GROWTH STRATEGIES INTEGRATION - Home - … · Case study –Teaser 5B ... Alliance or Partnership...

GROWTH STRATEGIES

&

INTEGRATION

Presented by:

Dr. Nicholas Ingle D.B.A., M.B.A., MSc. Strategy, BSc. (Eng).

November 2015

© Smartt Partners W: www.smarttpartners.com E: [email protected] T: 086 879 4793

Format of presentation

1. Growth Strategies

2. In-Organic growth – M&A’s

3. In-Organic growth – A&P’s

4. Problems with M&A’s / A&P’s /J.V.’s

5. Mergers & Acquisitions (M&A’s)5A. M&A Failures

Case study – Teaser

5B. Potential pitfalls of the M&A process

Case study – Information Memorandum

6. Our Strategic Integration Solution• Suitable for : – Rapidly Scaling organisations

• Suitable for: – M&A’s / A&P / J.V.’s

1(Main emphasis of this presentation is on integration)

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mailto:[email protected]


• Balance sheets are getting stronger

• Private equity funds are looking to deploy capital

• Banking finance (including specialist sources)

• Banks are looking to finance cashflow lending

• Interest rates are low

• US dollar & Sterling exchange rates are supportive of exports

• Confidence

• Shifting focus - Growth and expansion

• Strategic drivers - Market share and scale

• Realistic valuations

• More willing Buyers, Sellers and Partners

Macro-economic outlook:

2




There are two strategies that organisations can employ to grow;

• Organic growth

• In-Organic growth

Organic growth:(Not the subject of this talk)

• Organisations can invest in resources (Human & Technology)

• To develop a competitive advantage and,

• Differentiate themselves from the competition.

• Rapidly scaling organisations.

In-Organic growth:

• An organisation partners with or acquires the resources of

another to leverage capabilities.

• Examples include;

• Mergers & Acquisitions / Joint ventures / Alliances & Partnerships

1. Growth Strategies

3




What do M&A’s?

• FASTER

• Increasing revenue has 5 times greater impact on the bottom line than decreasing operating expenses

• M&A Motives;

• Increase market share / Consolidate market

• Branch into different sectors (verticals!) / Geographic expansion

• Provide a greater breadth of services to customers / be closer to them

• Increased synergies - economies of scale / scope / increased product pipeline, etc.

• Access to proprietary technology / provide a substitute for R&D, etc.

• Etc.

• Numerous motives!

2. In-Organic growth - M&A’s

4




Alliance or Partnership (A& P’s):

A mutually agreed association of two or more parties in order to promote the

common interest of the parties and achieve defined objectives.

Organisations may enter into an alliance to…:

• Increase company value

• Break into new markets

• Form defensive groups

• Offer supplementary services to clients

• Undertake bigger contracts

• Increase brand awareness

• Access new customers

The primary considerations revolve around resources and risks.

3. In-Organic growth – A&P’s (Note: Similar objectives to M&A’s)

Note: It maybe difficult to measure success in an alliance, primarily because alliances

may have a range of objectives. These need to be agreed from the outset.5




The M&A or A&P can apply:• To all aspects of each organisation

• To parts of each organisation

Note:

• The idea is to strengthen parts of a company’s value chain

• And/or to strengthen the linkages between elements of the chain

• Or strengthen the whole organisations value chain.

Some examples of Irish and International Alliances & Partnerships;• M3 Road between Siac & Ferrovial (Large Irish Civil Engineering project)

• Ganly Walters (Irish property Consultant) & Carter Jonas (UK Property Consultant)

• EMC² & Cisco

• HP & Disney

• With an A&P, Each party is responsible for the costs associated with the project.

• The venture is separate to both organisations’ existing operations

• (and therein may lie the problem!).

