Post-merger integra tion - Oliver · PDF filemerger integration as early and as thorough-ly as...

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Post-merger integration A tailored approach to sustainable transaction success

Transcript of Post-merger integra tion - Oliver · PDF filemerger integration as early and as thorough-ly as...

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Post-merger integrationA tailored approach tosustainable transaction success

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Editorial:Securing the added value of an acquisition 3

The Oliver Wyman approach:The formula for success in post-merger integration 4

A tailor-made program design:Structured analysis of the parameters 6

The success guarantees of post-merger integration:Eight conscious decisions 8

Case studies:Creating value in any case 12

Rigorous integration concept:Achieving long-term success in three steps 14

What are the pre-conditions of your next merger? 15

Contents

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Name change, strategic realignment, integration of sales forces, consolidationof accounting, plant shutdowns, management audits – and every step doneunder tight deadlines and the watchful eye of employees, customers and thefinancial community. This is just a small sample of the challenges and tasksthat managers must face after an acquisition. No other managerial project is ascomplex as a post-merger integration and poses such a high risk of error. Noteven every second acquisition succeeds in generating its expected synergiesand creating additional value.

OliverWyman has intensively examined M&A transactions with the aimof removing the complexity from post-merger integration and structuring theprocesses in order to provide security in a phase of extreme insecurity andto produce added value sustainably. Drawing on experience from hundreds ofunique transactions, OliverWyman has pinpointed special patterns and successfactors, mapping the »DNA« of successful mergers in the process.

The result is a solution based on a diagnostic tool that systematicallyaddresses all factors, evaluates them and offers an optimal integration concept.Given the uniqueness of each merger, this concept must be customized. Suchan approach eliminates hasty »gut decisions« after a merger. This is becauseit considers all company divisions affected by a transaction, sets priorities anddefines the optimal schedule for the integration. The comprehensive approachtaken by OliverWyman also sidesteps the typical mistakes made afteran acquisition, including the delay of painful decisions, the neglect of criticalissues and even the premature termination of the integration process.

As a result of this approach, every acquisition can succeed regardless of its aims,size or sector. It ensures that the transaction generates crucial added value.

Best regards,

Thomas Kautzsch Henning Thormählen

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Editorial

Securing the added value of an acquisition

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Every second acquisition failsThere were about 30,000 company acquisi-tions annually in recent years. That amountsto 80 transactions a day.The high number ofacquisitions was the result of many factors.Globalization and the ensuing need to have aglobal presence were some of them, just asaccelerated technological change and costpressures in saturated markets were. Yetevery second acquisition failed to achieve thedesired results. Instead of generating syner-gies, the transaction drove down enterprisevalue. The success of an acquisition does notarise from skilled negotiations or the pur-chase price. The critical issue is the correct,tailored approach to post-merger integration.The reason for this is clear: Every merger isunique. The expected synergies can be gen-erated and additional growth achieved onlyif two companies do indeed become one.

In retrospect, all parties clearly realize this.In a survey that Business Week conductedamong merger-seasoned managers in theUnited States, nearly 40 percent blamed thePMI process for the transaction’s failure.Only 27 percent faulted the price of theacquisition and only 15 percent cited theparticular company that they selected. Theproblems with the integration process wereprimarily triggered by »soft« factors to whichinsufficient consideration had been given.

The contradiction between the high numberof failed acquisitions and the understandingof the challenge posed by PMI can be resolvedby examining three factors: Every acquisitionis unique in terms of its goals and implemen-tation. It is a first-time experience for mostof the parties involved. And this complexprocess is subject to enormous stress, high

expectations and intense time pressure –and the entire transaction must be carriedout on top of normal business operations.

