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Global Scalability in Deals: Critical Success Factors
- 2. Global Scalability Productivity in a Deals Scenario Mike Clarke SVP and CHRO Delphi Technologies Sushil Ahuja Deals Partner pwc Soumya Kaushik Deals Director pwc
- 3. AGENDA Introductions Current Deals Market Trends Critical Success Factors for a Deal Key Factors Why Deals Do Not Deliver Value Human Capital Considerations in Deals Case Study: Delphi Technologies 1 2 3 4 5 6
- 4. INTRODUCTIONS Sushil Ahuja Deals Partner PricewaterhouseCoopers sushil.ahuja@pwc.com Soumya Kaushik Deals Director PricewaterhouseCoopers soumya.kaushik@pwc.com Mike Clarke SVP and Chief Human Resources Officer Delphi Technologies mike.clarke@delphi.com 1 2 3 4 5 6
- 5. CURRENT DEALS MARKET TRENDS TECHNOLOGY DEMOGRAPHICS GLOBALIZATION POPULISM Four disruptive forces in today’s M&A environment: 1 2 3 4 5 6
- 6. Disruptive forces create opportunities and challenges for dealmakers CURRENT DEALS MARKET TRENDS 1 2 3 4 5 6 Populism MACRO M&A ENVIRONMENT FACTORS BUSINESS & POLITICAL RESPONSES Technological disruption Demographic Globalization Global and US regulatory changes Corporate strategy Capital – nature and supply Deal strategy and execution Value capture M&A EFFECTS
- 7. CURRENT DEALS MARKET TRENDS Deal trends in the automotive industry • Megadeals drove value in 2018. Deal value more than doubled to $97.5B despite flat deal volume • Notable deals include, Johnson Controls International PLC- Power solutions business acquired by an investor group for $13.2B, GKN-Melrose deal for $11B • Private equity invested heavily in automotive in 2018; also, cross border activity saw a slowdown in 2018 driven by increased trade tensions and less focus on geographic expansion versus product expansion and scale Ref: PwC Deals, Global Automotive Deals Insights, Year end 2018 report 2018 2018 versus 2017 Total deal value $97.5 billion Total deal volume 903 Average deal size $286.8 million 101% 1% 74% 2019 OUTLOOK • Companies will continue to look for M&A to address product expansion, significant shifts in technology including, electric, light weighting, connectivity etc. • The industry remains fragmented, so there will continue to be opportunities for consolidation and drive economies of scale
- 8. Industries to watch for strong deal activity in 2019: ENERGY SERVICESFINANCIAL SERVICESHEALTH/ PHARMATECHNOLOGY • We expect a robust deal market to continue in 2019, despite high valuations and regulatory uncertainty • Deal activity will be driven by large volume of capital available in the market; ~$2.5 trillion • Market volatility and political and regulatory uncertainty will lead to smaller deals in 2019 unlike the mega deals of 2018. Potential deal size to range between $1B-5B Ref: PwC deals leader, Bob Saada interview on Bloomberg, Dec 17, 2018 CURRENT DEALS MARKET TRENDS 1 2 3 4 5 6
- 9. We expect a robust deal market to continue in 2019, despite high valuations and regulatory uncertainty M&A DRIVERS FOR 2019 POTENTIAL IMPEDIMENTS CURRENT DEALS MARKET TRENDS • Technological disruption across sectors • Changing demographics • Deregulation and tax reform • Shareholder activism • Capital availability • Expansion/diversification of products and services • Expansion into existing/new geographic markets • Industry convergence/sector consolidation • Continued political uncertainty and geopolitical factors • Rising interest rates • Anti trust issues • Uncertainty around tariff negotiations • Delays in business related legislation • High valuations, low supply of targets 1 2 3 4 5 6
- 10. Policy trends affecting the deals environment Deregulation CURRENT DEALS MARKET TRENDS Antitrust Protectionist immigration policy Tax reform Shifting trade landscape Privacy and cybersecurity 1 2 3 4 5 6
- 11. Summarizing the 2019 M&A outlook CURRENT DEALS MARKET TRENDS • There is abundant capital and scale to shape deals in 2019 • Digital disruption to drive cross sector deals • Little regulatory scrutiny for mid-market deals (typically, $1B-$5B range) Ref: PwC deals leader, Bob Saada interview on Bloomberg, Dec 17, 2018 1 2 3 4 5 6
