Mergers, Acquisitions & Alliances Approach

Merger, Acquisitions and Alliances
Approach, Frameworks and Tools

4
Over the next three years, 80%-90% of mid to large size firms will
be actively involved in some phase of Mergers, Acquisitions and
Alliances (M/A/A) actions*
Mergers - Pooling assets in equal proportions, where the contributing
organization cease to exist as separate entities
Acquisitions- Combining assets in majority/minority proportions; typically
one organization’s identity is subsumed within the other’s
Alliances- Sharing assets for specific purposes over a given period of time;
each party’s core business model remains separate and intact
— Definitions—
Overview
*Source: GartnerGroup, August 1998
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7
It is critical to understand the underlying business driver(s) in an
M/A/A effort to identify and achieve the expected outcomes
Cashing In/Cashing Out (Acquiring/selling a startup or small independent firm) -
Acquiring firms that have a particular niche or specific (and complementary) product. This
lead to the emergence of the “cottage industries”, particularly in software and media, that
are oriented toward building up a company to make it attractive to an acquirer. The
complimentary practice is to spin off small-cap firms from larger corporations to test or
create a market for new services and products or sell an internal competency available to the
external market.
Economies of Scale (Market Consolidation) - This driver leverages size in order to reduce
the per customer costs of the firm. Usually this is executed within the same or similar
business, the goal being to reduce the time and cost of integration, and to leverage scales of
size, geography or product “reach”.
Customer Demand (Market Awareness) - Many M/A/A activities are driven by the
objective of “capturing” more customers to ensure a revenue stream, or to expand the
market within which new products and services can be delivered. This facilitates cross-
selling and common branding.
Changing Business Models (Market Creation) - Extensive M/A/A activity has created an
increasingly competitive environment requiring businesses to rethink not only how they
interact with customers, but who are their target customers. The emergence of the Internet
and E-commerce has demanded that business create new models for focusing on customers,
integrating products and developing new distribution channels.
— Business Drivers—
Overview

10
Beyond cost savings, IT is the critical component to ensure the
sharing of information and synergy opportunities are captured
Enlist senior business management on an IT advisory council to guide the
development of integrated IT capabilities with business goals
Recognize the project costs, including new infrastructure, in the first phase
Map the key business and IT processes to identify organizational interfaces
and boundaries
Identify the governance issues and assess solutions
Do a skills assessment and needs analysis, defining roles filled internally
and externally, of the staffing and training gaps
Work with the human resources and accounting departments to support
integrated and nonstandard organizational structures
— Guidelines for IT Integration—
Overview

13
AAIM is a proprietary methodology to drive merger initiatives to results
— AAIM™, Acquisition Assessment and Integration Model —
Enterprise
Integration
Operational
Integration
Regional/Business Unit
Integration
Program
Integration
Integrate
Operations
Integrate
Operations
Articulate
the Model
Articulate
the Model
Model enterprise
capabilities
Define corporate
structure
Develop collaborative
culture
Establish governance
model
Model operating
capabilities
Define operations
blueprint
Identify local
capabilities
Define business
unit structures
Direct and Measure
Journey
Direct and Measure
Journey
Scope and Plan
Journey
Scope and Plan
Journey
— Post-Merger Integration —
Develop Business CaseDevelop Business Case
Reconfigure:
R&D
IT
Supply chain
Operations
Sales and
marketing
Customer
operations
Corporate center
Negotiate the
Relationship
Negotiate the
Relationship
Negotiate the deal
Create shared vision
Conduct strategic due
diligence
Regulatory
Approval
Regulatory
Approval
Initiate “100 day”
program
Initiate “100 day”
program
Establish Integration
Program Office
Program Office
— Pre-Merger Integration —
Contemplate
Alternatives
Contemplate
Alternatives
Evaluate Strategic
Options
Evaluate Strategic
Options
Conduct portfolio
analysis
Understand market
value objectives
Develop acquisition
program plan
Organize the enterprise
for strategic partnering
Select targets
Assess fit
Set objectives
Acquisition Assessment and Integration Model