Structured analysis makes the complexitymanageableOliver Wyman focuses on these three pointswith its PMI approach and its supportingdiagnostic tool. Thanks to its long years ofexperience with M&A transactions, OliverWyman has been able to crack the »DNAcode« of successful acquisitions and to distillthis unknown into a formula: y=f (x). Here,the in-depth analysis of the parameters, theinput factors x, enables the transaction-specific value of the success-defining levers(y) to be determined. This formula is thebasis for a tailor-made PMI concept. Theanalysis of the parameters addresses threefactors: the business-related logic of amerger,the organizational and cultural barriers as

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Successful post-merger integration is the key to generating sustainableadded value for companies. Every merger is unique and requiresa customized solution.

The formula for successin post-merger integration

The OliverWyman approach

» OliverWyman’s

approach makes the com-

plexity of an integration

manageable and, as a

result, creates security at

a time of intense stress.«

Thomas Kautzsch, Partner

82%

60%

46%

The challenges of a PMIThe»soft« factors determine success

Stabilization ofthe organization

Culturalintegration

Operationalsynergies

Processoptimization

20%

Source: Business Week survey

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well as the sequence of the acquisition pro-cess. From the analysis of these parameters,Oliver Wyman draws the correct conclusionsfor a tailor-made PMI concept.While the con-solidation of a sector generally is associatedwith the creation of high cost synergies andrelated job cuts and, as a result, requires fastdecisions and »clear statements,« expansioninto new business areas has a significantlylower impact on the organization and cultureof the participating companies. The PMI iscarried out more moderately.

Eight levers for PMI successBased on the specific parameters, Oliver Wy-mandeterminestheexplicit,critical»settings«for the integration on the basis of eightlevers. A determination is made about thetype of synergies to be achieved, the speed,the extent and the spirit of the integration,the starting point of the integration work,the composition of the integration team, theapproach to making fundamental decisionsas well as the degree of communication andchange management.The individual settingsform the boundaries of the PMI process anddefine the focal points of a successful inte-gration. The structured approach preventsimportant parameters from being overlookedor being incorrectly calibrated as part of aneffort that may have had the best intentionsbut results in fatal consequences. A goodexample is the decision concerning the spiritof the integration. Companies frequently callan acquisition a »merger of equals« simply be-cause it is presumably easier to communicate.This arouses expectations among employees,customers and suppliers in terms of equaltreatment and continuation of past forms ofactivities. In many cases, however, the newcompany is forced to quickly find pragmatic

solutions instead of conducting drawn-outdiscussions on ways to preserve the best ofboth companies. Frequently, the buyer alsohas certain business guidelines that he doesnot want to abandon. In such instances, theexpectations raised at the acquired companycan be crushed, and employees and execu-tives can become agitated. The result is ofteninner and actual resignations as well as aparalyzed integration process.

Boosting enterprise valueOliver Wyman addresses all relevant aspectsof successful post-merger integration, syste-matically determines the fundamental de-cisions for success and defines a tailor-madeintegration concept – because every mergeris unique. This makes the complexity of apost-merger integrationmanageable.From thestart of the integration process, it preventswrong decisions and omissions that cannotbe reversed or can be corrected only at a higheffort. As a result, this approach lays thefoundationfor successfully creating synergiesand generating sustainable additional value.

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OliverWyman launches the PMI process evenwhile due diligence is being conducted byanalyzing the critical parameters of a deal:the business-related logic, the organizationaland cultural barriers as well as the sequenceof the acquisition process. This work ensuresthat all parties involved in the transactionunderstand the challenges and limiting fac-tors, andmake the best possible decisions.

»A new dawn« or »redistributionof the existing?«In terms of the business-related logic thatunderlies a deal,OliverWyman distinguishesamong five strategic objectives. The variousimpacts on the PMI can be illustrated mostclearly by both extreme forms: the consoli-dation of a sector and the entry into newbusiness fields. In saturatedmarkets,compa-nies with similar business activities merge inorder to generate economies of scale and to

expand their market position. The objectiveof such mergers is to produce cost synergiesin all company divisions. This endeavor usu-ally means job cuts, unsettles the affectedpeople from the very start, and triggers pro-tests among employees and unions. For thisreason, a successful integration must becarried out quickly and completely. In a timeof major uncertainty, fast decisions must bemade and responsibilities assigned at thevery start. This is the only way to avoidparalysis and effectively generate the syner-gies. The approach is completely differentduring an expansion to new business fields.The goal here is to unlock additional salesand earnings potential. The company’s orga-nization remains basically intact. The focusof a successful PMI lies in adapting funda-mental corporate governance functions andin developing optimal conditions for long-term sales and earnings growth.

