Making Mergers

work

Work Systems Affiliates

International, Inc.
7 Mid State Drive,
Auburn MA 01501
781-343-4000
www.wsa-intl.com
Work Systems Affiliates
International, Inc.

MAKING MERGERS WORK

The following is a summary of information collected through our research and consulting
experience working with a variety of organizations during a merger and acquisition period. Our
perspective is drawn from both sides of the deal with a variety of clients representing a broad
cross-section of industries, including: Compaq (technology and manufacturing), Black
Entertainment Television (BET), AECOM (professional services), GE Capital (finance.) We also
draw on our direct experience with successful merger of our distance learning business,
Generation21 and the failed merger of our consulting business with Linkage.

I. Mergers and Acquisitions: Doing the Deal

1. The Business Risk of Mergers and Acquisitions

♦ 75% are clearly disappointing or outright failures
♦ 50% report an overall drop in productivity in first 4 to 8 months
♦ “People problems” cited as the top integration failure factor by a sample of forty-five
CFO’s from Fortune 500 companies who have recently merged/acquired
♦ Just 23% of all acquisitions earn their cost of capital
♦ On average, management grades the financial performance of their mergers/acquisitions
as a “C minus.”

2. Early Warning Signs of a Poor Merger or Acquisition

♦ Lack of visibility of key leaders
♦ Second tier structure not announced within 2 weeks of close
♦ Lack of a clear strategy for the new entity
♦ Lack of clear measures of success
♦ Lack of an ability to do results reporting by the new entity
♦ Employees are focused on status or position rather than customers and work
♦ Persistent complaints of lack of information from within the enterprise
♦ Proliferation of rumors
♦ Sales funnel significantly below expectations
♦ Confusion on products/services and accountability within sales channels.

3. Successful Mergers
Our experience and research done over the past decade points to six key reasons for
successful mergers:
1. Leadership – Decisive and visible
2. Communication – Well planned and coordinated throughout the deal process
3. Attention to Employee Issues – Early management of “What will happen to me?”
employee questions and concerns

Work Systems Affiliates International . 7 Mid State Drive . Suite 202 . Auburn, MA 01501
Phone: 781- 343-4000 . Fax: 781-343-4044 . Email: consulting@wsa-intl.com . Web: www.wsa-intl.com
 4. Expedient Integration – Speedy decisions about organizational structure, such as:
♦ Leadership appointments
♦ Old and new customer requirements
♦ Merged product/services mapping
♦ Retention and attraction of key talent
♦ Fast implementation of infrastructure systems and procedures.
5. Culture – Identification of cultural compatibility as well as conflicts and potential
unintended consequences, with a plan developed to bridge the identified gaps.
6. Action Plan – Alignment of the path forward by senior leadership.

II. Post Merger: Making the Deal Work

Prior to and during a merger or acquisition is typically when value is identified and agreed on,
but “post-deal” is where most of the value is actually created.

Integration – We view the process of integration as a framework through which the activities
that establish a successful merger are systematically identified and implemented. This process is
about exciting customers and employees to work together by having a clear vision and a focus on
tangible results. Integration is intended to create a detailed workplan of business practices,
aligned or new processes, behaviors towards customers and other employees, that effectively
build the foundation to run the new, modified business.

1. Goals of Integration
♦ Achieve strategic synergies in finance, markets and product/service
♦ Modify the business model to reveal the strategy in implementation
♦ Retain and re-motivate the people
♦ Innovate and grow quickly
♦ Become a new team.

2. Key Factors that Lead to Successfully Accomplishing the Goals of Integration

♦ Thorough due diligence – A solid understanding of the interdependencies of key areas:
financial, products, markets and human capital
♦ A clear vision of the degree of integration required or desired
♦ Speed of decision making, especially in the early stages when many issues seem to be
“up in the air” in the eyes of most employees
♦ Senior management support and commitment. That is, no talking “out of school.” Issues
and potential conflict handled directly and leaders speaks in “one voice”
♦ Clearly defined approach with identified actions, accountabilities and goals
♦ Highly respected and capable Integration Manager (IM). (This is a full time position that
requires a twelve to twenty-four month commitment.)
♦ Dedicated and capable Core Merger Team and Task Force members
♦ Measurable goals and specific milestones
♦ Ongoing communication and feedback to employees and other stakeholders, though
multiple channels.