16
Phase two entails identifying candidates, assessing “fit”, and
screening viable targets
Objectives
Broad Search - identify all potential candidates which meet screening criteria
Data Collection - assimilation all available information/data for assessment
Thorough Screening - eliminate candidates according to obstacles arising from:
•Strategic Integration (Competencies & Market Goals)
•Operational Integration (Support & Core Operations)
•Resource Integration (Employees & Culture/Behavior)
•Structural Integration (Organizational & Leadership/Governance)
Guiding Principles
The philosophy behind this phase is one of diligence --- effectiveness of process hinges
upon the balance between what it wants to see and the rigor used in questioning what it
sees.
— Contemplate Alternatives —

19
Critical to developing the operating model is determining the degree of
post-merger integration
1 2 3 4 5 6 7 8 9
Separate
Holding
Strategic
Control
Managed
Subsidiary
Merged &
Consolidated
Operational
Control
Combination
Structure:
Areas of
Integration:
Management
Implications:
Corporate
Functions
Companywide
Integration
Production or
Marketing
Decentralized
planning and
monitoring
Autonomy of line
management
Centralized
planning and
monitoring
Coordination of
line management
Integrated
operations and
control
Cooperation of line
management
— Degree of Integration between Combining Companies —
Source: Joining Forces: “Making One Plus One Equal Three in Mergers, Acquisitions, and Alliances,1998, M. L. Marks and P. H. Mirvis.
Degree of
Integration:

22
Phase four entails translating the shared vision into an operating plan
— Articulate the Model —
Objectives
Enterprise Integration: Organizational Structure and Leadership & Governance
• Model enterprise capabilities
•Define corporate structure
Operational Integration: Core Operations and Support Operations
• Model operating capabilities
• Define operations blueprint
Resource Integration: Employees and Culture & Behavior
• Model employees / infrastructure (Capex* & Facilities)
•Define resource needs/requirements blueprint
Guiding Principles
The philosophy behind this phase is one of unity --- combining two companies into one
achieving breakthrough synergies with new operations and culture.
* Capital Expenditures

25
Phase five entails executing the implementation plan, developing a
collaborative culture, and establishing the governance model
— Integrate Operations —
Objectives
Implement comprehensive change management plans
•Research & Development
•Supply Chain
•IT/Operations
Develop collaborative culture
Establish governance model
Guiding Principles
The philosophy behind this phase is one of execution --- organizations consistently
underestimate the time and energy required to identify, assess, and address the many
decisions that arise when two complex organizations combine.
•Sales & Marketing
•Customer Operations
•Corporate Center

28
Objectives
Establish Integration Program Office
• Select transition team/task forces
•Assign responsibilities
Scope and plan the journey
• Prioritize critical issues
• Build work plan
Direct and measure journey
• Establish “Critical Success Factors”
• Manage ongoing business
Guiding Principles
The philosophy behind this phase is one of leadership --- setting guidelines, overseeing
analyses and findings and directing the changes fast and effectively..
A dedicated staff guides the combination of businesses beginning to
end
— Manage Integration Program —
• Develop communication plan
• Set milestone meetings

31
Program management is responsible for identifying key communication
themes and plans for internal and external audiences
* “NewCo” refers to the “new company” formed by the merger of two organizations.
Feed information on
process integration
progress
Request resources
Recommend action
Report on progress
Request resources
Make
recommendations
Communicate
concerns
Ask questions
Request support
Facilitated sessions to:
Articulate vision for NewCo.*
Agree on collective and individual
responsibilities
Communicate to outside audiences
Chief program manager obligations:
Assign “champions” to each function or
• Lead mobilization
• Secure resources for teams
Make day-to-day decisions
Process/Function or business unit leadership:
Team with program management to
launch mobilization at SBU level
Identify resources for project teams
Staff teams to integrate processes
Work with experts to focus and deliver
results against budgets
Staff/Project team members:
Contribute to problem solving and
communication
Raise issues and concerns
Generate and focus ideas
Communicate throughout organization
NewCo
Shared
VISION
Appropriate delegation, broad involvement,
clear direction, and excessive communication
• Chief program manager
• Opinion leaders
• Integration team members
• Staff
• Market unit/process/
function leadership
• Integration team leads
Executive Team
— Communication Cascade —

