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10/21/2013
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John M. Thompson, CPIM
PAR Solutions, LLC
Survival Skills in the Age
of Mergers and
Acquisitions
John M. Thompson’s bio• Production planning & scheduling: 11 years
• Management consulting: 17 years
• Interim executive: 6 years
• Prior roles / titles: Planner, master scheduler, manager of
planning & scheduling, director of continuous
improvement, Sr. director of S&OP, VP of integration, VP of
SCM, COO, consultant
• Industries: metals, hi-tech, medical device, consumer
products, chemicals, publishing, industrial safety…
• Geographic scope: 13 countries & most states of USA
• Education: MBA, Babson College. BA, Boston College
• M&A experience: 11+ (from both sides of the deal)
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Agenda
• Introductions
• Background
• Readiness quiz
• Case study
• Best practices for M&A in planning
• Developing your personal survival plan
• Summary and conclusions
• Q&A
“Deciding how to staff the combined
organization is the most delicate task
in merger integration.
• Who goes?
• Who stays?
• Who should be re-recruited?
Your best promise for a successful
merger comes from hanging on to your
best people. “reference: Pritchett
The newly merged HR exec key issue:
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• According to a study at Honeywell and other
research (Cabrera,Wishard), employees spend
two hours per day —roughly 1/4 of the work
day—obsessing over the potential impact of
their merger rather than performing their
work.
• Employee turnover contributes to M&A
failures. The turnover in target companies is
double the turnover experienced in non-
merged firms for the ten years following the
merger.Price Pritchett
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Let’s begin by reviewing these troubling
statistics—
• Half of acquired senior managers leave in the
first year after a merger.
• Three out of four leave within the first three
years.
• —Human resource executive
• Research involving almost 1,000 senior and
middle managers found 90% were
psychologically unprepared for the changes in
status and organizational structure
• they would encounter following their mergers.
—Harvard Business Review
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• Target companies lost 21% of their executives
each year for at least ten years following an
acquisition.
• This is more than double the turnover
experienced in non-merged firms.
• —Journal of Business Strategy
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n Failure to maintain focus on customer
n Overestimation of synergiesn Poor cultural fitn Inability to transfer skillsn Lack of vision or strong leadership
n Loss of momentum or focusn Flight of talent/knowledge capitaln Organizational confusion and
divisionn Excessive premium paidn Inadequate emphasis on speed
Common Reasons for Failure
Integration is very challenging – most fail
Business Week
50% of major mergers since 1990 have eroded shareholder returns
33% resulted in marginal returns
17% have contributed significant value
Fortune
77% of acquisitions do not earn or exceed their cost of capital
23% of acquisitions earn or exceed their cost of capital
Ref: Ernst & Young
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Nevertheless, M&A deal volume increasing
Source: Thomson Financial, Institute of Mergers, Acquisitions and Alliances (IMAA) analysis
Activity crosses industries, regardless of total
return to shareholders
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Why think about the impact on you?
• Increasing volume of deals + wider trans-
industry spread = higher likelihood of impact
on you.
• Your control over your career will be
impacted
• The only certainty = change!
• Humans are not comfortable with change
and uncertainty
• How can you best prepare yourself?
Examples of prior M&A experience• Haemonetics -> American Hospital Supply
• Davol -> International Paper, then -> C.R. Bard (+ several
‘bolt-ons’)
• Ernst & Whinney + Arthur Young = E&Y
• EG&G Sealol -> John Crane
• E&Y + Cap Gemini = CGE&Y
• Bacou + Christian Dalloz = Bacou Dalloz (now Honeywell
Safety).
• Jackson Safety -> Kimberly Clark
• Applied Biosystems + Invitrogen = Life Technologies
• Thorpe Products + Distribution International
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An M&A event..
• Can be a life-changing experience!
• For instance:
– You may have a job, but it will be in a different
location
– You may have a job, but your role is different
– You don’t have to re-locate, but you don’t have a
job
– You may have no certainty of your role going
forward and no time frame for future changes.
• So, you need to be prepared.
Readiness quiz: how well do you know:
• Yourself and your anchors?
• Your personal SWOT?
• Your market-ability?
• Your ability / willingness to re-locate?
• Your financial ‘runway’?
• Your boss?
• Your organization?
• Your political position?
• Your industry?
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Think of the impact vs. the current state
Here –but
what?
Here –but
what?todaytoday
??Job –but
where?
Job –but
where?
Job / role certainty
Loca
tion
cert
aint
y / c
ontr
ol
Common terms in M&A / PE
Valuation terms
• EBITDA
• Multiples
• Synergistic
• Accretive*
Post-event terms
• Maximize value
• Duplication
• Cost synergies
• Measureable value
*The process of accretion, which is the growth or increase by gradual addition, in finance and general nomenclature. An acquisition is considered accretive if it adds to earnings per share.
Are these common terms in your functional nomenclature?Where do you add measureable value?
