processes, policies, systems, and organizations
within a single country. Multiply that by dozens of countries, each The high-level roadmap should be developed for all regions prior to
with unique legal and tax rules, business practices, and regulatory involving people at the country level, thereby helping to minimize
requirements. Then, factor in country-specific customs, cultures, distractions to the country companies and increasing the likelihood
social issues, and language requirements. The resulting complexity that all country operations address the same critical integration
can be overwhelming. activities. Timing is everything, so don’t be in a hurry to get
everyone involved at the beginning. Although the roadmap won’t
Although complications always surface when merging include detailed regional plans, it can help provide clear direction
global companies, here are six tips to help overcome some for regional and country planners to develop those plans consistent
of the biggest challenges: with the overall integration strategy.

1. Begin globally, then regionally 2. Customize and execute locally

A primary goal for an international merger is to maximize global We have found that involvement of the country-level organizations is
performance, meaning that the performance of the collective important to the effective execution of a global merger. While much
company typically takes priority over individual regional objectives. of the planning can be conducted at the global and regional levels,
The most effective way to get there is with a global integration implementation takes place on the ground in each country. Country
roadmap that outlines the merged company’s global aspirations, execution should occur only after global integration roadmaps have
business models, and organizational structures (including clearly been tailored to local business environments, laws, and regulations.
defined roles and responsibilities).
Customization does not mean developing country integration
A company’s global aspirations should include long-term goals, as plans that are different from the global integration roadmap. On
well as near-term, cross-functional milestones that are independent the contrary, it simply means layering in country market nuances
of any particular region or country. Clearly defined milestones can while adhering to the vision, intent, and direction of the company’s
help provide concrete direction and coordination at the regional and global and regional plans. For example, one of our clients found
country levels. Examples include specific dates for: that selling a combined product portfolio while in the midst of
a merger required different approaches in different countries. In
• Putting regional and local leadership in place Taiwan, a simple licensing agreement between the merging entities
• Fully integrating the sales force was sufficient, but in Pakistan a formal distribution agreement
• Completing joint business plans (including revenue and cost savings) was required. Another client discovered that workforce planning
• Standardizing customer terms and conditions in France required more intimate coordination with the local work
counsel than in Belgium. The company also learned that in countries
such as Brazil, it had multiple options for migrating employment
contracts to a single legal entity (e.g., terminate and rehire vs. direct
transfer), while in Venezuela only one option was feasible.

30
 Integration – Program Management

What works in one country may not work in another. Only country
resources, with input from local legal counsel and regulators can
4. Manage by exception
determine the most effective way to move forward. Although global and regional leaders are ultimately responsible for
the integration effort, it is virtually impossible for them to manage
and track detailed work plans for scores of countries. That’s why
3. Work in a matrix, designating local country organizations should report only the integration activities
resources to fill gaps and requirements that are genuinely at risk. This “exception-based”
approach can help minimize time spent creating and reviewing
We have found that global mergers require clear communication reports – and helps high-level decision-makers to focus on what is
channels to increase the likelihood that country-specific issues truly important. It also provides them with an opportunity to study
and dependencies are quickly identified and resolved. These critical issues in-depth and to determine if they are widespread or
channels often need to be created from scratch. A global program country specific.
management office can help, but ultimately each function must
organize itself globally and establish its own communication Regional leadership should identify 20 to 25 requirements that are
processes and reporting relationships at the regional and country most important to achieving the desired results, and then have
levels. In most cases, existing channels are insufficient. each country track and report against these identified requirements
on a regular basis. It’s especially helpful to focus on “Day 1”
Based on our experience, a matrix project structure is often the most requirements – things that must be resolved by the first day of
effective option. For functions that are critical to a merger – such as the merger – which might include system connectivity, legal entity
HR, Finance, IT, and Corporate Communications – it is important to issues, and external communications.
create a “line of sight” from the global level down to the country
level. This means creating a reporting structure in which a functional While global and regional leaders focus on the larger issues, country
person at the country level is linked to a specific functional contact work teams can focus on the details. Country management is
at the regional level, who is linked to a decision-maker at the global responsible for completing the integration efforts and making sure
level. In most cases the person assigned to the function at the that all local integration issues are identified. Comprehensive Day 1
country level will also report directly to the country team leader. checklists and detailed work plans can help country leaders manage
This dual reporting relationship – typically based on function and the numerous and often complex integration activities.
geography – is the crux of the matrix structure.

Functions that lack the necessary resources at the regional and/or 5. “Early and frequent” communication
country levels should designate a person to fill the role. For example,
a country operation that doesn’t have someone to handle external
means planning even earlier
communications might designate a sales and marketing person to In our experience, merger announcements often trigger a wave
perform the required duties. This person would be responsible for of anxiety for shareholders, vendors, customers, and employees.
making sure that all global and regional communications are in And, the anxiety tends to be even worse for global mergers. This
place and ready to go and that country-specific communications is why it’s so important to communicate with these key groups
requirements are incorporated into global and regional plans. both early and often. In fact, frequent communication throughout
the merger integration process may be one of the most important
The last step in creating an effective matrix structure is to define things a company can do to help preserve the value of the deal. If
which decisions should be made at the global level versus the done right, it can keep them informed and engaged, as well as help
regional or country level. Country leaders must know which minimize disruption to the business.
decisions they are responsible for and which decisions should be
escalated to regional or global leadership. For example, the general When building a communications plan for a global merger, be
selection criteria for retaining employees might require approval at sure to allow an extra few weeks of lead time to finalize country
the global level, but the actual selection might be handled at the communications materials. For example, a letter developed at the
country level. Establishing a clear decision-making process at the global level to help inform customers about the completed merger
outset can help minimize confusion and delays. will require translation into multiple languages. It may also need
additional reviews by country leadership and local legal counsel –
all of which take time. In addition, country-specific communications
plans should consider the local culture and business environment.
For example, one of our US based clients found “town hall”
meetings were an excellent way to announce the merger to its
domestic employees, but in other countries one-on-one sessions
between employees and managers were more appropriate.

31
 Making the Deal Work

Country leaders should be involved in developing global and regional

communications plans so that country-specific requirements can
be incorporated. This helps increase the likelihood that global and
regional integration leaders are more aware of country needs and plan
accordingly, thereby increasing the chances for an issue-free Day 1.

6. Address local cultures and customs

Local cultures and customs can affect all aspects of the integration
effort, yet they are usually among the most difficult things to pin
down. Many country integration leaders sometimes feel that global
leadership does not understand how business is conducted in their
specific region or country. And even seemingly small issues, such
as local holidays, can sometimes cause big problems. For example,
scheduling a regional integration review in Europe during the
middle of August – when most Europeans are on vacation – can
create unnecessary tension and may leave employees in the region
feeling like second-class citizens.

Begin by thoroughly analyzing the cultural challenges in each country.

Learn how the people in each country conduct business, make
decisions, and communicate. Then apply these insights to help create
a more robust integration plan. When forming regional teams, balance
the number of participants from various countries – particularly among
traditional rivals such as China and Taiwan or Japan and Korea. Make
an effort to spend time in the different regions and countries. Face-to-
face meetings with regional and country leadership teams, employees,
and customers can help strengthen relationships and improve support
for the overall integration effort.

Also, don’t forget to leverage your strengths. Use expatriates who

are working abroad to help navigate the cultural minefield. And, be
sure to capitalize on experienced staff who speak the language and
know the culture.

In summary
Global mergers bring additional challenges that are not found in
typical mergers between companies in the same country. Although
you should begin organizing and planning at the global level, all
paths eventually lead to the local or country organizations. As you
make the journey along these paths, take time to look around and
notice how different things are at each step. As the French say,
“Vive la difference!”

Notes
1 “Mergers and acquisitions: Once more unto the breach,
dear clients,” The Economist, April 8, 2006.
2 “Europe’s Urge to Merge,” Businessweek Online,
March 27, 2006.

32
Making the Deal Work

33
 Making the Deal Work

Integration – Synergies & Cost Reduction

Program Management

Synergies & Cost Reduction

Customers, Markets & Products

M&A Target Due Transaction Integration Divestiture 360o Communications

Strategy Screening Diligence Execution

Organization & Workforce

Functional Integration

Location & Facilities

34
 Integration – Synergies & Cost Reduction

Putting synergies to work

Realizing the value from M&A integrations and divestitures
By Patricia Kloch, Trevear Thomas and Carol Bailey

Mergers, acquisitions, and divestitures are high-stakes transactions 3. Give compliance a front row seat. Public companies, and more
capable of achieving dramatic results for the newly integrated or frequently private companies, must understand how the changes
separated company. However, those results are often very difficult to in policies, processes, and systems will be captured and monitored
realize. In fact, a recent Deloitte Consulting LLP (Deloitte Consulting) so that they may continue to comply with external regulations.
Mergers & Acquisitions survey1 showed the vast majority of mergers Consideration for compliance must be incorporated throughout the
– 70 percent – did not achieve expected synergies, and only 23 merger and acquisition integration or divestiture activities.
percent earned their cost of capital. High executive turnover was
another post-merger reality; the survey reported nearly half of 4. Plot the course before setting sail. Determine the finance
executives leaving the company in the first year following a merger, function’s role in helping to achieve the deal’s expected synergies.
and 75 percent leaving within three years. Generally, the finance function should develop its own synergy
targets, determine an approach for measuring synergy capture, and
Why are mergers so often unable to achieve their desired results? create a financial plan that outlines the expected synergies and their
While integration is not conceptually difficult, our experience costs, which will serve as a guide to the newly formed company
indicates that it requires a ruthless focus on execution and a cool after the merger, acquisition, or divestiture.
head when confronted by the enormity of the effort. The CFO is
frequently the chief architect of the merger, playing the roles of 5. Simplify, simplify, simplify. In a merger or acquisition, don’t
both the strategist responsible for capturing the business value of allow duplicate financial processes and systems to linger. Quickly
the transaction and the steward responsible for driving execution of decide which predecessor company’s financial processes or systems
the merger integration activities. Ultimately, the CFO is responsible to adopt to help achieve desired synergies in the longer term.
for managing the overall shareholder experience during a merger
– a challenging task, to say the least. 6. Be prepared to deploy the new troops. The finance function
will be the place others in the company turn to for the information
they need to manage the new business. Determine where the new
How to drive more value through improved finance function will be located, how it will be organized, and
merger integration who will fill key leadership appointments early in the merger or
acquisition integration process.
We’ve helped some of the world’s leading companies and their
CFOs in their efforts to effectively complete finance merger and
7. Don’t leave empty-handed. Mergers, acquisitions, and
acquisition integration and divestiture activities. Here are some of
divestitures can often put a strain on the company’s cash flow
the key lessons that we’ve learned along the way.
position. Create new cash flow relationships if needed, with the
appropriate treasury funding and banking structure to allow
1. Consider the external customer. Understand the impact of the
operations to commence when the deal closes. Integrate policies
merger on the customer. Be confident that they are not adversely
and develop a combined forecasting capability to confirm cash is
affected by the merger, particularly in the areas of credit policy,
controlled and managed efficiently.
collections, and customer payments.
8. Make history. The newly formed management team won’t
2. Leave no room for error. The CFO must produce accurate financial
have a historical reference point for making decisions. Define and
information for the merged entity by the first period after the deal
enable the newly formed company’s reporting capabilities so that
closes, and the analyst and shareholder communities are generally
managers are able to gather the information they need to steer the
unforgiving of error or delay. Immediately address any potential
ship post-close.
segment reporting changes and determine whether tax and synergy
strategies can help drive a new legal entity reporting structure.

35
 Making the Deal Work

Bottom-line benefits
• Enhanced opportunity to achieve or beat synergy targets by
putting a mechanism in place for measuring and monitoring
merger results for one to two years after the deal has closed
• Increased shareholder and analyst confidence in the newly
formed company’s stability by delivering financial results
quickly and accurately immediately following the merger,
acquisition, or divestiture
• Minimal impact on the newly formed company’s ability to meet
external compliance requirements by addressing changes in
the control environment throughout the merger or acquisition
integration or divestiture activities
• Sustained consumer confidence by having no negative impact on
their financial interactions with the company they are now doing
business with regarding credit, payment processing, and collection
• Sustained vendor confidence with the company they are now
doing business with by having no negative impact on their ability
to supply goods and services and to be paid
• Vital information provided to the newly formed company that it
needs to manage the new business model
• Improved efficiency and effectiveness of the finance function,
recognizing considerable internal synergies in the process

36
 Integration – Synergies & Cost Reduction

The pricing on the cake

Making price management a priority can make
the difference between success and failure in M&A
By Iain Bamford, Carter Mayfield and Ranjit Singh

Figure 1. 70% of mergers fail to achieve their anticipated value2

Executive Summary
With merger and acquisition (M&A) activity again on the
rise, so are concerns that many deals will not realize their
expected returns. Facing skepticism and intense pressure
to perform, managers overseeing the execution of these 30%
transactions should find ways to deliver quantifiable benefits
as quickly as possible. Pricing management is a prime area
that can help generate positive results that managers too
often overlook in the integration planning process. Based on
our experience, pricing management provides the potential
to realize quantifiable benefits within 12 months or less and
the opportunity to improve gross margins by 10 percent or
more. As such, we believe that pricing management deserves a 70%
prime place at the M&A table. Both the pre- and post-merger
environments can provide fertile ground for price management
activities to take root and, very likely, bear fruit.
Failure
Success

The Pressure to Perform

The deal is well and truly back. According to recent Deloitte Even as an active deal market forces P/E multiples upward, a skeptical
Consulting LLP (Deloitte Consulting) analysis, M&A activity was up Wall Street may demand to see immediate results. This can mean that
17 percent1 year-over-year in 2005 and mergers and acquisitions managers are under intense pressure to:
are once again being viewed as a key tool for corporate growth. • Deliver on pre-merger expectations.
However, the excesses of the late ’90s are still fresh in the minds • Focus on deal execution.
of investors and Wall Street analysts, who may be looking at • Deliver quantifiable benefits as quickly as possible.
these deals with a healthy dose of skepticism. And rightly so;
our analysis also revealed that nearly two-thirds of mergers To more effectively cope with these pressures, many managers are
significantly diminish shareholder value. moving more quickly on projects with high impact and fast time to
realization. Usually these “quick-hit” projects focus on efficiency
measures. In fact, the term “synergy” is, in many minds, synonymous
with cost reduction. However, companies that look exclusively at the
cost side of the equation to demonstrate immediate value from a deal
are likely missing significant opportunities.

37
 Making the Deal Work

Have your cake and eat it, too: Fast results,

Case example: Pricing
high impact
left on the back burner Pricing management can be a prime area that can help generate
Take the example of a $1 billion food services company that positive results that managers (like the ones in the above example)
chose to postpone taking any pricing actions at the time it was too often de-prioritize or overlook completely in the integration
integrating an acquisition, and instead to focus on cost-saving planning process. This can be a costly oversight, as pricing projects are
efforts. The result: 18 months after close, with cost synergies usually quite effective in terms of both time to realization and impact.
still well behind original merger targets, a new management Most pricing benefits are realized within the first 12 months, which is
team chose to focus on improving price management. More within the critical time period in which analysts expect to see results
than $15 million in local price improvement opportunities were from a deal. Further, the ROI of a pricing project typically exceeds
identified in the first 12 months of the initiative. 300 percent, and most pricing projects improve gross margins by 10
percent or more. With announced synergy targets hovering at around
4 to 5 percent of revenue, more effective pricing management alone
could net the average Fortune 500 company as much as one-fourth
of their synergy goals.3 This is too much potential value to be ignored.

As Figure 2 illustrates, pricing management can offer high impact

for low effort, outperforming many of the typical post-merger
synergy focus areas.

Figure 2. Pricing management should be a top merger priority

High
Quick Hits: Implement Immediately Phase Implementation

Pricing Operations Streamlining

and Enhancement

Operational Process and Product and Services

Supply Chain
Policy Standardization Channel Management
Consolidation

Capital Program
Rationalization Inter-Company
and Prioritization Best Practice Transfer Coordination

Impact
Compensation/Benefits
Design
Corporate Program IT Application
Overlap Elimination Consolidation IT Infrastructure
Standardization

Administrative Process Product

Implementation Rationalization

Pursue as Necessary Don’t Implement

Low
Low Effort High

38
 Integration – Synergies & Cost Reduction

Building a pricing program into the

Case example: Merging
integration effort
to build the top line
The Challenge: Antitrust Concerns
A $2 billion financial services company challenged with
How can managers most effectively build pricing improvement into an
integrating a newly acquired division chose to focus on
integration plan while complying with antitrust laws? One factor is to
the centralization of the pricing function to drive revenue
carefully think through which initiatives should be completed pre-close
generation. The result: The new integrated business unit was
and which completed post-close, and how pricing strategies and
able to generate both a 12 percent average price increase and
actions should be managed on the first day of the new company.
a 1 percent increase in sales volume, resulting in more than
$22 million added to the bottom line.
Prior to the consummation of a merger or acquisition, antitrust
laws put strict limitations on the sharing of competitively sensitive
information. This includes much of the customer, product, and
Fertile ground for achieving desired results pricing data that are most critical to pricing analyses. Companies
Both the pre- and post-merger environments can provide should continue to compete and operate as separate entities and
ideal opportunities to explore and effectively use pricing should avoid any actions that may be interpreted as collusion.
management techniques.
Typically, companies treat pricing as their most sensitive competitive
Prior to any merger, integration planning teams should already be information and choose to address new pricing strategies only after
running the key diagnostics used to analyze pricing management. the deal is complete. Unfortunately, this can mean a delay of six
Typical pricing analyses measure product contribution, sales months to a year or longer before coordinated actions are taken
performance, and customer segment performance. A diligent merger – leaving months of revenue and margin improvement on the table
integration analysis should explore the impact of the merger on these and opening the door for competitors.
same elements. This can help reduce the incremental effort required
for a pricing project during a post-merger integration.
One answer: Clean teams
Three additional reasons also make the post-merger integration “Clean Teams” can help accelerate pricing integration while
environment an effective time to consider pricing strategy complying with antitrust requirements, offering a unique way to
and execution. help enable planning using competitively sensitive data frequently
used in integrations.
1. Change management with respect to employees can be eased
during integration. The sales force usually expects changes in Clean Teams, composed of staff from the acquirer and/or target
compensation, product focus, and geographies. (and sometimes external consultants), can receive and analyze
sensitive data from both companies, but are sealed off from
2. Change management with respect to customers is often other integration efforts until the deal closes. Physical and virtual
facilitated by integration. Customers generally understand and “firewalls” are designed to help prevent sensitive data and analysis
expect changes to products, pricing, and discount structures. from being shared outside the Clean Team. And once Clean Team
members are chosen, they cannot return to the core integration
3. An effective cross-functional management structure should be in teams or their day jobs until after the deal closes.
place for the merger. This should create an environment where the
many facets of pricing can be investigated and managed effectively. Data and analysis can be shared freely after Day One of the
Further, the impact on customer expectations of a landmark event integration. The immediate post-close period can then focus
like a merger cannot be underestimated. For instance, while Oracle on policy alignment and quick implementation of pricing
was in the process of acquiring PeopleSoft, it cited “numerous improvement opportunities.
examples of extreme discounting”4 as a rationale for the merger.
With this kind of public announcement, it is not only the deeply
discounted customers who will expect changes in discount
structures; all customers will likely anticipate policy changes.

39
 Making the Deal Work

Pricing analyses performed by Clean Teams (see Figure 3 for

hypothetical examples) can be used prior to Day One of Integration Case example: Leveraging pricing capabilities
to deliver two distinct benefits:
In its acquisition of a smaller competitor, a major high-tech
1. Identify a range of immediate pricing and margin improvement manufacturer quickly noticed that the target was able to
opportunities for each company’s existing products and realize a two- to three-point margin advantage on sales of
customer base. similar products through a more disciplined approach to
pricing. It was able to isolate the processes and capabilities
2. Assist in data-driven decisions about product line rationalization, that drove this additional value and “cross-pollinate” them
customer retention, discount realignment, compensation across the company.
incentives, and pricing strategy in the new company.

Getting started: Structuring the integration

Figure 3. Clean team pricing analyses
pricing team
Pricing programs normally have a common theme with merger
integration – they both require considerable cross-functional
cooperation to be effective. An integration environment is one
of the few times a company has a truly cross-functional project
management structure in place – an Integration Management Office
– which also provides an excellent platform for launching effective
pricing improvement.

Pricing improvement efforts should be driven by the sales and

marketing functions, but they also require strong support from
finance, IT, and operations. A dedicated integration pricing team
should therefore be viewed as a cross-functional “SWAT” team with
representation from each function. It should also have a clear charter
from the Integration Management Office and be empowered by all
functions to drive the implementation of its recommendations.

Conclusion: Put pricing on the integration

Post-close front burner
While time in the pre-close phase is spent analyzing data and While managers often put revenue synergies on the back burner when
doing high-level planning, changes in policy that will actually affect prioritizing integration projects, the benefits of integrating pricing
pricing improvements should be implemented in the post-close sooner rather than later can often be too significant to ignore. Further,
phase. Postclose initiatives may include changing discounting and by leveraging Clean Teams and an Integration Management Office to
promotions policies and processes to help eliminate inconsistencies help drive pricing analysis, companies can realize much of the value in
across the two firms, or eliminating unprofitable or low-value the first 12 months of the integration, helping to buoy the confidence
transactions by adjusting the price of selected SKUs. Again, the key of Wall Street analysts and investors alike and spur a positive price
is to leverage quickly the results of pre-close analysis. impact of a different sort – on company stock.

The final key focus of the post-close period is to put the tools and
processes in place to sustain ongoing benefits. This includes sharing
leading practices across companies. A transformational merger in Notes
particular provides an effective opportunity to review all processes 1 Deloitte Consulting analysis based on Mergerstat Data, U.S. and Europe only,
including deals with announced values greater than $100 million. Retrieved
and push through improvement opportunities.
February 14, 2006.
2 Source: Mark Sirowar, as quoted in “The Weekly Corporate Growth Report,”
Issue #1,048
3 Deloitte Consulting analysis based on Fortune magazine’s Fortune 500 list
(April 18, 2005); Deloitte Consulting experience tracking merger synergies; and
AMR Research, The Customer Management Applications Report, 2004-2009,
August, 2005.
4 Rudy, Jonathon. May 9, 2005. Retrieved February 14, 2006 from
Businessweek Online.

40
 Integration – Synergies & Cost Reduction

The hidden tax value

in divestitures
Why looking beyond the deal can pay off big
By Russ Hamilton and Padric Kelly O’Brien

If you’re planning a spin-off or carve-out, you know how important tax Why do organizations sometimes fail to act? As noted above, the tax
considerations can be to realizing the full value of your transaction. But issues that tend to take center stage are often those related to the
did you also know that a separation can offer significant opportunities transaction itself, such as obtaining tax-free status for the spin-off,
to improve the tax efficiency of each separated business − and thereby maximizing the deductibility of transaction costs, and dealing with the
increase the transaction’s long-term value? Our experience suggests taxation of golden parachute payments. Any tax department energy
that many divesting companies tend to overlook this group of tax- left over from those issues is generally absorbed by the challenge
saving opportunities. Here’s how you can take steps to avoid leaving of setting up the separated businesses’ tax operations so that each
significant money on the table. can continue to function after the transaction. With all that to worry
about, it’s not surprising that examining the tax implications of the
separated entities’ new business processes can fall off the radar.
Hidden in plain sight
Some tax costs are pretty obvious, especially those associated with Fortunately, once the idea of optimizing the tax efficiency of the
the transaction itself. For example, the tax that the selling corporation new entities’ changed operations is brought to the divestiture team’s
must pay when it disposes of a subsidiary or division is easy to quantify. attention, it’s relatively straightforward for tax personnel to do the
Likewise, other transaction-related items (such as the taxation of necessary work to advise management appropriately. In spin-offs and
executives’ golden parachutes) are often of great personal interest to carve-outs, unlike in mergers and acquisitions, information can usually
decision-makers in any deal. These transaction-related tax costs and be freely shared between the soon-to-be-separated businesses,
opportunities tend to get plenty of attention, so we won’t dwell on making it feasible to start planning each company’s operational
them further here. structure well in advance of deal close. Moreover, in a pure spin-off,
the divesting company normally has more control over the timing of
However, other tax opportunities that frequently present themselves in the transaction than it would have in an acquisition. In short, if you’re
spin-offs and carve-outs are often overlooked. These opportunities are considering a divestiture, there are no good reasons not to consider
directly connected to changes in the underlying business of one or both the tax implications of operational decisions associated with the
companies, rather than being associated with the transaction itself. separated entities.

