M&A programs are crucial for an enterprise. Many M&A actually fail because of inappropriate preparation. They are an economic adventure but also a human adventure, in which each member of the enterprise has a part to play. CEO Worldwide offers enterprises (which are willing to succeed) the experience of top managers, who have already succeeded in setting up several M&A programs. Experience is a key factor in this field.

A) The Myth

Conventional wisdom is that most merger and acquisition (M&A) transactions fail. Or put another way, only about 20% of all mergers really succeed. Yet M&A activity is prevalent. Why? Because the reality is that M&A does succeed on average. M&A clearly pays for shareholders of target firms, especially if they are shareholders of private firms acquired by public firms. And most studies of targets and buyers combined indicate that these transactions create net value.

B) Initiation of an M&A Program

Successful companies develop critical core competencies that drive their competitive strategy. In order to increase the chance of success with a M&A program, successful companies must also develop core competencies that make them superior acquirers, something that is difficult to do when each acquisition is considered a unique event. When companies announce they are undertaking a series of acquisitions in pursuit of some strategic objective, generally their share price rises significantly. The stock market’s systematic positive response to such announcements suggests that most corporate M&A programs tend to create value over the long haul.

3) The Three Key Factors to a Successful M&A Program

Strategy

All else being equal, acquisitions of companies in related fields (“focusing acquisitions”) is the most likely path to the discovery and exploitation of synergies and generally provides a better return than an acquisition strategy that does unrelated diversification. Furthermore, focusing acquisitions should only occur when it advances the overall strategy of the company in compelling ways. It is essential to ensure the transaction is in alignment with the company strategy. Always question the strategic rationale of each transaction. If the strategic rationale is wrong it doesn’t matter how well the deal is executed or integrated, it is still a bad deal. But if the strategic rationale is right you still can fix a bad deal or a bad integration. Having a sound strategic rationale defines the purpose of a transaction. There should be absolute clarity within the organization on the purpose of the acquisition and why it’s important. Not only is this critical to motivating employees and shareholders, but an acquisition justification can serve as a beacon to point the way during problems, complexity, and confusion that inevitably occur during integration.

Sponsorship

To ensure success of an acquisition, the deal must be sponsored by the head of the business unit (the “BU”). The CEO or the deal team can manage the transaction but if it doesn’t have a sponsor after the transaction closes to ensure that the details of a successful merger are addressed, the transaction will fail to meet expectations. And the BU head must be accountable and rewarded for performance. It is essential to have a stakeholder that is willing to spend the political capital to make sure the transaction is a success. If it is a new area for the company without an established BU head then the CEO must appoint a BU head, generally from the acquired company. Using an earn-out structure in this circumstance can help ensure the BU head from the acquired company is working for the good of the combined company. Furthermore, the BU head must have the bandwidth to put in the required time and effort as making synergies happen is not without cost – time spent on coordination and interaction to realize synergies, additional training and relocation costs, and additional travel time.

Integration

It is easy to lose one’s focus when the deal is closed but that is when the work begins. You must have someone, a program manager, who can stay attentive to the details. Start preparing for the unexpected. Laying out the first integration moves in advance frees up management time to deal with the issues and problems that could not have been anticipated in advance. Probably the most important of these items is to ensure that the first payroll does not have any problems. There is no better way to signal to employees of the acquired company that you don’t care about them than to mess up their first paycheck. Each integration plan must address the following four basic principles:

1. Accountability – individuals must be made accountable to oversee and direct the integration effort

2. Specific action steps must be created – a specific time frame for completion of integration must be created and followed

3. Communication – internal and external procedures and processes must be addressed

4. Measuring success – for each acquisition the company should establish benchmarks of performance with provisions for evaluation, control and corrective action

D) To Conclude: Nothing Replace Experience

If there are any basic principles to succeed in M&A, experience is definitely the key factor (to success). There are so many variables to master that a theoretical or purely economic vision cannot resolve the different problems. CEO Worldwide provides a vast number of top managers who have succeeded in achieving M&A. They can intervene in an autonomous way or assist you directly in this vital step for your enterprise. For a temporary mission or for a permanent job, they will allow you to take advantage of your business opportunities in the best possible way.

About the author: A senior executive officer and industry expert in corporate acquisition and business development with the ability to provide complex strategic planning and M&A execution for accelerated corporate growth. Excellent ability to conduct thorough due diligence requirements coupled with keen business savvy to identify emerging opportunities.

