Merger & Acquisition
Integration Methodology
An Overview of the Fundamentals
of
Merger Integration
Agenda
• Objectives
• Predictable Dynamics of Mergers & Acquisitions
• Business & Integration Strategy
• Roles & Responsibilities
• Results of Initial Comparative Business Analysis
• Integration Challenges
• Integration Planning Methodology
• Major Milestones
• Communication Process
• Questions
Objectives Today
• Understand the Predictable Dynamics of Mergers &
Acquisitions
• Understand the Integration Strategy
• Review Roles & Responsibilities
• Overview of Merger Integration Methodology
• Establish & communicate major milestones
Understanding CounterIntuitive Moves
They Help You Avoid the
Most Common Mistakes Managers
Make During Merger
Predictable Dynamics
For Individuals
– the Psychological Shockwaves
For the Organization
– the Growing Pains
What to Expect The “Psychological Shockwaves”
No Matter How Exciting the Merger Is …
Expect a Sense of Loss
The sense of loss triggers three emotional stages :
Stage 1:
Shock and Numbness
Stage 2:
Suffering
Stage 3:
Resolution
Emotional Roller Coaster
Anxiety

Enthusiasm


Excitement

Anticipation
Hope
Relief
Fear
Concern
Disappointment


 
Sense of Loss - triggered by announcement of deal, organizational structure,
relocation, new boss, loss of compensation and benefits, etc.
Stage One : Shock and Numbness
Stage Two : Suffering
Stage Three : Resolution
Staggered Experiences
Beginning of
Transition
End of
Transition
Resolution
Suffering
Shock &
Numbness
Executives Managers
Employees
TIME
The Three Emotional Stages
• What stage are you in?
• What stage are your people in?
• How will you manage them through the Emotional
Roller Coaster?
• Develop an Action Plan for Managing Through to
Resolution.
The “Psychological
Shockwaves”
No Matter How Competent People Are…
Expect an Increase in Uncertainty and Ambiguity.
No Matter How Well the Merger Is Planned and Executed,
Expect the Loss, Uncertainty, and Ambiguity to Lead to a...
Deterioration of Trust.
Expect the Deterioration of Trust and the Ambiguity to Lead
to…
Self-Preservation.
Organizational
“Growing Pains”
•
•
•
•
•
•
Communication Tangles
Productivity Drop
Loss of Team Play
Power Struggles
Lower Morale, Weak Commitment
Bailouts
Three Merger Pressure Points
Communications
Resistance
Productivity
Ten Reasons Why Extra
Communication Efforts Are Necessary
1. More questions than answers.
2. Rumor mill cranks at E-speed.
3. The truth is a moving target.
4. New and different information routes.
5. Confusion over whom to include.
6. Skepticism and lack of trust.
7. Desire for more information and better answers.
8. Less willing to commit to decisions.
9. More is happening.
10. Messages get “slicked up.”
Communication Guidelines
•
•
•
•
•
•
•
•
•
Silence is a major sin.
Over-communicate.
All communications should be two-way.
Explain the reasons for the change.
Communicate in mass.
Tell the full truth (good, bad, and ugly).
Tell people early…as soon as possible.
Tell people when you don’t know.
Don’t make any promises that you aren’t 100% certain
that you can keep.
• Magnetize yourself to bad news.
• Don’t extemporize.
Communications Matrix
AUDIENCE
INTERNAL
AUDIENCES
Employees
Senior
Leaders
Remote
Employees
EXTERNAL
AUDIENCES
Customers
Contractors
Vendors
Investors
OBJECTIVE
MESSAGE
VEHICLE
WHEN
RESPONSIBILITY
Communication Checklist
 Did I give it to them straight - the good, the bad,
and the ugly?
 Did I tell them “why” before “how” or “what”?
 Did I check for understanding?
 Did I ask for feedback?
 Do they need to hear the message again?

Three Merger Pressure Points
Resistance
Productivity
Communications
Merger Productivity Curve
Productivity Coaching Points
• Reprioritize.
• Focus on short term results.
•
•
•
•
Exploit instability.
Engineer some early wins.
Push through the yield point.
Evaluate Capability and Commitment
Measure Progress
Wrong
Right
• Morale
• Productivity
• Trust
• Quality
• Loyalty
• Market share
• Stress levels
• Stock price
• Job satisfaction
• Customer satisfaction
• Actions versus planned
integration objectives
Three Merger Pressure Points
Resistance
Productivity
Communication
The Two Guarantees of Change
Guarantee 1:
During merger integration, there will
be change.