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What has to be integrated in what way?What are the risks? How isthe integration process to be carried out? OliverWyman provides answersto these success-defining questions through its systematic analysis ofthe parameters. Experience shows that the direction for success is setat an early stage.

Structured analysisof the parameters

A tailor-made program design

» If you fail to system-

atically analyze the

parameters, you will

overlook opportunities

and risks. Omissions

frequently cannot be

corrected later.«

Henning Thormählen, Associate Partner

Strategic goals

Consolidationof a sector

Regionalexpansion

Extension of theproduct range

Acquisition ofnew skills

Businessadd-on

Business logic

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»Soul mates« or »from different planets?«A merger can be smoothly carried out onlyafter one grasps the written and unwrittenrules that govern a company. For this reason,OliverWyman also analyzes the »soft«,behav-ior-shaping factors and searches for answersto such questions as: Inwhich organizationalstructures and processes do executives andemployees act? What is the leadership cul-ture like? How are decisionsmade?What typeof incentive systems impact employees’work?The diagnosis tool structurally examines theelusive and creates a secure base for upcom-ing decisions.

The typical example of a takeover of a mid-sized company by a major corporation illus-trates the importance of organizational andcultural barriers. Generally, mid-sized com-panies bear the mark of an entrepreneur.The owner serves as a company’s informa-tion-providing and decision-making center,and there is no need for any type of formalstructure. On the contrary: In the operational

Organization and culture

Organizationalstructures

Communicationculture

Employees’self-image

Degree offormalization, procedures

Motivation,rewards

Decision paths,management style

Attitudeof management

Types

Characteristics

Home run Timeout Adjourned game Short shrift

Takeover process

-Integration processbegins immediately

-Open exchangeof information fromthe start

- Initial decisions canbe made before theclosing

Open, friendly Defensive, destructive

Sequenceof transaction

Closing immediatelyfollows the signing

Break betweensigning and closing

Closing immediatelyfollows the signing

-Joint integrationplanning

-Initial team building

-Preparation ofguidelines, decisionsonly after the closing

-One-sidedintegration planning

-Clear directionsfor Day Zero andthe integration

-Stabilization ofbusiness is the toppriority

-Integration processmust start at once

-Dynamic and strongleadership by theacquiring company

business, regional or divisional managers aregiven ad-hoc instructions. When such anorganization encounters the formalized pro-cesses of a corporation, conflicts and frus-tration are pre-programmed, unless the PMIsolution precisely addresses these points,builds bridges for the employees of the mid-sized company that enable them tomake thetransition to the new business culture andprevents typical corporate actions that wouldcause paralysis.

»Condemned to wait« or »invited to act?«In an ideal world, every merger would be a»homerun.«Negotiationswouldbeconductedquickly.Bothmanagement teamswouldworktogether. And neither antitrust officials norcritical investors would slow the final closing.Every PMI processwould quickly and smoothlystartbefore the closing.Fundamentaldecisionswould be made very early and unanimously.The integration planning could be donepromptly in joint teams, with full insight intothe other company’s information. But, fre-quently, months pass between the takeoveroffer, the signing and the closing – as a resultof antitrust reviews or, in many cases, of thedoubtful or even hostile attitude of manage-ment. It is just such instances that the PMIprocess must address from the very start.Thetime must be used optimally until closing.Even if the other side refuses to cooperateor if an exchange of information is not yetpossible, the acquiring company can approvea package of measures designed to preparefor Day Zero. From the start, Oliver Wymanconsiders potential barriers to the acquisitionprocess, systematically explores options foraction, and identifies the correct programsand decisions that will result in a successfulintegration.