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Where do you fit in the value chain?
Revenue (growth)Revenue (growth)
COGS (reduction)COGS (reduction)
GP / GPM GP / GPM
SG&ASG&A
NI NI
EBITDAEBITDAIs your value to the organization measureable and visible?
Case studies
• Global $20B organization acquires a $150M specialty
(complimentary?) products company
– Results?
• 2 industry leaders, equals but with differing,
complimentary global reach and market share
– Results?
• Industry revenue leader acquires product quality
leader
– Results?
• 2 middle market competitors are merged by private
equity firms
– Results?
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Design criteria and principles utilized• Alignment with business strategy and integration objectives as
we understand them
• A supply chain organization which is flexible and can support
rapid implementation of on-going business results
• Global supply chain capability that is flexible and responsive
• Leverage / improve existing talents, technical capabilities & align
them to harness the speed, scale, and synergy of one portfolio –
optimized business
• Eliminate duplication
• Implement best practices and focus on execution.
• Ensure seamless integration by ensuring all required business
processes are ‘assigned’ new ‘homes’ in the ‘Future State’
• Ensure clarity over responsibilities/accountabilities
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Key issue: separation of duties: ‘A’ has combined three key business
processes. ‘B’ maintains segregation of responsibilities.
Demand / supply
planning
Supplier base
management
Tacticalpurchasing / procurement
Supply chain
management
(Teams aligned by
product lines)
Planning
Product supply
Sourcing
A BBusinessProcesses
Sub-Process / Scope
•Demand planning•Supply planning (SIOP)•MPS•Capacity planning
•Supplier assessment / qualification•Supplier base management (SRM, Quality, etc.)•Cost improvement
•Contracting•Purchasing•Procure-to-pay management
Organizationalalignment to process
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How will Collaborative Planning Process work?
Planning Process, Systems & People
DistributorsBrand
managementSales force
Plant-level:Detailed scheduling & plan execution
Inter-companydemandDC’s
Collaborative plans & schedules
SBU:Global supply
planning (MPS / allocation)
Regional managment:Demand planning
(Forecasting, Inventory targeting)
MBU
America
MBU
EuropeMBU
Asia
SOP process
SBU SBU SBU SBU Vendors
Consolidated demand
Consolidated Supply Plan
MBU
Australia
Option 1: Centralized S&OP
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MBU America MBU EuropeMBU Asia
Asia ---- Australia
Consolidated/centralized: Demand, inventory, purchasing, freight
SCM MGR SCM MGR SCM MGR
Plant 1
Plant 2
Plant 3
Plant 4 Plant 4
Plant 3
Plant 2
Plant 1
CentralWarehouse
CentralWarehouse
CentralWarehouse
CentralWarehouse
GlobalVendors
Regional Customer Demand,Inventory, Purchasing, Freight
Regional Customer Demand,Inventory, Purchasing, Freight
Regional Customer Demand,Inventory, Purchasing, Freight
Option 2: Central Demand Planning
/Regional Supply Planning
Option 3: Regional S&OP MBU America MBU Europe MBU Asia
Plant 1 Plant 2 Plant 3 Plant 7Plant 6Plant 5Plant4
Centralwarehouse
Centralwarehouse
WarehouseAustralia
WarehouseAsia
MBU Australia
Demand aggregation
ordering, inventorycontrol, distribution
Demand aggregation,ordering, inventory
control, distribution
Demand aggregation,
ordering, inventorycontrol, distribution
Demand aggregation,
ordering, inventorycontrol, distribution
External
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Key issue: Centralization vs. De-Centralization…a very common
question for many organizations.
1 Sources: Managing Purchasing, Supercharging Supply Chains, APICS
1. Decisions are made by managers who have a broad view of the whole organization.
1. Decisions are made by managers who have a narrow focus.
2. Decision makers at higher levels / centralized are usually better educated and better trained than localized management.
2. Decision makers at the top rarely deal directly with the execution employees who must carry out the decision.
3. Eliminating duplication may result in cost savings.
3. Long lines of communication cause long delays.
4. When functions are centralized, there is a greater chance for specialization which leads to increased skill levels.
4. Lower-level / business unit managers are often frustrated because they are removed from the decision-making process.
5. Decision-making criteria are more consistently applied throughout the organization.
5. Since more people are involved in communication, there is greater chance for error; additionally, personal bias & politics may enter the picture.
CENTRALIZATION
ADVANTAGES DISADVANTAGES
Some viewpoints collected from SCM references1…(continued)…
1 Sources: Managing Purchasing, Supercharging Supply Chains, APICS
1. Decisions are made faster. 1. There tends to be lack of information and coordination between departments and 'headquarters'.
2. The manager who has the most information about the situation makes the decision.
2. Managers tend to have a narrow viewpoint and may be more interested in the success of their departments than of the company.