Guarantee 2:
There will be resistance to
change.
Sometimes People Resist MergerRelated Changes for Reasons They
Personally ...
 Cannot Articulate
 Do Not Really Understand Themselves
 Will Not Level With You About
What is your action for finding resistance within
your team?
Eight Reasons Why
People Resist
1. Misperception of the situation.
2. Low tolerance for ambiguity.
3. Lack of self-confidence.
4. New standards of performance.
5. Can’t see the benefits.
6. Stand to lose more than they gain.
7. Displaced feelings.
8. Believe change is wrong or bad.
Resistance Dynamics
Leadership
Not
Believing
Performance
Management
Training
Not
Able
Not
Willing
Not Knowing What
Communication
Three Categories
of Behavior
Design
Change Agents
Default
Fence Sitters
Defiance
Rabble Rousers
Where Do Your People
Fall in These Categories?
Place the initials of the individuals on your team in the
box that you feel best represents where they are.
Design
Default
Defiance
The 20-50-30 Rule
Design
20%
Default
50%
Defiance 30%
Helping Someone
“Move through Resistance”
•
•
•
•
What change are they resisting?
Why are they resisting?
What actions can you take to overcome the resistance?
What effect will taking the action have on individual
and team performance?
Re-Recruitment
Re-Recruiting
the Keepers
• Acquired firms, on the average, lose 4 out of 10
managers during the first 24 months of a merger.
• That turnover rate is 3 times the rate found in
organizations that are not involved in a merger.
• What would the economic impact be of losing one or
two of your key members?
Re-Recruitment Guidelines
1. Operate from the premise that everybody is considering other
employment.
2. Identify your key people..
3. Make the target person feel special, not taken for granted.
4. Keep communication lines open and active.
5. Take the person into your confidence, asking for his or her ideas
or opinions.
6. Try to give the individual a key role, a special assignment that
makes it clear that he or she is a highly-valued individual.
7. Understand what motivates your people individually and as a
part of your team.
8. Consider giving a raise, a higher ranking title, or a “stay” bonus.
9. Above all, don’t assume people are planning to stick with you just
because they’re not talking about leaving.
Example of a
Re-Recruitment Matrix
People
and
Groups
Priority
FTJ, Lab
Manager
1
RKC,
3
Database
Specialist
DLC, Sales
Manager
2
Impact
of Loss
Loss of R&D
knowledge-delay of
product
release
Migration of
database to
XNS system
would be
delayed
Would
demoralize
sales team,
account
mgrs.
would
follow
Cost to
Replace
Motivators
Delay would
cost $295K/
month, $20K
recruiting fees
Freedom, access
to lab equipment,
responsibility
Delay would
cost $65K/
month, $15K
recruiting fees
Money,
Access to top
mgmt.
$20K and
$10K/ acct.
mgr. recruiting
fees,
$100K/mo. new
sales
Recognition,
security, ego
Re-Recruitment
Actions
Promote to Chief
Technologist, salary
adjustment, purchase
new test equipment
Stay bonus at 90
days, lunch w/
CEO
Meeting w/ LG,
recognize at
company meeting
Assistance
KWL
Timing
31-Jan
Status
FTJ is
consider-ing
the offer
DRD
15-Feb
LFG
7-Feb
In start up
phase
In negotiation with
DLC, looks
promising
Business & Integration
Strategy
Understanding the Deal 4 S’s
• Strategy for the deal
• Synergy for the companies
• Structure of the deal
• Steps for integration
Business & Integration
Strategy
•
•
•
•
Acquisition Process-where are we?
Business Strategy for the Merger
Integration Strategy/Milestones
Integration Infrastructure
Acquisition Process
Negotiation/Agreement
Due Diligence
Integration Planning
Integration
Announcement
Planning
Agreement
Announcement
Regulatory Approval
Close
Business Strategy for the Merger
• Why did we buy this company?
• What is the strategic business objective?
• What strengths do they have?
Synergy for the Deal
• Business Goals for the deal
• Time Frame to reach goals
• Opportunities, Constraints, or Risks
Structure of the Deal
•
•
•
•
The Rescue
The Collaboration
The Contested Situation
The Raid
• Various Types of Consideration
– Cash
– Stock
– Combination
Structure of the Deal
•
•
•
•
Describe the structure of the deal
Understand the perceptions of the market of the deal
Understand the target company’s perception of the deal
Consciously target communication to match the
structure of the deal
Integration Strategy for the Deal
1. The acquired company is a stand-alone entity with no
change in strategy.