Many organizations, in our experience, simply don’t focus on these

opportunities until well after the deal is done, when it’s usually too
Places to start looking
late to factor tax considerations into operational decisions about So what areas of operations might benefit from a good look at their
the newly separated entities. And it’s not just the business being tax implications? Almost any planned business change should be
sold that ought to consider these opportunities. Depending on the considered, but especially those that involve relocating personnel,
size and nature of the divestiture, the parent company may also facilities, or assets. Here are a few of our top candidates:
need to change its operations to suit its new size and scope. The
tax implications of these changes can have a far-reaching impact on Supply chain
each company’s performance going forward. Every business process A newly independent company usually needs to establish its own
that is changed represents a legitimate opportunity to establish the supply chain separate from its parent’s. If the divested company
new company’s operations in a more tax-efficient manner. is large, the parent may also need to make changes to its supply
chain. In both cases, there may be opportunities to reduce federal,
state, and foreign income taxes.

41
 Making the Deal Work

The use of a “procurement company” is one well-known example. Researching and negotiating for credits and incentives, whether
Large companies often centralize their sourcing and procurement new or those to be retained, can take time, so it’s important to start
activities to achieve economies of scale. A company with such looking into these incentives relatively early in the divestiture process.
a centralized procurement organization may be able to realize By allowing plenty of time to negotiate with taxing authorities before
savings, including tax savings, by isolating its procurement functions announcing the location of the new facility or facilities, a company
and assets in a separate legal entity − a procurement company − can protect itself from being hurried into a less-than-satisfactory
particularly when that company is located in a low-tax jurisdiction. decision. Keep in mind, too, that most negotiated grants become
The rest of the organization, which may be located in higher-tax effective, and thus begin to generate savings, only after the grant/
jurisdictions, pays the procurement company to provide sourcing credit has been mandated. Of course, it will be all but impossible to
and procurement services; the overall tax savings occur because the negotiate incentives with local authorities after a location decision has
procurement company’s income is taxed at a lower rate than would been announced − one more reason to start the process early.
have been the case if the assets had remained with the rest of the
organization. Another advantage of this type of structure can be
a reduction in recurring sales and use taxes on goods and services
Liberating tax department resources
flowing through the procurement company. As noted above, tax departments of companies that are undergoing
divestitures can easily be overburdened. One way to create capacity
Technology in your tax department can be to critically review new information
Considering the tax profile of different jurisdictions can be important systems from a tax perspective so that the tax department
when determining the location for information technology (IT) assets doesn’t need to generate the data that proper IT systems can do
and activities. If a company uses technology to perform a high- automatically. For instance, if the separated company’s IT system
value, well-defined function − for example, a hotel chain that uses a can’t generate legal-entity books, the tax department will need to
proprietary room reservation system − the company should consider generate them by hand.
housing the IT assets and activities used for that function in a discrete
legal entity located in a lower-tax area. Like a procurement company, With foresight, an emerging tax department can shape its policies
this IT entity charges the rest of the enterprise for its services, and its and processes through the use of technology and dramatically
income is taxed at a lower rate. A spun-off or carved-out company reduce the time devoted to tax return compliance and planning while
should be especially cognizant of this approach, as a divested company generating higher-quality products in both areas. Here, a “clone and
generally needs to build its own IT infrastructure from scratch and will go” approach with respect to existing IT systems may actually be
be faced with decisions regarding the location of that infrastructure. problematic. Supported by an analysis of how the tax department
gets from “here” to “there,” the new tax department can emerge
In addition, a divested company may be able to avail itself of as a smaller cost center with a focus on a number of critical tasks
a wide range of tax-saving possibilities, both immediate and rather than solely on compliance obligations, which can be addressed
ongoing, as it builds out its IT infrastructure. For example, a through effective technology and data management planning.
variety of approaches exist to minimize sales and/or use tax
paid on software and hardware purchases, and companies may
be able to deduct, rather than capitalize, substantial portions
The bottom line
of the total cost of an ERP implementation. Some jurisdictions Obviously, the decisions you make about the separated companies’
also offer research and development tax credits for internaluse operations will be shaped by many business considerations other
software projects, which may influence a company’s choice of than tax. Our view, though, is that tax should be considered
where to conduct its initial and ongoing software development. early in the process so that management can make operational
And training credits or grants may be available to companies that decisions based on an after-tax rather than a pre-tax basis. While tax
need to train or retrain its employees on new IT systems. considerations shouldn’t drive these choices, they’re definitely an
important part of the total picture, and they can have long-lasting
Facility location consequences for the separated businesses.
Whether it’s a warehouse or distribution center, a manufacturing
plant, a data warehouse, or corporate headquarters, opening a Remember, too, that it’s usually far easier to address the tax efficiency
major new facility often gives companies the chance to negotiate of a business as part of an overall business transformation than it is
for tax credits and/or incentives with various tax jurisdictions eager to make changes once the business has stabilized. In other words,
to bring new business to the area. These can range from property once the business processes are set in stone, the tax consequences
tax exemptions to corporate tax moratoriums to employee training may be too − and you may find your future tax options somewhere
and development credits. The more people to be employed at between slim and nonexistent. Even worse than missing a potential
the proposed facility, the more significant these tax credits and tax opportunity, you may find yourself locked into a very undesirable
incentives can be. Just as important, a divestiture may put existing tax position with only limited options for improvement. So make it
credits and grants at issue, so a complete survey of the impact of a rule to look for ways to achieve tax efficiencies in the separated
the transaction is a must. businesses’ operations when you engage in a spin-off or carve-out.
Chances are, the businesses and their stakeholders will have reason
to thank you for it for a long time to come.

42
 Integration – Synergies & Cost Reduction

Using FIN 48 to improve

your merger integration efforts
The potential silver lining of new accounting rules for uncertain
tax positions
By Russ Hamilton and Alan Sandberg

The July 2006 release of the Financial Accounting Standards Board’s

Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income
FIN 48: Some basic rules
Taxes, has set off a scramble among large companies as they work to FIN 48, which applies to all material income tax positions, mandates
reanalyze their financial accounting for income taxes. Many businesses a two-step process for determining the proper financial statement
may need to dedicate substantial internal resources (and possibly also reporting of UTPs.
pay meaningful fees to outside consultants) to properly address these
new requirements over the next few months. But despite these costs, Step 1: Recognition
FIN 48 may not be all bad news. A few forward-thinking acquirers According to FIN 48, a tax benefit associated with a tax position
are beginning to realize that they may be able to use FIN 48 to their may only be recognized on the financial statements if it is “more
advantage in merger integration efforts. likely than not” that, if challenged, the position would be sustained
in a court of last resort (such as the Supreme Court of the United
States). The evaluation is based solely on the technical merits of the
FIN 48 at a glance tax position under the assumption that the examiner will have full
The new accounting standard, which generally becomes effective knowledge of all relevant information. On the other hand, if it is
for fiscal years beginning after December 15, 2006, prescribes a not at least 50 percent likely that a court of last resort would sustain
uniform standard for evaluating uncertainties in income taxes and a position, then no tax benefit at all may be recognized on the
reporting them in the financial statements. Specifically, FIN 48 financial statements.
mandates a consistent approach in evaluating tax positions and
reporting the effect of uncertain tax positions (UTPs). UTPs are tax Step 2: Measurement
positions (such as the deductibility of certain expenses, allocation If the more-likely-than-not recognition threshold is met in step 1,
of income among various taxing jurisdictions, and the decision to FIN 48 specifies that the amount of the benefit to be recognized on
file or not to file a tax return at all, among others) for which the the financial statements should be the largest amount of tax benefit
application of the tax law may be unclear. FIN 48 gives companies that is more than 50 percent likely of being realized upon ultimate
a standardized method of reporting the effect of the UTPs in their settlement with the taxing authority.
current financial statements, even though it may be many years
before the actual outcome will be known. The sidebar on the next In making these determinations, the company must assume that
page briefly summarizes the new standard’s requirements. the issue will be identified and fully challenged by the appropriate
taxing authority. In other words, the standard does not permit
companies to take into account any potential benefit from
detection risk (i.e., the “audit roulette”).

43
 Making the Deal Work

A caveat: relying solely on the target’s FIN 48 inventory may yield

Example: an incomplete understanding of the target’s total tax risks. FIN 48
covers only income taxes within the scope of FAS 109, so exposures
For a particular $100 tax position (say, a $100 tax credit), a related to non-income taxes (i.e., sales, use, and value-added tax)
company believes that the tax position to claim the tax credit will not be represented in a company’s FIN 48 inventory.
is more likely than not (i.e., more than 50 percent likely) to be
sustained by a court of last resort based on the technical merits Additionally, even if the target’s auditors have signed off on the
of the tax position. However, the company also believes that inclusion of its FIN 48 summary in the financial statements, the acquirer
the largest amount of tax benefit that is more likely than not to may not agree with the target’s judgments about the items included or
be realized upon ultimate settlement with the Internal Revenue not included in the inventory. This is because, despite FIN 48’s rigorous
Service will result in the company repaying the taxing authority requirements, there is an enormous amount of judgment involved in
$20 of the previous $100 tax benefit taken. As a result, the applying the recognition and measurement thresholds.
company may recognize the tax benefit from the credit on its
financial statements; however, it must record the amount of For example, suppose the target had a tax issue that it thought
the tax benefit as $80, not $100. The $20 difference between had a 51 percent likelihood of success to be sustained by the
the tax benefit taken on the tax return and the amount court of last resort. Based on its experience in similar situations,
recognized on the financial statements is generally recorded as the company believed it could settle the issue by splitting it evenly
a FIN 48 liability for unrecognized tax benefits. with the IRS. In that case, the target would have booked one half
of the benefit of the tax uncertainty (i.e., the target would have
recorded only a 50 percent tax reserve). However, the acquirer and
FIN 48 will require companies to set up rigorous processes to identify,
its advisors may feel that the issue had only a 49 percent chance of
evaluate, and track all material income tax positions. One outcome
success, which would mean that none of the benefit should have
of these processes will be an inventory of tax positions that includes
been booked (i.e., the target should have booked a 100 percent
information regarding the nature of each risk, the dollar amount
reserve for the tax uncertainty).
at risk, the likelihood of loss, and the expected timing of the loss.
Though FIN 48 allows the FIN 48 accounting results to be presented
Despite these obstacles, most acquirers may find that obtaining
on a somewhat summarized basis in the financial statements,
the target’s detailed FIN 48 inventory is an excellent first step to
companies will clearly have to develop information on a very detailed
understanding the major income tax risks that would be assumed
basis to support its assertions regarding its tax positions for auditors
if the transaction closes.
and regulators and to properly prepare its financial statements.

So how can companies utilize the information produced by

the FIN 48 process to their advantage in merger integration Examples of uncertain tax positions
situations? The detailed “FIN 48 inventory” of tax risks of target Transfer pricing
companies may be an excellent resource for acquiring companies Will the IRS allow a deduction associated with royalties that a
to assess tax risk and allocate tax-department effort in all phases company pays to its foreign subsidiary for use of that subsidiary’s
of the transaction. patent rights? If so, how much of the amount will the IRS allow
as a deduction?
Before signing
In the pre-signing phase, the ability to review a target’s FIN 48 Tax-advantaged structures
detailed inventory of UTPs may expedite tax due diligence efforts. Does the target company have any internal structures that
The nature and the size of the items in the inventory may shed provide significant tax advantages (such as intellectual property
considerable light on the target company’s attitude concerning tax holding companies, procurement companies, and hybrid
planning, helping the acquirer understand whether the target was entities)? If so, were they properly established and maintained?
aggressive or conservative in its prior tax planning practices. Of
course, there is no legal requirement that forces a target to give any Nexus
particular piece of data, including its FIN 48 inventory, to an acquirer’s Will a particular U.S. state be able to force the company to file
due diligence team. However, the harder the target resists sharing its returns and pay tax in the state, even though the company’s
FIN 48 inventory, the greater an acquirer’s likely interest in obtaining physical activities are very limited in that state?
it. The accompanying sidebar describes several tax risks that an
acquiring company may want to note in a target’s FIN 48 inventory. Research credit
How much of the salaries of personnel involved with developing
an innovative product will be eligible for a research credit?

Charitable contributions
What was the fair market value (and therefore the tax deduction)
of a contribution of a parcel of land to a local charity?

44
 Integration – Synergies & Cost Reduction

After signing and before deal close

After signing the deal but before closing, each company’s FIN 48
Rationalizing FIN 48 approaches
inventory may help the integration team prioritize tax department As with any other business process, companies undergoing
efforts. In this interim period, each company’s tax function may spend a merger or acquisition will need to agree on a single
some proportion of its resources defending prior-year tax positions consistent approach to FIN 48 as part of the integration
against taxing authority challenges and some proportion of its process. The following are two specific FIN 48 considerations
resources working to legitimately minimize the combined company’s that should be considered:
tax position in the future. The difference between the activities of the
pre-close period and day-to-day operations is that merger integration Consistency in issue measurement
may offer substantial tax-saving opportunities not usually available To the extent that the acquirer and the target have similar
at other times. Having a quantified, risk-weighted inventory of tax positions, the combined company will want to take a
exposures may help the integration team company decide how to unified approach to the evaluation of technical merit on
allocate both companies’ tax resources between dealing with existing such issues. For example, if both legacy companies have
exposures and taking advantage of new opportunities. similar intellectual property holding company structures, and
both conduct business in a particular state, the combined
As an example, suppose the integration team has determined that company’s decisions as to how to report UTPs related to these
the combined company’s supply chain will need to be substantially holding companies for the overlapping state should be similar
redesigned. With the knowledge that proper advance planning unless there are important factual differences.
may help improve the tax efficiency of the new supply chain, the
integration team may want to recruit tax professionals from the Consistency in units of account
legacy organizations to help work on supply-chain issues. However, The FIN 48 rules provide guidance for determining the
the integration team should also consider whether the potential gain “unit of account,” which essentially determines how many
would be worth giving up the “defensive” projects each company’s separate tax issues must be tested under the standards of
tax personnel are already pursuing. By examining the FIN 48 FIN 48. For example, if a company is claiming a research
inventory of existing exposures, the integration team and the legacy credit for the performance of four separate research
organizations’ tax departments may be able to decide the resource projects, the company must decide whether these four
levels each company should allocate to each type of activity. projects are one tax position or four tax positions. A
company may even decide that the individual expenses
for each project are separate units of account. Selecting a
Post-close larger or smaller unit of account can affect the outcome
In many cases, the tax functions of the legacy companies may not of the computations: for example, while it might not be
immediately integrate after a merger or acquisition. Each group more likely than not that the whole research credit claim is
often continues to defend its own legacy issues to taxing authorities accepted by the IRS, it might be more likely than not that
for some time: legacy target tax professionals defend old target tax the IRS will accept two of the four projects as qualifying for
issues, and acquirer tax professionals defend old acquirer issues. the credit. To the extent that an acquirer believes that future
tax audits will challenge the combined company in a similar
To some extent, these practices make common sense, as each manner (such as through a consolidated audit process),
legacy company’s tax professionals are already familiar with their the integration effort should attempt to define each legacy
own company’s tax controversies. However, if one of the legacy company’s units of account in a consistent manner.
companies has much greater tax exposures than the other, it may
be prudent to reassign the combined organization’s tax department
personnel to the areas of most pressing need. The FIN 48 inventories
of both companies may help the new organization’s tax function
effectively allocate resources among legacy tax risks.

The moral of this story is to avoid falling into the trap of treating
FIN 48 as merely another compliance exercise. While it may require
a certain amount of monetary and resource effort to bring your
processes in line with its new requirements, FIN 48 may also provide
valuable information that can make transaction integration efforts
faster and more successful.

45
 Making the Deal Work

Integration – Customers,
Markets & Products

Program Management

Synergies & Cost Reduction

Customers, Markets & Products

M&A Target Due Transaction Integration Divestiture 360o Communications

Strategy Screening Diligence Execution

Organization & Workforce

Functional Integration

Location & Facilities

46
 Integration – Customers, Markets & Products

Achieving integration value

through customer and
market focus
By Jessica Kosmowski and Kimberly Christfort

The following eight tips help companies navigate by gearing around

Introduction critical activities for customer-facing functions (Marketing, Sales,
No big surprise, mergers are tough. Ballooning integration activities Service, and Channels), by addressing integration as two parallel work
pull focus away from day to day business. Aggressive competitors streams – one immediate and operational, the other longer-term and
lure customers away from prime accounts. Shifting roles and cross-functional, and by focusing on actionable steps linked to overall
accountability complicate decision-making. The list of challenges deal goals. Each tip offers perspectives on the essential elements
quickly stacks up. necessary to chart a successful course. Happy sailing.

Yet often in the haste to merge and move beyond these challenges, Tip #1: Forget the silver bullet and focus on the silver lining
companies not only exacerbate the problems but worse, miss
Unfortunately there is no silver bullet, cure-all, works-every-time
opportunities for long term value generation associated with
approach to merge effectively. At the end of the day decisions about
effective customer, market, and product strategies. In an analysis
how quickly to integrate, how much to change, and what messages
of recent M&A deals, insufficient focus in these strategic areas was
to emphasize boil down to the sad but true words – “it depends.”
directly related to lack of merger success, while effective approaches
typically yielded double-digit improvements in revenue and margin
This is especially relevant in the realm of customer, market, and
growth over baseline .
product factors, where integration strategy will vary dramatically
based on type of value being pursued (revenue growth versus
Such financial improvements are related to a range of near and long
operating efficiency), deal rationale (product expansion versus
term impacts, including:
industry convergence, etc.), and context (internal cultural factors,
• Driving more efficient customer interactions and
external competition strength, etc.).
go-to-market model
• Tapping new markets through product and service innovation
But despair not. Despite the lack of a single “right” answer,
• Building sustainable competitive differentiation
there are countless insights that can be gleaned from previous
• Pursuing value oriented customer management
successful and failed mergers to inform development of an
• Achieving both growth and efficiency synergies
appropriate integration approach. Here are three main categories
of “silver linings” to consider:
But remember that expanding list of challenges? How can
companies realize the benefits of customer, market, and product
1. Identify common integration activities and then systematically
plays while negotiating the turbulent waters of integration?
customize for the situation to build early momentum
2. Peak under the sheets of other deals; while this may not provide
all the answers it will firm up what questions to ask
3. Take note of how other deals managed (or failed) to balance
both revenue and margin drivers of value; focusing solely on
operating efficiencies short-sells deal potential.

47
 Making the Deal Work

Tip #2: Keep your eye on the prize like size. This combined segmentation model can and should cascade
into targeted go-to-market effort definition, including:
The old adage holds true: it is always easier and cheaper to retain a
customer than acquire a new customer. While always a challenge,
• Overall resource allocation
customer retention issues are compounded to potentially dangerous
• Sales and Service Delivery: sales targets, sales coverage, channel mix,
proportions during a merger. Customers are too often put on
• Marketing: customer messaging, targeting, new value proposition
the “back burner” during an integration in favor of focusing on
• R&D: product innovation efforts
what seem to be more operationally pressing issues. Yet studies
have shown that laggards in retaining customers during merger
When approached systematically within the context of new company
integration can cost the organization up to 50% of revenues over
objectives, this revised go to market approach can set the basis for
the four years following the merger .
lasting competitive advantage, without disrupting business momentum.
During the turbulent times of a merger customers become anxious,
Tip #4: Rationalize products around customer rationale
the competition is ready to pounce, and employees are distracted
by a million things that need to get done before Day 1. To avoid Complex decisions around which products to keep and how to set
potential pitfalls during integration, be explicit in orienting around, price during a merger integration can be maddening. Furthermore,
and proactively managing the customer experience. Four tactics help to make these decisions quickly seems nothing short of impossible.
to protect the customer, the very asset that will ultimately make the Keep sane by remembering that as important as internal efficiency
merger successful: is, company appearance and perception is equally so. Three useful
tactics help address both priorities:
1. Talk to customers early and often, even if not all the answers
are available 1. Concentrate first on eliminating product overlap based on
2. Draw upon both internal and external sources to customer and market requirements, not internal drivers
determine customers’ needs and proactively address them 2. Look to non-customers in addition to the current base to
3. Create playbooks for consistent but differentiated build a longer-term roadmap of market-sustaining and
customer interactions market-creating products
4. Establish a customer war-room as the central point for 3. Announce product roadmaps as early as possible while
issue resolution remaining cognizant of legal ramifications

As a matter of fact… As a matter of fact…

To ensure the customer was kept first and foremost during To ease the minds of customers worried about product
a recent $4 billion deal, the acquiring company enlisted a assimilation and ongoing support disruption during one of
dedicated Customer Experience Team to deploy tactics such as the largest software mergers in history, support timelines were
building a customer war room, writing a customer interaction announced up to 10 years out. Furthermore, a comprehensive
handbook, and authoring customer experience guidelines to product roadmap was developed in collaboration with customers
properly arm all customer-facing functions for Day One. to illustrate how and when products would be melded.

Tip #3: Maintain business continuity, not business as usual Tip #5: Take advantage of price before your customers do
Merger rationale is founded on the principal that one plus one
During a merger, customers have a unique power to jeopardize
can somehow equal more than two. Although most organizations
profit streams by benefiting from pricing inconsistencies wherever
realize that continuing the status quo won’t achieve these
they can find them, including list prices, discounts, rebates, and
arithmetically defiant results, change is easier recognized than done.
promotions. Why? Because they can. Because these days, customers
have access to incredible amounts of comparative information, all
A successful merger requires the organization to revisit, among other
with a few Internet clicks.
things, core questions about how it goes to market, from what the
company is selling and how, to who the company is selling to. To do
But luckily, companies have access to this same information – more,
this, organizations often need to review customer segmentation and
theoretically. So as a starting point, organizations should make it a
change core aspects of what is done “today.” The new segmentation
point to know at least as much about prices as customers do, and
should reflect the “jobs” of the customers the new company is
proactively identify and mitigate pricing inefficiencies.
targeting, rather than traditional categorization based on attributes
By looking at pricing as an chance to optimize prices, not just mitigate
pricing issues, companies can recognize tangible bottom line benefits
both near and long term while facilitating a smoother overall transition.

48
 Integration – Customers, Markets & Products

Thoughtful analysis of these key integration drivers is the bedrock

As a matter of fact… foundation to addressing both the operational and revenue
synergies that are crucial to achieving the full potential of the deal.
To maximize the opportunity created by the expectation
of change, a financial services firm that chose to centralize Tip #8: Resist temptation
the pricing function and establish pricing strategies during
integration saw a 12% average price increase and a 1% When so much is changing already, why not change a little more?
volume increase, resulting in over $22M addition to the Considering a new CRM system? Want to launch an online sales
bottom line of the merger. model? Whoa, rein things in quickly!