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When picturing the relationship between the enterprise and the Software-as-a-Service (SaaS) business model, I imagine an evolutionary process that can be divided into three main stages. The first let’s call ‘The Comfort Zone’; the second ‘The Enlightenment’; and the final stage ‘The Re-Assessment’. Once we examine these we can then decide upon the right course of action when choosing how to adapt to the IT demands of the enterprise.

The Comfort Zone

First let’s look at the enterprise company. Typically it may be a bit strapped for resources and possibly even struggling to find the staff to assign to some of their most mission-critical IT projects in one of their departments.

And then there’s the SaaS business model – now a major trend among enterprise corporations. Most major SaaS players, such as Salesforce.com provide some form of web-based application functionality. Also known as on-demand, these guys charge their customers on a per-use subscription basis. And it’s a particularly attractive and efficient alternative to on-premises applications because it reduces the significant risks and costs of CRM implementation (and we’re all aware of the success rates of most CRM projects).

The major advantage of SaaS is that it can exist within the enterprise – similar to an ICBM missile silo within a military network – where the silo remains completely self-contained. The great thing about SaaS, from the enterprise’s perspective, is that it allows the business people to operate independently from IT, typically requiring only minimal input from them. It also makes life much easier for the CFO – allowing finance to make on-going payments rather than have to allocate and then justify a full-blown investment.

So SaaS really offers a ‘comfort zone’ solution for both the business and IT departments. SaaS offers the department’s user group a fully-functioning solution in quick time, while freeing IT from the worry and cost of having to implement a large on-premises IT project, or build the application in-house. A typical example of such a success is Salesforce.com, where a rapidly implemented sales force automation solution makes for happy sales staff and company executives alike. A win-win solution for all involved – for the time being. This leads us on to our next stage, ‘The Enlightenment’.

The Enlightenment

One of the great barriers to maximizing the full value of SaaS comes from the very reason the enterprise adopted it in the first place. The ‘silo’ effect means that the on-demand application remains effectively disconnected from the other applications that run in the enterprise, with the result that its information remains compartmentalized.

In the case of on-demand CRM solutions, SaaS software running solo can be viewed as a set-back to the process-driven enterprise, working in opposition to the goals of architects and business process analysts. And as a result, the enterprise, while happy with the fact that their mission-critical tasks are being performed, now begins to grumble.

Add to this the following issues and a re-assessment become almost inevitable:

1. The lack of automation that comes from being disconnected from the enterprise’s in-house applications means more data duplication, more manual entry and more human errors. You can’t even imagine how much enterprises are spending on these problems today!
2. As the on-demand application acquires increasing quantities and quality of information, other departments will want to buy-in and enrich their own applications with this data.
3. With the on-demand application becoming further enriched, your CIO will eventually want to apply some ownership to the system for security’s sake. Whereas in ‘The Comfort Zone’ it was more convenient not to own the system, now the situation becomes reversed.
4. And: With continued growth of subscribers to your on-demand application, eventually the enterprise will want to re-evaluate the license cost structure and subscription fees.

The Re-assessment of SaaS applications

Our enterprise now knows both the benefits and drawbacks of SaaS applications. Essentially the enterprise now needs to transform their SaaS application from a department-level tactical system to an enterprise-level solution to eliminate the duplicated work and manual processes, and to find a way of milking more value from their application and creating a more favorable cost-structure for the long-term.

The enterprise is essentially faced with two choices:

• Find an alternative solution to their on-demand application. This would normally mean going back to square one, with an on-premises solution or home-grown application, and losing all the appealing benefits of SaaS. This is a definite no-go.

Or:

• Somehow, bring their on-demand application more into the enterprise and integrate it with their existing applications.

The Value of Integration

I do believe that integration is really where the greatest value lies. Integration ties your on-demand solutions into your existing business infrastructure and enables both your on-premises and on-demand applications to work together in a way that gives them significantly more power and scope.

With integration, companies can multiply the power and reach of their Salesforce.com, SAP, Oracle JD Edwards, Movex, and other applications, allowing the enterprise to efficiently and automatically share and update information company wide.

Comprehensive information sharing gives both employees and management a fuller and more accurate picture of their overall business. Such a view allows management to make better business decisions, be more responsive to the customer’s needs, and get more efficiency and return out of their business transactions.