34
— AAIM™ Tools and Frameworks —
Integrate OperationsArticulate the Model
Negotiate the
Relationship
Contemplate
Alternatives
Evaluate Strategic
Options
• Industry value maps
• Cohort analysis
• Options selection
framework
• Value gap assessment
framework
• Candidate "fact packs"
• Spin-off analysis
• Business case outline
• Three dimensional fit
assessment
• Strategic return on
investment framework
• Partnership value
assessment model
• Styles of negotiation
reference model
• Shared visioning model
• Collaboration checklist
• Capability modeling
framework
• Business/IT strategy
diagnostic and gap
analysis framework
• Organizational blueprint
• 15 dimensions of culture
• Infostructure™ model
• Integration dimensions
model
• Operations integration
plan outline
• Process/function
integration maps
• IT Infrastructure/
Architecture integration
plan
— Pre-Merger Integration — — Post-Merger Integration —
Direct and Measure
Journey
Scope and Plan
Journey
Program Office
• Program management
model
• Milestone plan model
• Journey management
framework
• Communication plan
outline
• Contingency planning
framework
• Strategic HR business
model
• Culture change
assessment instrument
• Values-driven leadership
model
• Operations integration
reporting system
Frameworks & Tools
Frameworks and tools are utilized to execute the merger integration
project

37
Financial Baseline
• Market Value
• Book Value
• Revenues (Historical)
• Growth Rate (Historical)
• Profit Margin
• Net Income
Analyzing transaction economics will provide a baseline to measure
the financial impact
— Analyze Transaction Economics —
Synergy Estimates
• Product Sales
• R&D
• IT
• COGS
• Other
Transaction Costs
• Investment banking fees
• Integration costs
• Acquisition premium
Financing Structure
• Cash
• Equity
• Leverage
• Stock Swap
Key Analysis Measurements
Net Assets Acquired
Value of Cost Synergies
Value of Asset Disposition
Acquisition Costs
Incremental Tax
NPV (with and without Revenue Synergies)
Revenue Synergies
Market Cap
Share Price
Revenues Net Income Debt Level
Debt Rating
Times Interest Earned
Impact on External Measures
Spin Off Analysis
• Identify non-core pieces
• Identify potential buyers
• Assess value of business
Frameworks & Tools

40
Strategic Fit: How well aligned are the
partners’ growth objectives
— Assess “Fit” —
Mission
Objectives
Capabilities
A B
Mission
Objectives
Capabilities
Internal
External
Internal
External
Work Ethic
Commitment
Persistence
Work Ethic
Commitment
Persistence
Chemistry Fit: How compatible are the
management teams and overall cultures?
Operational Fit: How complementary are
the business models?
Assessing “fit” entails careful review of the merger at three levels: (1)
strategic, (2) operational, and (3) chemistry
Frameworks & Tools

43
Through due diligence, critical financial liabilities and contractual
commitments are uncovered
Key components of due diligence are as follows:
Independent financial "audit"
Court filings
Board scan
Shareholder scan
Agreements with other companies
Relations with vendors
— Conduct Due Diligence —
Frameworks & Tools

46
A variety of valuation models should be used to assess the value-
creation potential and acquisition price
Stand
Alone
Profit
Improvements
Synergies Capital
Structure
AcquisitionValuation
— Target Valuation —
ILLUSTRATIVE
Frameworks & Tools

49
A clearly defined communication plan must be prepared for both
internal and external parties
Stakeholder /
Groups
Board/Financial
Community
Corporate
Management Team
Other Senior Mgmt
Sr. Mgt of key dept
#1 needed to partner
in the change process
Sr. Mgmt of sponsoring
division/ department
Divisional Site
Personnel
Other company
personnel in general
Employee representative
bodies (e.g.Unions)
Governments/
Communities
Program Teams
Key Stakeholders
Hot Buttons,
Concerns,
Interests
What do we
need them
to do?
How will we
engage them?
Key
Messages
Sr. Mgt of key dept
#2 needed to partner
Effective Communication
Planning
(1) Identify stakeholders
(2) Understand objectives
(3) Understand frame of reference
(4) Define key messages
(5) Select medium/vehicle
(6) Timing, sequencing, frequency
(7) Ensure accountability
(8) Measure effectiveness
(9) Follow-up as necessary
— Communication Plan —
Frameworks & Tools

