Mergers, Acquisitions Best Practices

Mergers & Acquisitions Best Practices
Date

3
Executive Summary (2 of 7)
Research Approach
Research efforts targeted XYZ client experience, resources from the XYZ M&A Group, in
addition to numerous outside publications, articles, and books
Mergers & Acquisitions Today
• Mergers and acquisitions are considered a major source for growth and value
• Mergers and acquisitions are also a major source of risk in today’s market
M&A Overview
• Leading companies employ a three-phased integrated M&A process complemented by
diverse support teams
• The M&A process is comprised of three overarching, integrated phases: Pre-Deal,
Deal and Post-Deal
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Executive Summary (5 of 7)
Post-Deal Phase Best Practices
Leading Companies –
• Employ continual communication, emphasize speed, address cultural issues and record
all acquired mergers and acquisition knowledge
• Provide extensive communication to affected employees and develop a comprehensive
100-day plan to facilitate the integration process
• Quickly define the new business model and execute against the significant value
drivers while continually addressing internal and external issues during the integration
process
• Take time to record experiences and knowledge gained during a merger or acquisition
in order to improve and refine the process
• Employ calculated speed, focus significant time and resources on communication
directed towards all affected parties, and proactively address cultural issues in order to
improve transition success
Case Study -- The merger of Glaxo and Wellcome provides an example of a successful
transition strategy and integration

9
Contents
• Executive Summary
• Research Approach and Key Findings
• Mergers & Acquisitions: Process
• Mergers & Acquisitions: People
• Mergers & Acquistions, Licensing & Business Development and Key
Considerations for Company

12
Mergers & Acquisitions Today
Mergers and acquisitions are also a major source of risk in today’s market
In about two-thirds of all acquisitions, the
acquirer’s stock price falls immediately after the
deal is announced. In most cases, that drop is just
a precursor of worse to come. The market’s
routinely negative response to M&A announcements
reflects investors’ skepticism about the likelihood
that the acquirer will be able both to maintain the
original values of the businesses in question and to
achieve the synergies required to justify the
premium.” – HBR, Stock or Cash?: The Trade-Offs
for Buyers and Sellers in Mergers and Acquisitions
Any company contemplating an acquisition
must familiarize itself with the simple facts
that external growth is extremely competitive
and the probability of increasing its
shareholders’ wealth via M&A is low.
-Richard Ivey School of Business, A Note on Merger
and Acquisition and Valuations
“Despite 30 years of evidence
demonstrating that most acquisitions
don’t create value for the acquiring
company, executives continue to make
more deals, and bigger deals, every year.”
–HBR, Are You Paying Too Much
for That Acquisition
Several well-structured studies calculate 50-75% of
acquisitions actually destroy shareholder value
instead of achieving cost and/or revenue benefits.
There are five root causes of failure:
• Poor strategic rationale,
• Overpayment for the acquisition
• Inadequate integration planning and execution
• A void in executive leadership and strategic
communication
• A severe cultural mismatch
- European Business Journal
Research indicates that
between 70 to 75% of
corporate mergers and
acquisitions in the U.S. and
U.K fail to reach their financial
targets (i.e., fail to earn at least
Its cost of capital).
- London Business School
Research

15
M&A Process: Overview
The M&A process is comprised of three overarching, integrated phases: Pre-Deal, Deal and
Post-Deal
“Successful M&A players recognize the process as a holistic lifecycle in which each stage is linked to every
other, one in which integration must be central to the mindset of all involved from the first decision to the
last.” – The Point, The Big Deal: Getting M&A Right from Pre-Deal Through Post-Deal
“Successful M&A players recognize the process as a holistic lifecycle in which each stage is linked to every
other, one in which integration must be central to the mindset of all involved from the first decision to the
last.” – The Point, The Big Deal: Getting M&A Right from Pre-Deal Through Post-Deal
Post-Deal
Phase
Deal
Phase
Pre-Deal
Phase
Leading companies consider
the corporate strategy when
deciding to merge, acquire, or
divest assets and when
conducting target screening
Leading companies conduct
extensive due diligence
activities, assess multiple
financing options, develop
negotiation strategies, and
thoroughly prepare for closing
Leading companies employ
continual communication,
emphasize speed, address cultural
issues and record and manage M&A
knowledge