In-Organic growth(Continued)

6




• Clear Vison & Strategy

• Effective leadership & Management structures

• Comprehensive communication strategy

• Trust building

• Grow organisation culture and manage differences

• Clearly defined roles and responsibilities

• Staff motivation

• Thorough diligence

• Finding/choosing the right partner (In the case of Scaling organisations, its finding right staff)

• They need to be of benefit to both businesses (Doesn’t apply to scaling organisations)

Note: Typical integration issues for In-Organic growth strategies and Rapidly Scaling organisations.

4. Problems with M&A’s / A&P’s / J.V.’s(Including Rapidly scaling organisations)

7




4. Mergers & Acquisitions (M&A’s)

8




The Dream?

M&A Potential New Company Current Company

(Shareholder expectation!)

(CEO Vision!)

9




Recent Irish Acquisitions:

Swrve’s acquisition of Adaptiv.io

Papid7’s acquisition of Logentries.

PRL Groups’ acquisition of Moran Freight.

Global payments acquisition of Realex payments.

Aramark's potential purchase of Avoca for between.

Recent Acquisitions. Serial Acquirers in Ireland

Serial Acquirers

Rigorous approach to M&A’s

Based on Key Strategic Drivers

Core competency!

You too can develop a core competency in M&A’s

Serial Irish Acquirers: Exponential growth due to M&A’s!

CRH.

DCC.

Kerry Group.

UDG.

Uniphar

Version 1?

Key words?10




Could this be your future?

• Is acquisitive

• Good track record with past acquisitions

In terms of integration & realising synergies

• It has been good

• Shareholder value accretive

• It has been disciplined about not over-paying

for its acquisitions

• It has successfully integrated its businesses

(Sunday Business Post 8/11/15):

11




Could this be your future?

2015: 700 staff & F/C €75M T/O

2014: 2nd. UK Acquisition. 600 staff (20% UK) & €60M T/O. 8 International offices

2013: 1st. UK Acquisition. 400 staff (15% UK) & €40M T/O

2012: 30M T/O

2011: New HQ Dublin. €20M T/O

2010: 2nd. Irish Acquisition. PM Centrix. Cork Office opens

2008: €15M T/O. 150 staff

2007: 1st. Irish Acquisition. Prose Software

2006: €10M T/0. 100+ staff

2004: €5M T/0. 50+ staff

2001: €3M T/O

1999: €1M T/0. 16 Staff

1998: New office. 8 Staff

1997: €300k T/O. 5 Staff

1996: Est. by Justin Keatinge & John Mullen. 2 Staff. €60K T/O

The way forward!

Joint strategy: Organic & In-organic strategies

in tandem.

12




What are your organisations growth plans?

Your Future?

Are they a combination of

Organic Growth (Rapidly Scaling organisations)

&

Strategic acquisitions?

13




5.A M&A failures

14




Failure statistics

Failure

Rates

Divestments

Integration

15




Key failure drivers:

• One-off.

• Experience.

• Under-estimate time and skills required.

• Limited internal resources.

• Over commitment.

• Clear strategic rationale.

• Poor planning.

Failure Drivers

Remember:

50% of deals fail outright

at

Substantial Financial & Human loss.

16




High profile failures:

• Daimler Chrysler's $36 billion mega merger failed due to cultural differences.

• EBay's purchase of Skype for $2.6 billion, sold later at $1.9 billion after 4 years.

• Bank of America acquired Countrywide for $2.5 billion. Cost it more than $40B.

• Due to financial losses, legal costs and associated expenses.

Potential loss from Irish deals in 2014!

• Top 10 Irish deals in 2014 accounted for €7.5B (Inversions?).

• 70% of disclosed deal value.

• Value of remaining deals amounted to €3.2B.

• Divested at substantial write-down (say 75%). Potential loss of over €1B.

• Outright failure. Potential loss of €1.6B.

The reality for some!

17




An Irish story!:

• Irish organisation acquires 5 organisations over 3 years for €10M.

Irish Examples

18

A small Irish Plc. Co. (2015):

• Operating profit margin reduced;

• Lower margins from acquired entities

• 4 years later sold on for €50K.