Loose integration management that lacks focus can be a costly

Tip #6: Make sure your resources get what they need or your mistake. Merging companies need to think hard about what is
customers won’t really “fundamental” for Day 1, prioritize what matters most and
align those priorities with the merger objectives. Use workshops
Renowned scientist Maslow contended that individuals’ most
and small action teams to define focus, and give the vision teeth
fundamental needs must first be met before they can focus on higher
by putting accountability and metrics around execution, such as
order concerns. At few moments in business is this theory more relevant
number of customers contacted by a specified date. Finally, pursue
than during an integration. Indeed, at the precise point that employees
two parallel tracks for work effort to ensure focus on forward
need to focus on the merger, they are distracted by concerns such as
looking customer, market, and product activities in addition to
compensation, new organization structures, and their own job security.
tactical functional integration:
To mitigate distraction, organizations can provide customer-facing
• Functional integration of Sales, Marking, Service, Channels
functions with basic information about their own situations to help
• Value optimization efforts of Product and Pricing Strategy,
them remain focused on the marketplace. Building self-service
Go-to-Market Strategy enhancement, Customer Experience
tools such as a Customer Facing Handbook can be invaluable in
and Communication
facilitating self-education and provides the document of record
for critical questions and topics. These self-service options can be
supplemented with a “real” resource that can answer questions Conclusion
about compensation changes, organization structure, training plans,
Yes, mergers are tough, and made tougher still by the need to
and hundreds of other details to create a feeling of internal stability.
focus on internal functional integration while planning forward
looking customer, market, and product strategies. Managing the
If basic employee needs are not met and internal stability established,
thousands of moving pieces is overwhelming to even the most
employees will be ineffective in meeting the needs of the customer.
savvy of organizations, but in this complexity lies both risk and
opportunity. Companies that insufficiently emphasize customer,
Tip #7: Recognize “must-do’s” for each function and make
market, and product approaches do not effectively meet deal
those table stakes
objectives, while those that do place appropriate emphasis see
There is a Catch 22 for mergers: synergies require significant significant impacts to both near and long term revenue and
integration of customer-facing functions, but inappropriate margin growth. The winners stay focused on the things that
or excessive functional focus detracts from overall deal value matter most, and don’t let the ticking and tying process distract
achievement. Striking the appropriate balance requires starting with from the core drivers of success.
the functional integration drivers that are fundamental to achieving
specific deal objectives, and addressing these drivers systematically While there is no one “right way” to integrate customer, market,
as early as possible to set the foundation for Day 1 and beyond. and product-related strategies and functions, eight tips serve as
a practical guide through the turbulent merger seas. These tips
Integration drivers vary from merger to merger however in general, can help organizations chart a course to more fully recognize the
companies need to carefully consider: financial benefits of a deal, and to sail as smoothly as possible
toward their desired point on the horizon.
• Branding
• Campaigns and Customer Programs
• Customer/Channel Programs Originally published in Controllership: The Work of the Managerial Accountant
• Forecasting and Sales Quotas (7th edition), 2007. Reprinted with permission from John Wiley & Sons.
• Account Management and Coverage
• Compensation Models
• Services Management

49
 Integration – Customer, Markets, & Products

Integration – 360˚ Communications

Program Management

Synergies & Cost Reduction

Customers, Markets & Products

M&A Target Due Transaction Integration Divestiture 360o Communications

Strategy Screening Diligence Execution

Organization & Workforce

Functional Integration

Location & Facilities

50
 Integration – 360˚ Communications

Taking the lead during a merger

How leaders choose to communicate during a merger is key to
realizing the value of the deal
By Cydney Roach

In the current climate of merger mania, the reality is that the • Win confidence from leaders by presenting metrics that demonstrate
majority of mergers will not live up to expectations and many the importance of communication with data derived from focus
will fail altogether. Most often this failure is not attributable groups or change-readiness surveys.
to the structure of the deal, but to cultural conflict and poor • Most of the leadership on the core integration team comes from
communication1. The key, says Cydney Roach, is strong leadership finance or operations. If you can provide percentages and charts,
communication from day one. they’re going to feel better about what you’re purporting than if you
approach them with a broad-based narrative for communicating.
How leadership chooses to manage and communicate the people • Explain you’ll need their buy-in to push the kind of messages that are
component of M&A change is key to maximizing the value of truly strategic, and that managers will then cascade those messages,
the deal. Employees are, after all, those who will implement the adding more granular detail and tactical execution instructions to
changes to realize the merger vision. As top industry surveys have augment them.
proven2, of all the human capital issues involved, communication
ranks as the top critical driver of merger results. Finally, offer leaders the following list of guiding principles when they
formulate their merger communication strategy.
• Define a core message set – including strategic rationale for the
Why leaders fail to prioritize deal, a vision of the new company and key supporting facts –
So if communicating the vision and strategic rationale of the deal as early as possible.
to employees is such an imperative in capturing merger value, why • Stick to core messages, presenting one aligned identity to all
don’t leaders give it a higher priority in their merger responsibilities? stakeholders, internal and external.
• Unlike many other merger related leadership activities, • Be highly visible and especially communicative from the moment
communicating with employees isn’t a legal requirement. the deal is announced.
• When leadership time is being allocated during a merger, • Explain the line of sight between merger goals and what
communicating regulatory compliance and presenting the deal employees can do to help.
to the financial community and all external stakeholders takes • Manage employee expectations and establish credibility with
highest priority. open, honest communication; painting too a rosy a picture of the
• At the best of times, leaders can be reluctant communicators. integration process will create more obstacles than achieve ends.
Given the intense time pressures that prevail during mergers, • Face difficult issues such as workforce reduction squarely and
they’re quick to find reasons to allow internal communication candidly.
responsibilities to slide. • Don’t avoid communicating if you don’t have all the answers.
• Executives can be even less inclined to communicate with • Establish or reinforce two-way communication and feedback
employees when they don’t have answers to many of the typical mechanisms; during this intense period of change, you’ll need the
questions employees have about their future, or when they input to measure how well the integration is being implemented
must deliver difficult messages related to workforce reduction, and how thoroughly the merger vision is being accepted.
a common reality of mergers. Of course, that’s precisely when • Create a positive sense of urgency to drive employees towards
leaders shouldn’t be silent. integration goals.
• Identify quick wins that will prove to employees that the
integration strategy is working. Communicate and celebrate
Better leadership visibility when those quick wins are realized and recognize those who
Here are some tips on how to facilitate leadership visibility in helped achieve them.
communicating and driving merger integration goals:
• Explain the value they can unleash in helping employees live the Ultimately, leaders need to be reminded that communication has the
change that will achieve these goals. power to drive the realization of integration goals.

Originally published in Strategic Communication Management,

Notes December 2006. Reprinted with permission.
1 IABC survey, 2002
2 The People Problem in Mergers, McKinsey Quarterly,
Number Four, 2000; IABC survey, 2002

51
 Making the Deal Work

The secrets of successful mergers

Dispatches from the front lines
By Don deCamara, David Carney, Diane Davies and Bruce Westbrook

The studies by academics, consulting firms, and the business press all
agree – mergers are just as likely to destroy as to create shareholder Northop Grumman/Litton Industries
value. Despite this track record, merger activity may be poised for a
rebound. The increase in the first half of 2003 in U.S. equity prices, In April 2001, Northop Grumman acquired Litton Industries
which have tended to move in tandem with merger activity over the last in a deal valued at $5.1 billion, including the assumption of
decade, suggests that the pace of deal-making is likely to pick up once $1.3 billion in debt. The acquisition of Litton provided Northop
again. A single day in October 2003 witnessed four deals valued at more Grumman with substantial additional capabilities in electronics,
than $70 billion, the largest wave of activity since the 1990s bull market. information technology, and shipbuilding. Northop Grumman
set a target of achieving $250 million in annual value from
How can companies entering a merger – especially those planning the merger synergies within three years, but exceeded this goal
largest, most complex mergers – improve their likelihood of success? ahead of schedule. At Northop Grumman, we interviewed
The list of merger best practices is familiar. Concentrate on synergies. Herb Anderson, vice president of Northop Grumman and
Integrate quickly. Maintain a focus on customers and revenue growth. president of the Northop Grumman Information Technology
Communicate continuously. Address human and cultural issues. sector, who was responsible for integrating Litton’s information
technology operations. We also interviewed Jon S. Korin,
Despite these well known prescriptions, roughly half of mergers fail to executive director for strategic development at Northop
create value, demonstrating how difficult it is to execute these tasks. Grumman Information Technology sector.
How have successful mergers worked? And what lessons can be
learned by other firms that are contemplating acquisitions?

To gain a first-person perspective on what makes for merger AmeriSource Health Corporation/Bergen
success, we interviewed senior executives responsible for integration
in three recent mega-mergers: Hewlett-Packard with Compaq,
Brunswig Corporation
Northop Grumman with Litton Industries, and AmeriSource Health AmerisourceBergen was created in August 2001 from
Corporation with Bergen Brunswig Corporation. the merger of the third and fourth largest distributors
of pharmaceuticals and related healthcare products and
solutions in the United States. The merger, valued at
Hewlett-Packard/Compaq approximately $3.8 billion, created the largest U.S. drug
wholesaler by revenue, with annual revenues in excess
Hewlett-Packard (HP) acquired Compaq in May 2002 for of $35 billion. The merger substantially increased the
approximately $19 billion in one of the largest and most heavily buying power of the combined firm and offered significant
publicized mergers in history. Although it set an objective of opportunities to increase efficiency through economies of
$2.4 billion in cost reductions by November 2003, the combined scale. AmerisourceBergen is ahead of schedule in achieving
firm achieved $3.7 billion in annualized savings within a year of its targeted $150 million in cost savings by the end of fiscal
closing the deal. The company has also picked up new business 2004. We interviewed Terrance P. Haas, senior vice president
in such areas as basic servers and computer services. Integration for operations at AmerisourceBergen, who played a central
has proceeded so smoothly that the firm announced that it role in managing the integration of the two firms.
plans to wrap up the merger integration process in 2003, one
year ahead of the original schedule. To understand the process
behind the merger, we interviewed Barbara Braun, vice president
for merger integration at HP.

52
 Integration – 360˚ Communications

Here’s how these three companies successfully turned detailed roadmap laying out what needed to be accomplished in every
merger best practices into reality. area of the company, who was responsible, and when it had to be
completed. Since the merger closed, we have basically been executing
this roadmap like clockwork.”
Identifying synergies
Successful mergers start with a clear understanding of the synergies In developing its integration plan for the merger with Litton, Northop
they hope to capture. The merger strategy not only has to be Grumman benefited from its experience in integrating more than
clear to senior management, it needs to be clearly articulated and a dozen acquisitions in recent years. Today, of the firm’s 120,000
communicated to the executives engaged in pre-merger planning employees, only 16,000 were originally employees of either Northop or
and in post-merger integration. While cost reductions are usually Grumman; the rest have joined the firm through its acquisitions. “We
one factor, most successful mergers are motivated by a vision of have honed our merger integration process over a series of acquisitions,”
how the combined company will be better able to increase revenues said Anderson. “In the Litton merger, we literally had hundreds of tasks
and gain market share than either company could on its own. that we managed each day, with detailed schedules, Gantt charts,
tracking of milestones and action items, quantitative goals, and so forth.”
The principal motivation for the merger with Litton Industries was to
fill gaps in Northop Grumman’s capabilities. “Northop gained new While speed is important, Terrence Haas of AmerisourceBergen
capabilities in shipbuilding, electronics, and information systems,” stressed that proper timing of integration is essential. “You certainly
said Herb Anderson. “It has strengthened our position in a defense need to have the senior management in place as soon as possible.
marketplace that has moved from being a ‘platform-centric’ However, if you appoint executives below the management level
world based on products to a ‘network-centric’ world based on before having an integration plan, they will making decisions
technology. The merger has made us a Tier One A&D company that without knowing firm’s future operating model and may
can now compete on almost any government project.” accidentally delay capturing the full value of the merger. Once the
future operating model has been defined, executives at lower levels
Gaining increased capabilities was also an important rationale for can be named and start executing against it.”
the HP merger with Compaq. In addition to cost reductions, the
merger was designed to enhance HP’s ability to serve the needs
of both business and public-sector customers, and improve overall
Consider clean teams
profitability. “Our goal in the merger was to blend HP and Compaq Mergers of major firms that compete in the same markets face
together holistically to create a company that would be stronger an additional barrier since antitrust rules in the United States, the
than the two companies were on their own,” said Barbara Braun. European Union, and many other locations prohibit companies from
sharing confidential information about their business practices until
The principal motivations in the AmerisourceBergen merger were to a lengthy regulatory review process has been completed. This can
expand the reach of the combined firm, while achieving economies make it difficult or impossible to develop integration plans until
of scale. “AmeriSource had a strong distribution network and market regulatory approval has been secured.
penetration on the East Coast, while Bergen was strong on the
West Coast,” explained Terrance Haas. “By bringing together the To develop an integration plan despite the restrictions, HP created
two organizations, we increased our market share, while creating a “clean team” of employees of both organizations, who shared
substantial opportunities to lower fixed costs and eliminate overhead.” confidential information about the two firms. “We created a clean
team of people who were legally isolated in the pre-merger state
from the rest of the two companies. Senior leaders were literally
Accelerating integration taken out of their day jobs and assigned to the clean team to plan
In mergers, speed is critical. While it is important to integrate well, the new company,” said Braun. “We kept the clean team relatively
it is just as important to integrate quickly. Firms that can burst from small since its members would have been contaminated by insider
the starting gate are most likely to succeed. information and could have potentially lost their jobs if the merger
had not gone through.” The use of a clean team allowed HP to
Here are some of the key factors that allowed these three firms to complete detailed integration plans before the merger close.
rapidly integrate their acquisitions.
In contrast, Northop Grumman’s practice has been to begin
planning for integration early in the due diligence process.
Early, detailed planning Joint teams, typically put in place only after regulatory
At HP, a detailed integration plan was developed long before the approvals, are then able to hit the ground running.
merger closed. “The HP – Compaq plan was incredibly detailed and
comprehensive,” recalled Braun. “We asked ourselves: What would the
new organization structure be, overall and in all its details? What would
Direct senior management involvement
the product lines be? Who would manage the largest accounts for the Active senior management commitment has proven critical to
new company? What would the top management structure be? Which rapid merger integration. “There was a very firm, unwavering
business processes would be used? Which IT systems? The result was a commitment from senior management, including the CEOs of

53
 Making the Deal Work

both companies to plan and drive the merger forward as quickly At AmerisourceBergen, functional teams were responsible for
as possible,” said Braun. “HP’s head of sales and marketing for comparing both the productivity and the operating costs of each
business accounts and Compaq’s CFO were each pulled out of business process. “The goal was to choose the most productive
their usual job to focus on merger integration.” processes and then place them in locations that allowed the lowest
per-unit cost,” explained Haas. “If a team decided that the Bergen
As president of Northop Grumman Information Technology, process was more productive, but the AmeriSource per-unit rate was
Herb Anderson was directly involved in the integration of Litton’s lower, then we made the decision to adopt the Bergen process, but
IT operations. “I appointed a vice president of one our business place it in the AmeriSource location.”
units, who reported directly to me, to run the integration of Litton.
Under him, a director managed the process day-to-day working Central to this approach is resisting the tendency to choose IT
with a team of about two dozen people who worked on the systems or products based on tradition, politics, or personalities.
merger integration practically fulltime.” “HP worked to make the decisions more objective and less based
on emotions and consensus,” said Braun. “If we had something
Senior management played a critical role in committing Northop from HP and something from Compaq, we asked: Which one is
Grumman to an aggressive completion date. “The key to moving objectively the best? For example, which is the market leader or
quickly is being date-driven,” said Jon S. Korin. “The conventional has the most features?”
approach is to ask how long it will take to solve a problem, and the
result is usually a protracted schedule. Northop Grumman took a Herb Anderson also stressed the importance of making decisions
different approach. We set a date for completion and said, ‘Let’s on the merits. “We make sure that the discussion is objective. We
figure out how to accomplish that.’ For example, in only 60 days don’t talk about people. We only talk about capabilities. And we
we created a new structure for working with the government. It’s ask the participants to focus externally, not internally. What does the
amazing what can be achieved when you are committed to a date.” marketplace want today and where is it headed in the future? How
can we become more effective by combining our capabilities?”
Senior management involvement was also key at
AmerisourceBergen. “Right from the beginning, we had our
executive team in place and they were of one mind on where the
Serving customers despite a merger
merged company needed to go. We had a steering committee The fundamental organizational changes created by a major
composed of the CEO, COO, CFO, president of our drug company, merger create a risk that customer satisfaction and sales will suffer.
president of our specialty group, and the heads of human resources Employees tend to focus inwardly on integrating business processes,
from both firms. This steering committee of senior management IT systems, and product lines, rather than on serving customers and
was closely involved throughout the merger in approving overall driving revenue growth.
strategy and the vision for the merged company.”
“One of the biggest failures made by many mergers is not
paying enough attention to the businesses that they’re already
Adopt-and-Go operating,” explained Anderson. “To guard against this, Northop
All three mergers illustrate the benefits of choosing the best aspects has what we call the 80/20 Rule – aside from a small merger
of the two organizations when integrating, rather than spending team, no manager ever spends more than 20% of his or her
time in an attempt to design the perfect business process or system. time on the merger. The remaining 80% of time remains focused
HP calls this approach, “Adopt-and-Go.” “When it came to the IT on growing the existing business. That’s why, through all our
systems, business processes, and products lines of the two companies, mergers, we have continued to grow.”
we didn’t look to meld them into a brand new system,” explained
Braun. “Theoretically, this could have captured the best elements of A similar philosophy prevailed at AmerisourceBergen. “We had
each company’s approach, but in reality it was a prescription for delay. an integration office that handled merger strategy, supported
Instead, the HP – Compaq teams analyzed each company’s approach by a program office that managed day-to-day implementation.
to determine which one was superior. Then we simply adopted the These groups did all the ‘heavy lifting’ in bringing the two
better approach as the new standard for the merged company and companies together, allowing managers to continue to focus on
proceeded quickly to implementation.” our customers,” Haas said. One measure of the success of this
approach is that AmerisourceBergen was rated as the number
Northop Grumman took a similar approach. “We held joint one national pharmaceutical distributor in September 2002 by
meetings between Litton management and Northop management Goldman, Sachs & Co. for the third year in a row.
and put all the capabilities of the two companies on a board,”
said Anderson. “We chose the best capabilities without reference HP maintained its focus on customers by keeping sales and support
to whether they came from the old Northop or the old Litton. For professionals deployed in the field, rather than calling on them
example, Litton had an outstanding software engineering process to plan and execute the merger. A few senior sales management
that we adopted for the new organization.” executives developed integration plans for all selling activities,
leaving the large majority of customer-facing employees available to
serve customers and channel partners.

54
 Integration – 360˚ Communications

entity. “The easiest thing to do with culture is to simply choose one

Communicating the vision company’s culture as dominant,” said Braun. “However, we believed
Running throughout successful mergers – from strategy through it was important to get the best of both HP’s engineering culture
implementation – is the need for ongoing communication. and Compaq’s marketing culture. We wanted to blend the best of
Successful mergers communicate early and often to customers, both cultures to create a new culture for the merged company.”
employees, partners, investors, and the media.
Northop has taken a similar approach, seeking to build a common
“There’s never too much communication,” said Anderson. “Northop culture that retains the best elements of each legacy organization,
concentrated on communication throughout the organization under the banner – “Honor the past. Commit to the shared future.”
from me to the lowest-level manager. We used email, town hall
meetings with employees, videos, and a web site created for the AmerisourceBergen faced the challenge of bringing together
merger. My managers and I made personal appearances at our field two companies with disparate approaches. “AmeriSource ran an
offices. Our goal was to have our managers meet at least 80% of extremely lean organization, with little corporate hierarchy, and was
the employees. In the first week alone, I probably talked to 60% of organized by region,” said Haas. “On the other hand, Bergen had a
the new people from Litton. We tried to give our people as much deeper corporate infrastructure and was aligned centrally by function.
information as possible about the merger plans.” After interviewing executives in both firms to identify what was
working well and what could be improved, we decided to adopt a
At AmerisourceBergen, communications were managed centrally decentralized model that pushed decision-making and accountability
by the integration office. “Our communications plan identified as close to the customer as possible to increase responsiveness, while
the key messages, the internal and external targets, the media maintaining a low-cost operating philosophy. Our chief executive
we would use, and the timing of communications,” said Haas. officer and chief operating officer have played central roles in instilling
“All communications were either developed or approved by our this culture throughout the new organization.”
integration office to ensure that there was consistency in the
messages that we were communicating to our employees, to A key element is building the sense among employees of both
customers, and to investors.” organizations that they are now members of a single team. “Not
only did the planning process help Northop identify the best
The effort at HP indicates the enormity of the task. According to processes, capabilities, and people from the two organizations, the
Braun, “before the merger closed, we trained the top 1,000 leaders very process of analyzing the capabilities of the two companies in
across the company around the world. Then employees were trained a group process started us on the path of building the new team
in both customer-facing and internal activities so that everyone needed to execute the strategy developed,” said Anderson. “It was
was ready on Day One to answer any questions that arose from apparent to everyone that the resulting organization was a real mix
customers. Finally, we held roughly 17,000 team meetings across the of the best of Northop and Litton. By participating in this process,
world to present the new organization, roles, and responsibilities.” people are personally bought into the result.”

To be effective, communications need to be based on a realistic

assessment of the facts, rather than being overly optimistic. This Integrating the lessons
is especially critical with employees, who are concerned about The experience of HP, Northop Grumman, and AmerisourceBergen
their jobs. “The enemy is uncertainty,” said Jon Korin of Northop illustrate the practical realities of implementing merger best practices.
Grumman. “People can deal with change. But when there is ‘Adopt-and-go’ planning, clean teams, direct management of
uncertainty about what the future holds, it hurts productivity.” integration by senior executives, and the 80/20 rule to ensure
that executives remain focused on meeting customer needs are a
few of the specific strategies that proved successful in these three
Getting a handle on culture megamergers. While each situation is unique, firms contemplating
While most firms recognize the critical importance of human and acquisitions can draw lessons from the hands-on experience of HP,
cultural issues in a merger, these issues are especially hard to analyze Northop Grumman, and AmerisourceBergen in successfully managing
and quantify. The first step is to maintain morale by addressing large, complex mergers where so many others have failed.
employee concerns about benefits. Unless care is taken, employees
can spend more time worrying about their jobs and benefits than
about sales and customer satisfaction. “The biggest questions Acknowledgements
asked by employees are always about benefits,” said Anderson. Deloitte Research is grateful for extensive contribution and
“We addressed these issues up front. We told employees that for time to this viewpoint from Herb Anderson and Jon S. Korin at
a specified period benefits wouldn’t change. While benefits would Northop Grumman, Barbara Braun at HP, and Terrance P. Haas at
change over time, with some going up and some going down, we’ve AmerisourceBergen.
found that they will end up at pretty much the same level overall.”

Successful mergers also need to think clearly about the business Originally published in The Journal of Business Strategy, 2003.
Reprinted with permission.
culture of the new entity. Firms need to conceive the desired end
state, the ideal culture they are looking to create for the new

55
 Making the Deal Work Integration – 360˚ Communications

Integration – Organization & Workforce

Program Management

Synergies & Cost Reduction

Customers, Markets & Products

M&A Target Due Transaction Integration Divestiture 360o Communications

Strategy Screening Diligence Execution

Organization & Workforce

Functional Integration

Location & Facilities

56
 Integration – Organization & Workforce

The myth of the black box

Corporate culture is serious business –
how building it can build your bottom line
By Stephanie Quappe, David Samso-Aparici and Jon Warshawsky

This finding builds on J. Kotter and James Heskett’s landmark 1992

Executive summary study,2 which revealed that over a 10-year period, companies that
intentionally managed their cultures effectively outperformed
Achieving a high-performance culture deserves to be a top similar companies that did not. Their findings included revenue
agenda item for every company hoping to stay competitive – growth of 682 percent versus 166 percent; stock price increases of
or even stay in business. Yet many companies wrestle with the 901 percent versus 74 percent; net income growth of 756 percent
notion of culture and its relationship to hard business results. versus 1 percent; and job growth of 282 percent versus 36 percent.3
What some dismiss as a soft or strictly “HR issue” can, in fact, Additionally, companies listed on Fortune’s 100 Best Companies to
be an important driver of financial results and an element of Work For further demonstrate the concept that companies with
other key business issues, such as ethics, talent acquisition effectively managed cultures significantly outperform the S&P 500.
and management, and innovation fueled growth. An effective
high-performance culture does not happen in a mysterious Culture similarly can take on increased importance in large
black box; it usually stems from a company’s overall business corporate mergers and acquisitions, where an estimated 30 percent
strategy, can gain strength through its symbols and behaviors, of integrations get stuck or fail outright as a result of cultural issues.
and is typically reinforced by day-to-day systems and processes. Disparities in corporate culture, as well as the tendency for one
These factors tend to be controllable, and all generally culture to become dominant, create a “win-or-lose” mindset that
contribute to – or detract from – a company’s performance. injects a good dose of mistrust into an already complicated process.4

Why culture matters Culture as a driver of business results

Culture tends to be something of an enigma in the study of Beyond the hard numbers, culture can play a prominent role in several
companies. Everyone agrees over cocktails that culture is important, key issues that top business leaders’ agendas. Ethics, which has
and, of course, hopes their company has a “good” culture versus a become something of an obsession in the wake of the Enron fiasco
“bad” culture. For all of its implied significance, however, cultural and the resultant Sarbanes-Oxley Act, hinges on effective controls,
change tends to rate alongside tarot card reading and astrology in proper systems, and – most important – a culture that values ethical
terms of credibility. It lurks in the unfortunate category of “soft” behavior and discourages dishonesty. If ethics can be defined as what
issues that leaders can’t quite discard for the nagging sense that one chooses to do when no one else is watching, then culture can
there may actually be something there, something that may hold be a significant predictor of ethical – or unethical – behavior. Building
too much importance to dismiss out of hand. systems and controls as a sort of scaffolding around a dysfunctional
company can be an (expensive) exercise in futility.