18
Pre-Deal Phase: Best Practices
Leading companies consider the corporate strategy when deciding to merge, acquire, or
divest assets and when conducting target screening
Leading companies commit
significant resources and time
to understanding the corporate
strategy and developing an
aligned M&A strategy before
initiating target screening efforts
Leading companies conduct
extensive opportunity scans that
include economic benefit
modeling, market condition
evaluations, and thorough target
screening
Leading companies begin
integration planning during the
pre-deal phase to ensure
feasibility of the deal, isolate and
address potential issues, and
improve likelihood of transition
success
Being clear on the nature of the strategic levers is critical for both pre-merger and post-merger activities.
Indeed, failure to do so can trigger other causes of failures. – European Business Journal
Being clear on the nature of the strategic levers is critical for both pre-merger and post-merger activities.
Indeed, failure to do so can trigger other causes of failures. – European Business Journal
If a deal has been misconceived, no degree of brilliant post-merger integration will clean up the mess.
– McKinsey Quarterly, After the merger
If a deal has been misconceived, no degree of brilliant post-merger integration will clean up the mess.
– McKinsey Quarterly, After the merger
Integration
Planning
Target
Screening
Corporate Strategy/
Portfolio Planning

21
Pre-Deal Phase: Integration Planning
Leading companies begin integration planning during the pre-deal phase to ensure feasibility
of the deal, isolate and address potential issues, and improve chances of transition success
Best Practices
• Begin integration planning before the deal phase has begun
• Establish one small, full-time merger Integration Team
– Identify an Integration Manager – the manager should have deep knowledge of the acquiring company and be
responsible for managing day-to-day project integration activities
– Vest Integration Managers with real decision making authority relative to integration activities
– Include experts from Operations, Human Resources, and IT
– Involve team in the deal-making process
– Create clear and simple integration governance processes
The most successful companies at capturing value through M&A “ensured integration was placed at the
heart of the merger process, with a detailed plan put in place at the outset.” – The Point, The Big Deal: Getting
M&A Right from Pre-Deal Through Post-Deal
The most successful companies at capturing value through M&A “ensured integration was placed at the
heart of the merger process, with a detailed plan put in place at the outset.” – The Point, The Big Deal: Getting
M&A Right from Pre-Deal Through Post-Deal
Integration
Planning
Target
Screening
Corporate Strategy/
Portfolio Planning

24
Deal Phase: Key Activities
Leading companies conduct extensive due diligence activities, assess multiple financing
options, develop negotiation strategies, and thoroughly prepare for closing
Post-Deal
Phase
Deal
Phase
Pre-Deal
Phase
• Determine financial
value drivers
• Determine
valuation range
• Develop a checklist
of areas that must
be evaluated
• Perform due
diligence activities
(e.g., accounting,
legal, patent,
environmental)
• Determine key
deal terms, e.g.,
length of deal,
terms of
agreement
• Structure deal
financing (cash,
debt, stock)
• Determine how
finances will be
provided
• Organize access
to capital markets
• Understand
background and
incentives of the
other side
• Understand value
that might be paid
by a third party
• Establish
negotiation
strategy
• Conduct due
diligence
• Reach agreement on
final terms
• Review transaction
financial implications
• Draft contract
language
• Sign contract
• Close agreement
ClosingNegotiations
Deal Structuring/
Financing
Due
Diligence
Valuation

27
Deal Phase: Due Diligence
Leading companies begin due diligence as soon as a target has been identified and continue the
process past closing
Best Practices
• Begin due diligence process as soon as an acquisition opportunity is sensed
• Create Due Diligence Team
• Answer three questions during initial state of due diligence:
1. Is it in our stockholders’ interest to own and operate this company?
2. How much is it worth?
3. Can we afford it?
• Assess and examine target’s management
• Assess advantages and disadvantages of merger/acquisition relative to other potential competitors (assessment
should include the long-term cost of losing the opportunity to a competitor)
• Conduct due diligence up to, through, and beyond closing
“Unsurprisingly, the eyes of many senior managers tend to glaze over (during due diligence), and they
leave the job to business development staff, line managers, accountants, lawyers, and bankers. But that
boredom is dangerous: acquirers have wiped out more value off their market capitalization through failures
in due diligence than through lapses in any other part of the deal process.” – HBR, The Fine Art of Friendly
Acquisition
“Unsurprisingly, the eyes of many senior managers tend to glaze over (during due diligence), and they
leave the job to business development staff, line managers, accountants, lawyers, and bankers. But that
boredom is dangerous: acquirers have wiped out more value off their market capitalization through failures
in due diligence than through lapses in any other part of the deal process.” – HBR, The Fine Art of Friendly
Acquisition
ClosingNegotiations
Deal Structuring/
Financing
Due
Diligence
Valuation