• Operating profit was impacted by;

• One-time only costs of €380,000 associated with "acquisitions and restructuring".

• It will now focus on integration of the acquired businesses, including cost discipline.

To Summarise: There are a lot of failures

But this is due to lack of or poor integration planning




Integration reality!

What will your reality be?

CEO

Current company A well executed Integration Realised Potential

Poor Integration Reality? Substantial loss? Divested?

Route B?

Route A?

19




What are your experiences of integration?

Case study – Part 1: Teaser (opportunistic) V’s Strategic acquisition

20




5B. Potential pitfalls of the M&A process

A large number of organisations don’t know what the

integration process entails.

+

It’s a fragmented process

21




Stage 1: Pre-sale initiatives

• Prepare teaser & information memorandum documents

• List of suitable purchasers

Stage 2: Manage 1st round offers

• Approach prospective purchasers

• Keep deadlines tight

• Evaluate & draw up shortlist

Stage 3: Management presentations! – Due diligence

• Management presentations

• Include additional information in on-line data room

• Second round offers

• Choose preferred purchaser – award exclusivity (time)

Stage 4: Completion

• Conclude due diligence with preferred bidder

• Negotiate terms / close22

Typical competitive sales process:Sell side.

(Pre-stage only)




Pre-acquisition:

• Stage 1: Strategic analysis

• Stage 2: Search & Target analysis

• Stage 3: Due Diligence

• Stage 4: Negotiation, Deal structure and close.

Post-acquisition:

• Stage 5: Integration planning and Implementation

A typical End-to-End M&A process(Buy-side)

23




Management pressure:

• Organic growth / quickest route / No. of Serial acquirers / One-off.

Pre-acquisition realities?Stage 1: Strategic Analysis

Stage 2: Search & Target stage

24

In addition:

• No Experience / Each target has different integration concerns / Bandwidth.

• Our experience shows us that management see the End-to-End M&A’s process as an event to;

• Endure, Complete and Survive.

Opportunistic acquisition:

• ‘It’s a steal at that price?’. ‘If its to good to be true!’

• But, only a small number of CEO’s have a clear strategic rationale for their acquisition.

• Foreign acquisition? – Greater risk.

Reality:

Normal duties + ‘Transformational acquisition’ + integration.

No integration planning, limited time & resources & in-house expertise.




Purpose of the due diligence process

• Confirm information

• Uncover any problems impacting deals value

A number of stages

• Very high level background checks

• To very detailed insights in some areas!

Outcome scenarios

• No problems found. All is well

• Some problems uncovered, but can be fixed by the legal team

• A large problem that threatens the whole transaction – Show stopper!!

BUT there are Substantial forces at play in the due diligence process.

Pre-acquisition realities?Stage 3: Due diligence stage.

Caveat Emptor

25




Pre-acquisition realities?:

Stage 3: Substantial forces of the Due diligence process!

Confidentiality

26

Confidentiality.

Small number of senior executives.

Data room / Virtual data? Do you know what information you require?

Financial, tax and legal due diligence focus. Access to all the data?

What goes on behind closed doors?

Integration emphasis?

Building momentum.

Fragmented process.

Management of the process? Experienced person in charge!

Normal duties?

It’s a very intensive period.

Make a decision, Quickly.

REMEMBER: A significant number of CEO’s stayed with the deal even though they

had serious doubts.




Pre-acquisition realities?: Stage 4: Negotiation and deal structure.

Stage 5: Post-acquisition integration planning.

Mismatch of expectations post-acquisition Earn out

27

Need to know;

• Costs / implementation timeline

• TSA’s or SLA’s

• Training & development

• Productivity losses, etc.

• Ambiguities!

Plan: Buyers.

Plan: Sellers.

Integration plans!

• Extent.

• Cost.

High premium (±30%)!

• Deeper cuts?




Post-acquisition realities?:Stage 6: Integration implementation

Pre

Post

Co. / CEO?