52
A preliminary operating plan should be prepared before proceeding
with the negotiation of the acquisition
— Prepare Preliminary Operating Plan —
Operating
Model
Key Decision
Criteria
Target
Blueprint Alternatives Approach
Centralized ?
Centralized
Production/
Decentralized
Delivery ?
Distributed ?
Costs/
Benefits
Risks
Internal
Impacts
External
Impacts
Goals
Processes
People
Technology
Consolidate?
Standardize?
Reengineer?
Streamline?
Outsource?
“Big Bang”?
Phased?
Continuous
Improvement?
Frameworks & Tools

55
Level 3: Resource Integration --- HR Management of Employees
Secure
commitment
Assess against
enterprise targets
Identify individuals
with appropriate
skills
Identify future
resource needs
Confirm future
capability requirements
of PM organization*
Determine knowledge
and skill implications
Develop workforce
loading against
benchmarks
Create deployment
maps (who’s where)
Assess skills of current
employees; create
retention-critical lists
Determine gaps in
resources and how to
fill
Identify key personnel
transitions and
scenarios
Translate target
staffing levels into
personnel expense
savings
Ensure headcount
compliance with
financial targets
Make trade-offs
across operating
units as needed
Identify resources to
be outplaced and
related compliance
issues
Identify productivity
enhancement
opportunities
Skill projects for key
jobs
Headcount profiles
Deployment maps
Employee skills
assessment
Transition plans for key
personnel
PM enterprise
headcount mapped
by process/functions
Enterprise-wide
depiction of key
reporting relationships
Identifies resources
needed to drive future
success
Optimizes resources
and lays foundation
for smooth employee
transitions
Ensures overall
headcount targets
are met without
legal entanglements
Ensures most direct
decision making and
team staffing
Activities:
Deliverables:
Benefits:
For each functional
and operating area:
Set-up crisis
management team
Develop employee
communication
program
Develop stress
reduction plans
Enact stand-still
agreements with key
personnel
Develop “back- fill”
plans
Begin counseling
Frameworks & Tools

58
Level 3: Resource Integration --- Enterprise Legacy Systems
Develop “wave 1”
implementation
program
Capex
plan
CAPEX
plans
(enterprise
level)
Quantifies
expenditures
across
functional and
operating units
Identify
expenditures and
reconcile across
operating units
• manpower
• renovations
• expansions
• new
purchases
• equipment
Identify
required
projects
Assess
facility
needs
Develop conversion
approach and high level
application specifications
Assess gap;
current vs
required
Based on enterprise
operating model develop IS
conceptual designs
Identify IS “target
environment” to
support operating
goals
Determine
system/applicatio
n preferences
Assess
incremental
capacity
requirements
Assess
adequacy of
current
systems to
meet target
environment
needs
Document
gaps,
magnitude,
and criticality
Priorities
conversions
Determine
conversion
requirements
Identify manual
conversions
Identify
automated
conversions
Define
specifications for
applications
Determine
balancing and
control approach
Target environment
system/application
profiles
Gap analysis
and priorities
Conversion plans
Application plans
Contingency
plans
Facility plans
Financial
impact
assessment
Project
descriptions
Schedule of
events
Implementation
plans
Converts design
assumptions into
specific
informational
system needs
Tests
assumptions
about
systems
adequacy
Translates gap
analysis into
specific work
estimates and cost
projections
Identifies
facilities to
support IS
requirements
Serves as basis
for integrated
design effort
Mobilizes teams
Activities:
Deliverables:
Benefits:
Develop
facilities plan
Determine
disposition of
current
facilities
Identify new
facilities/
modifications
to existing
Determine
financials for
disposition
upgrades, etc.
Determine priority
projects
Prepare high-level
plans
Assess enterprise
impacts
•Sequence
•Co-ordination
Project
descriptions
Schedule of events
Schedule and
sequence projects
•Tasks
•Effort
•Plans
•Resources
Assess cross-
project impacts
Assess risks
Obtain approval
For each
operating
area:
Frameworks & Tools

61
Overview
Acquisition, Alliances and Integration Model
AAIM Frameworks & Tools
XYZ Capabilities
SITE Approach, Frameworks & Tools