2. The acquired company is left as a stand-alone entity,
but with significant change in strategy or structure.
3. The acquired company’s support functions are
partially integrated in to the acquiring company.
4. The acquired company’s operations are partially
integrated into the acquiring company’s operations.
5. The acquired company is totally integrated into the
acquiring company.
Integration Strategy/Milestones
• What Level of Integration?
• What functions are to be integrated?
• What functions are to be left alone?
• What are the major milestones for integration?
• What has been determined so far with regards to
integration? (Headquarters location, sales offices..)
Integration Infrastructure
•
•
•
•
•
•
Executive Board or Management
Steering Committee
Integration Team
Task Forces
Sub Teams
Implementation Teams
INTEGRATION PROJECT TEAM STRUCTURE
STEERING COMMITTEE
Hank Russell*, Peter Murphy, Bruce Davidson
INTEGRATION TEAM
Rafael Floyd*, Barb Baker, Phil Demtri,
Brian Connelly
Product
Development
Technical Support
Pete Fanet, Prakash Patil
Finance
Information Systems
Michael Dean,
Harry Gorman, Amber Short
Mike McFarland,
Tori Stillman, Jason Motley,
Rupert Potter
Product Integration
Human Resources
Dave Klinder, Beasley Hopkins,
Hans Schmidt, Mike Thompson
Sally Anderson, Alex
Mitchell, Joan Jacobson,
Amy Baker
Sales &
Marketing
Jill Conroy, Paulo Gunsallas,
Bob Foley, Bert Mender
eCommerce
& Web Site
James Davis,
Elizabeth Crowley
Communications
M. Daniels, P. Parsons,
M. Shelton, J. Gonzales,
S.Napolis
Roles & Responsibilities
• Steering Committee
– Hank Russell, Peter Murphy, Bruce Davidson
• Responsibilities:
• Oversight role for the entire merger integration
process
• Provide sponsorship
• Make strategic decisions
• Approve integration plans
• Elevate issues to Board if required
Roles & Responsibilities
• Integration Team
– Rafael Floyd, Barb Baker, Phil Demtri, Brian
Connelly
– Responsibilities:
•
•
•
•
•
•
Coordination of the integration process
Instill Project Management Disciplines
Monitor Integration Progress against milestones
Assigning resources
Resolving integration issues
Approving integration plans
Roles & Responsibilities
• Task Forces
•
Responsibilities:
• Leaders facilitate the work of the group
• Perform analysis of organizations
• Identify priority initiatives
• Develop detailed work plans
• Coordinate work with other task forces
Roles & Responsibilities
• Sub Teams
• Responsibilities:
• Work with Task Force on priority initiatives
• Conduct additional research & analysis for
integration
• Prepare detailed project plan
Roles & Responsibilities
• Implementation Teams
– Individuals/Teams-to be determined at time of
implementation
– Some of the members of the task force teams will be
responsible for implementation
• Responsibilities:
• To implement the project plans for integration
• To make continuous improvements as needed
Results of Comparative
Business Analysis
The Comparative Business Analysis
In developing the Integration Plan, it is important to to
develop a clear picture of both businesses at the organizational,
process and job levels. This picture is the Essence of the
Business, which includes analysis of:
• Strategy
• Process
• Organizational Design
• Performance Management and Measurement
• Ongoing Improvement Initiatives
• Operating Styles
• Systems / Information Technology
Three Levels of Comparison
Organization Level
POLICY
MANUAL
Strategy
Values and
Behaviors
Policies
Organization
Structure
Goals and Rewards
Process Level
Process
A
Information Flow/
Support Systems
Measures
Work Process
Process
B
Input/Supplier
Requirements
Performance Mgmt
System
Job/Performer Level
DIPLOMA
DIPLOMA
JOB DESCRIPTION
• ----• -----
• ----• -----
Roles/Responsibilities
Skills
Communication
Job and Human
Performance
Comparative Analysis
Essence of
Business
Company A
Essence of
Business
Company B
Analysis
‘s Identified
Interpretation
Session
Recommendations
•Process
•Performance Management
Decision Analysis
•Risk Assessment M&A
•Integration Planning
Integrated Performance Improvement Plan
Implementation
Developing Options: Data, Analysis,
Recommendations
Performance Measures
Performance Measures
Process
Policies
Company
A
Company
B
Process
Policies
Organization
•Keep Both
Organization
Initiatives
•Keep One, Discard Other
Initiatives
•Combine elements of both
•Discard process all together
•Create from scratch
•Decide “What”
•Next comes more decisions
Integration Challenges
• Identify Key barriers for integration
• Discuss action items to address them
• Assign who is accountable
Merger Integration Planning
Merger Integration Planning
Methodology
•
•
•
•
•
Steering Committee & Integration Team Chartering
Comparative Business Analysis
Communication Strategy and Plan development
Integration High Level Plan & Schedule
Task Force Team selection, formation and chartering
Merger Integration Planning
Methodology (cont.)