The hard truth Business publications also are full of stories about the war for talent
In fact, culture is not a “soft” issue driven by cheerleading, posters and innovation as a driver for growth. Jeff Rosenthal and Mary Ann
or picnics. Culture can be defined, and it generally develops out Masarech put a finer point on it:
of tangible (and controllable) characteristics within a company
– not in a murky black box. Moreover, its implications for corporate Organizations depend on innovation for growth and high
performance are real and can be significant. Recent research from performance, which in turn depend on employee initiative,
Denison Consulting concludes that companies demonstrating higher risk taking and trust – all qualities that are either squelched or
levels of performance in key areas of corporate culture – including nurtured by an organization’s climate.5
adaptability, consistency, mission, and involvement – deliver better
results when it comes to return on assets, sales growth, and
increased value to shareholders.1

57
 Making the Deal Work

Moreover, they add, people are increasingly looking for more from
their employment than a paycheck. Some “sense of purpose” and
Not a roll of the dice
camaraderie, even joy, fit into many workers’ notion of a great job, and The crux is this: A high-performance culture can be a
projected demographic trends suggest that retaining top talent will competitive weapon and one leaders can actively manage.
become increasingly important as the talent pool – and workingage Culture should not be something that simply happens and
population as a percentage of the total population – diminishes. If a through some miraculous roll of the dice turns out in a way
company wants to attract and retain the best and the brightest, culture that works for us. It is the product of behaviors, symbols, and
once again emerges as something that truly matters. processes, which should be controllable and which contribute to
– or detract from – a company’s performance.
And as for the genius of innovation, clearly the one percent spark
of inspiration is nurtured by a positive culture. But, the 99 percent
perspiration ingredient comes from employees who love what they
Anatomy of a high-performance culture
do, as well as where they do it, and who invest that Holy Grail of Everyone wants a high-performance culture – one that gets the job
productivity called “discretionary effort.” We believe that the spark done while attracting the best and the brightest – but just what is
and commitment of employees in these “good” cultures are a big it? Not all definitions agree, but behaviors, symbols, and processes
part of what drives extraordinary results. are common elements.

Figure 2. Elements of a High-Performance Culture

• Decisions of senior leaders and key influencers

• Daily interactions of employee and managers
(i.e., one on-one in teams, and in larger forums)
• Messages to peers, internal customers, and suppliers
• Individuals decisions regarding “discretionary effort”
• Statement and practices

Behaviors

• Resources invested (i.e., time • Goal setting and budgeting

money and emotional labor) • Reporting and measuring
• Office layout Values • Human resources policies/practices
• Span of control and Beliefs • Communication and employee feedback
• Informal rewards and recognition • Compensation
• Branding • Organization design

Symbols Systems

Business Strategy

58
 Integration – Organization & Workforce

A high-performance culture is “an integrated set of management Often, efforts to change culture solely through recruiting or a flashy
processes focused on extraordinary performance,” according to Dr. communications campaign miss the point, as do the frequent
John Sullivan, professor at San Francisco State University and noted horror stories about companies implementing performance tracking
strategic human resources author. What it’s not, Sullivan adds, is a software to “solve the culture problem.” There’s usually more to
corporate culture in the traditional sense, encompassing such things the mix, and companies need to effectively use the ingredients they
as values and beliefs have at their fingertips – behaviors, symbols, and systems.

When Kotter and Heskett examined the causality of corporate

culture and performance in the late ’80s, they divided culture into
Unlocking the black box
two parts: (1) the pattern of shared values and beliefs that helps We believe that a high-performance culture, one that meshes with
individuals understand organizational functioning (invisible) and (2) business strategy, will emerge from consistent and appropriate
those conventions that provide them with norms of behavior (visible).7 decisions on those aspects of the company that are anything but
In the authors’ view, because behaviors manifest themselves in such “soft,” i.e., behaviors, symbols, and systems.
decisions as how to invest the company’s resources, it makes sense
to add symbols and systems (processes and infrastructure) to the Tip #1: Look before you leap – link strategy and culture
equation as visible drivers of culture. In short, the model used in this
Before diving into the churning waters of cultural change, it’s
paper (Figure 1) combines Sullivan’s description of a high-performance
important to take a step back and question the purpose. What
culture with Kotter’s observations regarding the importance of
sort of culture is most in line with the company’s strategy and, as
behaviors. The interplay among all of these elements – values and
important, how does this compare to the way things are done now?
beliefs, systems, behaviors, and symbols – set against the backdrop of
How do we understand where we are today?
business strategy, represents a company’s culture.
As an example, at a Medicaid agency in the Northeast, an initial
The leg bone’s connected to the ankle bone… survey found employees giving low marks to virtually every cultural
attribute, marking the distance between actual and ideal as quite
and so on large. Culture assessment tools can help to map present and
In a high-performance culture, values and their visible expression desired-state culture as a way to get to a focused list of desired
in behaviors, symbols, and systems are inextricably connected. It is behaviors. Comparing today’s cultural attributes to those desired
not enough to focus on systems in isolation or simply to print more shows where the biggest bang can come from when changing a
posters about values with no credible incentive for behavioral change. company’s behaviors and culture.
Symbols are equally integral to establishing and maintaining culture.
How many employees get mixed messages when the company’s new But companies don’t get paid for finishing at the top of the annual
cost-savings initiative is promoted during an expensive corporate culture awards: They meet or exceed their business objectives by
event? Or worse, during an event they are not invited to attend! gaining market share and becoming more profitable. And while
culture is clearly influenced by outside factors (e.g., competition,
The actual culture of a company is most often revealed when industry structure, and 3 technological change), it also is an aspect
observing how individuals approach and complete tasks and of the company that should be consciously managed with an
activities. This depends on decisions made in line with business eye toward improving the company’s ability to meet or exceed its
strategy and can sometimes differ from officially declared business objectives.8
values. As discussed above, how employees choose to expend
discretionary effort on behalf of the company is a direct reflection
of the culture, either high-performing or not. Consider another
common scenario: A company implements the latest human
resources information system (HRIS) or enterprise resource planning
(ERP) system only to find employees resisting the new way of
doing business. The clash becomes much easier to understand
when viewed in light of the inherent behaviors and symbols of the
company, which (surprise!) are still supporting and rewarding the
old ways of working. This is where systems and process change
should go hand in hand with culture change in the future.

59
 Making the Deal Work

In one case, Deloitte Consulting LLP (Deloitte Consulting) provided

a national bank with survey research results on banking industry But which type of culture?
“success” factors. This information was used as a basis for
helping the bank in its efforts to assess its current culture and to Given the connection between culture and strategy, it is easy
determine how the bank’s culture fit its strategy. Tangible metrics to overlook the most basic decision: Which type of high-
were identified, among them attrition and acquisition, and that performance culture makes sense for a company? Which type
data can help provide important insights into deficient processes of culture most effectively supports the business strategy?
and/or strategies. This information can help suggest which cultural
attributes have a direct correlation to how effective a company is in No one pretends that an innovative, collegial culture would
reaching the goals associated with its strategy. work in the military. Yet esprit de corps is synonymous with the
word “military,” and initiative and creativity on the battlefield
In the banking survey above, those customers whose attitudes often are essential to victory. Corporate leaders often fall into
toward their bank were ambivalent, and those who were vulnerable the trap of simply designating every positive attribute as one to
to switching, listed such items as “high switching costs” and strive for without thinking about context, purpose, or overall
“location and access” as leading reasons for remaining with their strategy. Choosing everything is effectively a non-decision.
bank. At first blush, these seem good enough reasons and may (Everyone prefers a nurturing, collegial, responsible, zealous
even reflect an advantage in real estate and breadth of service. At culture over a conniving, clock-watching, distrustful one.)
the same time, however, the third group, the loyal customers, rated Or, leaders might specify incompatible attributes, which will
“customer service” as the overriding attitudinal factor. This has cause implementation problems as a result of, again,
clear cultural ties. Moreover, such advantages as fees and locations ignoring context, purpose, and strategy.
are fairly easy for a competitor to emulate. But, culture change
doesn’t occur overnight, and a bank whose culture is conducive Much as professional athletes focus on one sport, companies
to a significantly better customer experience has a competitive that achieve effective cultural change focus on a few key
advantage that is not easily copied.9 attributes instead of chasing them all. Given the different
positive aspects of culture that can position a company to
As even this brief example suggests, culture is an issue that extends achieve its desired goals, the key question is how they can be
well beyond the HR department. There is a danger in confusing integrated into day-to-day use. How can employees “do” the
culture with morale, or any other narrow measure. We believe new culture? It is first essential for leaders to define the desired
that culture has an enormous influence on how a company does culture in terms of values and aspirations, and then further
business, and in defining how a company should conduct its describe it in terms of real behaviors that drive role clarity and
business. This is certainly a matter of strategy. And for culture to be accountability within the company.
competitive, it must find its source in this strategy.
For example, if a company’s culture aspires to be more collegial,
employees need to know exactly what that means. If this is an
2. Gather strength and reinforcement from aspirational behavior, then employees must not be good at it
today. The company should describe what it means to be collegial
symbols and behavior through behavioral examples, both positive and negative. If an
A possibly apocryphal story relates the tale of a woman who shows employee calls a meeting and distributes materials and an agenda
up at an upscale department store and demands a refund for a set in advance so team members can be prepared to discuss and
of defective tires. Of course, this store doesn’t sell tires and never interact, that may be viewed as collegial. Blindsiding the same
has. Legend has it, though, the salesperson authorized the refund. people with a spur-of-the-moment meeting and no advance
materials might not be seen as collegial.
Whether this story is true hardly matters anymore because it is
widely told, having taken on a life of its own, and the symbolism Abstract values that cannot be measured cannot be part
is clear: While almost every retailer has placards saying that the of an effective cultural change program. And inconsistent
customer is always right, this particular department store embraced values, or ones that clearly fly in the face of recognized
the idea in a humorously extreme way. Reverence for all customers and tolerated behaviors, can undermine the credibility of a
extends to handshakes following any sale, coming around culture change program.
the counter to hand customers their purchases, and providing
personalized business cards for all salespeople. Handshakes aren’t So, a company must choose its culture to fit its strategy. If
expensive, but their meaning is clear. effectively executing strategy is based on the summation
of individual behaviors across the company, and culture
is a powerful driver of individual actions and behaviors,
consistency between culture and strategy is critical.

60
 Integration – Organization & Workforce

Say it and show it 3. Build support through organizational

Great cultures aren’t e-mailed into existence, and poster campaigns systems
portraying the joys of collegiality aren’t much better. Symbols and
The processes by which a company conducts business can play a
behaviors, however, do speak loudly. In effecting cultural change,
fundamental role in defining its culture. Among the worst mistakes
top-down and tangible are the bywords. Executives who embody
any company can make is to focus on the benefits of an information
the performance culture have license, in the minds of employees,
system or business process in isolation. There is an inextricable link
to expect the same throughout their organization. Leaders should
between the design of the steps involved in the collective tasks of a
speak and do openly what supports the desired culture and be
company and the way in which people work together – or apart.
heard and seen in the process.
We have found that in effective companies, hiring takes place
Is the company president sitting behind his or her desk and reading
with an eye toward bringing in people predisposed to support,
status reports on customer service issues, or visiting the call center and
and thrive in, the company culture. Performance management
handling the occasional call? Did the company acquire an inline skate
and reward systems have been designed around specific behaviors
division because the accountants thought it made sense, or is the VP
that complement the business strategy, not around a generic list of
of Marketing a weekend inline hockey player? Does the company
positive accomplishments.
sponsor a league? Are employee ideas slipped into a suggestion box
and forgotten, or does the company hold live meetings to argue about
Systems can aid leaders in governing a company. Among the most
the ideas? Are offices reserved for executives and cubicles for junior
important categories of systems are the following:
employees? Is someone part of a team of three, or do he and several
hundred coworkers report to one manager?
Performance management systems
To some degree, every aspect of the work experience defines
What is rewarded gets done. Period. And performance ratings
the culture of the company. Context is essential – annual photo
and compensation remain the fundamental rewards mechanism.
ops with the minions are nothing compared to genuine behavior
Unfortunately, we have found that compensation is also among the
modeling in real business situations. Big-production rollouts or
most sensitive areas to change in many companies, and, as a result,
cafeteria-style culture building that throws in three months of
the tight links between performance and adoption of new desired
coaching to solve the “accountability problem” are both common
behaviors are often deferred. Badly calibrated or disconnected
and superficial. Reality is what people touch, see, and hear, and
performance and rewards systems can override virtually any other
there is no campaign that can override a visible executive role
cultural imperative.
model or a thoughtfully designed environment that shows junior
employees are valued.
Talent management systems
When misused, symbols can offer a tempting shortcut, but in truth
The talent management life cycle encompasses recruiting, developing,
any change in culture requires time, effort, and a learning process.
deploying, and connecting employees within a company. Each aspect
The notion that a “culture change” team, even with executive
helps to create and foster the attributes of the company’s culture.
backing, can impose a mindset on employees is flawed. Real change,
For example, a company can actively recruit new hires based on
cultural or otherwise, involves real debate and leader advocates. It
culturally consistent, desired behaviors and reinforce these when
has been said that disagreement is the key to getting agreement;
people join the company. Among existing staff, who are the high-
without disagreement, there is no testing. Employees may fall into
potential employees based on the new attributes? Which experienced
line, but there will be only compliance to directions given – with no
employees were on board with the new culture even before it
commitment to the programs or their strategic intent.
became the new culture? And it’s possible – and helpful – to identify
both near- and long-term role backups based on new attributes;
So symbols can be negative, with unintended consequences, or
often this may involve looking to other divisions or functions. If the
positive and inspiring. Both are powerful and capture attention.
criteria are attribute- and behavior-based, then functional experience
Positive symbols can be sincere and real or humorous hyperbole.
becomes a part of the equation, as opposed to the entire equation,
Both kinds have their place and both work to build and sustain
for succession planning.
culture change.

61
 Making the Deal Work

As mentioned previously, top-down behaviors (not e-mails, but Beyond recruiting with an eye to the new culture, the agency
visible actions!) can have a significant impact. Culture change made tangible changes to core characteristics, right down
should be linked to leadership assessment and development to its structure. While it may seem like a footnote, the public
programs, because leaders have the biggest impact. After all, that’s posting of performance expectations across levels represented a
why companies spend so much time seeking the right candidate for dramatic change with regard to openness and accountability in an
the CEO spot. If it’s important that the customer-support and order- organization where these had been key weaknesses.
handling teams behave in a way that supports the new culture, it’s
crucial that the management team serve as a constant role model.
Mergers: matches made in heaven – or not
Work systems Mergers present a unique set of challenges on many levels,
Assuming that systems support the focus of the new culture, they but it is cultural compatibility that is often overlooked or
can be helpful to explain the rationale behind the processes, i.e., underestimated. Kell and Carrot “found a greater incidence of
the reason we do things this way is not arbitrary or mandated by IT successful mergers between companies in which employees
– it’s because the company values this result. If smart, independent displayed similar leadership styles or where the cultures
decision-making is a key new behavior, for example, coaching in this tolerated different ones.” They went on to note that while a
skill can both help employees develop in this area and serve as company’s culture can be changed at least slightly, vast change
a visible symbol of this new emphasis for the company. may depend on the ongoing “hiring of people who represent
the direction in which you are headed.”10
The converse is also true: Work systems that are implemented without
regard to culture can undermine much of what leadership hoped to
achieve. An ERP system implemented at an oil company, for example, 4. Measure outcomes repeatedly
resulted in cost savings with regard to data processing efficiency. Even with supportive symbols in place and systems properly aligned,
However, it imposed customer-facing processes that reduced the a company’s culture can be constantly buffeted by competitive
company’s ability to cater the product to customer needs and and technology-related pressures, making it periodically necessary
effectively constrained what had been an effective culture. to determine whether the company is on track. Measurement
is essential, and it also can be difficult, as anyone who has
Systems are so fundamental to culture that it is hardly a stretch to administered any kind of “corporate happiness survey” can attest.
suggest that cultural change in the absence of in-depth process
knowledge and experience is an exercise in futility. The converse also With regard to a high-performance culture, the most accurate
seems to hold, in that processes contorted to fit the latest information metrics should be associated with outcomes. For example, suppose a
systems are usually a disaster-in-waiting with regard to culture. company was striving for a culture in which innovation was supported
and shared, rather than losing product and service ideas to the
We believe this interplay between symbols, infrastructure, and behavior hoarding that can happen in a competitive environment. One (bad)
is the key to cultural change. Deloitte Consulting experienced this way to measure this would be to survey everyone to find out whether
firsthand at the previously mentioned Medicaid agency, where a they felt good about sharing ideas. A better approach, however,
Cultural Action Plan was developed that focused on changing symbols would be to assess how the company had done in terms of producing
and systems to help shape and sustain an improved culture. These ideas and how those ideas had generated income for the company.
actions included helping the agency in its efforts to:
Sometimes anecdotal evidence can serve as confirmation.
• Improve the performance management system to increase At the Medicaid agency mentioned earlier, symbols and systems
accountability, customer service, and staff involvement were changed to support the new culture, and behavioral
• Institute a simpler process for hiring new employees change occurred over time. But, early indications pointed
• Use a behavioral interview guide that helps interviewers ask to positive behavioral change. During a supervisor training
candidates how they have demonstrated the desired values session, a supervisor relayed a story of how two staff members
and behaviors in previous roles came to him with a concern that he had not done something
• Create performance expectations at all levels, signed by according to policy, demonstrating their willingness to hold him
employees at each level and posted in a public place accountable. This represented a clear behavioral change from
• Restructure reporting lines to produce a flatter, more the earlier, dysfunctional culture at the agency.
accountable organization
• Train staff and supervisors to give them the skills needed to
do their jobs and to provide better guidance and direction
to their staff
• Hire a communications director to improve both internal and
external communications

62
 Integration – Organization & Workforce

“Our culture has traditionally not been very performance-focused,”

the agency director said. “The cultural transformation that we are
undergoing now will not only improve employee engagement, but I
also anticipate that it is going to drive employees to achieve results.
For example, our Claims unit has been battling a claims backlog
that seemed insurmountable. We were able to reduce the backlog
by 65 percent over the last two and a half months by focusing on
performance metrics. This would never have been possible in the past.
The cultural transformation has brought a shared sense of mission.”

Measurement also is worth attention because human behavior is

notoriously difficult to predict. Divorce statistics bear this out. Even
in a company that astutely manages cultural change, it’s rare to
have addressed everything the first time out. Measurement allows
for course correction and reinforcement as needed.

Not a black box

Commitment matters. Companies whose cultures generate
commitment – and support their strategies – win in the marketplace.
They tap their talent more fully than their competitors, where
cynicism, confusion, frustration, and echoes of “what’s in it for me?”
sap energy and motivation.

Companies and leaders who delight and inspire their employees find
that their employees, in turn, delight and inspire their customers. And
just as companies that delight their employees can expect significant
“discretionary effort” from their workforce, so, too, can these same
companies expect to see significant “discretionary revenue” from
customers willing to pay more to be delighted and inspired in their
customer experience. Positive culture leads to positive cash flow.

The goal in revisiting and augmenting Kotter and Heskett’s model

with the concepts of symbols, behaviors, and systems has been
to focus attention on the determinants of a high-performance
culture. While recruiting the right people remains important, and a
charismatic leader can be an asset, the most effective results have
most often come in companies that consider their symbols, behaviors,
and systems in concert with their desired culture. Moreover, that
desired culture is one that fits the company’s competitive strategy in
its market. These companies do not see their culture as given, but
rather as a part of the business model to shape and form to help
achieve their strategic objectives and capture financial returns.

In the coming years, companies will have no choice but to seriously

rethink their company culture and whether it is suited to achieving
their business vision in the light of global competition and talent
scarcity. Opportunities to seize culture as a competitive weapon will
become apparent to some and remain a mystery to others. In the
meantime, it’s important to recognize that culture happens – but
not in a black box.

Portions of this article appeared previously on www.HR.com,

November 30, 2006. Reprinted with permission..

63
 Making the Deal Work

Effective leadership transition

By Eileen Fernandes

Consider the following quotes, taken on the same day from the Although many know that poor people management and
various parties involved in a new acquisition: communication drain financial value from many changeovers,
few avoid the confusion and distortion that start from Day One.
“The employees have got to hear from me and my Acquired employees can’t help noticing the disconnection between
leadership’s actions and words, and worrying: “Maybe my boss
management team or they won’t believe it. We’ve doesn’t know what’s going on.” And things get more complicated
known these people for years and have always been – and costly – three, six, and twelve months later.
straight with them. They’re counting on us to give
This damaging confusion doesn’t spring from the new leaders’
them the truth. They have always gotten important lack of intelligence, thoroughness in preparation, or hard work.
news from us.” These costly missteps usually begin on the interpersonal level,
among both organizations’ leaders. To prevent the costly turnover
– President of a newly acquired manufacturing company of valued employees and serious morale and productivity problems
that can result from poor communication, be aware of the myth of
ownership change and consider the acquired company’s needs.
“If the President wants to use his team to communicate
with their workforce that’s fine with us. We don’t The myth: Hardly anything will change
want to be seen as pushing them to the side. After all, Many changes of ownership occur between healthy businesses
they know these people better than we do.” amid the promise of “synergistic opportunities.” According to
management on both sides, this will happen without major change
– Leadership of the new owners in the acquired business.

However, in the cold light of the new day of ownership change,

“I want to hear from the new owners.” three truths become self-evident to those involved:

– Experienced department head in the newly acquired company

1. A fundamental shift in power has occurred.
2. The acquired leaders’ power has suddenly dwindled to
an “opportunity to influence.”
Too often, the first signals that come from the leadership team of an 3. Decisions are made by the new boss.
organization taking over ownership, to the people of a newly acquired
organization, send tremors of uncertainty and confusion through the The path to distortion, confusion, loss of key people, and reduced
organization. When clarity and trust are most needed, leadership seems financial value becomes unavoidable when leadership embraces wishes
more focused on itself than on taking care of its anxious people. and beliefs instead of dealing with hard facts. In many cases, both the
new and the acquired leaders subtly and unintentionally collaborate in
failing to deal quickly and decisively with transition issues.

64
 Integration – Organization & Workforce

Unspoken agreements Guidelines for leadership transitions

Sensitive to the needs of the leaders of the acquired organization, Good communications can’t solve all “change of ownership”
a new leader will often tacitly agree to help the acquired leader problems; other crucial factors include the organizations’
“save face” with his or her people. While these arrangements management styles, industry trends, integration goals, and the labor
can work in everyone’s interests, problems arise when this subtle market, among others. No one solution fits every organization.
arrangement replaces clarity and direction in too many vital However, here are a few generally helpful actions to include in
transition-plan components. leadership transition plans.