Integration Infrastructure vs. Custom Code

A word about custom code. The advantages of integration infrastructure over custom code integration solutions are clear. Custom coding is inherently more risky since it’s a one-off that hasn’t been tested in multiple scenarios. It’s also man-dependent: If you loose your coder after a year on the job, your project may be lost. While custom coding can seem an attractive alternative for some integration projects, the process is also time-consuming and inflexible when changes to the original architecture are needed. Few enterprises have the luxury to wait for their custom-code project while the market continues to evolve and move on. And when changes are required to your business process, or new applications must be added, many of the existing coding threads become redundant and need to be re-written.

Conclusion

So while I recognize that “integration” is a word that may scare many SaaS users and IT staff, the benefits far outweigh the potential fears.

Like in any industry, there will always be vendors out there willing to promise you integration at the push of a button, and who make it appear far simpler than it may be in reality.

The important thing is to choose a vendor that has the project experience to bring to the table a productive tool-set and powerful technology stack that can handle any integration scenario – whether straight-forward or more complex. Remember – the last thing you want or need is to start introducing custom coders and extensive consultancy that will push off your ROI and make you wonder why you didn’t stick with the more expensive and time-consuming on-premises solution. Integration remains by far the more cost-effective and practical solution for the enterprise. And when undertaken correctly, will bring your enterprise – SaaS relationship to the next level. Just make sure to integrate with a partner or vendor who really knows how to deliver on their promises!

About the author: A Swiss based Board-level professional, Avigdor Luttinger helps technology providers achieve their business objectives by leveraging their core competencies and the market opportunities; he is one of the founders of Magic Software Enterprises, and continues to dedicate a significant amount of his time to the company, where he functions as Vice President of Corporate Strategy. With over 25 years of experience and recognized expertise in the software industry, Luttinger is a frequent speaker and contributor at industry conferences and publications, and is also Executive Consultant at APL Technologies & Management Ltd. Luttinger currently covers Cloud Computing, Mashup technology, High Performance Workplace, Application Platforms, BPM and Integration. He holds an MBA from INSEAD in France and M.S. in computer sciences from the University of Lyon.

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Alberto Elli looks where the resources are concentrated during the three major temporal blocks of an acquisition

After so many years of being involved in business development, I think one of the most critical moment in an acquisition is the integration phase, when there are great chances to destroy shareholders’ value.

Let’s see where the resources are concentrated during the three major temporal blocks of an acquisition:

1. Strategic intent, target setting and proforma decision to justify the deal price. Great focus from top management, quite unrealistic expectations pushed both from inside (needs for growth) and from outside (bankers driven by fees as a percent of acquisition price).
2. Negotiations and closing. Seller, buyer and advisors have strong vested interests to get the deal done, also stretching proforma. Maximum peak of resources involved: multi-functional team from the acquirer and handsomely paid consultants from outside: lawyers, environmental experts, tax experts and accountants, bankers for financing and for advising on the deal. Once Due Diligence is completed (and at times it is done too quickly and without depth) and Purchase Price is set, all these actors tend to disappears because they have reaped the biggest rewards.
3. Once Senior Management is on a new acquisition and the “clock” of external advisors has been stopped, the local team and a bit of divisional support is left with the huge task of integrating the new acquisition and to deliver the shareholders’ value they are committed to.

RISK ASSESSMENT

To better understand the challenges of integration, an analytical risk assessment will help to highlight the areas that will need most management attention and dedicated resources. The following model can be run both in a qualitative way (describing the issues) and in a quantitative way (assigning values to each variable based on prior integrations experience). The latter approach is particularly valid for “serial acquirers” that will quickly size the risks and assign internal or external resources based on prior experiences and … lessons learned!

Nature of the transaction
1   Clarity of Strategic intent
2   Board of Directors Approval
3   Highly leveraged
4   Proforma on more than 5 yrs.
5   Acquisition and integration costs budgeted
6   Target, public or private
7   New Market Entry
8   Bolt-on acquisition
9   Transformational
10  Joint Venture
11  Minority Participation

Complexity “up-front”
12  Sales $10 – $50 Mill. Or more
13  Multi-divisional
14  Multi-geography
15  Plants to shut-down
16  People to reorganize / downsize
17  Due Diligence -> major adjustments
18  Net Worth Adjustments
19  Ear-out on multiple years