•
•
•
•
Task Force Initial High-level Initiatives Plans
Steering Committee & Integration Team approve plans
Task Forces Develop Detailed Project Plans
Steering Committee & Integration Team Approve Project
Plans
• Transition Project Plans to implementation teams
• Lessons Learned Review
• Ongoing Monitoring
Charter Steering Committee
• Key relationship building event
• Understand their role & involvement in integration
• Determine Business & Integration Strategy for merged
companies
• Set Clear Financial objectives
• High-level integration strategy
• Core communication Content
• Retention Strategy
• Selecting Integration Team
Charter Integration Team
•
•
•
•
•
•
•
Establish counterpart on Integration Team
Understand their role & involvement in integration
Validate Integration Strategy
Integration High-level Plan
Selecting Task Force Teams
Set Project Milestones
Set up Project Office, reporting, contacts, method of
communication, etc.
Integration Plan
•
•
•
•
•
•
Integration direction
Areas of focus
Highlight integration challenges
Synergy Targets
Budget guidelines
Establish Project Schedule
High – Level Schedule
Phases Integration
Analysis
Initial Plans
Validation/
Approval
Design New
Organization
Detailed Project plans
Implementation
Planning/Transition
Implementation
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov
Dec
Charter Task Force Teams
•
•
•
•
•
•
Share 4 S’s of the deal
Understand their role & involvement in integration
Review Integration strategy Project Plan
Set parameters and Project Milestones
Explain reporting and issue resolution process
Task Force sets:
– Objectives/scope of work
– Goals
– Success Measures
– Deliverables
Integration Approach
Analysis
Initial
Plans
Timeline
Overall
Objectives
May
Initial Comparison
of Organizations
Initiatives
Approval
Design
Detailed
Project
Plans
May
May-June
Review Plans with
Integration teams
Develop detailed
Project plans
Implementation
Implementation
Planning
July
Develop
Implementation
Plans
August-Dec
Execute
Implementation
Plans
Integration Approach
Analysis
Initial
Plans
May
Overall
Objectives
Principal
Outcomes
Initial Comparison
of Organizations
•Integration Teams
Chartered
•Integration
guidelines
•Comparison of
organizations
•Initial integration
opportunities “Early Wins”
•Identify barriers to
integration
Approval
May
Design
New
Organization
Plans
Juen
Implementation
Implementation
Planning
July
August-Dec
Integration Approach
Analysis
Initial
Plans
Feb-Mar
Overall
Objectives
Principal
Outcomes
Approval
April
Review Plans with
Integration teams
•Review of
Analysis phase
•Obtain clarification
on findings
•Validate direction
•Approve easy
decisions
•Review with steering
committee
Design
New
Organization
Plans
May-June
Implementation
Implementation
Planning
July
August-Dec
Integration Approach
Analysis
Initial
Plans
May
Overall
Objectives
Principal
Outcomes
Approval
May
Design
New
Organization
Plans
May-June
Develop integration
project plans
•Define Business
Direction/ Objective
•Detail Org. Structure
-Business Processes
- Roles and
Responsibilities
- Measures
• Preliminary
Implementation
Plans
•Business case
Implementation
Implementation
Planning
July
August-Dec
Design Phase - Potential Approach
MANAGE
STRATEGIC
DIRECTION
OBJECTIVES
VALIDATION
VALIDATE
DETAIL
DESIGN
MEASURES
VALIDATION
OPERATE
ROLES/
RESPONSABILITIES
BUSINESS
CASE
ANALYSIS
IMPLEMENTATION
PLAN
HIGH
LEVEL
DESIGN
IMPL.
PLAN
IMPL.