Leadership transition planning is stressful and full of uncertainties. Team up and create a unified public face early.
Instead of trying to delicately sidestep sensitive issues, recognize As early as possible, have both the new and acquired leaders create
that these issues exist and incorporate them into the integration an allied public face by appearing together frequently. Script topics
plan directly, clearly, and early. and questions each individual will address. Make a flexible rule
to always show people from both organizations side by side at
meetings and events, and in photos.
Crucial dignity
In addition to the real fears they share with their people about Get the make-or-break audience on your side.
staying employed, acquired leaders have other concerns. One Perhaps the most important moment in a leadership change is when
important but often overlooked concern is maintaining a perceived an employee asks his or her direct supervisor: “So, is this deal good
position of influence and personal dignity. And, understandably, or bad?” That supervisor’s response will engender cooperation or
acquired leaders do not want to be seen as selling out the resistance that can profoundly influence productivity, financial value,
employees to save their own skins. and many other critical factors. Talk to line managers early and often.
Take a “cascaded” approach to communications by pre-releasing
The acquired leader’s influence is like that of someone negotiating information to them, if only by a day or a few hours.
for a new job. He or she has more power before the deal closes.
By enabling the acquired leader to exert some influence over
transitional issues, you help him or her save face. One example
of this would be agreeing to “freeze periods” with no layoffs or
The power of good news
changes in the benefit programs for a set period. In the earliest days following one acquisition, the first pilot
project to manufacture a new product in an acquired facility
had exceeded expectations. Pleased with the results, the
After the honeymoon new owner planned to send plenty of work to the plant,
Besides keeping the peace, helping people stay productive and but did not publicize this intention. In the absence of good
focused on business, and reassuring and retaining key managers news, people’s anxieties filled in the blanks. Many acquired
and employees, new leaders must project a positive image of employees “thought they had heard” the worst – that the
respect for the valuable business and top-quality people that have plant could be shut down, and that they might be out of a
joined their organization. Perhaps the most critical challenge is job. In the then-tight labor market, the new owner faced an
being liked and respected – or at least not rejected out of hand increased risk of losing good people right before the busy
– by new employees and managers. season, simply by not spreading the good news.

Being as clear as possible supports these leadership challenges. Be

aware that as the “honeymoon” period wears off, so may your
welcome. As the fundamental power shift becomes more obvious
to all, acquired leaders, managers, and employees may feel that
information is deliberately being withheld from them. This provokes
a rapid drop-off in credibility, integration momentum, productivity,
and financial value. The “benefits of doubt,” which may have worked
initially in the new leaders’ favor, can quickly turn against them.

65
 Making the Deal Work

Don’t hide the good news.

Partly because of general nervousness around communications, new
leaders sometimes miss out on publicizing the good news – often
the first opportunity to build positive momentum in a transition.
A change of ownership often creates significant opportunities for
personal advancement for many acquired employees. Similarly,
publicize early progress of any integration teams you’ve assembled.

Ask three questions – and listen to the answers.

You can find much of the information you need to plan an effective
leadership transition simply by asking the acquired employees what
they think. Start with these questions:

• Who do you think knows what’s really going on: your supervisor?
division head? president? new leaders?
• How and from whom do you want to get information?
• Who will influence or affect your future over the next year or so?

Even if you don’t like the answers, don’t ignore them. If

employees seem misinformed, communicate your thoughts.
If you think they’re right but don’t like what you hear, start
changing things for the better!

Don’t be afraid to say that you just don’t know yet.

Give an estimate of when you expect to know an answer.
Try not to miss that date.

66
 Integration – Organization & Workforce

Keeping what’s yours

Retaining trade secrets during a change of ownership
By Eileen Fernandes

In today’s competitive global and technology-driven atmosphere, the

bulk of a company’s value often resides in the minds of its people. Information theft profile
If these intellectual assets aren’t properly retained, the company’s
competitive advantage is compromised. Over $45 billion in Consider the following information from the
proprietary information is lost yearly, according to surveys of Fortune American Society for Industrial Security:
1000 companies conducted by the American Society of Industrial • Wrongdoers – 30% are employees; 28% are former
Security. Strategic plans, R&D, and manufacturing processes account employees; and 42% are foreign businesses, foreign
for over 60 percent of these financial losses. And although 70 governments, vendors, consultants, or competitors.
percent or more of a typical U.S. company’s market value resides • Targeted information – The most targeted trade secret
in its intellectual property assets, most companies do not have a information includes customer lists and pricing, product
framework in which to keep their most valuable proprietary assets. development information, R&D, manufacturing, cost and
sales information, and strategic plans.
• Methods – Popular methods used by wrongdoers include
Magnified risks theft, break-in, bribery, computer penetration, electronic
In the course of normal operations, a company is at constant surveillance, copying, and communication interception.
risk of trade secret loss or theft. During a change of ownership,
however, this risk increases significantly. If you’re looking at an
ownership change, take appropriate action to retain your trade Testing the waters, and following through
secrets during these high-risk situations. If any confidential In exploring a change of ownership, ask these important questions
information could be disclosed in deal discussions, address the to gauge your prospect’s trade secret I.Q.:
issue of retention before discussion begins. Consider implementing
a binding confidentiality agreement before information is shared, • Has the company identified its most critical proprietary information?
in case the relationship sours. • Has it taken the right steps to secure this information
as trade secrets?
Information exodus. Change of ownership often leads to the loss • Does it have effective trade-secret-retention policies and
of knowledge-based employees. Individuals who leave – voluntarily procedures in place?
or involuntarily – represent significant risk for the company. • Have monitoring mechanisms been in place to assess the
Conduct thorough exit interviews, reminding employees of any program’s effectiveness?
noncompete or nondisclosure agreements they have signed, • Have leading practices been used (in keeping with the
and be sure that any proprietary information in the employee’s Economic Espionage Act and Uniform Trade Secrets Act
possession is returned. Departing employees should be advised of definition of a trade secret)?
their liability regarding disclosure of proprietary information. • Have internal training programs regarding sensitive information
been conducted? How recently? At what levels?
Giving away the farm. One of the most challenging aspects of trade • Are there significant discrepancies between the trade-secret-retention
secrets is that employees with proprietary information often don’t practices of the target and acquiring companies?
recognize its importance. While you should conduct ongoing training • Have employee nondisclosure and noncompete agreements been
programs during normal operations to teach employees how to used, when appropriate? Have these ever been enforced?
treat proprietary information, such programs become absolutely vital
during an ownership change. Clearly instruct employees on how to
retain sensitive information, and explain their responsibilities for doing
so even after they leave.

67
 Making the Deal Work

Once you’ve made the decision to move ahead, ask the following Implement leading practices
questions to gain some assurance that the proprietary information Use leading practices to determine if information has been retained
you plan to acquire has not already walked out the door: as a trade secret as delineated in each of the legal criteria listed in
the EEA – for example, the ease or difficulty with which trade secrets
• Have employees who were not retained been thoroughly briefed can be acquired or duplicated by others. Some leading practices
on their responsibility and liability regarding trade secret disclosure? include methods for tracking and retrieving distributed information,
• Have all sensitive materials been returned? the use of controlled storage, controlled destruction of information,
• Have the companies integrated their trade-secret-retention policies? secure voice and e-mail communications, and off-site procedures for
• Have all employees been briefed on current policies? retaining trade secret information.
• Have new business structures and processes been taken into
account regarding information flow and handling? Test the effectiveness of your retention program
• Have adequate channels of communication been established for Conduct an annual assessment of your trade-secret-retention
use by those with information retention concerns? program in conjunction with your legal counsel. In addition, perform
a leading practice gap analysis to identify strengths and weaknesses
of current programs and evaluate opportunities for improvement.
Retention rules of thumb
As independent industry advisers, we have consulted with many
companies undergoing ownership change. We find that the following
Proprietary information as trade secret
procedures can improve your chances of retaining your trade secrets. The Restatement of Torts provides a definition that sums up
international consensus: “As a general rule, a trade secret can be
Determine which proprietary information warrants trade any information not commonly known in the relevant industry
secret status that is used in connection with a business to obtain a competitive
Become familiar with the types of information that can be made into advantage and the information is secret, is identifiable, and is not
a trade secret, and determine which warrant trade secret treatment in readily ascertainable.”
your company. Consider your key strategic goals. What information, if
in the wrong hands, would have the greatest negative impact? Relatively non-concrete by definition, and lacking the protection
afforded to patents, copyrights, and trademarks, trade secrets have
Take appropriate steps to qualify information as a trade secret always been notoriously difficult to address. Until recently, individual
To qualify as a trade secret, information must be protected and state laws under the Uniform Trade Secrets Act provided the only
maintained as a secret, and must have economic value by not being protection for this type of intellectual property. The landscape
known by others. In addition, you must be able to demonstrate changed dramatically in 1996 with the passage of the EEA, which
reasonable measures taken to retain information as a trade secret. gave companies a powerful new tool at the federal level.
Work with your M&A team, consultants, and counsel to determine
that the information warrants trade secret status rather than The following six criteria from the Restatement of Torts form the
protection through a patent, copyright, or trademark. legal basis for determining whether proprietary information
qualifies as a trade secret:
Implement or strengthen trade-secret-retention policies and
practices • Extent to which information is known outside the company
Trade secret awareness is at least as important as adequate physical • Extent to which employees and others involved in the company
security measures. Employees accidentally leak trade secrets simply know information
because they are unaware of the proprietary nature of certain • Extent to which measures are taken to guard the secrecy of
information. Consider conducting an awareness-building program information
to support enterprise-wide understanding of retaining information • Ease or difficulty with which information can be acquired or
and to reinforce important company policy. duplicated by others
• Actual or potential value of the information to the company
Evaluate the effectiveness of existing internal security programs. and its competitors
In addition, verify that the monitoring mechanisms used to test • Amount of time, effort, and money expended in developing
their effectiveness are used properly and with sufficient frequency. the information

68
 Integration – Organization & Workforce

The transition
“from big to smaller”
Meeting the challenges of becoming the core business unit
By Eileen Fernandes

Hardly a day goes by without news of a company’s spinning off its This sharper business concentration allows HR leadership to focus
ancillary businesses and non-core divisions to concentrate on its more directly on competitive compensation, benefits, employee
core competencies. Instead of trying to manage unwieldy, diverse programs, recruitment, and development strategies that are directly
holdings that often relate only marginally to each other, companies appropriate to the core business. This can free the company from
are rethinking their charters, consolidating their businesses through efforts to force-fit HR management into a larger multi-business
restructuring, and refocusing on core capabilities. Indeed, in today’s corporate structure.
focused, divested, and consumer-driven business environment,
many are seeing the competitive advantages of running a leaner, Quicker decision-making
more tightly focused ship. In smaller companies, decisions are typically made more quickly
and implemented much faster. This gives you a heightened ability
If your department is shifting from being a division of a multi-business to respond to opportunities in the marketplace. As a result, you
company to becoming the primary business of a new enterprise, you have an improved ability to more aggressively compete and pursue
undoubtedly find yourself facing many new issues and challenges. growth – as a smaller, more flexible company.
Although some “transition pains” are implicit in any change of
ownership, there are certain guidelines you can follow to minimize Greater personal influence
the disruption of operations – and of employees – during this time. A hallmark of more tightly focused companies is their ability to
act more quickly upon the insights and suggestions of the people
closest to the marketplace – there are fewer layers of management
Unique benefits to separate the customer from company leadership. As a smaller,
There are specific approaches that are most effective when the more entrepreneurial company, you can act now and see the
business transition moves “from big to smaller.” Typically, the most immediate effect on your customers.
effective ways to manage these ownership transitions are by setting
business goals that take advantage of the unique opportunities For example, if your market researchers strongly recommend that
afforded by your situation, and by directly addressing the existing you develop a hot new product, you don’t have to submit your
HR-related and people management challenges. request to the slow-moving corporate machine. Your priority is
meeting customer demand, and your HR model provides the vehicle
Before you can do this, it’s important to understand the advantages to meet this demand, whether that involves hiring new software
behind this type of change of ownership. To some extent, these developers and IT support people, or offering employees flex-time
represent much of the reasoning behind your company’s decision to and work-at-home options.
make this strategic move in the first place.
Job growth
Sharper business focus and priority Year after year, focused entrepreneurial companies have consistently
A smaller, more sharply focused company has several advantages fueled job growth. As your new company grows and adds new
over its competitors. The most important advantage is the smaller offices, you’ll almost certainly need to add positions to meet market
company’s undiluted focus on its marketplace and customers. needs. From the HR perspective, this is an ideal time to review and
Whereas various divisions of a large, diverse company often compete adjust recruiting, selection, and development processes to increase
with each other, a company focused on one segment of a market productivity, cost-effectiveness, profitability, and customer service.
will not compete with unrelated businesses for investments and
executive attention from the parent company. Instead, all eyes, from
senior management through front-line employees, will focus on the
Clone and go: A quick-start strategy
company and its customers’ needs. If the structure of your company is shifting from a big organization
into a smaller one, you might take a “clone and go” initiative.
Basically, this involves taking some of the aspects of the former
company’s HR policies and procedures, including compensation,
benefits, retirement policies, and employee programs.

69
 Making the Deal Work

A useful start-up approach, the “clone and go” strategy has some Distracted, overpriced providers
notable advantages: The vendors used by your former company might not be the right
fit for the new company. Like many companies, HR vendors often
The company is building on the plans, programs, and administrative deliver less responsive service at a higher price to customers outside
arrangements that already work well – a good example of the “if it their target market.
ain’t broke, don’t fix it” philosophy.
Fortunately, however, some vendors will provide “bridge” or interim
Maintaining consistency between the old and new companies helps service to a valued customer’s business unit spinoff, or IPO. Keep
minimize disruption to employees. This is often a critical objective in mind, however, that the smaller “new customer” is sometimes
in business ownership transitions, especially in potentially high served at a much lower level of priority and higher cost when its
turnover businesses in tight labor markets. Besides avoiding undue start-up support needs are greatest. For cost-effectiveness and
confusion to employees, you help to raise their comfort level by quality of employee service, confirm that appropriate and motivated
maintaining continuity with the current, familiar environment. vendors serve your new company. Evaluate your needs, and look for
vendors whose top priority is serving clients like you.
If you do not need to focus extensive amounts of time and attention
on revamping your HR strategies and practices, you can concentrate Mismatched goals
on other critical business demands associated with this change of By relying too heavily on the former company’s HR policies, you
ownership, including leadership change and incentive development, could miss opportunities to initiate HR strategies directly tailored to
strategy formulation, and implementation of information the new company’s vision. Your new company should focus its HR
technology and financial system. This, again, minimizes disruption strategies on initiatives that directly support its business objective.
to the company and employees. A more targeted HR delivery model can be a primary tool in your
growth strategy – differentiating your company from others by
providing uniquely attractive incentives to attract and retain key
What to watch for employees, for example. Becoming a smaller company is the perfect
The “clone and go” approach has its limitations, the most obvious time to break out of the pack with more creative elements in your
being scale. In other words, the strategies, processes, and scale of employment experience.
the old HR function were designed for a larger, more mature, and
diverse multi-business corporation. In many “clone and go” cases, the Although tailoring your HR strategies to your leaner, meaner
cloned HR strategies were developed incrementally over a long period company presents challenges, the process affords you unique
of time in a corporate environment primarily focused on an industry opportunities to turn the situation to your advantage. In so doing,
different from yours. The HR strategies of a mature multi-business you can help your company to improve customer service, redefine
corporation won’t likely match the most effective strategies for a new, the organizational structure to eliminate bottlenecks and address
tightly focused niche player in a competitive, high-growth market. deficiencies, and increase the likelihood that your employees stay
happy during the transition – and after.
Also, remember that you can float on the “clone and go” life raft
for only so long. As soon as possible, you’ll need to build an HR
function precisely tailored to your new environment. Otherwise,
you could end up with strategies mismatched to your business
plan and excessively high costs.

By knowing the specific limitations of the “clone and go” approach,

you can be aware of common, costly pitfalls typical of many
companies. Instead of passively relying on your former company’s
HR strategies, be watchful of the following aspects of changeover,
which can not only drain your financial resources, but also yield a
drastically mismatched infrastructure for your company.

Bad fit
Cost structure and scale of the carry-over HR infrastructure will
probably be poorly matched to the smaller company environment.
Smaller, more focused companies can develop HR programs and
processes without the complexity and infrastructure required of the
larger, predecessor company.

70
 Integration – Organization & Workforce

Leading practices for

an effective transition
A litmus test for your business integration plan
By Eileen Fernandes

What makes for an effective change of leadership? How do some By envisioning your time line in terms of actual events, you can
organizations manage the transition relatively painlessly, while anticipate the scenarios and associated problems occurring at
others experience catastrophic employee exoduses or public each stage of your transition. The advantage of this practice is
relations nightmares? What goes into the mysterious process that major roadblocks come in a predictable sequence, and you
whereby the new owner becomes a trusted, respected, liked can not only foresee many of these, but also develop contingency
member of the team? plans to handle each. In addition, a clearly delineated sequence
and resource map gives you and your team a concrete plan of
While a deal is being conducted, it’s natural to focus on closing action, and thus promotes orderly transition and reduces confusion
the deal – the attendant business, organizational, financial, and throughout the process.
operational challenges are complex enough. Even the most astute of
new owners may put off thinking about human resources and people On the other hand, by neglecting this practice, you force your
management issues, saying, “We’ll address those things after we organization into reactive mode, simply dealing with the latest
have a deal.” The bad news is that these issues won’t sort themselves problem, rather than proactively planning and implementing
out. The good news is that by following a few simple guidelines, you your initiatives. You lose momentum, focus, and synergies. And,
can significantly reduce your growing pains during the transition. possibly worst of all, you give the impression that you don’t know
what you’re doing and that your transition is a “rolling crisis.”
As with any business move, of course, there is no foolproof formula
for achieving desired results. Use these five “triggers of success or Practice No. 2. Consistently promote the good news resulting
failure” as a litmus test for your business integration plan – guiding from the transition.
principles to evaluate your plan’s completeness and quality.
How-to: Early in many ownership transitions, a prime opportunity
arises to spread positive news about expanded business
But I already have a plan… and personal opportunities. Communicate this news clearly,
Although you no doubt have a solid business integration plan with consistently, and frequently to mitigate the natural skepticism of
realistic goals, you may not quite know how to get there from many employees, vendors, and customers.
here. These leading practices explain practical, concrete methods
to help achieve your objectives. The more you implement these A change of ownership can be a prime situation for employees
leading practices, the greater the likelihood that your transition to rechart their careers and for executives to take advantage of
will be quick and productive, reducing the loss of time, money, key emerging market opportunities.
talent, and business momentum.
Many good things can happen during a change of leadership – a
Practice No. 1 . Chart a comprehensive transition roadmap covering pilot project may achieve its objectives, promising new positions may
all phases of the change of ownership. (For more specifics on how to open up, or your organization may gain exciting new clients. But if
do this, see “From signing to close.”) you don’t highlight these personal career and financial opportunities,
they’ll get lost in the confusion of change. Publicize positive events,
How-to: Identify both the sequence of major milestones throughout such as interim victories and overall progress, as well.
the transition and the people resources required to address each issue
as it comes into focus. This is less ingenuous than it sounds. Many By not proactively conveying the good news, you indirectly invite
people tend to think that they can play things by ear, handling each employees’ and managers’ negative perceptions, as they hear only
situation as it arises; but this approach is not cost-effective in terms of about the problems of the transition. In addition, if employees
resources, money, or time. have to find out about personal opportunities on their own, they
may justifiably feel that the new management is unconcerned
about their welfare, leaving them to shift for themselves.

71
 Making the Deal Work

Practice No. 3. Take charge of leadership changes and communicate Practice No. 5. Plan beyond the deal. How-to: After the launch,
your decisions as early as possible. your organization may show signs of fatigue from ownership change
activities. Plan your roadmap (Practice No.1) to carry your organization
How-to: Don’t withhold leadership change decisions from your beyond the launch to achieve your primary business goals.
employees. Any delay undercuts your credibility. Act quickly and
communicate clearly what you will do, and when. Your organization’s energy may flag after the initial adrenaline
rush resulting from the deal. But this is a crucial time: Without
Although both the previous and new owners should have a voice clear, positive leadership actions, the strategic value and future
in your integration efforts, don’t make the mistake of trying to get purpose of your organization can become unfocused and foggy.
consensus from huge committees for every decision you make, or So it’s essential that you maintain momentum and strategic
you’ll find yourself making slow, painful, and poor decisions. While business focus. Instead of letting things work themselves out,
it’s only natural for the previous owners to resist change, and while clearly establish leadership roles and responsibilities, and keep your
their opinions should inform your actions, you are the new leader. decision-making quick and effective.
The previous owners (and their employees) will appreciate your
acknowledgement of what they already know to be the truth. At this point, you run the real, but avoidable, risk of losing
organizational momentum. Any lull in activities, in addition, may
In addition, you’ll enhance your own credibility and keep morale be perceived as a lack of direction or uncertainty about the future.
afloat in the organization. As a result, you reduce turnover of
key people. Just as important, you’ll make and implement your You’ve planned and worked hard for this change of leadership,
decisions more quickly and efficiently. so don’t let all your good work go to waste. By observing the
practices that other organizations have used to guide them
Conversely, neglecting this practice will hurt morale, as everyone through an effective transition, you can greatly increase your
asks, “Who’s in charge and where are we going?” In addition, chances for having a successful transition.
employees will interpret your lack of communication as a
deliberate refusal to share unpopular information.

Practice No. 4. Integrate all constituencies into the launch plan.

How-to: Keep airtight consistency in communications to leaders,

employees, vendors, customers, the public, and the media. In
general, the most effective approach is centralized management
of issues and sequenced, or “cascaded,” communications down
through the management chain.

Decide when you’re going to say what to whom, and be sure that
your plan is clearly understood by your managers and employees
– anyone who will be representing you. By keeping your message
consistent, you gain trust and credibility. In addition, if you’re
conveying your message to multiple parties and at different times
or places, designate one person or group to keep track of not
only the questions that arise, but also the promises and intentions
that are being communicated. This practice allows you to monitor
and implement any plans or promises you’ve made to the various
groups throughout the transition.

If you don’t keep your message consistent, some groups may

assume that you’re trying to manipulate them or withhold
information you’ve shared with others. Employees, who are
naturally the most suspicious of management’s motives, are the
most sensitive to this type of negative perception.

72
 Integration – Organization & Workforce

From signing to close

By Eileen Fernandes

Overnight, the news of a change of ownership can shift from being

known only by a very small constituency, to a full-blown, front-page
Roadmap phases
newspaper story. During negotiations, a deal is shrouded in secrecy, Time-wise, your roadmap can be divided into four phases: deal
as SEC rules typically prevent the key players from disclosing any signing, pre-closing, Day One launch, and post-closing (not all
information outside their circle. After the deal is signed, however, functions have actions falling under all phases). The remainder of
everything changes. Before the ink is dry, the hallways are flooded this article discusses the important events for each function.
with concerned constituents from all organizational levels – all
with different opinions and questions. If you haven’t planned for
this moment, you and your leadership team may begin to wonder, A note about start-ups vs. mergers
“What’s coming at us now?”
Start-ups and mergers require different tactics for developing
a transition roadmap. For a start-up, you must identify the
Charting your course necessary infrastructure (compensation, benefits, and payroll),
and adopt it. You may take a “clone and go” approach (see
Navigating from signing to closing is largely a matter of knowing what
our article on “The Transition from Big to Smaller”) or another
milestones you should reach, and in what sequence. These milestones
strategy as your initial framework.
include an important factor often overlooked in the early phases, when
financial concerns seem to override all others – the many people affected
In a merger, by contrast, you must make decisions about
by the change. Many executives make the mistake of saying “I’ll deal
what the merging organizations already have in place
with HR issues as they arise” – and end up losing key talent, while
– their infrastructures. Should you keep both organizations’
unknowingly creating an environment unattractive to new employees.
procedures as is – for a year, six months? Mix and match
components? Or overhaul everything?
To guide your organization to closing, you will need to:
Commit to making an integrated roadmap showing major milestones
and their sequence. Note that the sequence is almost as important as
the events themselves. If you don’t know whether a specific action HR management and communications
comes first or sixth, you might as well have no plan at all. Throughout the journey from signing to close, you will need a
process for consistent internal and external communications.
Form a team of decision-makers committed to your roadmap. During this chaotic, emotional time, you must pay special attention
Team members must have decision-making power within their area to the information that is being disseminated. So, at the signing,
of responsibility because the success of the close will depend on prepare for employee meetings by establishing a tightly monitored,
accurate and quick decisions. They must also agree to communicate consistent communications policy for conveying and monitoring
openly and pool their knowledge for decisions in areas in which no information, promises, and statements of intentions to all groups.
single person has complete knowledge and experience.
Before closing, conduct meetings with supervisors and employees,
Decide on the necessary, acceptable, and prudent level of disruption as well as press conferences and customer meetings, to make
to your employees. In a merger, for instance, your strategy will be your announcement to both the inside and outside world. Keep
driven by the commitments and goals of the deal (including cost- your message consistent. Closely track the messages and promises
cutting promises to shareholders). A highly unionized environment, (general and specific) made to each group, so you don’t make any
however, may not allow for much disruption. In some mergers, the commitments you can’t keep (see our article “Leading Practices for
status quo may have to prevail to prevent an exodus of key people. an Effective Transition”).