3. Increased involvement in decision-making creates higher morale and motivation among first line & middle managers.
3. Decision-making is widely dispersed and requires more / tighter communications in situations where uniform policies / compliance is critical.
4. This structure provides good training for first line and middle managers.
4. Policies and procedures vary widely throughout the organization.
DECENTRALIZATION
ADVANTAGES DISADVANTAGES
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Lessons Learned
• What really ‘works’?
– For the share holders?
– For the organization?
– For the individual?
• ‘It depends’ (reference anchors)
• Who ‘survives’?
– What defines survival?
– Who do you work for?
• What to look for?
– Words are only 5% of communication!
How to survive & thrive:
Develop and maintain your career plan
PDP
‘BELTS’
‘Anchors’
Think of ‘you’ as a client project!
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Know your ‘anchors’PDP
BELTS
Anchors
Anchors = the values, motives, support systems, responsibilities that you would not / can not give up.Knowing these at all times will prepare you for tough choices.
career personal
AnchorsExamples of anchors:
• Technical & functional confidence
– Industry / product, profession, geography…
• General management confidence
• Autonomy
• Job security
• Creativity
• Challenge
• Life style / work-life balance
– Family obligations
– Location / re-location
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Tighten your ‘BELTS’ PDP
BELTS
Anchors• Resume – current versions
• Brief biographies -- dittoBIOBIO
• Fixed costs – know, manage, reduce
• Family obligations – ability vs. meansEconomicsEconomics
• Obligations – stay mobile
• ContractsLegalLegal
• Degrees – finish, if not completed
• Certification -- dittoTraining & Ed.Training & Ed.
• Up-to-date – learn to enjoy it
• RelevantSocial networkSocial network
Prepare your Personal
Development PlanPDP
BELTS
AnchorsOBJECTIVES
• Personal
• Career
• Based on: reasonable expectations, style, personality, limitations, Anchors
GOALS• Attain fulfillment
• Meet the objectives
STRATEGY
• Communication
• Organization / network
• Support system
PLAN• Actions
• Measures
• Timeline
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Outline for moving on,
assuming you have not
completed a PDP…
1. Deal with the shock / change as soon as possible and put it in a ‘place’.
2. Develop and write down an action plan
1. Self assessment
2. Market assessment
3. Targets: what, where, how much $...
3. Gap analysis:
1. What is the gap between your self-assessment vs. the market needs?
2. Plan for closing the gap e.g., some training / education.
4. Start the journey:
1. Build the resume.
• It is a ‘bill board’ for selling you!
• Goal of resume = get the meeting / call / interview. Not to get the job. It is
a step-by-step process.
• Takes many iterations – just get it started.
• Keep different versions for different opportunities.
• Highlight the great stuff you have done – this is the time to self-promote!
• Use key words that will attract attention, e.g.: ERP, M&A, cost, profit, etc.
• Use metrics to show your results, e.g. reduced costs by x% per year…
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Build and nurture a strong network
1. Reach out to friends, colleagues, past bosses, etc.
2. Work at it constantly!
3. Your network will have many sub-networks and you’ll be part of these
too!
4. ‘Nurture’ your network
• it is give-and-take.
• It is your lifeline.
5. Start a networking group that meets on a regular /scheduled basis
• Perhaps the leadership / organizer role can be a revolving one.
6. Utilize the web for professional networking sites, e.g. www.Linked-
in.com
7. Maintain your network after you have ‘landed’.
8. The network = your lifelong ‘professional family ‘
Once you get the interview(s):• Prep yourself by conducting practice role play interviews with trusted friends.
Brutal honesty is good!
• Do your ‘homework’:
• The organization
• The industry
• The products / services
• The job and the salary range
• Your [realistic!] expectations for $, etc.
• Be prepared for the ‘typical questions’, (as some interviewers will use a
checklist) e.g.,
• “Why are you looking?”
• “What is your long term career plan?”
• “What are your strengths and weaknesses?”
• “Why should I hire you”?
• Be ‘RECHT’: relaxed, early, confident, honest, and tactful.
• It is okay to say, “I do not know, but I know how to find out…”
• Ask what the hiring process is and how you can get to the next step.
• Stay positive!
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Summary
• Today’s organization is very fluid.
• Greater likelihood of a transaction impacting you.
• The circumstances that drive your likelihood of
continued success in your chosen field may change –
out of your control.
• What is within your control is you and you must be
well known, managed and continuously improved.
– Know yourself.
– Look for criticism.
• Sharpen your decision making tool kit.
Conclusion• You work for YOU, Inc.!
• YOU, Inc. is responsible for:
– Strategy formulation & maintenance:
• Long term strategy
• Exit strategy
– Financial management:
• Budgeting & job security
• Fixed costs management
• The bottom-line
– Sales & marketing
– Execution
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Contact
information
PAR
Solutions
PAR
Solutions
Practical Practical
AdaptableAdaptable
RelevantRelevant
Survey
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