Integration Approach
Analysis
Initial
Plans
May
Overall
Objectives
Principal
Outcomes
Approve
May
Design
New
Organization
Plans
May-June
Implementation
Implementation
Planning
July
Develop
Implementation
Plans
•Detail project plans
•Detail infrastructure
needs, space, tech,
resources, $
•Organizational
staffing
•HR programs
selection
•Information Tech.
migration plans
August-Dec
Execute
Implementation
Plans
•Begin
implementation of
project plans
•Business Planning
Cycle
New Benefits
New Comp
New Budgets
Measurements/
Monitoring
Integration Approach
Analysis
Initial
Plans
May
Overall
Objectives
Principal
Outcomes
Initial Comparison
of Organizations
•Integration Teams
Chartered
•Integration
guidelines
•Comparison of
organizations
•Initial integration
opportunities “Early Wins”
•Identify barriers to
integration
Approval
May
Design
New
Organization
Plans
May-June
Review Plans with
Integration teams
Develop Business
Objectives
Operating Structure
Organization
•Review of
Analysis phase
•Obtain clarification
on findings
•Validate direction
•Approve easy
decisions
•Review with
steering committee
•Define Business
Direction/ Objective
•Detail Org. Structure
-Business Processes
- Roles and
Responsibilities
- Measures
• Preliminary
Implementation
Plans
•Business case
Implementation
Implementation
Planning
July
Develop
Implementation
Plans
•Detail project plans
•Detail infrastructure
needs, space, tech,
resources, $
•Organizational
staffing
•HR programs
selection
•Information Tech.
migration plans
August-Dec
Execute
Implementation
Plans
•Begin
implementation of
project plans
•Business Planning
cycle
New Benefits
New Comp
New Budgets
Measurements/
Monitoring
Task Force High-Level
Initiatives Plans
• Integration Initiatives
• Key Decisions/Operating Strategy
• Open Issues/Remaining Decisions
Detailed Plans & Milestones
•
•
•
•
•
Format of Plans
Integration Milestone Schedule
Issue Resolution Process
Status Reporting
Communications Guidelines
Early Wins
• Capture Early wins
• Feed to Communications Team
• Celebrate successes
CURRENT
AFTER INTERGRATION
B
A
ORGANIZATION
Strategic
Direction/
Objectives
Design
Implementation
Organization Design
Functional Relations
Severance
Improved
Function
Relations
B
A
PROCESS
Process
Improvement
“Early Wins”
Work
Practices
Measures
Work
B
A
JOB
Roles/
Responsibilities
Synergies
Roles
Capabilities
Financial
Performance
High-Level Initiatives
Plan Approval
•
•
•
•
•
Integration Team and/or Steering committee approval
Move forward with integration
Milestone targets
Monitor project status through reporting
Status update meetings
Task Force Detailed
Integration Plans
•
•
•
•
•
•
•
•
•
•
•
•
Key Decisions/Operating Strategy
Open Issues/Remaining Decisions
Integration Initiatives
Communication/Education Plan
Operating Style/Cultural Influences
Support Required - People
Support Required - Equipment
Support Required - Relocation Facilities
Integration Risks
Early Wins
Staffing Model
Cost/Benefit Summary
Implementation Transition
• Define Closure of Integration Planning Process
• Celebrate Successes
• Identify Hand off to implementation
team/individuals
• Set milestones reviews for implementation
• Conduct lessons learned on integration
planning
Lessons Learned Review
• Collect information on what went well
• Collect information on what can be improved
• How will we feed that back into the integration
process
• Document and share with Integration Team &
Task Forces
Ongoing Monitoring
•
•
•
•
•
Measure against initial goals
Continually Re-Recruit your people
Concentrated effort on Communications
Reassess business processes
Survey employees
A Systemic View of an Organization
The foundation of EOB is the Supersystem, which shows the interaction of all three levels of an organization with
the external environment. This allows us to understand the variables that influence performance down to the individual
employee.
ENVIRONMENTAL INFLUENCES
• Economy
• Government
regulations
I. Organization
Level
• Culture
interest
rates
environmental
group actions
ANY BUSINESS
RESOURCES
II. Process Level
Capital Market
Labor
Market
Suppliers
Research
Laboratories
$
III. Job/Performer
Level
capital
Shareholders
human
resources
MARKET
material,
equipment
products/
services
technology
Customers
customer
orders, requirements,
and feedback
COMPETITION
products/services
$
Seven Deadly Sins in
Merger Integration
1. Delay the start, drag out the finish.
2. Put no one in charge.
3. Allow divergent initiatives.
4. Forget the business and the customer.
5. Under communicate.
6. Ignore project management disciplines.
7. Use second-rate staff.