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OliverWyman has identified eight fundamental decisions that mustbe explicitly made before the start of the integration in order to ensurea tailor-made, successful PMI process.

Eight conscious decisions

The success guaranteesof post-merger integration:

Drawing on its long years of experience with M&A transactions,OliverWyman has pinpointedthe most important decisions that must be made after the analysis of the parameters andbefore the integration. They can be condensed into eight levers. As a result of the correctpositioning of these levers, the fundamental factors of the PMI process can be set. OliverWyman develops the tailored solution from them. Here, the levers are described in their mostextreme form, even though the pure extremes are rarely seen in practice. The integrationconcept derived from them can succeed because it sets the correct course through consciousdecisions.

Type of synergies Restructuring or growth?

Cost synergies Growth synergies

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At the start of integration planning, clarityabout the type of synergies to be generatedmust be created. In the case of cost synergies,all divisions of both companies are to be sub-jected to a rigorous review of potential costsavings.From the very start, it must be clearlycommunicated that unpleasant decisionsmust be made and layoffs carried out. At theend of the day,such an integration effort doesnot differ substantially from a cost-cutting,

restructuring or turnaround program. A com-pletely different approach is needed to ex-ploit growth potential. In such instances, theintegration is more like a strategy or growthproject. The nature of the integration is »for-ward-looking« – the focus is placed on under-standing customer needs, evaluating marketopportunities and generating new businessideas in a creative process.

Oliver Wyman ensures that that the basic question involving the type of synergies is consciouslydefined at the very beginning and rigorously converted into corresponding actions.

» OliverWyman devises

a tailored solution. Using

eight levers, the PMI

process and the integra-

tion concept drawn from

it are brought to a

successful conclusion.«

Eric J.Vratimos, Partner

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Fast, under time pressure Mid-range perspective

Mostmanagerswould spontaneously say thatevery post-merger integration should be car-ried out as rapidly as possible so that thefocus can be completely shifted back to theoperational business. Quick integration cer-tainly has its benefits and is the approachthat the financial community expects to see.But it is also clear that such speed results indecisions being made with increased uncer-tainty and that no fine tuning can be done

under intense time pressure. But there ishardly any other alternative during hostiletakeovers or in mergers that will result inextensive layoffs. In other instances – duringa friendly takeover or an expansion into newbusiness fields – a slower pace can signifi-cantly raise the chances for success. And thereason is clear: This approach reduces mis-calculation risk and eliminates oppositionfrom those affected.

The approach employed by Oliver Wyman determines at an early stage how much time a companywants to or can devote to post-merger integration. With this information in hand, a realisticschedule for the process can be put together.This is the onlyway to ensure reasonable expectationmanagement and to prevent a company from unnecessarily being put under time pressure andfrom having to apologize both internally and externally for delays.

All areas No or partial integration

The rule of thumb is: The more intense thefocus on cost synergies, the more extensivethe PMI process. In such cases, the processencompasses all functions and all regions.An enormous workload is added to everydaybusiness activities.The organization becomeswrapped up in its own concerns and runs therisk of losing sight of the customer. In suchinstances,massive amounts of additional re-sources must be committed to the integra-tion in order to identify »hot spots« of theintegration at an early stage and to set clearpriorities. Less effort is required for a partialintegration, which is typical of takeovers inwhich new products are to be acquired or new

customer segments added. In such instances,the only steps that need to be taken frequent-ly are the consolidation of sales or a realign-ment of finance and HR processes. However,many companies choose to carry out a partialintegration instead of the complete one thatis needed because it appears to be simplerand less controversial. Painful decisions canbe skirted by ignoring areas of conflict. Thisis a major mistake because the organizationssimply exist side by side andwear down eachother by maintaining the status quo. Syner-gies are not achieved. The »marriage madein heaven« quickly falls apart and destroysenormous amounts of value.

At an early stage, Oliver Wyman makes a determination about the extent of necessaryintegration and identifies areas of conflict from the very start. With this knowledge in hand,a company can succeed in balancing its daily business activities and the PMI even in thecontext of a rapid, complete integration.