30
Deal Phase: Closing
Leading companies conduct extensive preparations to ensure a speedy, smooth and
successful closing
Source: The Art of M&A
Best Practices
• Prepare for the possibility of renegotiations
• Have the attorney prepare a comprehensive closing checklist in advance of closing. Checklist should:
– Set forth each task that must be completed in order for the parties to be legally and logistically ready to
consummate the transaction and the date by which such task must be completed
– State the document in which the completion of the task will be embodied
– Set forth the name of one or more persons responsible for the task
• Conduct a pre-closing drill no earlier that three days prior to closing and no later than the night prior to closing
– Counsel for the parties conduct the drill, clients and other persons will be present as needed
– Each party places the closing documents on the closing room table to ensure documents embody the
conditions to closing
• Prioritize unresolved issues
• Agree in advance to the new procedures, paperwork, and timing of how to operate the business after closing the deal
• Minimize the time between signing and closing the deal
If dealmakers master nothing else, they need a good sense of how to close. - The Art of M&A
If dealmakers master nothing else, they need a good sense of how to close. - The Art of M&A
ClosingNegotiations
Deal Structuring/
Financing
Due
Diligence
Valuation

33
Post-Deal Phase: Key Activities
Leading companies employ continual communication, emphasize speed, address cultural
issues and record all acquired mergers and acquisition knowledge
Post-Deal
Phase
Deal
Phase
Pre-Deal
Phase
Manage Transition
Plan Post
Integration
Activities
Integrate
Operations
Mobilize
• Prepare the organization for the
upcoming changes
• Develop and launch the
communication plan
• Develop ‘First 100-Days’ action
plan
• Create a detailed transition &
implementation plan
• Create and execute the transition
& integration plan
• Execute the communication plan
• Reevaluate target environment to
identify gaps
• Assess integrated operations
• Define high priority initiatives
• Refine transition & integration
plan
• Develop 3- and 1-year plans
Announcement

36
Post-Deal Phase: Integration
Leading companies quickly define the new business model and execute against the significant
value drivers while continually addressing internal and external issues during the integration
process
Best Practices
Senior Management executes quickly in these three areas:
1. Defining the new business model: unify strategic direction, establish value drivers, develop new operating model,
set clear targets, success factors, accountabilities, and performance incentives
2. Resolving uncertainty and conflicts: select and appoint senior management, embrace top performers, communicate
to get employee buy-in
3. Responding to external pressures: sell deal to key customers, communicate with external stakeholders, keep
regulators satisfied
With respect to ‘winners’ of large acquisitions from 1993 to 1998, “key areas, like leadership, brands and
compensation systems, were integrated within six months of the deal”. – The Point, The Big Deal: Getting M&A Right
from Pre-Deal Through Post-Deal
With respect to ‘winners’ of large acquisitions from 1993 to 1998, “key areas, like leadership, brands and
compensation systems, were integrated within six months of the deal”. – The Point, The Big Deal: Getting M&A Right
from Pre-Deal Through Post-Deal
Announcement
Manage Transition
Plan Post
Integration
Activities
Integrate
Operations
Mobilize

39
Post-Deal Phase: Manage Transition
Best Practices
• Recognize speed is critical to transition and integration success
• Ensure senior management is highly visible in the communications process
• Keep cultural issues at the forefront of the integration process: implement group meetings, attempt to integrate staff
at an early stage
• Communicate on-going business news and have multiple and easy-access feedback mechanisms
• Pace integration efforts by business area depending upon business priorities and needs
• Make tough decisions quickly with best available data and move on
The longer integration takes, the further one gets from business as usual. M&A creates uncertainty throughout the organization,
and the longer uncertainty exist the higher the risk of losing employees and customers. – XYZ Research
The longer integration takes, the further one gets from business as usual. M&A creates uncertainty throughout the organization,
and the longer uncertainty exist the higher the risk of losing employees and customers. – XYZ Research
Leading companies employ calculated speed, focus significant time and resources on
communication directed towards all affected parties, and proactively address cultural issues
in order to improve transition success
Announcement
Manage Transition
Plan Post
Integration
Activities
Integrate
Operations
Mobilize

42
M&A People: Overview
Integration
Team
Board of Directors President (CEO)
Due Diligence
Team
M&A Core Team
M&A Teams
Executives
Mergers and acquisitions involve three integrated teams with ongoing and continual
Executive interaction