73
 Making the Deal Work

On Day One, hold launch meetings with internal and external

groups. Your communications should be an A roadmap for
Benefits and employee programs
successful ownership transition. Eileen Fernandes, Principal Deloitte In all likelihood, the HR, benefits, and work/life programs of the
Consulting LLP integrated, consistent set of messages celebrating merging organizations will not be comparable in value: One company
the opening of the new organization. This may need to be balanced may have better health insurance, while the other may have better
with negative news, such as layoffs or closings, as appropriate. flextime policies. You will be weighing these types of factors when
After closing, focus on meeting strategic goals, such as integrating deciding which components to keep from each organization.
sales and R&D employees, saving on costs, and integrating the
organizations’ cultures. At this time, too, you must go beyond your At signing, decide whether to change the programs or to freeze
“clone and go” or other transition plan to move into your new components in place for a certain period. Even if only adding your
organization’s HR strategy. acquired employees to your existing programs, you will at least need
to change all of your providers’ service contracts.

Compensation, benefits, and payroll After signing, you will need to secure your administrative contract;
In contrast to HR, these three functions comprise your organization’s create new insurance, pension, and deferred-compensation plans;
infrastructure. While HR’s deadlines are mostly set according to its prepare plan enrollment materials; and identify employee programs
own priorities, these other functions’ immovable due dates are set you will offer, along with their providers. Then, enroll your employees.
to satisfy the needs of the investors. They should not slip. On Day One, process the enrollments and begin coverage.

Compensation and staffing Payroll

Before the deal is completed, little can be finalized in these If in a start-up, you will be building the payroll function. In a merger,
areas. After signing, identify and develop retention strategies for by contrast, how much payroll processes change depends on how
key people. Then, integrate the executive compensation plans, much disruption your organization can handle. With payroll, there
deciding which components to use from each organization (e.g., is no room for error – employees can deal with many uncertainties,
what happens to the current-year bonus plan?). Toward Day One, except when it comes to receiving their paychecks. As discussed
notify all involved parties and have your changes in place. Resolve earlier, the disruption level depends on the initial strategic decision
recruiting issues quickly. Determine whether recruiting procedures you made, based on the needs of the organizations involved.
will be disrupted by the deal and, if so, how you will replace your
recruiting pipeline. Regardless of your situation, there is not much that can be finalized
until after signing. At this point, it is time to specify, select, and
On Day One, implement your retention, executive compensation, load your payroll system, and then to test it. On Day One, the new
and recruiting plans. payroll system and procedures are implemented.

After closing, focus on changing and creating incentives for the The extent to which your new organization achieves its goals will
new organization. The extent to which you develop new incentives depend on the plan – your transition roadmap – that you have
depends on your situation. If the merged organizations were developed. As your organization travels from signing to close,
competitors, you may have to change a lot. your roadmap can mean the difference between a rocky or a
smooth journey.

74
 Integration – Organization & Workforce

Change of ownership milestones

Function Deal signing/ Pre-closing Deal closing/day one Post-closing

Announcement
HR Management & • Prepare for meetings • Conduct supervisory • Hold launch meetings • Perform ongoing
Communications and employee meetings HR management
• Perform ongoing • Move beyond
communications “bridge strategy”
Compensation & Staffing • Develop executive • Implement • Create new incentives
compensation compensation,
strategies recruiting, and training
• Identify need for
retention programs
• Develop recruiting plans
Benefits & Employee • Establish plan to • Secure administrative • Process enrollments
Programs provide benefits contract and begin coverage
and programs • Create new plans: • Implement new payroll
health, dental, life,
disability, pension,
deferred-compensation
• Transfer and manage
pension assets
• Prepare enrollment
materials
• Identify employee
programs to be
offered, and providers
and contracts
• Hold benefits enrollment
Payroll • Perform payroll
specification, selection,
and loading
• Conduct payroll testing

75
 Making the Deal Work

Integration – Functional Integration

Program Management

Synergies & Cost Reduction

Customers, Markets & Products

M&A Target Due Transaction Integration Divestiture 360o Communications

Strategy Screening Diligence Execution

Organization & Workforce

Functional Integration

Location & Facilities

76
 Integration – Functional Integration

Post-merger indigestion
Incomplete integrations can be hazardous to your company’s health
By Douglas Tuttle

Post-merger indigestion (n.): an insidious malady common among

serial acquirers that fail to fully absorb their acquisitions. Initial One company’s approach
symptoms include rising costs, unclear reporting relationships,
technological inefficiency, and marketplace confusion. The sufferer One company’s aggressive growth-through-acquisition strategy
experiences shrinking margins and lower revenue gains with each made it one of its industry’s largest players in just a few years
additional transaction. If left untreated, the syndrome can lead − but also left it with hundreds of accounting locations around
to a spectacular loss of profitability and revenue, usually after the the world using hundreds of different financial systems.
patient makes one acquisition too many. As with most systemic
ailments, prevention is highly preferable to often difficult, costly, This situation created two significant problems. First, the long-
and uncertain attempts to cure. term operating cost of maintaining all of the different locations
and IT platforms was clearly not sustainable. Moreover, the
What’s worse than the complicated, expensive, resource-intensive, variability in the company’s accounting processes and platforms
stress-filled process of integrating a newly merged or acquired would have made compliance with the Sarbanes-Oxley Act of
company seamlessly into your own? A multi-layered, enormously 2002 a crushing cost and resource burden.
complex behemoth of a business in which costs keep rising, margins
keep shrinking, and everything keeps taking longer and longer to do. Fortunately, management recognized the issue in time to
Unfortunately, that’s just what can happen to acquisitive companies launch a worldwide initiative to standardize the company’s
that don’t stay ahead of their post-transaction integration needs. financial processes and systems. The company is now
consolidating its accounting locations and systems into a
Not every acquisition needs to be completely integrated, of network of country and regional shared service centers that
course. Depending on your acquisition strategy, you may choose will use a common software platform. When completed, the
to integrate a company to a greater or lesser degree based on the project is expected to cut ongoing administrative costs in half
reasons you acquired it and your company’s business model. The and to significantly improve the company’s Sarbanes-Oxley
problems arise when a company makes the strategic decision to compliance capabilities. In addition, the company expects the
integrate as completely as possible − say, to realize economies of greater process standardization and increased operational
scale or maximize operating synergies − but, for one reason or visibility to improve its overall business performance.
another, doesn’t quite achieve that goal.
But companies that persist in this pattern are living on borrowed time.
It’s not that companies deliberately set out to leave integrations
With each new acquisition, the business becomes more complex and
undone. But even the most far-sighted integration projects can
more difficult to navigate. Undigested remnants of legacy processes,
fall prey to powerful external and internal pressures that prioritize
systems, products, and functions hamper efficiency and create
speed, risk avoidance, and immediate cost synergies over the need
unexpected problems. Eventually, the business becomes so complex
to make long-term business investments. Wall Street wants speed.
that almost every process and initiative costs more, takes longer,
Investors want savings. Customers want uninterrupted service
and yields worse results than they would at most other companies
of pre-transaction quality or better. Under the circumstances, it’s
of similar size and scope. That’s when alert competitors, unhappy
understandable that cheaper, faster solutions that are good enough
customers, and frustrated investors can nudge an already weakened
to meet immediate needs often get the nod over more time-
organization toward a significant tipping point.
consuming, expensive, though ultimately more robust approaches.

77
 Making the Deal Work

The downward spiral isn’t inevitable, though. As an executive, you To be fair, most people realize that unnecessarily disparate
can help your company escape it in the same way you’d address technologies spawn all sorts of inefficiencies and datamanagement
any other ongoing business challenge: by taking the issue seriously, issues. The problem is how to balance the company’s post-transaction
evaluating your situation, and taking steps to fix current problems need for speed and cost containment against its long-term need for
and minimize future ones. IT interoperability and efficiency. One approach might be to use a
“down” period between acquisitions to develop an enterprise-wide
IT governance structure that continually monitors current and future
Performing the checkup standards. This governance process can then be invoked to help
One reason business leaders may overlook the dangers of excessive develop a strategy for integrating each new acquisition’s IT systems
complexity is the “stealth” nature of both the problem and its in a way that supports the consolidated entity’s direction.
consequences. Because no single acquisition is usually to blame, and
because growing complexity does most of its damage through an Symptom 3: Products or services that duplicate each other in
overall dampening effect instead of through obvious emergencies, the marketplace, and/or parallel development of duplicative
executives may not even recognize the danger until they suddenly products or services
face an unavoidably huge operating expense or realize that the latest
transaction is destroying value instead of creating it. Fortunately, A business should compete with itself only by choice, not
catastrophic failures rarely happen without some kind of warning. by accident. Knowing this, companies make product/service
Here are some of the signs and symptoms of acquisition-driven rationalization a central part of every full-blown integration project.
complexity that can alert you to the need for action. But just because your integration teams report that everything’s
rationalized doesn’t mean that you’ve necessarily arrived at an
Symptom 1: A highly matrixed organizational structure appropriate product/service mix.

There are several good reasons to have a matrixed organizational Consider what can happen when two essentially identical products,
structure. However, trying to satisfy every stakeholder in a post one made by the acquirer and the other by the acquiree, each live in
transaction integration isn’t one of them. If your company is one of those virtual “fiefdoms” that crop up from time to time in any
cross-cut by multiple organizational classifications that don’t have organization. The walls of the fiefdoms can be so high and so hard
a clear business rationale − especially if those categories reflect to break down that the integration team gives up trying to merge
the way prior acquisitions were structured − that’s a strong tip-off them. Each side offers a host of reasons for not discontinuing its own
that your business may not have integrated those acquisitions to product: the company would lose market share, the product targets
an optimal degree. a niche that the other product doesn’t, and so on. Because many of
these reasons are factually true, integration teams can easily overlook
The reason unnecessary matrices are so common among poorly the possibility that maintaining both products may not work for the
integrated companies is that they’re a seductively convenient way to business as a whole. Getting past this kind of territoriality takes two
minimize the political hassle of combining two differently structured things: an enterprise-wide view of the combined company’s strategic
organizations. But an organizational structure driven by convenience goals, and the power to make and enforce potentially unpopular
instead of by strategy is likely to do a company more harm than decisions. Therefore, it’s important for the integration leader to be a
good. So when you integrate acquisitions, do the extra work to senior executive with enough authority to negotiate among and, if
figure out the most appropriate structure for the combined entity. necessary, overrule warring factions.
You may need to have some uncomfortable conversations, but
you’ll save yourself potential problems downstream. Symptom 4: Overlapping and/or suspiciously numerous
vendor/supplier relationships
Symptom 2: Multiple disparate technologies, and/or multiple
instances of the same technology, without a compelling If your company has a reasonably well enforced vendor/supplier policy
business reason for the variety but still has many more vendors and suppliers than you’d like, the
culprit may be a long history of less than- optimal post-transaction
The thought of spending massive amounts of time and money rationalization efforts. Even though your business units may comply
to standardize your company’s IT systems is never a pleasant with all of your company’s procurement guidelines, the guidelines
one. But if you don’t do it at some point, you could end up with by themselves can’t always tell you which relationships are truly
dozens or hundreds of mutually incompatible systems. Papering necessary and which you’d be better off consolidating.
them over with middleware may let you view adequate summary
data, but middleware doesn’t allow for the detailed analyses
needed to inform business decisions. What’s more, the need to
maintain multiple systems and upgrade multiple instances can be
a huge drain on the company.

78
 Integration – Functional Integration

To address the issue, you may need to dig deeper into your business Symptom 6: An exodus of acquired executives
processes to see where and why the duplications arise. If incomplete
integration is a source of the problem, you’ll probably uncover Have you ever spent huge sums of money to keep an acquired
some unnecessary process variations driving the use of multiple company’s key executives on board with the combined entity, only
vendors. You may also find that the integration project missed to have them leave within a year or two of the deal? A repeated
some opportunities for vendor/supplier consolidation. Sometimes, pattern of acquired executive flight could mean that their proper
fractured IT systems may keep different business units from knowing “care and feeding” at the new entity is being sabotaged by an
who’s supplying what and taking advantage of economies of scale. overly hasty integration approach. A careless corporate buyer may
invest substantial time and effort in getting acquired executives
The same sort of territorial dynamic that arises during product/ to stay with the company − but then, distracted by the next
service rationalization can also interfere with effective vendor/ acquisition, fail to help them adjust well enough to the new
supplier rationalization. Here, too, the integration leader plays environment to do a good job. Feeling that they’ve been shunted
a vital role in settling conflicts of interest, personal discomfort into meaningless roles, even those who don’t quit outright are
notwithstanding. If there isn’t a legitimate business reason for a unlikely to add as much value as anticipated.
group or unit to have a unique supplier, don’t let it happen, no
matter how many arms you have to twist. One way to guard against this problem is to set up a buddy system
that pairs each acquired executive with a designated mentor at
Symptom 5: Increase in the use of temporary help his or her peer level. The mentor would be expected to guide the
acquired executive through his or her initial steps at the combined
It’s not unusual for companies to have a certain baseline percentage entity, and would be held partly responsible for the acquired
of temporary employees in a variety of roles. But if temps are executive’s eventual performance.
starting to appear in unusually large numbers, it could be a sign that
your company is getting too complicated for its own good. Why? Symptom 7: Widespread confusion about
Because the more complex a business becomes, the more work it the company’s corporate identity, mission, and goals
takes to keep it running smoothly − and most of that extra work
tends to fall between the cracks of the company’s “official” job Communicating a clear corporate vision is hard under the best
descriptions and organizational roles. of circumstances. Cruelly, it gets even harder just when it’s most
important − when you want to bring a newly acquired company
Compounding the problem, the cost pressures experienced by fully into the fold. The acquired company’s employees may be
overly complex companies often lead to strict caps on departmental slow to understand or accept the larger organization’s strategy
headcount, whether or not the allotted number of employees is and goals, while the buyer’s employees may be uncertain about
enough to do the work. Hiring managers may turn to temporary how the acquisition will affect the company’s future direction. Left
employees simply to avoid leaving important tasks undone. unaddressed, the mounting confusion from multiple acquisitions
Depending on the way the company is organized, a hiring manager can erode morale and hinder effective decision-making, especially if
may not even need to pay for the temporary worker out of his or the lack of consensus extends into upper management.
her own departmental budget − which gives him or her an easy
way to address the department’s staffing problem, but only at the A rushed or incomplete integration can exacerbate the post-acquisition
expense of the rest of the business. identity crisis in several ways. The company may have been so intent
on executing the deal that it didn’t formulate a clear rationale for the
Temporary help, in short, can be an attractive band-aid for a acquisition, or keep its employees in the loop if it did. The integration
wide range of underlying process inefficiencies and unnecessary team may shortchange communications in favor of other, more
redundancies. If your company uses a great many temporary tangible elements of the project. And even experienced acquirers
workers to fill “ad hoc” positions, or if the number of temporary sometimes forget that it takes time and many repetitions to truly drive
workers has been rising for no apparent reason, it’s a good idea to a message home.
peel off the band-aids to see what problems might lie underneath.

79
 Making the Deal Work

Pick your battles wisely, but aim to win each one. Every acquisition,
Treatment and prevention and every integration, has its own strategic purpose. It’s up to you
So much for the symptoms of acquisition related complexity. What to decide how much integration is appropriate for the company and
about keeping the problem from getting out of hand in the first how much progress is satisfactory. But by the same token, don’t let
place? Our advice: lack of planning, preparation, and focus make those decisions for
you. Understand the integration needs of each area of the business
Take the issue seriously. and determine realistic goals ahead of time − and then put enough
If you’ve read this far, you probably don’t need any more convincing resources behind the effort to make it work.
that excessive complexity is a significant business risk. It’s vital, if you
want to stay ahead of the problem, that at least a quorum of your Excessive acquisition-driven complexity only gets harder to cure the
fellow corporate leaders feel the same way. Many of the integration longer you let it go. Don’t let your company ignore the risk. If you’re
roadblocks mentioned above − convenience driven matrix structures, planning or pursuing an aggressive acquisition strategy, the time to
product/service fiefdoms, lack of funds for IT standardization − can take complexity in hand is now, before it’s too late.
be mitigated, if not completely avoided, by appropriate executive
intervention. And strong leadership is even more important when
you’re addressing issues left over from past acquisitions. No large-scale
initiative, which is what it usually takes to whittle down a company
after a long series of incompletely integrated acquisitions, can be
effective without top-level commitment to providing the money,
resources, and time to see it through.

Tie the integration leader’s rewards to

long-term integration quality as well as to
acquisition-related revenue gains and synergies.
The typical integration project leader receives incentives based
on time to completion, revenue gains, and cost synergies. What’s
missing from this set of incentives is the enterprise view − the
responsibility to conduct the project in a way that produces the
tightest, most effective integration needed to support the entire
company’s long-term goals. If you reward the integration leader
solely on cost, time, and synergy metrics, he or she will have every
reason to maximize those metrics even if it means creating or
ignoring complexities that put the company’s future at risk.

Integrate in batches. It’s not always practical to perform every

integration as completely and as thoroughly as you’d like. To prevent
incremental complexity from creeping up on you, consider taking a
break after every few transactions to take stock of your company’s
overall integration level and to simplify areas that need it. That way,
you can concentrate on achieving your immediate goals during
each transaction without allowing complexity to accumulate to a
dangerous level. Integrating in batches can also offer you economies
of scale in areas such as IT and real estate, as well as give you a better
perspective on what your combined organization should look like.

80
 Integration – Functional Integration

Set your sights on the

M&A endgame
How an enterprise blueprint can help you navigate
multiple M&A challenges
By Kevin Lynch, Todd Kovacevich and Varun Budhiraja

Many professional athletes spend a great deal of time training Granted, integrating a newly combined company is seldom
in their chosen field of endeavor, and they usually spend an easy. It can often be tough for management to bring together
equal amount of time envisioning success in their respective two different sets of markets, customers, products, employees,
games. Take the professional golfer as an example. When processes, and infrastructure and build a strategic platform for
asked to describe their routine as they negotiate a course, most the combined entity, all while maintaining the company’s business
professional golfers say they have a plan for each hole and a momentum. Like playing a championship game on a difficult golf
vision for how each shot will deliver that plan. When faced course, achieving the intended value associated with a deal can
with obstacles or challenges, they make adjustments with the be a treacherous, challenging process.
end goal – completing the course in as few strokes as possible
– firmly in mind. At the individual shot level, many describe In our experience, the problem in many “failed” integrations
seeing the shot happen before they swing. Then, they rely on isn’t that the company lacked the capabilities or the resources
their skill gained in countless hours of practice, trusting their to manage a large-scale transformation. Rather, it’s that the
ability to execute according to the plan they have in mind. company failed to develop what we refer to as an “enterprise
blueprint” for the combined entity – a clear end-state vision for
These fundamental principles of planning and visioning can also how the new entity will operate after the integration. Without
be effectively applied to mergers and acquisitions. Yet, surprisingly, a clear enterprise blueprint to guide its integration efforts, a
we’ve found that most enterprises fail to plan for such inorganic company runs the risk of deploying its capabilities and resources
growth in as systematic a manner. Even more so than in playing any in ways that can erode the value of the deal. Even if the
professional sport, the risks and rewards of executing a transaction company has a history and culture of excellence in execution,
can be sky-high – and, as in sports, the rewards tend to go to those its high-quality resources can be squandered if the company
who plan, strategize, and practice. lacks enough clarity on the desired end state.

We have found that risks and challenges arise at many junctures In our opinion, companies engaging in mergers or acquisitions,
within the transaction process, most notably in the post-transaction especially large or complex transactions, should consider the
integration process, and a company’s ability to negotiate those development of an enterprise blueprint to be an integral aspect of
risks and challenges can make or break the outcome of the deal. the deal lifecycle.
Unfortunately, evidence suggests that many companies don’t handle
post-transaction integration especially well. A number of studies
have found that many, if not most, mergers and acquisitions fail
to achieve their original strategic intent or realize the targeted
synergies.1, 2, 3 This failure is often blamed not on poor strategy or
a misguided rationale for the deal, but on poor execution of the
integration process.4, 5

81
 Making the Deal Work

As obvious as the value of an enterprise blueprint may seem to us,

The enterprise blueprint defined we have found that many integrating companies don’t develop
An enterprise blueprint is a definitive statement of how the new a clear statement of the combined entity’s desired operating
organization should operate in order to achieve the business model and capabilities until late in the integration process, if at
rationale for the deal and further the combined company’s overall all. Leaders are often inclined to jump to a quick determination of
strategy. It should answer a number of key questions that help the merged organizational structure and, from there, into fielding
specify the operating model and capabilities the combined company functional integration teams and launching integration planning
should possess in order to deliver value to customers, employees, efforts. The assumption is that the discrete functional teams will
and shareholders. In short, the enterprise blueprint should provide develop cohesive plans on their own – a dubious assumption at
the company with a common “primer” to help guide the functions’ best. In many cases, given pressure to move quickly, a systematic
efforts to deploy and organize resources to deliver the deal’s examination of the combined company’s operating model and goals
expected value. The end-state vision specified in the blueprint, of may not occur until after the integration work is well under way,
course, will evolve as the company assimilates new information prompted by questions from the functional integration teams about
gathered during the transaction process. But no matter how much it fundamental operational issues that need to be resolved before the
evolves over the course of the deal, an enterprise blueprint gives the integration can proceed. An ad-hoc blueprint may be hammered
company an invaluable common frame of reference that can help out piecemeal as these questions are addressed, but the damage
focus the entire enterprise on a single endgame. of having failed to develop a formal enterprise-wide view of the
combined entity’s operating model has already been done.

Examples of key issues addressed in an In our view, leaving the enterprise blueprinting process until late in
the integration – or, worse, not developing a blueprint at all – can
enterprise blueprint seriously compromise the value of a deal. Without a clearly defined
The enterprise blueprint must answer key questions related end state to aim for, the functional integration teams can waste
to the end-state vision for the combined entity. Detailed precious time developing their own, potentially conflicting integration
approaches will be developed in the functional planning plans based on their own interpretations of the rationale behind the
process, but high-level hypotheses about the new organization deal. The resulting delay and confusion can prevent the integration
should be developed by key executives up front to establish a program from building the early momentum needed for rapid synergy
clear vision and direction for the integration teams. Issues to be capture, making it more likely that the company will miss market
addressed in an enterprise blueprint include: expectations, fall short of its announced synergy targets, and fail to
realize the combined entity’s full marketplace potential.
• What markets the company will defend, and what markets
the company will explore An enterprise blueprint, of course, doesn’t just happen by itself.
To develop a workable blueprint that can provide useful guidance
• What strategic options the company will launch, and how
throughout the deal, we believe that the most senior executive in
new ventures will be managed going forward
charge of the transaction, be it the CEO, COO, CFO, or business
• What products to continue and what products to cancel unit leader, needs to sponsor and drive the enterprise blueprinting
• What assets to divest and what areas to re-invest in for growth process. This executive should recruit a broad cross-section of
functional and business-unit stakeholders to contribute relevant
• What performance and value capture can be expected over perspectives to the enterprise blueprint. The job of actually
what timeframe executing the enterprise blueprint generally falls to the integration
• What critical milestones should be monitored leader – the person assigned to manage the day-to-day work of
bringing the new entity together – who should be responsible for
• What the fundamental basis for competition will be, by facet promoting acceptable participation from the necessary stakeholders
of the business, and what company values will need to be in and completing each step of the process in a timely manner.
place to support that market discipline
• What fundamental capabilities and competencies will be “Doing the enterprise blueprint work up front was invaluable,” says
required to drive the business “Jim,” the former COO of a multinational manufacturing company
that recently underwent a merger. “It was critical for us to have a vision
• What inputs or operations the company will outsource
of bringing together two companies of equal size with very different
• What the combined entity’s high-level organizational design will structures. The exercise of doing the blueprint not only helped us
look like and where key operational decisions will be made integrate this and organize that, but also gave us an understanding of
what to expect when we were executing the integration.”