64
The first step to articulating the new operating model is to address
several key questions
How should the IT organization be governed to achieve the future company’s goals?
What are the implications for the overall IT strategy, resource management,
performance tracking, etc.?
How should IT resources be deployed and managed across the future organization to
maximize cost synergies and best support the overall corporate vision and operating
strategy*?
What (if any) activities should remain at the “corporate” level? What resources would
be required (quantity, expertise)?
What should be the disposition of the IT services and resources that are currently
“corporate” or shared across multiple sectors?
How should we approach outsourcing to maximize value and cost effectiveness of IT?
How do we transition to this approach over what period of time? What are the
expected synergies and implementation costs?
Technology Challenges
* This can be particularly difficult in merger situations where you are required to create a “new” organization
Articulate the model
— Key Questions —

67
Characteristics:
Limited or no
communication between
companies
Limited or no central
influence
Limited or no sharing of
business practices
Totally independent going
to market strategies,
products & channels
Each company limited to its
product set
— Business/IT Synergy Framework —
0 100%
“Maintain
Current Course”
“Establish
Critical Linkages”
“Major
Function Integration”
“Enterprise Wide”
Solutions
Characteristics:
Cross company
communication of general
managers
Infrequent communication
of functional managers
Begin central coordination
Initial sharing of business
practices
Begin cross selling products
Begin to leverage each
company’s distribution
channels
Capture obvious synergy
opportunities (e.g.
procurement, payroll, etc.)
Characteristics:
Consistent central
coordination/leadership to
capture synergies
Cross company leadership
emerges by business function
Integrated/consistent sharing
of best practices
Products rationalized based
on quality - best products
“Network” distribution
channel emerges
Selective consolidation of
facilities & “backoffice”
functions
Target operating structure
adopted
Consistent performance
metrics implemented
Characteristics:
Corporate hierarchy
Centralized resource and
business policy
management
Common product offering
Centralization of all major
functions
Single organization model
implemented
- Illustrative -
These four options have specific characteristics which drive the
level of effort required to capture synergy
Technology Challenges Articulate the model

70
Application Integration
Infrastructure Integration
Management Structures
Technical Skill Base
Align With New Business Processes
Reduce complexity by transitioning to
single solution for each functional area
Realize economies of scale by
consolidating all technical operations
Reduce management headcount by
consolidating organization
Build critical mass in centers of
excellence for key technologies
Reprioritize and staff IT projects
Technology Challenges Integrate operations
Once the target model is defined and the program of initiatives
articulated, the next step is to integrate operations

73
Overview
Acquisition, Alliances and Integration Model
AAIM Frameworks & Tools
XYZ Capabilities
SITE Approach, Frameworks & Tools

76
To drive results we work with our clients supporting an integrated
business transformation, throughout the M/A/A lifecycle
Ability to support clients throughout the acquisition lifecycle.- The capability to support clients from
strategy to implementation, enforces the continuity and commitment that are critical to deliver the
expected returns from the merger
Integrated consulting offering.- Our good understanding of the strategy, operations, organization,
and technology components of the merger ensures that the strategic vision is operationalized
rapidly and consistently across all the business dimensions
Pragmatic approach focused on achieving results.- Our approach goes far beyond providing the “right”
recommendation into helping our clients execute a successful business transformation that achieves
the results they are seeking
Issue based problem solving approach.- As opposed to a rigid set of answers, our methodology provides
a structured set of questions to understand your particular situation and a modular set of
tools/frameworks to work out a tailored, more effective, solution to your problem
Productive joint team effort.- We rely on our people to deliver value to our clients. Therefore, we
promote in our staff not only the experience and analytical capabilities necessary to do the job, but
also the people skills that are key to work effectively with our clients’ organization at all levels.
— Benefits of XYZ Approach —
Capabilities

79
We have the flexibility to provide all the key skills, as required, to
develop and implement a successful acquisition strategy
Strategic planning expertise - to assess and value alternative acquisition strategies
Specific industry insight - to design the new competitive capabilities and operating model
Program management rigor - to keep the project integrated, focused, on-time, and on-budget
M&A experience - to work with all constituencies involved (i.e., bankers, lawyers, accountants)
Systems integration experience - to detail design and implement the new business platform
Technical capability - to build the new strategic systems
Organizational expertise - to integrate people, process, and technology into strategic capabilities
Change management experience - to improve capacity of the organization to absorb the change
— XYZ Capabilities to Support M&A Projects —
Capabilities

1
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