45
M&A People: Due Diligence Team
Characteristics of Leading Due Diligence Teams
• Created during target screening
• Composed of experts in operations, human resources, finance, tax, business development,
technology
• Develop deepest knowledge of the target
• Develop best insight into integration
• Often become part of the Integration Team
The due-diligence team must consider the operations, capabilities and leadership of the target organization
as critical input to screening for selection. – The Point, The Big Deal: Getting M&A Right from Pre-Deal Through Post-Deal
The due-diligence team must consider the operations, capabilities and leadership of the target organization
as critical input to screening for selection. – The Point, The Big Deal: Getting M&A Right from Pre-Deal Through Post-Deal
Leading companies create a Due Diligence Team as soon as a target has been identified and
isolated in order to spearhead the evaluation efforts
“Lack of good M&A due diligence is a leading cause of poor postmerger financial performance and a major
reason for postmerger lawsuits against officers and directors.” – The Art of M&A
“Lack of good M&A due diligence is a leading cause of poor postmerger financial performance and a major
reason for postmerger lawsuits against officers and directors.” – The Art of M&A

48
M&A People: Case Study
GE and General Cable attribute the success of recent acquisitions to recognizing the
importance of integration activities and positioning the right people in the right roles
Making the Deal Real: How GE Capital Integrates Acquisitions
During GE Capital’s acquisition of Gelco, GE Capital’s largest acquisition at that time, the role of Integration Manager
was created. The manager “brought groups of people from GE Capital and Gelco together in work session to develop
common plans; he oriented the new team to GE Capital’s requirements; he made sure that the soft sides of the integration
(such as communication and benefits) were taken into account: and he counseled Gelco’s senior managers about how to
succeed in GE Capital.” The integration with Gelco went so well that the Integration Manager become a permanent role.
- Harvard Business Review, January 1998
Integration Managers
During General Cable’s acquisition of BICC’s $1.8 billion worldwide energy-cable and cable-systems businesses, the
integration manager was given a clear mandate, “move the integration process forward as fast as possible so the new
company could get a running start the day after the deal’s close – in just six weeks.”
“Once the acquisition officially closed, the need for speed remains, or even accelerates. One of BICC General’s main
goals in the first 100 days was to achieve a $12 million annualized cost savings from its North American
operations…Thanks in large part to (the Integration Manager’s) facilitation, the North American operations
exceeded its $12 million cost-reduction goal in that first 100 days. And based on that success, the company decided
to accelerate its system integration work. By the end of 1999, just six months after the deal had closed, General
Cable and BICC’s former North American operations had become a fully integrated company.”
- Harvard Business Review, December 2000

51
M&A and L&BD: Similarities
M&A and L&BD follow virtually identical processes for opportunity screening
• Corporate strategy: Although encompassing different transaction activities,
both M&A and L&BD support the corporate strategy by augmenting business
development with external opportunities
• Opportunity/target screening: When screening for a possible opportunity,
M&A and L&BD follow a similar process (locate, assess and understand,
evaluate, and close)
• Business Area and Functional support: Assessment, evaluation and
integration activities for M&A and L&BD rely on significant support from
Business Area and Functional expertsThis document is a partial preview. Full document download can be found on Flevy:

54
APPENDIX (1 of 2)
Resources
• Bekier, Matthias, Anna Bogardus and Tim Oldham, “Why mergers fail,” The McKinsey Quarterly,
November 2001.
• Carey, Dennis, “Lessons from Master Acquirers: A CEO Roundtable on Making Mergers Succeed,”
Harvard Business Review, May 2000.
• Copeland, Thomas, Tim Koller and Jack Murrin, Valuation: Managing and Measuring the Value of
Companies, 3rd Edition.
• Dinkin, David and Anita O’Connor, “The Big Deal: Getting M&A Right from Pre-Deal Through Post-
Deal,” The Point, April 2001.
• Fubini, David, “After the merger,” The McKinsey Quarterly, 2000 Number 4.
• Harvard Business Review on Mergers and Acquisitions, 2001.
– Aiello, Robert and Michael Watkins, “The Fine Art of Friendly Acquisition,” November 2000.
– Ashkenas, Ronald, Lawrence DeMonaco, and Suzanne Francis, “Making the Deal Real: How GE
Capital Integrates Acquisitions,” January 1998.
– Ashkenas, Ronald and Suzanne Francies, “Integration Managers,” November 2000.
– Eccles, Robert, Kersten Lanes, and Thomas Wilson, “Are You Paying Too Much for That
Acquisition,” July 1999.
– Light, David, “Who Goes, Who Stays,” January 2001.
– Rappaport, Alfred and Mark Sirower, “Stock or Cash?: The Trade-Offs for Buyers and Sellers in
Mergers and Acquistions,” November 1999.

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