82
 Integration – Functional Integration

The benefits of an enterprise blueprint

Roadblocks to developing an enterprise Among the many benefits of developing an enterprise blueprint,
blueprint we believe the following are some of the most significant:
If enterprise blueprinting is so important, why do some
An enterprise blueprint can help those involved in the deal
companies leave it until late in the transaction process, or even
maintain a consistent focus throughout the deal lifecycle.
omit it altogether? Among the reasons we’ve encountered:
In a typical merger or acquisition, the responsibility for successive
• Time and resource crunch. The pressure to close the phases of the work is handed off to various areas of the
transaction quickly can be overwhelming in many M&A deals. organization as the deal progresses. The strategic decision to
But even though moving quickly is important, too much pursue inorganic growth is usually made by the CEO and/or Board
emphasis on speed can drive company leaders to shortchange of Directors, possibly with input from a corporate development or
developing an enterprise blueprint because of a real or strategic planning group. After that, someone, likely the corporate
perceived lack of time and resources. “We were on such a development or strategic planning group, the CFO, or both, is
tight timeframe, because we were losing money and trying to charged with seeing the effort through due diligence to the signing
turn the company around, that we took a lot of resources and of the merger agreement. Then, the integration effort is usually
put them on project management instead of on strategy and handed to an integration manager (most often a business line
decision-making,” says “Ann,” an executive at a multinational executive) at the head of an integration program management
high-tech manufacturer who was responsible for executing office that coordinates a number of functional integration teams.
the company’s largest-ever acquisition.
Not surprisingly, each of these responsible parties tends to have a
• Lack of experience with large integrations. Some
different focus and set of priorities for their phase of the work. For
companies that have executed a number of smaller, less
example, the synergy achievement component of the integration
complex transactions in which the target’s business is simply
may be led by a group from Finance, which may lose sight of
integrated into the existing operations of the acquirer, may
operational issues and pitfalls in their relentless focus on targets.
assume that integrating a larger company can be handled in
A clear enterprise blueprint, established as soon as the decision
much the same way. Unfortunately, this is rarely the case. In
is made to seek a merger or acquisition target, can go a long
large, complex deals in which many elements of the target
way toward driving alignment throughout the deal process as
company are to be adopted broadly across the combined
responsibility is handed off from group to group.
entity, it’s imperative to define the new entity’s operating
goals in a more formal manner.
An enterprise blueprint can help improve operating structure
• Lack of commitment to the deal. “Until people are decisions.
convinced a deal is going to happen, and everyone is
Developing an enterprise blueprint before integration activities
aligned with it, it’s difficult to get things moving,” says Ann.
commence can help a company avoid suboptimal decisions with regard
“In our case, it was quite clear that the broader company
to its post-deal operating structure. In the rush of an integration, there
teams didn’t think the deal was a good idea. We had to do
can be a tendency to jump quickly into determining which executives will
a lot of communication to convince them of the value the
hold leadership positions in the new company without first considering
acquisition would bring. During that time, it was difficult
how the new entity should operate. The result can be less than desired.
to get leaders to allocate resources, which were already
“Jeff,” a former executive and integration leader at a Fortune 200
constrained, to the integration program.”
services company, describes his experience: “Each CEO was lobbying
• Lack of decisive leadership. “You need a leader who for their executives to get control of the combined company. Because
takes ownership of the integration at a high level and who of that, we were stuck trying to create an organizational model around
is willing and able to resolve conflicts and make difficult people in boxes that predetermined the company’s destiny.” Having
decisions quickly,” says Ann. created an operating structure around “people in boxes” instead of the
• Executive conflict and lobbying for position. “Ego reverse, the company went through three different operating structures
and emotional issues can be strong,” says “Jeff,” a former in the 14 months after the deal closed.
executive and integration leader at a Fortune 200 services
company. “If executives lobby for their confidantes and An enterprise blueprint can help address critical go-to-market
apprentices to obtain roles in the new entity [instead of issues and unlock revenue growth opportunities.
making decisions based on strategy], this can lead to A crucial part of the value of most transactions comes from the expected
compromises in the organizational structure that don’t revenue synergies to be achieved by the combined entity. Creating an
necessarily reflect what is needed to execute on the strategy.” enterprise blueprint before the integration begins can help companies
carefully think through the “how” of achieving those synergies,
improving their chances of actually being able to execute when they
bring the two companies together. Conversely, without an enterprise
blueprint, executives could overlook important operational considerations
that can compromise the company’s post-deal performance.

83
 Making the Deal Work

Jeff gives a concrete example of the difficulties a company may face “Ann,” an executive at a multinational high-tech manufacturer who
if it doesn’t carefully think through its post-deal operating strategy. was responsible for executing the company’s largest-ever acquisition,
“We took a bottoms-up approach to rationalizing product lines from reports an experience at her previous employer that supports the
the two companies instead of having senior-level people make those value of starting the enterprise blueprint early. “I was on the due
decisions. Because of that, we wound up going to market with too diligence team on a deal for which we didn’t have a good business
many products from both lines and too many distribution channels plan or anything close to an enterprise blueprint going in, so we had
from both legacy companies, which ultimately created confusion no idea of management’s goals for the transaction,” she says. “We
both internally and in the marketplace. Instead of having the desired came back to the CEO with a ‘do not acquire’ recommendation, only
1+1=3 effect, the result came to something less than 2 because there to have him say, ‘You’re giving me all this information that I don’t
was too much choice for salespeople and for customers.” care about. What I want is to buy the target’s brand name.’ Had we
known from the start that the deal was about building a brand, our
An enterprise blueprint can help the functional integration whole approach to due diligence would have been different.”
teams stay aligned with the overall deal strategy, thereby
enhancing and accelerating synergy capture. We recommend that the blueprinting process begin by bringing
together a core group of senior executives – trusted people with
A solid enterprise blueprint can inform the development of
a sound understanding of the company’s long-term strategy and
“functional blueprints,” which are detailed descriptions of how each
objectives – to have, as Jim puts it, “a very open conversation
function should operate in order to deliver the expected value of
about the people, the key issues, and the key value drivers” of the
the deal. Obviously, the more complete the enterprise blueprint, the
prospective deal. Drawing on their knowledge of the company’s
more easily and quickly the functional integration teams should be
corporate and M&A strategy as well as the profile of the potential
able to craft functional blueprints that are aligned with the overall
target, this group should be able to develop a set of reasonable initial
vision for the combined entity.
hypotheses and an initial operating vision. Then, the core executive
team can share their views with additional key individuals – the deal
If the overall operational vision is not articulated, each function may
team, selected leaders from strategy, business development, and sales
develop solutions that may work well for that function but that
and marketing leaders, and key functional owners – to hold a formal
don’t fit with the overall corporate strategy. We have witnessed
visioning session aimed at answering at least some of the higher-level
many examples where, in the absence of an enterprise blueprint,
questions that an enterprise blueprint should clarify.
a key functional executive will make a sweeping decision that is
completely counter to the deal rationale and the combined entity’s
Jeff’s experience supports our view that it’s advisable to seek
intended strategy. Sometimes the enterprise’s overall strategy wins
input from appropriate functional leaders even at this early stage.
out; sometimes the situation leads to a suboptimal strategy that
“There’s a real need for financial projections to be validated by
erodes the value of the deal; but in all cases, valuable time and
people knowledgeable about company operations and strategy,”
effort is wasted and team morale squandered in a protracted battle
he says. “In our deal, the synergy work was done largely by folks
over the operating strategy.
from the financial discipline, and the strategy people were never
really brought into the plans and projections of how the new
Developing the blueprint: company would operate. If they had been, they may have been
able to point out some of the strategic errors in the assumptions
an evolution, not a destination the financial people used, which would have helped us avoid some
An enterprise blueprint should be viewed as a continuously evolving of the issues we ran into later.”
tool, not a static, once-and-done “final” product. At key points in
the transaction lifecycle, the integration team will have opportunities The next iteration of the enterprise blueprint should be developed
to collect more information about the deal from a wider range after the target is selected and the due diligence process completed.
of people, including, at some point, executives and other key At this point, the due diligence team can join the original enterprise
people from the company to be integrated. The team should use blueprint development team to provide insights collected during
their expanded understanding to revise the enterprise blueprint due diligence, and the enterprise blueprint can be adjusted and
as needed. Says Jim: “If the enterprise blueprint is not evolved to expanded to incorporate this new information. This document can
account for change, then it becomes obsolete. Somebody, usually a then help company leadership decide whether to go forward with
senior executive, has to own it and make sure that it is modified and pursuing a definitive transaction agreement.
tweaked as more information becomes known.”
After a definitive agreement is signed, it’s time to invite the target
In our view, work on the first iteration of the enterprise blueprint to jointly develop the third, even more detailed version of the
should begin during the “intent to acquire” phase of the deal, even enterprise blueprint. Being able to discuss a well-thought-out set
before starting due diligence. Developing a high-level description of working hypotheses, further informed by information gathered
at this time of what the combined entity should look like sets the in due diligence, can make it possible to quickly gain alignment
foundation for later iterations of the enterprise blueprint, and it can among key leaders from both companies, which is one important
also provide valuable guidance to the due diligence teams. reason why it’s valuable to develop earlier versions of the enterprise
blueprint before opening conversations with the target. In fact, this

84
 Integration – Functional Integration

meeting should be viewed as an opportunity to invite the target

to challenge the acquirer’s previously developed hypotheses, with Clean rooms: their uses and value
the goal of collectively developing a new version of the enterprise
blueprint that incorporates perspectives from both sides. We define a “clean room” as a data environment, secured
both physically and electronically, that is used to collect and
As Jeff says, “If I could have my way, the first thing I’d do in the analyze detailed, sensitive data from both parties in a merger
integration planning process is to get the two sets of CxOs, strategy or acquisition before deal close. In a clean room, a “clean
executives, and sales and marketing executives and sequester them team” of designated employees and/or third-party personnel
in a room for two or three days. Their job would be to hammer out can receive and analyze sensitive information, conduct
what the combined company’s operations and organization are integration planning, and develop recommendations before the
going to look like and how the company’s going to go to market deal actually closes – as long as no confidential data, analyses,
over the next two or three years.” or resulting recommendations are removed prior to acceptance
by legal counsel. The insights gained can then be shared with
The result of this intensive session should be a fairly detailed the integration teams soon after legal counsel’s acceptance to
document that provides the functional integration planning teams enable immediate action.
with clear executive direction on how the combined entity will
operate. The integration teams can then refer to the enterprise The ability to work with information whose sharing would
blueprint as they create their own functional blueprints. From this otherwise be prohibited by law can make a clean room an
point up until deal close, the enterprise blueprint may undergo effective way to get a head start on integration planning
further updates as functional planning efforts uncover additional and execution. There are, however, two caveats to the use
questions or challenges to the end-state vision. The extent of of a clean room, both due to regulatory restrictions. If the
change will be partly driven by the level of integration planning transaction is not consummated, the clean room data must be
performed pre-close, which will vary among deals. Some deals close handled according the terms of a non-disclosure agreement
so soon after the signing of a definitive agreement that teams must negotiated prior to the clean room’s establishment, and clean
focus almost exclusively on projects aimed at achieving seamless Day team members who are employees of either company are likely
One operations. Others proceed at a more leisurely pace that allows to be restricted from returning to their pre-transaction roles,
integration teams to pay more attention to end-state designs and pending review by counsel.
plan for post-close integration activities. Regardless, the enterprise
blueprint should be updated as necessary to make sure it remains
“I really think enterprise blueprinting is critical to the effectiveness
consistent with the overall rationale for the deal.
of a deal,” says Jeff. “I don’t know of many companies that hold a
big leadership meeting specifically to build an enterprise blueprint
Regulations that restrict the sharing of competitively sensitive
before an integration. But in my opinion, you have these kinds of
information and prohibit the separate entities from acting as if they are
meetings every year for your annual business planning, so why
a single entity prior to close (“gun jumping”) can keep the integration
wouldn’t you want to do it for a large M&A deal? The bigger the
team from making all necessary decisions about the enterprise blueprint
transaction, the greater the impact of doing this work up front.”
before deal close. Therefore, immediately following deal close, the
enterprise blueprint should be revisited to finalize any remaining open
decisions. Many companies utilize “clean rooms” (see sidebar) prior to Notes
deal close to perform analyses aimed at facilitating these decisions so 1 “Solving the Merger Mystery: Maximizing the Payoff of Mergers &
that they can act quickly when the deal actually closes. This final version Acquisitions,” Deloitte Consulting LLP, 2000
of the enterprise blueprint should serve as a key input into the post- 2 Matthias M. Bekier, Anna J. Bogardus, and Tim Oldham,
close integration planning and execution process, and also as a tool to “Why Mergers Fail,” The McKinsey Quarterly, Number 4, 2001.
facilitate communications to all stakeholders. 3 Scott A. Christofferson, Robert S. McNish, and Diane L. Sias, “Where Mergers
Go Wrong,” The McKinsey Quarterly,
Number 2, 2004.
Conclusion 4 Supra, fn. 1.
We believe that companies engaging in mergers or acquisitions, 5 Katzenbach Partners LLC (January 23, 2007). Corporate leaders express
especially large or complex transactions, can significantly improve disappointment with how effectively their companies integrate after mergers,
according to survey. Press release.
their chances of obtaining the desired results by crafting an
enterprise blueprint early in the deal lifecycle and continuing to
Note: “Jim,” “Ann,” and “Jeff” are pseudonyms for actual executives who have
develop it throughout the transaction and integration process.
held leadership roles in M&A transactions at their respective companies and with
Properly constructed, an enterprise blueprint can be a vital tool to whom Deloitte has worked on merger integration activities.
help the company translate the a deal’s strategic rationale into a
clear vision of what needs to be done to pursue the deal’s expected
value. Moreover, it can become a key “primer” to the combined
entity’s ongoing strategic planning effort.

85
 Making the Deal Work

Integration – Location & Facilities

Program Management

Synergies & Cost Reduction

Customers, Markets & Products

M&A Target Due Transaction Integration Divestiture 360o Communications

Strategy Screening Diligence Execution

Organization & Workforce

Functional Integration

Location & Facilities

86
 Integration – Location & Facilities

Managing M&A
facilities integration
By Jeff Weirens, Matt Yates and Craig Oberg

Integrating facilities as a result of an acquisition can impact nearly all Understanding the cost footprint of the facility portfolio is an initial
business functions. Despite this challenge, however, we have found step in crafting an alternative site list. Cost data provides a method
that facility transition planning is often overlooked. This can result for prioritization to allow the analysis to focus on a few key sites.
in significant difficulties for employees on Day 1 as well as longer- Cost analysis requires a timely collection of necessary data and
than-anticipated paths to achieving the synergies expected within operating cost data and lease terms can provide the integration
the new company. Highly effective companies use an acquisition as team with a baseline facilities cost assessment.
a catalyst to fundamentally revisit their facilities’ global footprint.
The decision to consolidate should be based upon more than
Facility transition planning typically includes three components: just cost, though. Employee attrition can be a major concern for
business units that experience widespread facility rationalization.
1. Site selection – analysis and decisions regarding the new Long commutes to new facilities, cultural differences and distaste
entity’s real estate portfolio and overall facilities footprint for change could result in heavy employee losses. In many cases,
2. Day 1 readiness – preparing all facilities for the close of talent management may supersede the need to cut costs.
the transaction
3. Transition execution – space planning, completing employee In addition, capacity constraints should be considered. Capacity
moves and closing facilities assessments may reveal shortages in usable office space. The new
organizational design may require a company to maintain facilities
We have found that a strong facilities transition plan can play that might otherwise be discarded, especially if expansion of more
a significant role in enhancing synergy capture, preventing desirable facilities is not an option.
employee attrition and maintaining uninterrupted operations
on Day 1 and beyond. Finally, the integration team should consider organizational
co-location as it crafts the new entity’s real estate portfolio.
The company should decide how to configure its commercial
Site selection functionality: Does it make sense for the finance group to operate
The site selection process includes balancing numerous considerations in a single facility, or should finance work in disparate facilities
such as cost management, talent retention, capacity constraints and supporting the various revenue streams? Answers to these questions
organizational co-location. The analysis that goes into site selection can weigh heavily in site selection decisions.
should be comprehensive and include consideration of the acquirer’s
legacy sites, as it may be advantageous to close legacy sites in favor of The site selection process can provide the integration manager
conveyed facilities. When a proper balance is achieved, the company with more than a list of facilities to be retained or exited. It should
should be well-positioned to achieve its strategic objectives as well as also help determine the scale of employee moves, the impending
its financial targets. reliance on Transition Service Agreements (TSAs) and synergy
capture potential going forward.

87
 Making the Deal Work

Certain groups of employee moves and/or site closures may be

Day 1 readiness relatively easy to execute, such as when employees are asked
Day 1 readiness preparation should facilitate uninterrupted to move only a short distance or when the remitting facility is
operation of all facilities upon transaction close. More specifically, expensive to operate and the destination facility has sufficient
proper preparation for Day 1 readiness means that employees will capacity to house incoming employees. When possible, simpler
continue to have access to the appropriate resources to perform transitions such as these should be executed on Day 1 to create
their job functions. An obvious consideration is IT continuity, but immediate cost savings, and more importantly, establish positive
there are a number of less apparent Day 1 readiness factors that momentum going forward.
should also be examined:
In many cases, though, the complexity of facility transition
• Security services and building access – will employees continue execution requires extensive planning. The difficulty in execution
to have access to the appropriate facilities? usually resides in managing the various interdependencies among
• Emergency response – who will facilitate emergency response the support functions that need to be in place at each location.
programs going forward? Common interdependencies include IT applications and systems
• Contract transition – have all necessary contracts, including transition, HR notification lead times and site preparation activities.
utilities, maintenance, and site services, been transitioned to Developing detailed transition roadmaps for each facility should
the new entity? aid the integration team in navigating the interconnected activities
• Office transition plan – have all applicable employee moves been required for an effective transition. Establishing milestones and
choreographed and receiving facilities undergone appropriate developing timelines should help determine the proper order of
workplace design? transition efforts and reveal “critical path” activities.
• Site branding – has facility signage been replaced to display the
appropriate name, brand, etc. of new entity?
• Facility closures – if applicable, have site exit plans been designed? Avoiding common pitfalls
Transitioning facilities during a merger or acquisition is typically a
Especially in carve-outs, the complexity of Day 1 readiness planning complex undertaking that involves numerous moving parts. Here
can be compounded when conveyed employees operate in non- are a few key action steps for consideration to help the integration
conveyed facilities. If the conveyed employees are unable to move team manage the complexity.
into the new entity’s facilities on Day 1, TSAs must be developed
and an appropriate level of separation must be introduced. A word Work with the end in mind
of caution: TSAs tend to be costly, and separation of employees, IT Enormous amounts of data are required to support facility
systems and operating protocol may be difficult. transition decisions. Therefore, many information requests
will likely need to be developed and collected. To facilitate the
information collection process, the integration team should
Transition execution understand the overall objectives and guiding principles of the
After the transaction closes, the focus shifts from preparation to transition plan prior to the submission of information requests.
execution. Steps to take include: This should reduce the need for additional requests later on.

• Closing applicable sites Establish executive ownership

• Moving employees into their newly assigned facilities Although a large portion of facilities integration can be executed
• Reducing/eliminating reliance on TSAs (if required) locally, keeping the execution in line with the company’s global
vision and strategies requires central accountability. Designating an
Skillful execution of a strong facility transition plan can position executive facilities lead to promote the coordination of facilities sub-
the company to meet or exceed its synergy targets. teams, act as a single point of contact for the C-suite and facilitate
the completion of necessary tasks can be an effective way to reduce
redundant activity and provide much-needed consistency in approach.

88
 Integration – Location & Facilities

Align all appropriate parties from the beginning

As stated previously, transitioning facilities can involve a large
number of parties. Drawing the IT, HR, organization design,
communications and TSA teams into the planning process from
the outset should not only help make the transition plan more
comprehensive, but should also help promote buy-in and build
crucial working alliances throughout the transition process.

Plan globally, implement locally

Acquisitions that are global in scope will likely involve more facilities
than can be efficiently managed from a central office. Regional
familiarity is essential to effectively position the local teams to
execute transition plans. Facility milestone plans, however, are more
effectively managed at the global level, as global management
allows integration leaders to perform high-level strategic planning
and synergy assessments for the company as a whole.

Facilities form the infrastructural backbone of an organization, and

facilities integration should be accorded the same level of priority
as other integration pursuits. Although a complex undertaking, the
organizational benefits and synergy capture potential can make facilities
integration a key measure of effectiveness in M&A integrations.

89
 Making the Deal Work

Appendix

90
 Appendix

About the contributors

Carol Bailey David Carney
Carol is a Principal in Deloitte Consulting LLP’s Strategy & Operations Dave is a Principal with Deloitte Consulting LLP’s Mergers and
service area in the Health Care and Life Sciences industry. She has Acquisitions (M&A) service line and works with executive teams
more than 14 years of industry experience and 6 years consulting and integration directors to help them plan and execute mergers,
experience in finance operations improvement and merger acquisitions and divestitures. He has led many consulting projects
integration. Carol has led multiple financial integration consulting involving some of the largest, most complex integrations and
projects that dealt with international acquisitions, synergy capture carve-outs with Deloitte clients. Dave holds an MBA from Harvard
planning, accounting, process change implementation, and large tax University’s Business School, an MS from Oxford University, and a BA
restructuring. She has an MBA from Wharton and is also a certified from Harvard College. He currently lives in San Francisco, where he
management accountant. enjoys sailing on the bay.

Iain Bamford Kim Christfort

Iain is a Manager in Deloitte Consulting LLP’s M&A Integration Kim is a Senior Manager at Deloitte Consulting LLP, bringing over a
Services service line, based in Boston. He currently specializes in decade of consulting experience in marketing and sales effectiveness,
helping clients in the Telecommunications, Media and Technology customer and partner experience, customer relationship management
industries with their post-merger integration efforts, including (CRM) strategy, services solution selling, and brand transformation.
synergy capture, clean team management, and overall integration She has deep experience in M&A, providing consulting services
strategy and planning. His other consulting experience includes that have helped our clients apply sales and marketing strategies
organizational design, process re-engineering, operations for merger/acquisition/divestiture projects focused on both revenue
improvement, and strategy work across multiple industry segments. and cost synergy realization. Recent clients include corporations in
He has an MBA from the Fuqua School of Business at Duke consumer business and high tech manufacturing, software, and
University and a bachelor’s degree in Law from Durham University in technology. Prior to joining Deloitte, Kim worked in high tech public
the United Kingdom. relations and marketing. She has an MBA from Stanford University’s
Graduate School of Business and a bachelor’s degree in science,
Varun Budhiraja technology, and society from Pomona College.
Varun is a Senior Consultant in Deloitte Consulting LLP’s Strategy
& Operations service area and has over five years of consulting Dave Couture
experience with an emphasis in Mergers, Acquisitions and Dave is a Principal in Deloitte Consulting LLP’s High-Tech Mergers,
Divestitures. Varun has served clients across multiple industries, Acquisition & Divestiture service line. He has over 17 years
including high-tech, healthcare and life sciences, manufacturing, of experience providing consulting services that have helped
and financial services, both domestically and internationally. His companies maximize shareholder value through use of various
experience includes consulting projects involving M&A synergy strategic and operational levers. Dave is also a specialist in the area
and value capture planning, transaction execution, post merger of private equity acquisitions of corporate carve outs. He holds an
integration planning, customer analytics and market entry analysis, MBA from University of Virginia at Darden and a bachelor’s degree
cost reduction, and functional assessments. Varun holds an MBA from California Polytechnic State University at San Luis Obispo.
from the Fuqua School of Business at Duke University and a
graduate degree in engineering from Pennsylvania State University. Diane Davies
Diane is a Principal with Deloitte Consulting LLP and leads the
Tamara Carleton Health Plan services segment nationally. She is also a member of the
Tamara is a Manager with Deloitte Services LLP, managing Board of Directors for Deloitte Consulting LLP and a member of the
marketing and brand strategy for Deloitte Consulting LLP’s Deloitte & Touche USA’s Executive Committee. During Diane’s 17-
Reputation Initiative and the M&A Integration Services service year tenure with Deloitte Consulting, she has provided consulting
line. She has substantial experience as a marketing strategist, services to numerous managed care organizations and health plans
focused on customer experience, brand creation, campaign in support of projects involving strategic issues regarding mergers
management, and corporate communications. Her project and acquisitions, business transformation, corporate strategy
experience spans across Consumer Business, High Tech, and Media development and positioning, and business model design and
industries, and she has provided consulting services in both the implementation. Diane is based out of the Los Angeles office, and
U.S. and Switzerland. Tamara holds a masters’ degree in public holds dual bachelor’s degrees in economics and psychology from the
relations from Syracuse University and a bachelor’s degree in University of California, Berkeley, and an MBA from the University of
communication from George Washington University. California, Los Angeles, Anderson School of Management.