A merger of equals sounds great, but isfraught with dangers – because this termawakens high expectations among the par-ties involved: that current practices will re-main largely intact and that the affectedparties will be heard when the pros and consof decisions are debated. In the end, though,companies generally must quickly decide ona solution and rarely can afford the luxury ofdistilling a new solution from the best ofboth worlds. The expectations awakened inthe past will not be so easily forgotten. Theresults are disappointment, frustration and

mental resignation. Still, the communicationduring today’s mergers frequently focuseson bonding the best of companies. OliverWyman’s experience has shown that thefundamental reason for this is that it makescommunication with all participating partiesmuch easier over the short term. In otherwords: The actual cause is fear of conflict.Yet such decisions exact their price overtime. The unresolved conflicts continue tosimmer and deepen as a result of the raisedexpectations. In contrast to this approach, adeclaration in support of a takeover is a

Speed Lightning fast or slow and steady?2

Extent of integration Everything or just parts?3

Integration spirit Takeover or merger of equals?4

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Takeover Merger of equals

clear statement, but places high demands onconduct.Thecompanybeingacquiredwatchesthe acquiring company with mistrust andfears the worst. As a result of misunderstood

strengths, the acquiring company frequentlyacts like the »lord of the manor« and forcesthe employees of the company being takenover to go into inner exile or to resign.

The PMI approach taken by Oliver Wyman defines the proper »integration spirit« and thesuitable communication strategy at an early stage. »Sensors« are built into the integration processto identify issues and to take necessary countermeasures at an early point.

Immediately after signing Deferred until closing

Ideally, no antitrust review is needed, bothmanagement teams work constructively to-gether, and the companies can start theintegration process immediately after theagreement is reached. In this case,the partiesmust quickly get down to defining focalpoints, creating teams and starting work.One benefit is that the participants openlyshare information, and purposely addressemployees, customers and suppliers in orderto eliminate concerns. In the real world,though,some time frequently passes betweenthe takeover offer and the closing because,for instance, approval by antitrust officials isneeded or the management of the company

beingacquired creates aroadblock.This periodof waiting can and must be used to thinkahead about the integration, to prepare theday of the closing and to formulate a detailedplan. During this period of forced waiting,employees, suppliers and, above all, custo-mers can become unsettled, a situation thatcompetitors frequently exploit. Intense com-munications are extremely important duringthis stage in order to bring stability to thesituation and to positively influence it.Depen-ding on the potential threat,customer-loyaltyprograms must be created and high-perfor-ming employees retained at the companythrough the use of suitable incentives.

Oliver Wyman ensures that the start of the integration is used optimally by employing farsightedplanning, open communication and the consideration of risks.

Clean team Joint team

When antitrust officials take months to re-view a deal, the acquiring company can onlywork with »clean teams.« Such teams lay thegroundwork for integration in cooperationwith a third party. Because the exchange ofinformation is subject to strict rules, thelimitations of such clean teams must beunderstood from the start. If they are notunderstood, a high amount of »busy work«may be done. Frequently,a distorted or wrongpicture is created, which, in the worst case,can form the basis for wrong decisions thatmay be difficult to correct or cannot be cor-

rected at all. When the external parametersof the merger permit, it is much more bene-ficial to wait and begin the work with jointproject teams. These teams’ success is linkedto adherence of certain basic rules.In additionto the right composition and the provision ofthe necessary capacity, these rules includeinvolvement in themanagement organization,integration into the previously separatedcompanies and the fastest possible transferof the project work into the areas of respon-sibility of future managers.

The PMI approach of Oliver Wyman structures the things that seem obvious and provides for thecorrect project organization, the appropriate project members and suitable timing.