28

• Customer

• Staff morale and trust

• Staff exit

• Bringing teams together

• Lost momentum

• Productivity

• Integration doesn’t happen automatically

Remember: How many integrations achieve their objectives?

Potential reasons for such high failure rates;

• Pre-planning? / Post-planning?

• Measure integration performance

• Integrated communications plan




The future

• Taking a breather for the next 6 months,

• To integrate its latest haul of new businesses.

• For now, the company is focused on integration.

• We live with a comfortable balance sheet.

• We have the freedom to make decisions as they present themselves.

• In terms of further M&A, Kerry is built for that and that treadmill will continue.

(Stan McCarty C.E.O., Sunday Business Post 8/11/15):

What will be the extent of your integration planning?

29

Can you afford to get your integration wrong?

To Summarise: There are a lot of failures

But this is due to lack of or poor integration planning




Case Study

Part 2: Information Memorandum V’s Strategic Acquisition

30




6. Our Strategic integration solution

Suitable for – Rapidly Scaling Organisations

Suitable for – M&A’s / A&P / J.V.’s

31




“Price is what you pay, Value is what you get!”

(Warren Buffett)

With Holistic planning and integration implementation!

32




Delivering success

Challenge

• Effective integration is the single most important success factor.

Competitive Advantage

• A well executed integration can lead to competitive advantage.

Value Creation

• A clear integration strategy will deliver significantly higher long-term value (e.g.: CRH, DCC, Kerry, Glanbia, etc.).

Success

• A properly planned, aligned and executed integration strategy can deliver 80% success.

SMARTT Partners have developed and implemented a structured holistic

approach to integration to deliver on our clients objectives.

33




Key Components

34

Uniqueness

Holistic approach

Strategy

Synergies

Life-cycle planning

Flexible approach

Communication

A thorough review




How does our process work?

Our Key Deliverables;

• A Holistic approach to integration;

• Based on a number of fit factors.

• Alignment of fit factors throughout the process.

35

Our Key Objectives;

• Capture the full value of the integrations objectives .

• Reduce the delivery time for realisation of synergies.

• Limit value erosion.

Key Factors of our process are;

• A strategy tailored to the objectives.

• Integrated and comprehensive planning

• Speedy and consistent delivery of integration and,

• The ability to learn and readjust as you go and from experience.




How does our process work?

Pre-stage

• Stage 1: Strategic high level analysis

• Stage 2: Target analysis

• Stage 3: Integration planning

• Stage 4: Negotiation

Post-stage

• Stage 5: Integration implementation

• Stage 6: Verification and review

• Stage 7: Expansion and development of new plans

• Stage 8: Strategic integration (not covered in this presentation)

N.B. Minimising integration risks at every stage.

Integration

Planning

Life-cycle

36




Pre-stage:Stage 1: Strategic high-level analysis

Integration

37

Remember: A clear strategic rationale!

KEY: Characteristic Map

• Ground Integration in strategy

• To deliver significantly higher long term value

• Start integration planning early;

• Less pressurised

• Aids target analysis and due diligence

Reality: Organisations don’t plan early enough

Objectives

Clear Vision & Strategy

Clear motive(s)

High level plans




Pre-stage: Stage 2: Detailed Target analysis(In the case of rapidly scaling organisations – Employees, Suppliers, etc.)

Key: Holistic approach to Target selection & Integration

Criteria;

Financial fit

Strategic fitKey Criteria!

Cultural fit

Organisational fitCritical integration criteria!

Key Observations: Uniqueness • Different candidates

• Core Competency!

• Enterprise wide risk analysis

38




Legal

Accounts

Tax

Commercial

Human Resources

I.T.

Etc.

Plus:

Regulatory / Compliance?

Competition authority?

Ambiguity

Pre-stage: Stage 2: Due diligence process

Data Room (Virtual)?

Before / During & After

39




Pre-stage:Stage 3: Planning for post-acquisition integration

Key: Integration approach & alignment of Holistic objectives

40

A lot to be done?