91
 Making the Deal Work

Eileen Fernandes Padric Kelly O’Brien

Eileen is a Principal and the National Leader for M&A Integration Kelly is a Partner with Deloitte Tax LLP and has over 25 years of
Services in the Human Capital service area in Deloitte Consulting experience in providing tax services to businesses regarding their
LLP. She has more than 20 years of extensive experience in both federal, state and international income. He also provides services
the corporate and consulting arenas, specializing in mergers related to tax transaction implications, controversial tax matters that
and acquisitions and human resources strategy development require deep knowledge of U.S. federal taxes and administrative
and implementation for organizations undergoing a change of systems, cross functional team building and leadership, change
ownership. Eileen also helps clients with the strategic development management, and risk management issues.
and delivery of integrated communications to internal and external
audiences. She holds a bachelor’s degree in Public Relations from Patricia Kloch
San Jose State University. Trish is a Director at Deloitte Consulting LLP with 28 years of
combined management consulting and private industry experience.
Glenn Geffner For the past 20 years, she has provided consulting services to the
Glenn is a Partner in Deloitte Tax LLP dedicated to Tax Integration finance organizations for many significant clients across multiple
Services (TIS). This service area helps clients implement an integrated industries. Trish’s experience includes consulting services in support
and disciplined approach across consulting, audit and tax functions of projects involving strategy and business process design across
to address their integration/divestiture needs. Glenn serves as a Tax financial operations, such as regulatory and management reporting,
Project Management Office (PMO) lead, embedded on the M&A credit collections, and shared services. Her experience also includes
integration team, to help focus the team on tax issues throughout consulting services in support of projects involving integration
the integration process to facilitate the effective management of points with related key business process areas including operations,
any tax risks associated with the transaction, and the effective supplier, and customer requirements. Trish’s project experiences
consideration of any regulatory matters and enhancement of any extend across a wide range of financial strategy and operations
synergies associated with a transaction on an after-tax basis. areas. She holds a bachelor’s degree from Oregon University.

Chris Gentle Kevin Knowles

Chris is the Director of Research for Global Financial Services at Kevin is a Senior Manager with Deloitte Consulting LLP’s Human
Deloitte & Touche LLP UK. Based in London, he is responsible for Capital service area. He is also a national leader for Deloitte
research operations across the globe in the banking, capital markets Consulting’s Human Capital Telecommunications industry focus.
and insurance industries. He specializes in operational efficiency, Kevin’s primarily provides consulting services in support of the
M&A, and offshoring and regulatory issues. Author of two books The implementation of transformational restructuring. In addition,
Financial Services Industry and After Liberalization: A Vision of Europe Kevin has served in the HR community from general management
and over 350 articles, Chris is a frequent commentator contributing to HR planning and strategy. He is also certified by the Society for
to The Financial Times, The Economist, and The Wall Street Journal. Human Resource Management as a Senior Professional (SPHR) and
He has also appeared live over 50 times on CNN, BBC CNBC and certified by the World at Work Association as a senior professional
Bloomberg. He holds a BSc (Hons) from Manchester Polytechnic, a in the field of compensation (CCP). Kevin holds a master’s degree
doctorate from University of Newcastle, and was a visiting fellow at in labor and industrial relations from the University of Illinois and a
Nuffield College, Oxford and Moscow State University. bachelor’s degree in criminal justice from the University of Alaska.
His publications include Anatomy of Acquisitions: A Guide to
Russ Hamilton HR Management Contributions in the Early Phase of a Buy Side
Russ is a Partner with Deloitte Tax LLP’s leading the tax aspects of Transaction and HR Management Handbook for Acquisition.
merger integrations. In addition to having extensive experience in
traditional tax due diligence and structuring matters, he has spent Dan Kohut
the last decade providing tax services to multinational operating Dan is a Managing Associate with ScottMadden Management
companies to help them obtain the significant tax benefits associated Consultants with over ten years of focused M&A consulting
with their merger integration efforts. Russ has a special focus on experience across multiple industries including international
helping our clients execute their necessary business process changes assignments in Belgium, Germany, Australia and Italy. Formerly a
in a tax-efficient manner. A frequent speaker and writer, his articles Senior Manager with Deloitte Consulting LLP, Dan provided consulting
on corporate taxation and merger and acquisition topics have services in support of the analysis, planning and execution of strategic
appeared in such diverse publications as The Tax Advisor, Financial growth-related activities including mergers, acquisitions, divestitures,
Manager, Investment Dealers’ Digest, Merger and Acquisition spin-offs, joint ventures, and business exit/wind-down. Based on
Reports, Independent Banker, Tax Notes Today, and the Practicing Law his extensive M&A and international experiences, Dan co-authored
Institute Handbook on International Financing of U.S. Takeovers. a Deloitte white paper entitled Navigating a Global Merger – Six
Important Steps to Help Overcome Challenges.

92
 Appendix

Jessica Kosmowski Kevin Lynch

Jessica is a Senior Manager in Deloitte Consulting LLP’s Customer Kevin is a Principal with Deloitte Consulting LLP, leads the Strategy
Transformation service line. She brings nine years of professional & Operations service area in Los Angeles, and is the national leader
consulting services experience to her clients, specializing in customer for Deloitte’s U.S. M&A Strategy service line. With over 21 years of
and market strategies to help companies achieve tangible value. strategic and operational consulting experience, Kevin focuses the
Jessica focuses on the high-tech industry. She has also led the majority of his time providing consulting services related to acquisition
consulting services provided in support of a number of M&A efforts strategy, building effective corporate development organizations,
geared toward helping the client protect and leverage their customer commercial due diligence and target evaluation, operating strategy
and partner experiences in an effort to realize planned synergies. development, and integration planning. Kevin is co-author of the
white paper “Set Your Sights on the M&A Endgame”, as well as
Todd Kovacevich Deloitte Consulting’s Technology Industry proprietary Enterprise
Todd is a Senior Manager with Deloitte Consulting LLP, bringing Value Map tool, and routinely lectures at prominent graduate
more than 14 years of consulting and operational experience business schools on the topic of growth strategies, enterprise
focused on M&A, business strategy, architecting business transformation, and operating strategy. Kevin has provided consulting
operations, and directing large-scale enterprise transformations. services to numerous Fortune 500 clients across multiple industries,
Outside of consulting, he has held leadership positions in sales, including manufacturing, aerospace & defense, technology,
product marketing, services, and supply chain management. His media & entertainment, life sciences, consumer products, and
experience spans several industries including high-tech, discrete telecommunications, both domestically and internationally. Kevin
and process manufacturing, healthcare and life sciences, and holds an MBA from the University of Washington and a bachelor’s
consumer products. His current focus is providing consulting services degree from the University of Southern California.
to companies in the technology, media and telecommunications
industries and institutional investors related to M&A matters Carter Mayfield
including deal strategy and planning, operating strategy definition, Carter is a Manager in Deloitte Consulting LLP’s Customer
post-deal integration, and operational transformation. Todd Transformation service line. Carter focuses on consulting services
holds an MBA from Northwestern University’s Kellogg School of related to pricing, where he has been involved in eight engagements.
Management and a bachelor’s degree from Dartmouth College. He has also provided consulting services involving a number of M&A
transactions, where he has focused on the management of the
Douglas J. Lattner customer experience during post-merger integrations.
Doug is chairman and CEO of Deloitte Consulting LLP. In his 30
years with Deloitte Consulting, Doug has taken key leadership roles Craig Oberg
and has provided consulting services to a variety of clients, primarily Craig Oberg is a Senior Consultant in Deloitte Consulting LLP’s
investor-owned utilities in the electric, gas, and telecommunications Strategy and Operations service area based in Minneapolis. His M&A
industries. His leadership responsibilities have included managing consulting experience is primarily in the Life Sciences and Energy
director for the Dallas office and regional managing director industries. He holds an MBA from the University of Minnesota’s
for Deloitte Consulting’s Southern region. He also served two Carlson School of Management.
terms as leader of the organization’s Energy industry focus,
consolidating it as a worldwide industry focus in 1996. His specific
areas of experience include mergers and acquisitions, corporate John Powers
restructuring, privatization, the formation of strategic business units, John is a Principal with Deloitte Consulting LLP, leading the Merger
financial planning and controls, and organizational analysis. In 2005, Integration service offerings for the U.S. and Deloitte’s Global M&A
Doug was named one of the “Top 25 Most Influential Consultants” Center of Excellence in Hyderabad, India. With over 12 years of
in the country by Consulting Magazine. He is a speaker, author, strategic and operational consulting experience, John focuses the
contributor and consultant – sought after for his extensive business, majority of his time providing consulting services related to merger
leadership, technical and industry experience. integration, commercial due diligence and restructuring. John has
provided consulting services to numerous Fortune 500 clients across
multiple industries, including technology, media and entertainment,
life sciences, consumer products, and telecommunications,
both domestically and internationally. John holds an MBA from
Northwestern University’s Kellogg Graduate School of Management
and a bachelor’s degree from Brown University.

93
 Making the Deal Work

Stephanie Quappe Alan Sandberg

Stephanie is a Consultant in Deloitte Consulting LLP’s Human Capital Alan is a Manager in Deloitte Tax LLP and is a member of the tax
service area in New York, specializing in consulting services related to merger integration team. In addition to having obtained extensive
organizational culture transformation and inter-cultural communication. experience providing tax services related to traditional tax due
She has provided consulting services in support of coaching, facilitation diligence, structuring matters and post-transaction close tax merger
and training activities in areas of diversity, leadership and multicultural integration issues, he has provided compliance related tax services to
teambuilding to Fortune 500 clients. Stephanie earned her MBA and a number of multinational operating companies in support of their
M.A. degrees in international business and economics and is also efforts to comply with the reporting requirements for the accounting
the co-author of Intercultural Communication with NLP, a training of income taxes (SFAS 109/FIN 48) reporting requirements. Alan has
handbook published in Germany in 2006. developed a wide range of experience providing tax services to large
multinational companies with a variety of U.S. corporate federal and
Punit Renjen state income tax matters. Alan graduated from Indiana University
Punit is a Principal with Deloitte Consulting LLP and leads the with a bachelor’s degree and MBA in accounting.
Global Strategy & Operations service area. He is also the leader of
Deloitte Consulting’s Merger and Acquisition Integration Services Ranjit Singh
service line. Based in Seattle, Punit leads the consulting services Ranjit is a Senior Manager with Deloitte Consulting LLP. Jit has
in support of client activities that encompass the entire M&A managed the consulting services in support of pricing revenue and
lifecycle from developing strategies to post merger integration. margin improvement projects for companies in several industries
He oversaw the development of the firm’s comprehensive and including manufacturing, high-tech, telecom and automotive. Jit has
structured methodology for all phases of M&A activities and was focused on a number of revenue enhancement services including:
personally responsible for the development of the M&A content M&A, customer & channel strategy, pricing, and corporate strategic
and methodology. He also directs Deloitte Consulting’s projects and planning. He has also recently provided consulting services in
merger integration research activities. Punit has also authored many support of sales, marketing and business leadership’s efforts to
publications and white papers, including Solving the Change Puzzle: assess pricing strategy, pricing execution policies and procedures
When and When Not to Reengineer, Reengineering for Results: to identify profit improvement recommendations and develop
Approach and Method, and Solving the Merger Mystery and the improvement action plans. Jit currently manages Deloitte Consulting
Secrets of Successful Mergers. Under his leadership, Deloitte’s LLP’s Pricing Center of Excellence (COE), which focuses on tracking
merger integration service area has provided consulting services in industry pricing trends, providing client pricing subject matter
support of 11 out of the 30 $1.5 billion and greater merger and experience, and developing firm training and research. He has an
integration deals between October 2004 and April 2007. MBA from Carnegie Mellon and a bachelor’s degree in electrical
engineering from Cornell University.
Cydney Roach
Cydney is a Manager in the Human Capital service area in Deloitte Leslie Smith
Consulting LLP, bringing 12 years of progressive strategic change and Leslie is a Director with Deloitte Consulting LLP’s Human Capital
communications experience in the industry. She spent the last five service area. With more than 16 years of consulting experience,
years specializing in providing consulting services related to change she provides consulting services in support of retirement plan
transformation and employee communications/employee engagement sponsors efforts to manage their vendors, reduce administration
with an emphasis on internal branding. Cydney has a significant record fees, and increase plan efficiency and effectiveness. For the past five
of achievement for designing change and employee engagement years, Leslie has directed and managed Deloitte’s Annual 401(K)
programs in Fortune 500 companies while she was in private industry. Survey, which is one of the most comprehensive 401(k) surveys
Formerly a creative director for two global ad agencies, she has in the industry. A frequent writer and speaker, her experience on
a unique ability to help clients in their efforts to devise powerful retirement plans has been demonstrated in such publications as
pathways for information learning and transformation. A frequent The Wall Street Journal and The Los Angeles Times. She holds a
writer and speaker, she has also provided insight and perspective dual degree in computer science and mathematics from the State
based on her experience, knowledge and skills in change management University of New York at Binghamton.
and communications in various popular magazines. Cydney holds a
bachelor’s degree from Georgetown University. Joshua Steiner
Joshua is a Manager in Deloitte Consulting LLP’s M&A Integration
David Samso-Aparici Services service line based in New York. He has 9 years of consulting
David is a Director with Deloitte S.L. leading the Human Capital experience on projects related to global transformation efforts in
consulting service area in Barcelona, Spain. David’s consulting high-tech manufacturing, telecommunications, consumer business,
services mainly relate to organizational transformation, and he has and life sciences, specializing in global mergers, acquisitions,
co-developed the Human Capital elements of the Shared Services and divestitures. Joshua has worked with clients in the USA, UK,
methodology. While in Spain, he is building other Human Capital Germany, Belgium, Brazil, Japan, Australia, Hong Kong, China,
service offerings such as Talent Management, Organizational Singapore, and India. Joshua has an M.Eng. in industrial engineering
Design, and M&A. David has worked in the United States, Canada, and bachelor’s degree in engineering from Cornell University.
Latin America and Europe. He has a M.A. in economics from the
University of New Hampshire and a M.S. in foreign service from
Georgetown University.
94
 Appendix

Bryan Talbot Jon Warshawsky

Bryan is a Senior Manager in Deloitte Consulting LLP’s Strategy and Jon is a Senior Manager with Deloitte Research and editor-in-chief
Operations service area. Based in Los Angeles, Bryan has provided of Deloitte Review magazine. He is the co-author of Why Business
consulting services to clients involving various merger and divestiture People Speak Like Idiots: A Bullfighter’s Guide (The Free Press,
activities including: target screening, pre-approval integration 2005), featured on Fox News and NPR, and has been a keynote
planning, and post-Day 1 integration execution. He has co-authored speaker at numerous conferences and companies on the topic
an article entitled “Navigating a Global Merger: Six Important of authenticity in communication. Jon led the development of
Tips to Help Overcome Challenges” based on his experience in the Clio Award-winning Bullfighter software, which quantified
supporting merger integration of the manufacturing, sales and the bull content of business documents. Bullfighter was featured
distribution functions in global mergers. in numerous publications, including The New York Times and
BusinessWeek, and on programs such as CNN’s Moneyline. Jon has
William Tarry an MBA and bachelor’s in psychology from Miami University.
Will is a Principal with Deloitte Consulting LLP and leads their
M&A Services service offering in the private equity marketplace. Bruce Westbrook
He has over 20 years of experience providing consulting services Bruce Westbrook is a Principal with Deloitte Consulting LLP and
to clients involving business strategy development and operations is the US National Industry Leader for Consumer Business. His
improvement, and as a leader in the M&A Services service area. experience includes providing consulting services related to supply
Will is a specialist in both transactional and operational finance chain strategy, logistics network design, logistics management
and also has experience in many industries managing large projects information systems, distribution center design, inventory
in the finance arena. He has driven the development of Deloitte management, transportation analysis, and operations improvement.
Consulting’s capabilities to provide consulting services in support of He is currently a member of the Board of Directors for Deloitte
a client’s efforts to carve out evaluation and execution. He holds an Consulting, and has also held the position of national lead for
MBA in finance from Columbia University and a bachelor’s degree in Deloitte Consulting’s Supply Chain service line. Bruce holds a
economics from Duke University. bachelor’s degree and MBA from Fairleigh Dickenson University.

Trevear Thomas Jeffery Weirens

Trevear is a Principal with Deloitte Consulting LLP and has over Jeff is a Principal with Deloitte Consulting LLP and leads their
15 years of industry and consulting experience. He specializes in Strategy and Operations service area in Minneapolis and the
providing consulting services involving Mergers & Acquisitions with Carve Out/Divestiture service line nationally. He has developed
an emphasis on finance M&A integrations/divestitures. Trevear has the carve-out and merger integration methodology, thoughtware
provided consulting services to several high-profile global clients and tools and has also been a speaker at numerous conferences
involving their efforts from developing the M&A strategy through and universities. Jeff is considered a trusted adviser by his client’s
post merger integration/divestiture activities. Moreover, Trevear senior leadership teams and provides consulting services involving
co-leads the Finance M&A service offering for Deloitte Consulting, M&A activities from divestiture strategy and planning to execution.
where he is responsible for setting the firm’s view on Finance M&A’s Jeff has led the provision of consulting services for many complex
direction and execution nationally. Trevear recently co-authored divestiture and integration projects through his work in U.S., Japan,
an article with M&A Advisor entitled “M&Ade in China”, which Singapore, Germany, Belgium, France and U.K. He has an MBA
speaks to implications for global business in the new age of Chinese from Cornell University and a bachelor’s degree in business from the
outbound investments. He holds a BS from Clark Atlanta University University of Minnesota’s Carlson School of Management.
and a MBA from MIT’s Sloan School of Management.
Matt Yates
Douglas Tuttle Matt is a Senior Manager in Deloitte Consulting LLP’s Strategy
Doug is a Principal at Deloitte Consulting LLP with 25 years of high and Operations service area in Cleveland, Ohio. He currently leads
technology industry, alliance and consulting experience. He has been the consumer business M&A service line for Deloitte Consulting
a former director of the Global High Technology industry segment. across the M&A lifecycle from strategy to divestiture. Matt has led
Doug has extensive experience in providing consulting services to the provision of consulting services involving several significant
clients involving reengineering, technology and merger integration consumer business M&A projects including the industry’s largest
of business operations. He has provided consulting services to many consumer business M&A deal of 2006. He authored the M&A
high tech clients and client teams focused on go-to-market solution methodology for the supply chain function and is regularly called
selling models, conflict resolution practices and the transformation upon by consulting teams to act as a subject matter specialist in
process from hardware to solution selling. Doug has also led Deloitte’s this area across industries. Matt has authored several publications
national Merger & Acquisition service offering for the manufacturing on mergers and acquisitions and conducts interviews with national
industry. He has been extensively quoted in The Wall Street Journal, M&A publications on his views of M&A trends in the CB industry.
Fortune, Investor’s Business Daily, and Industry Week, among other Matt holds an MBA from the University of North Carolina at Chapel
publications. Doug has an MBA from Boston University and a Hill and a bachelor’s degree from Baldwin-Wallace College.
bachelor’s degree in engineering from Lafayette College.

95
 Merger & Acquisition Services
Merger and acquisition (M&A) transactions are among the most Throughout the process, we collaborate with client leadership to
complex activities a business can undertake. Deloitte’s M&A Services help them address the cultural and human resource issues that
draws experience, knowledge and skills from financial advisory, tax, accompany any merger situation. By working with Deloitte, a client
accounting and consulting professionals, who provide corporate and gains three distinct advantages:
private equity buyers and sellers with a broad continuum of financial • Our experience in merger integration. Deloitte has provided
and business advisory services. services in support of more than 500 merger integration
engagements, including some of the largest and most complex
We help private equity investors and corporate strategic buyers in transactions in the past 15 years. We have access to a network
their efforts to address the full range of M&A issues: of nearly 3,000 dedicated M&A professionals around the world
• Financial and operational due diligence and more than 500 client-tested and time-tested.
• Valuation
• Our ability to help a client manage integration across all of its
• Tax and accounting structuring
business functions. We can deliver a comprehensive range of
• Merger strategy
subject matter skills, experience and functional knowledge ranging
• Merger/Divestiture planning and integration execution
across tax, intellectual property, human resources, supply chain
management, information technology, and real estate.
M&A Integration Services
Specifically when it comes to M&A integration, we provide value by • Our global presence. We have a global network of M&A
helping clients plan, structure, and manage the overall integration. specialists who understand the local culture and business
This includes helping our clients in their efforts to capture promised environment, and who can serve our clients in any market in
synergies, while they are building a strategic platform for the which they produce and sell.
future and meeting commitments to customers, suppliers, and
shareholders. At the departmental level, we help our clients in their For more information
efforts to consolidate sales, marketing, finance, human resources, Deloitte’s M&A Services website features the latest research, articles,
supply chain, technology services, and other business functions. points-of-view, industry reports, webcasts, podcasts, and more on
M&A business issues and trends.

Please visit www.deloitte.com/us/M&A to learn more and also to

subscribe to the latest M&A alerts.

96
Item #7167

Making the Deal Work features more than 20 articles covering almost every facet of M&A today.
From Strategy to Enterprise Blueprinting and Facilities Integration, this book examines the
major issues companies should be managing in any transaction.

Here’s a sampling of what’s inside:

• The rise of the carve out
• Corporate fight back: Five disciplines to win in M&A
• Merging alliances: Ignore at your own risk
• Seven things your mother never told you about succeeding as an integration manager
• Navigating a global merger: Six important tips to help overcome challenges
• Set your sights on the M&A endgame: How an enterprise blueprint can help you navigate
multiple M&A challenges

It’s solid thinking based on the experiences of 2,000+ Deloitte M&A professionals who have
been involved with helping clients worldwide in support of hundreds of the most complex
M&A deals in the last several years.

About Deloitte
Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, its member firms, and their respective
subsidiaries and affiliates. Deloitte Touche Tohmatsu is an organization of member firms around the world devoted to
excellence in providing professional services and advice, focused on client service through a global strategy executed locally
in nearly 140 countries. With access to the deep intellectual capital of approximately 150,000 people worldwide, Deloitte
delivers services in four professional areas — audit, tax, consulting, and financial advisory services — and serves more than
80 percent of the world’s largest companies, as well as large national enterprises, public institutions, locally important
clients, and successful, fast-growing global companies. Services are not provided by the Deloitte Touche Tohmatsu Verein,
and, for regulatory and other reasons, certain member firms do not provide services in all four professional areas.

As a Swiss Verein (association), neither Deloitte Touche Tohmatsu nor any of its member firms has any liability for each
other’s acts or omissions. Each of the member firms is a separate and independent legal entity operating under the names
“Deloitte,” “Deloitte & Touche,” “Deloitte Touche Tohmatsu,” or other related names.

In the United States, Deloitte & Touche USA LLP is the U.S. member firm of Deloitte Touche Tohmatsu and services are
provided by the subsidiaries of Deloitte & Touche USA LLP (Deloitte & Touche LLP, Deloitte Consulting LLP, Deloitte Financial
Advisory Services LLP, Deloitte Tax LLP, and their subsidiaries), and not by Deloitte & Touche USA LLP. The subsidiaries of the
U.S. member firm are among the nation’s leading professional services firms, providing audit, tax, consulting, and financial
advisory services through nearly 40,000 people in more than 90 cities. Known as employers of choice for innovative human
resources programs, they are dedicated to helping their clients and their people excel. For more information, please visit
the U.S. member firm’s Web site at www.deloitte.com

Member of
Copyright © 2007 Deloitte Development LLC. All rights reserved. Deloitte Touche Tohmatsu