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Start of integration Immediate or deferred?5

Integration team Clean or joint?6

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In advance, implicit Explicit, extensive

The more dissimilar the cultures of bothcompanies and the stronger the resistanceof management to the takeover, the greaterthe need for definitive decisions, includingdetailed instructions fromtheacquiring com-pany. Decisions must be prepared in detailand be made at or shortly after the start ofthe integration with various stakeholdersexplicitly being included in the process. In the

context of a friendly takeover of a companywith a similar way of thinking, this can bedone during a preliminary stage. Here, de-cisions are frequently made about the neworganization, future business policies andeven personnel during informal meetings,often scribbled down on the famous »nap-kin.« In this case there is no need for exten-sive analysis and opinion-shaping processes.

Post-merger integration: Everything considered?

The PMI approach ensures that all fundamental decisions that determine the success of anintegration are made in a timely manner and under consideration of all relevant factors.On the basis of decisions about the eight levers, OliverWyman works with its clients to createa tailor-made integration concept and to put it into action.

Oliver Wyman analyzes the situation, and defines the right mix of formal and informalapproaches. In controversial takeovers, it is important to make conscious decisions at the rightplaces about whether to rule out discussion and make a direction-setting decision, or whethera joint search for a solution will be undertaken.

En passant Explicit, comprehensive

During the takeover, statements are madeto stress the importance of intense changemanagement to the ultimate success of thetransaction. After the initial euphoria ex-pressed as part of sweeping communicationactivities fades,the change-managementpro-gram frequently boils down to a few work-shops and a sporadically updated intranet.This is not the result of evil intention, but ofthe complexity of a PMI process. The mergerof two companies with similar backgroundsrequires fewer explicit actions than one invol-

ving companies with dissimilar backgrounds.The key is for the appropriate employees tomeet at an early stage and to share their ex-periences.In other cases,changemanagementis the critical factor leading to the long-rangesuccess of a merger. Workshops, get-togeth-ers, town-hall meetings, outdoor trainingsessions and many other measures must beemployed over a longer period of time inorder to form one company out of two. Inthis case, a rapid change process should notbe expected.

Oliver Wyman determines how much change management is required, defines the best formand provides tools to review the program.

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CostsSynergies

Speed

Extent

Integration spirit

Integration start

Team structure

Fundamental decisions

Change management

Growth

Fast, under time pressure Mid-range perspective

All areas No or partial integration

»Takeover« »Merger of equals«

Immediately after signing Deferred until closing

Clean team Joint team

In advance, implicit Explicit, extensive

En passant Explicit, comprehensive

Basis for decisions Informally in advance or explicitly after the fact?7

Change management Implicit or explicit?8

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Case studies

Consolidation in plant construction

Same objectives, different culturesWith the takeover of a French competitor, aGerman plant construction company soughtto expand its leading market position and tofill out its product portfolio.The potential syn-ergies in production, procurement, sales andadministration were obvious. The prospect ofmerging with an economically healthy com-pany with a similar background proved to beconvincing arguments for the Frenchmanage-ment. These executives welcomed the take-over, and antitrust officials raised no objec-tions. At first glance, the companies’ culturesappeared to have few differences: Both wereled by engineers, were technology driven andwere successful players in the world market.But the PMI review conducted by OliverWyman uncovered significant organizationaland cultural barriers resulting from thefact that a centrally managed company wasmerging with a regionally operated businesswith powerful heads of particular territories.

A quick, complete acquisitionThe creation of one company from two sodiverse organizations requires fast action.A joint team intensively began laying thegroundwork for »closing readiness.« From thevery start, the focus of communications wason a »fair takeover.« The acquiring companypresented two non-negotiable points on theday of the closing, or Day 0: the principle of aglobal business and an organization basedon business areas. As a result, the days of theautonomous regional bosses were largely

over. In anticipation of opposition to the plan,the acquiring company launched an intensivecommunication campaign at all levels of thecompany. Shortly after the closing, the firstworldwide integration conference was held.Its purpose was to gain the support of execu-tives for the integration. Employees attendedlocal »town hall meetings« where they couldmake up their own minds about the plan. Inaddition, »PMI ambassadors« went to work atall locations in an effort to drum up supportfor the newcompany.As a result of the numer-ous integration projects conducted aroundthe world and the large cultural differences,a strong program management office was setup. It coached the integration teams, moni-tored implementation and served as theheart of the entire PMI process.