- 12. CRITICAL SUCCESS FACTORS FOR A DEAL 1 2 3 4 5 6 CULTURE Cultural assimilation/ identity for the new company. POST CLOSE PLAN Sound plan for integration/stand up of people, process, systems post Close REGULATORY STABILITY Sound regulatory and legislative environment ECONOMIC CERTAINTY Stable economic and political environment. DUE DILILIGENCE Comprehensive due diligence of target(s) TARGET VALUATION Appropriate valuation of target and setting the purchase price TARGET IDENTIFICATION Target selection after appropriate due diligence Deal Success Factors
- 13. KEY FACTORS WHY DEALS DO NOT DELIVER VALUE EXTERNAL FORCES • Economic uncertainty • Political instability • Regulatory factors/changes • Industry/sector related challenges INTERNAL FORCES • Failure to achieve target cost/revenue synergies • Failure to meet defined sales goals • Potential issues/liabilities that were not uncovered during due diligence • Lack of clearly defined integration/separation strategy • Gaps in integration/stand up of new company • Human capital/talent issues • Cultural alignment issues DEAL VALUE 1 2 3 4 5 6
- 14. HUMAN CAPITAL CONSIDERATIONS IN DEALS HR value is driven at each stage of the transaction Identify HR issues that affect price Make sure you have got the right people Get management focused on the right things Drive the right behavior through the business Manage employee costs and risks Deliver HR services DILIGENCE Perform HR analysis PRE-CLOSE Assess legal and financial risks and costs relating to HR Plan and execute employee engagement and communications Develop critical Day One HR action list and plan Define HR strategy and objectives Analyze operational risks and issues around HR Design top management structure, objectives, and accountability Create organization design and workforce plan Retain talent and drive performance POST-CLOSE Implement culture-led change, training, and onboarding Ongoing stakeholder engagement and communications Drive HR effectiveness and efficiency Manage industrial and employee relations Optimize reward and performance Transform and transition organization and workforce Mobilize HR PMO and plan transition resources 1 2 3 4 5 6
- 15. HUMAN CAPITAL CONSIDERATIONS IN DEALS HR considerations for deal close 1 2 3 4 5 6 Clear definition and alignment on what the leadership team will be upon Deal Close. Review and alignment on enterprise organization structure and reporting upon Deal Close. Identification of critical talent and defining retention programs as appropriate. Clear, transparent change and communications strategy and execution plan for Deal Close Early engagement to develop understanding of Works Council/labor unions consultation needs and employment transfer requirements with legal counsel Alignment on HR operating model upon deal close and plan to deliver HR services and identification of any HR recruiting needs, as appropriate Comprehensive review, design and alignment on what compensation and benefits programs will be offered to employees upon Deal Close Review and alignment on HR systems and Payroll strategy so as to have “no disruption” upon Deal Close HR Systems and Payroll Organizatio n Design Compensati on & Benefits Retention HR Operating Model Employmen t Transfer Leadership Structure HUMAN CAPITAL Change, Communicatio ns and Culture
- 16. CASE STUDY: DELPHI TECHNOLOGIES 1 2 3 4 5 6 * Transition services agreement i.e. services provided by parent for an agreed upon length of time • Parent: Aptiv PLC (formerly, Delphi Automotive PLC) with over $17B in revenues (FY 17) and 180,000 employees (prior to spin) across 45 countries • Transaction: Spin off of Powertrain division to form an independent public company, Delphi Technologies; $4.8B in revenues (FY 17). Headquartered in London, UK. Listed on NYSE. • Transaction closed on December 5, 2017 PEOPLE • ~20,000 employees in 24 countries with over 70% of employees in the Americas and EMEA PROCESS • ~12 countries requiring Works Councils consultations • Standup of HR infrastructure and programs for Day 1 for 16/24 countries (no TSA*) TECHNOLOGY • Significant ADP footprint; 9/24 countries covering 35% of EE base • Standup of HR and Payroll systems for 16/24 countries for Day 1 Deal background