But we can double turnover & profit & expand into new geographies!




Pre-stage: Stage 4: Negotiation process

• High-level guidelines / strategies

• People process• Emotional

• Highly charged?

• Draining: Highs & Lows

• Long drawn out process!

• Rejections

• Ambiguities

• Integration plans / costs

• Acquisition premium (± 30%)

• Get a feel for the senior executive team

• Failures

Remember: You have to work closely with the Target organisation post-acquisition

41




Deal Close

Acquirer Target

Business as usual?

It’s been a long draining process Do I still have a job?

Will I still be in the same role?

42




Post-stage:Stage 5: Integration implementation

Implement pre-acquisition plans (Day 1 - 100)

Key:

Clear Vision & Strategy

Communication / Communication/ Communication

Leadership

Think Global, But Act Local

Leadership

43

Short-term objectives for integration:

Communicate with key stakeholders;

• Customers, Staff, Suppliers, etc.

Effective Leadership

Target quick wins

Protect revenues, products, etc.

Have no supply chain interruptions.

Engage employees in the process immediately.

Organisational structures




• Carry out Day 1 review

• Verify Due diligence outcomes

• Review organisation & culture

• Clarify integration budget

• Surveys

• Clarify any ambiguities

Post-StageStage 6:Verification & Review

Reduce risk to business

Manage synergiesPrevent value leakage Enhance ‘speed to value’

44




Post-StageStage 7: Expansion & Development of plans

Continue to align Holistic fit factors throughout the integration process.

45

Manage culture clashes, while building culture

Medium-term objectives (Day 1 - 100 days)

Continuous employee engagement, communication, training and development, etc.

Optimise organisation, processes and capabilities long-term

Align growth strategies and organisational capabilities

Identify and achieve additional sources of deal value.

Expand on pre-acquisition plans or develop new plans




In-Organic growth offers great potential;

• Fastest route to market

• Fastest way to grow your organisation & scale

• 5 times greater impact on the bottom line

• Quicker route to increased market share & access to proprietary technology, etc.

But;

• They suffer from High failure rates / high % of divestments / integration problems

Due to;

• No / Lack of / or / poor integration planning

Coupled with;

• Limited time & resources

• Lack of experience of the process and integration

• Under-estimation of the skills required

However;• This does not need to be the case, and this is where SMARTT Partners can help,

• as, a properly planned, aligned and executed integration can deliver 80% success.

Summary

46




We develop:

• A clear Vision & Strategy.

• Effective leadership.

• Open, honest effective Communication.

• Plan the integration from the outset.

• Adopt a Holistic approach to integration.

Align;

• strategic, financial, cultural and organisational objectives throughout.

N.B.: In conjunction with the senior executive team.

How do we deliver your integration success

(including Rapidly Scaling Organisations)

47

In order to:

• Prevent value leakage

• Realise synergies

• Reduce integration delivery time

• Create a competitive advantage, and

• Development a core competency




How SMARTT Partners add valueOur mission at SMARTT Partners is to:

1. De-risk the integration process by applying our unique skills and tried and

tested proprietary process model to deliver on objectives.

2. Maximise the value of the integration.

3. Provide a structured holistic approach to integration.

4. Maximise synergies through detailed planning and implementation.

5. Accelerate integration implementation time to delivery.

6. Free up senior executives to focus on their normal job.

7. Prevent value erosion.

We can play a role from the outset of the process or at any stage along the integration life cycle.

Our model is suitable to Buying, Selling, MBO or MBI, JV’s or A&P or Rapidly Scaling organisations.

48



Dr. Nicholas Ingle DBA, MBA, MSc. Strategy, BSc. (Eng.).

CHIEF EXECUTIVE OFFICER

T: +353 86 879 4793

E: [email protected]

www.smarttpartners.com

Integration Specialists | M&A Project Management | Management Consultants

Trusted Advisors | M&A | M.B.O. | J.V. | M.B.I.



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