Surge in growth with lower costsBy eliminating organizational and culturalbarriers, a joint culture with a uniform orga-nization based on business areaswas createdmuch faster than anticipated. Within fourweeks, decisions about the management or-ganization and personnel had been made,enabling the focus to be placed on functionalconsolidation and the actual integration to bequickly handed over to the new line organi-zation.OliverWymanmade a significant con-tribution to the timely determination of theacquisition’s spirit, defined the suitable ap-proaches to solving the cultural and organi-zational challenges, and,as a result, removed»roadblocks.«

The approach applied by OliverWyman facilitates successful post-mergerintegration in all sectors and under diverse conditions.A tailor-madeintegration concept makes for a sustained increase in enterprise value.This is reflected in two case studies involving plant construction andmedical technology.

Creating value in any case

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CostsSynergies

Speed

Extent

Integration spirit

Integration start

Team structure

Fundamental decisions

Change management

Growth

Fast, under time pressure Mid-range perspective

All areas No or partial integration

»Takeover« »Merger of equals«

Immediately after signing Deferred until closing

Clean team Joint team

In advance, implicit Explicit, extensive

En passant Explicit, comprehensive

Expansion in medical technology

Delayed launch complicates integrationByacquiringa small listed competitor,a Euro-pean medical technology company was ableto move into a high-margin business field.Although the management of the companybeing acquired supported the transaction,six months passed between the signing andexecution of the takeover. During this period,no active preparations for the integrationwere undertaken, and the competition luredaway the first customers.

At the start of the work,OliverWyman talkedto the company about the importance ofcustomer loyalty. The diagnosis tool showedthat the lever of growth synergies was close-ly linked to rapid integration of sales as wellas the elimination of cultural differences.While themid-sized company bore the stampof an entrepreneurial personality, the acqui-ring company was organized according tothe formal structures used in a group.

Focus on sales and marketingThe central focus of the PMI process involvedthe consolidation of the European sales or-ganizations. The acquiring company was re-presented by subsidiaries in most countries.The mid-sized company, on the other hand,had a network of strong sales partners. Thetransfer of customers into the new organiza-tion as well as the retention of decision ma-kers in the company being acquired throughthe use of a local incentive program yieldedthe most growth synergies. In an additionalstep, the products of the mid-sized companywere introduced into growthmarkets outside

Europe. The expansion into newmarkets, theintegration into a strong direct-sales system,financial incentives and intensive commu-nications convinced the employees of themid-sized company. Just 10 weeks after theclosing, they were acquainted with the re-spective country-specific PMI roadmap. Theacquiring company carefully carried out theimplementation in individual countries toavoidannoyingcustomers and topemployees.The positive attitude of sales representativesas well as the early dialogue about the bene-fits of the transaction proved to be successful.The number of resignations remained low.

Expansion into new marketsDespite the delayed start and the loss ofsome customers, the company succeeded ingenerating the expected growth synergies:Within three years, it boosted sales by 30 per-cent and improved its margins at the sametime. Outside Europe in particular, the pro-vider profited from its expanded range of pro-ducts sold under a single brand. As a resultof the work done by Oliver Wyman, the sig-nificance of sales integration was recognizedand the necessary recommendations weredefined even before the closing.

Project case studies of successful post-merger integration

Consolidation in plant engineering

Expansion in medical technology

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On the basis of the analysis of parametersand the early decision about the eight levers,Oliver Wyman defines the individual andoptimal integration concept.