- 17. DELPHI TECHNOLOGIES: KEY DEAL COMPLEXITIES 1 2 3 4 5 6 • Alignment on Day 1 leadership team/organization structure • Hiring/onboarding 120 Day 1 critical positions in a 4 month period DAY 1 ORGANIZATION /LEADERSHIP STRUCTURE RETENTION OF “CRITICAL” TALENT • Identification of critical talent required for the transition • Design and rollout of appropriate retention programs EMPLOYMENT TRANSFER CONSIDERATIONS • Identification of Works Councils/Labor Union consultation needs and timelines and plan for execution • Alignment on EE transfer documentation by jurisdiction COMPENSATION AND BENEFITS • Design of Compensation & Benefits programs in accordance with terms of EMA* • Stand up of benefits programs/contracts in 22/24 in scope countries for Day 1 HR OPERATING MODEL • Design of HR operating model/how HR will deliver services in 16/24 non TSA countries for Day 1 • Design and rollout of HR programs and policies in the above non TSA countries HR SYSTEMS AND PAYROLL • Alignment of TSA terms, resourcing, services and costs for global HRIS • Stand up of Payroll systems/contracts in 16/24 countries in a 4 month period Very short timeline to achieve; Sign to Close timeline was 7 months 1 2 3 4 5 6 Succinct, clear and timely communications to all internal and external stakeholders • *EMA: Employee Matters Agreement
- 18. DELPHI TECHNOLOGIES: HOW WE ORGANIZED 1 2 3 4 5 6 Separation PMO structure and process • Weekly Functional Reporting • Weekly Steering Committee Reporting for “at risk” functions • Day 1 PMO tools: Consolidated Day 1 workplans, Risks/Issues/Dependencies Log, Status Reports, Critical Milestone Map by function • Periodic Day 1 readiness checkpoints Steering Committee Aptiv, Delphi Technologies Executive Leadership Team PwC Support Transaction Leadership Aptiv, Delphi Technologies separation leads, Legal counsel PwC Support Advisors Investment Banks, Legal Counsel, Auditors, Employee Matters Counsel, Branding/Marketing, Communications, Transaction PMO Operations Functional Lead PwC Support FUNCTIONS Tax Functional Lead PwC Support SCM Functional Lead PwC Support Treasury Functional Lead PwC Support Accounting Functional Lead PwC Support Customer Functional Lead PwC Support Legal Functional Lead PwC Support Communications Functional Lead PwC Support IT Functional Lead PwC Support Engineering Functional Lead PwC Support Shared Services Functional Lead PwC Support FP&A Functional Lead PwC Support IR Functional Lead PwC Support Payroll Functional Lead PwC Support HR Functional Lead PwC Support Employee Matters Agreement Functional Lead PwC Support Employee Transition and Change Management Functional Lead PwC Support HR Functional Separation (HRIS, C&B, Talent, Org Design, Vendor Management) Functional Lead PwC Support
- 19. DELPHI TECHNOLOGIES: LESSONS LEARNED 1 2 3 4 5 6 Start separation/stand up process early • Long lead time activities include legal entity setup and registrations, contract negotiation/separation, critical talent recruiting and onboarding, vendor setup and readiness for Day 1 (especially Payroll), Works Council consultations and approval as appropriate Organize, plan and execute • Strong, well defined PMO structure and process is key to identifying/resolving critical issues in a timely manner Define and align on Day 1 approach early in the process • Early identification of services needing a TSA (Transition services agreement) versus those that need to be stood up for Day 1 is critical Communication and Culture • Strong emphasis on engagement and alignment Scrutinize TSA’s contracts and budget assumptions • Pressure test all assumptions and bring in own PMO for “spin out “ company in advance Goal being no disruption to plant operations, employee payroll, experience and morale on day 1
- 20. DELPHI TECHNOLOGIES: ONE YEAR LATER 1 2 3 4 5 6 RECRUITING • Sourced global recruitment partner • All business critical positions filled PLANT OPERATIONS • Footprint optimization • Brexit contingency planning TSA’s • Managed TSA’s contracts and on track to exit (e.g. Workday) PERFORMANCE MANAGEMENT • New leadership principles • New performance management processes) CULTURE • Started culture change program (>700 employees completed so far)
- 21. DELPHI TECHNOLOGIES: ONE YEAR LATER 1 2 3 4 5 6 VIDEO (Link below)