Work Systems Affiliates International . 7 Mid State Drive . Suite 202 . Auburn, MA 01501
Phone: 781- 343-4000 . Fax: 781-343-4044 . Email: consulting@wsa-intl.com . Web: www.wsa-intl.com
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III. M&A Integration Support: Work Systems Affiliates’ Approach

1. Leadership – Issue Mapping

We think it is important for leaders to take the initiative to identify problems as well as
issues, concerns and expectations. Typically, we will meet individually with the key
players from each organization and use these conversations to craft an agenda for a meeting
of the senior leaders of both organizations. The purpose of this meeting is to map out a
detailed pre and post merger plan. All of the functional groups should be adequately
represented, and although the primary focus in most mergers and acquisitions is on
financial issues, we want to ensure that operational and market concerns are identified.

The plan should include:

♦ A high level outline of critical issues that should be addressed in the first 100 Days
♦ Strategic intent and expected business benefits
♦ Guiding principles (Such as, “We will aim to achieve short term benefits without
jeopardizing long term results”; “We will identify and resolve the differences in two
top class companies coming together to form an integrated whole.”)
♦ Identification of an Integration Manager (IM) and Core Integration Team members
♦ Time lines for overall changes and specific tasks, with consideration for other
stakeholders, such as Board members, stockholders, etc.
♦ Conduct a high level critical review/SWOT analysis of both companies re: Culture,
Leadership and management, IT, HR, Products/services, Operations, Finance, Sales,
Marketing, etc. to identify potential “land mines” or barriers to successful integration
and come to agreement on areas in which the application of one or the other
company’s resources could add value. This analysis will also form the basis for the
workplan of the IM and the Integration Team members.

2. Integration Team – Developing the Workplan

This team, comprised of 5 to 7 members, will work at the direction of the Integration
Manager and should form the working group for the integration of the two companies. The
outline of the workplan for this group will come from the high level SWOT analysis done
by the senior leaders, above. Initial conversations will probably be around infrastructure
and processes, and how the merger will affect both companies, then moving to specific
tasks, timelines, etc.

Specifically, the Integration Team will:

♦ Identify the specific tasks and milestones to be accomplished within the first 100 days
and beyond
♦ Create various Task Teams for specific functional and technical issues
♦ Recommend individuals, based on the identified tasks and required competencies
♦ Create an “Organizational Communications Plan” using multiple media channels, to
ensure employees are kept informed
♦ Detail the transitional and on going organization design

Work Systems Affiliates International . 7 Mid State Drive . Suite 202 . Auburn, MA 01501
Phone: 781- 343-4000 . Fax: 781-343-4044 . Email: consulting@wsa-intl.com . Web: www.wsa-intl.com
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 ♦ Initiate a “management and technical exchange” with the acquiring company, in
selected areas based on specific needs
♦ Interface and coordinate activities with appropriate personnel, task teams, functional
groups, etc.

3. Joint Action Planning

Members of the Leadership Team and members of the Integration Team will meet to detail
the working relationship. If an Integration Team has been formed within the other
company, members may begin to work with the Integration Team and/or IM to compare
and contrast findings and develop joint sharing and action plans. A joint Integration Team
can be formed, if feasible.

4. Fast Track Leadership Development Through Executive Coaching

As a way to rapidly prepare leaders for the merger, our Senior Consultants will meet with
each member of both leadership teams in individual coaching sessions typically conducted
throughout the first 100 days. Each session is approximately 1 1/2 hours in length and
conducted face-to-face where possible, to maximize impact and value. During this
Executive Coaching session, we will:
♦ Review the results of the leadership assessment instruments completed by each
person
♦ Detail a development plan for the individual designed to address gaps in their
leadership abilities. This plan would be designed to address issues identified through
the assessment instruments as well as those required for the individuals new and/or
expanded role, as a result of the merger.
♦ Address issues as they develop in order to help the executive maintain a focus on
performance results, and smooth the transition and integration efforts.

5. Developing a Systems Approach

In an attempt to manage the seemingly insurmountable array of complex and interrelated
problems inherent in most mergers or acquisitions, there is a tendency to use “reductionist
thinking,” i.e., break down problems to their smallest components and address each
component separately. It is very popular in mergers and acquisitions and is quite useful for
solving complex linear problems, such as optimizing workflow on the shop floor. When
applied to the many dynamic problems resulting from a merger or acquisition, reductionist
thinking provides a quick fix but not a cure.

Systems Thinking provides a way of looking at the complex, dynamic problems in a

merger or acquisition that will allow the interrelatedness of all the variables to be known.
Additionally, this approach offers the ability to predict the intended and unintended results
of proposed solutions or a course of action.

We recommend the Integration Team and/or key members of both organizations participate
in a 2-day Systems Thinking program to facilitate the development of a systems approach
to the M&A process.

Work Systems Affiliates International . 7 Mid State Drive . Suite 202 . Auburn, MA 01501
Phone: 781- 343-4000 . Fax: 781-343-4044 . Email: consulting@wsa-intl.com . Web: www.wsa-intl.com
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