1.The best possible preparationCompanies should start planning the post-merger integration as early and as thorough-ly as possible,preferably before the closing, inorder to be prepared to meet the challenges.Day0must be intensely prepared through theuse of extensive readiness checklists. Otherfocal points include the strategic direction ofthe new company, the defining of objectivesand decisions about managerial positions.Drawing on this basis of information, projectteams can work out the integration concepts.They identify, prioritize and plan the neces-sary projects, including estimations aboutexpectedsynergies thatarediscussedwith theoriginal planning of the M&A team. In thisphase, identifying quick wins (e.g. volumebundling in procurement) plays a major rolebecause they underscore the logic of themerger at an early stage and to all involved.In addition to these integration-related topics,the communication roadmapmustbecharted.It shows who will be informed at which timeabout which issues.Depending on the resultsoftheculturalassessmenttheextentofchangemanagement and the necessary measureshavetobedefined.If high-performingemploy-ees are expected to resign, suitable retentionprograms should be created. Even thoughmuch information is lacking in thisphaseandanextensiveamountofuncertainty exists, thediagnostic tool of Oliver Wyman enables atailor-made integration plan to be systemati-cally developed.

2. Operationalize the plansOnce the sales contract is concluded, the»hot phase« begins. Both companies canexchange all relevant information and, asa result of preliminary work, quickly makeindividual integration concepts ready forimplementation. The expected synergies arebroken down by region and department. Aproject-management office coordinates allactivities, but increasingly integrates the lineorganization.Concerns among employees areto be quickly dispelled through the use ofclear communications. As a result of thecomplexity of the first weeks and the intenseexternal pressure, companies are tempted inthis phase to put off, water down or simplyignore inevitable decisions. Oliver Wymanensures that the fundamental decisions aremade in a timely manner and that the pro-gress achieved in the integration process isconstantly monitored and documented.

3. Rigorous implementationThe appeal of the new fades after a fewmonths. This is the exact point that determi-nes whether a merger will generate sustain-able added value. Now, the line organizationsare introducing the integration function byfunction and country by country. In the pro-cess, they grow into a single unit. In thisphase, every employee feels the effects of thechanges. Frequently, themanagement has al-readymentally closed its book on themerger.The work by Oliver Wyman facilitates strictmonitoring of progress and helps to ensurethat the integration is not forgotten and thatthe goals are reached in the long term.

How can two companies be formed into one powerful organizationwith a shared mission amid intense time pressures, high expectationsand the demands of the daily business world? OliverWyman createsan individual concept for each acquisition.

Achieving long-term successin three steps

Rigorous integration concept

» The planning of the

integration must be

started as early as

possible.The approach

employed by Oliver

Wyman ensures that

the right priorities

are set during every

phase.«

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What are the pre-conditionsof your next merger?Amerger adds many questions to the agenda. These include businesslogic,themerger processes themselves,organizational and cultural barriers,cost or growth synergies, merger of equals or takeover, as well as implicitand explicit change management. In a timely manner, the parameters andtheir impact on the eight levers are analyzed. From this analysis, OliverWyman derives the integration concept for a PMI project, which, on its ownterms, is unique and complex.

Use this form to evaluate your PMI situation.We will be glad to talk toyou about your considerations, and jointly define the parameters andsuccess factors.Working with you, we will draw on our project experienceto develop an initial tailored integration concept.

If you are interested in a non-binding workshop, we will be happyto assist you.

CostsSynergies

Speed

Extent

Integration spirit

Integration start

Team structure

Fundamental decisions

Change management

Growth

Fast, under time pressure Mid-range perspective

All areas No or partial integration

»Takeover« »Merger of equals«

Immediately after signing Deferred until closing

Clean team Joint team

In advance, implicit Explicit, extensive

En passant Explicit, comprehensive

My PMI situation:

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With more than 2,900 professionals in over 40 cities around the globe, OliverWyman is an international managementconsulting firm that combines deep industry knowledge with specialized expertise in strategy, operations, risk management,organizational transformation, and leadership development. The firm helps clients optimize their businesses, improvetheir operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities.OliverWyman is part of Marsh & McLennan Companies [NYSE: MMC].

For more information, please visit:www.oliverwyman.com

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The PMI team has an interdepartmental function within theOliverWyman sector units. Our experts always work closelywith sector specialists to find fast, market-ready solutions.

© 2008 OliverWyman. All rights reserved.

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