Customer Facing / Front Office
20  Key Management to Retain
21  Criticality of customers – Sales retention
22  Criticality of customers – Terms&Condition
23  Bad Debts Reserve
24  Compliance issues / severity – FCPA specific

Back Office
25  IT integration complexity
26  ERP to implement
27  Business Intelligence
28  Supply Chain established
29  Production Planning
30  Safety Procedure
31  Inventory management / slow moving
32  Centralized Purchasing
33  Critical Suppliers
34  Finance – closing and reporting in less than 5 days
35  Finance – monthly B/S reconciliations
36  Finance – Cost Accounting
37  Finance – Bank relationships, complexity
38  Finance – Cash Flow Management
39  Finance – Tax strategy
40  Risk Management – Insurance and Legal support
41  HR – Payroll (internal or Outsourced)
42  HR – Labor Contracts repository
43  HR – Benefits defined, perquisites definition
44  HR – Pension Plans assumptions understood and funded

Others
45  Culture, consonant or dissonant to acquirer
46  Regulatory and IP protection, criticality of issues
47  Warranties on long term sales contracts
48  Warranties on long term purchasing contracts
49  Documentation of Labs procedure
50  FX hedging in place

WHO HAS TO LEAD THE INTEGRATION PROCESS?

Every each integration is different but the best practices on the resources needed have informed the following considerations:

1)  CFO (Acquiring or the acquired)

Given the ultimate goal to deliver on expected shareholders’ value creation, the involvement of the acquiring CFO is very important but cannot be the sole responsible, given the many others concurrent responsibilities. At times, the acquired CFO has been asked to lead the integration; results are mixed because the internal knowledge can be over weighted by the temporary nature of his/her mandate. Only if the acquired CFO will have a long term place in the organization, the integration role works pretty well, actually if executed with excellence is the best entry in the new organization.

2)  Internal Project Leader (Full time or part-time)

PMO skills are needed; either imparted through internal training or available in specific professionals but the true integration leadership is quite different: best is to have a manager that is slotted to become the leader of the acquired entity or the leader of another acquisition.
Depending the size of the organization and the frequency of acquisitions, the investment of full-time resources is to be considered; the experience is usually multi-functional and the resource can be redeployed quite easily.

3)  External Project Leader

Solution to consider when the acquisition is one-off or is particularly complicated from a geographical/cultural point of view. Difficult to recruit the right profile but once is individuated the scope, the timing and the cost is fixed, even more important is the independence from internal politics and divisional agendas.

4)  Internal Team (permanent or ad-hoc)

Best practice is to form a full-time internal group of experts that can be redeployed after the acquisition is integrated or kept as a team if more are foreseen. To be noted that integration can be a relatively compressed time frame but full achievement of synergies can be a longer effort, like for Supply Chain and for IT in the contest of ERP implementations.

5)  External Team

Risky proposition in term of having the right quality and number of resources for all the time needed to complete integration. Once a resource is hired for a functional area, always ask to identify a back-fill. If possible, try to shy away from time and material contracts in favor of closed end sum, or based on payment at milestones’ achievement.

CONCLUSION

Clarity of the objectives to achieve, well defined timetable, proactive risk assessment and correct deployment of resources are key to a successful integration that will deliver the full value of an acquisition.

About the author: Alberto Elli for the last three years has been Interim-Chief Financial Officer for private and PE-owned companies in the space of consumer electronics and fashion, leading processes of turnaround and exit strategies.

From 2008 to 2013, he was Vice President and Controller of Sherwin-Williams Global Finishes Group (OH) (Automotive Finishes; Chemical Coatings; Protective and Marine Coatings and Emerging Markets) with about $3 billion Sales. Since inception, in 2008, the Group grew sales 70% both organic and with several acquisitions. Alberto joined Sherwin-Williams in 2006 as Vice President and Controller of the International Division after ten year experience in the pharmaceutical industry with Schering-Plough. His first assignment was as Finance Director in Italy and he was later promoted VP of Finance for the Healthcare Division headquartered in US-NJ and after three years was named VP of Finance, Pharma International, a group of $4 billion Sales. From 1985 to 1996, Alberto held various financial positions in Italy, the last of which was from 1989 to 1996 as Finance Director for SCA, a leading Swedish multinational in paper and packaging industry.

Alberto earned his degree of Dottore in Economia e Commercio from the Universita’ L.Bocconi, Milano, Italy