Mais conteúdo relacionado Semelhante a Ensuring Success in Post-Close Integration (20) Ensuring Success in Post-Close Integration1. @Firmex, #FirmexMC
Rubber Hits the Road
Ensuring Success in Post-Closing Integration and
Harvesting Intellectual Assets
Firmex Webinar Series Andrew J. Sherman, Esq.
M&A Master Class Jones Day
51 Louisiana Avenue, N.W.
Washington, D.C. 20001-2113
December 8th, 2011 202-879-3686
1:00 p.m. to 2:00 p.m. ajsherman@jonesday.com
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED 1
2. About Firmex
Firmex is focused on providing the best virtual data room
solution for managing corporate transactions and financial
compliance
Joel
Lessem Who uses Firmex?
CEO
Firmex • Firmex community includes
over 200,00 users worldwide
• Conducted over 10,000 deals
in the last 18 months
Why offer an M&A Master Class?
• As part of our value-added service, we believe it is important
to offer educational resources to our expanding community
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED 2
3. Andrew J. Sherman
Mr. Sherman is a partner in the Washington, D.C. office of Jones Day with over 2,500
lawyers worldwide.
He is the author of 23 books on business growth, capital formation and the leveraging of
intellectual property. His eighteenth (18th) book, Road Rules Be the Truck. Not the
Squirrel. (http://www.bethetruck.com) is an inspirational book which was published in the
Fall of 2008. He has appeared as a guest and a commentator on all of the major
television networks as well as CNBC’s “Power Lunch,” CNN’s “Day Watch,” CNNfn’s
“For Entrepreneurs Only,” USA Network’s “First Business,” and Bloomberg’s “Small
Business Weekly. ” He has appeared on numerous regional and local television
broadcasts as well as national and local radio interviews for National Public Radio
(NPR), Business News Network (BNN), Bloomberg Radio, AP Radio Network, Voice of
America, Talk America Radio Network and the USA Radio Network, as a resource on
capital formation, entrepreneurship and technology development.
He has served as a top-rated Adjunct Professor in the Masters of Business
Administration (MBA) programs at the University of Maryland for 23 years and at
Georgetown University for 15 years where he teaches courses on business growth
strategy.
He has served as General Counsel to the Young Entrepreneurs’ Organization (YEO)
since 1987. In 2003, Fortune magazine named him one of the Top Ten Minds in
Entrepreneurship and in February of 2006, Inc. magazine named him one of the all-time
champions and supporters of entrepreneurship.
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED 3
5. The Integration Challenge
“Cultural & people issues present the biggest specific challenges
during the post deal period…”
Only 20% of respondents were well
Top Post-deal Challenges prepared to deal with cultures differences
Complex integration
of two businesses 32% • Cultural challenges
– Differences in working styles,
Dealing with different
30%
leadership approach
Organization cultures
– National culture differences
People issues 27% – Behavioral differences
• People Issues
IT 24% – Key members of management
team leaving
– Employee moral and motivation
Customer retention 10%
– Retention of key staff
Time and – Consultation with staff and
4%
management representative bodies
Proportion of respondents
Source: KPMG Global M&A survey
…yet two thirds of companies had not placed a great deal of emphasis on
addressing people and cultural issues in planning for the post deal period
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED 5
6. Acquisition Integration: Surviving the “Day After”
Options for Integrating Acquired Business
Minimal – only selected corporate functions are merged (e.g.
HR/benefits), primarily to achieve staffing synergies or cost
efficiencies; acquired business remains decentralized with
autonomy for decision making and agreed-upon reporting
requirements to the “mother ship”
Moderate – certain key functions are consolidated (e.g.
marketing & sales, capital planning, procurement); strategic
planning and monitoring is centralized while most day-to-day
operations remain autonomous
Full – all processes, people and systems are consolidated
and management decisions are centralized into parent
company
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7. Acquisition Integration: Surviving the “Day After”
Integration: Whats the Big Deal?
• A poorly executed integration plan can create or
destroy shareholder value; the results are felt
long after the deal closes
• Integration is a difficult, complex and sensitive
process; it is not just an ad hoc “to-do” list
• There is no rigid or “one size fits all” framework
for integration
• A typical integration process has many owners
and constituents
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8. Acquisition Integration: Surviving the “Day After”
Top Reasons Cited for Integration Failure
“Integrating two organizations is like trying to build
a rocket while its blasting off.”
-- Anonymous
• People issues – e.g. losing talent; organizational
exhaustion
• Cultural incompatibility
• Poor communication across all organizational levels
• Lack of leadership and change management
• Resource Constraints; concurrent pressures
• Poor planning / slow execution of integration tasks
• Pre-deal horse trading – not fulfilling early promises after
deal closes
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9. Acquisition Integration: Surviving the “Day After”
Tactics for Retaining Key Players
• Provide financial incentive for successful (and timely)
completion of integration action items
• Reinforce a positive vision of their role in future of
merged company; answer the “me” questions in the
merger
• Involve in integration task force activities
• Communicate regular updates; explain “why” decisions
are made; provide a forum for venting
questions/concerns
• Provide timely positive feedback and recognition when
something is well done
• Follow up words with actions and be persistent
• Involve others to help “recruit” as needed
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 9
10. Acquisition Integration: Surviving the “Day After”
Tactics for Determining the “Best Process”
The “Process Maturity Model” – road map for process improvement
• Provides a context for evaluating specific processes with a goal of determining (or
redesigning) the best process that delivers higher performance over time
• Built around five key “anchor points” which provide a common approach and
common language among employees
Process Maturity Model
“Anchor Points”
Design – understanding of how the process is to be executed
Ownership – appointment of a key manager or group with responsibility for
process implementation and execution
Performances – abilities of the people who operate the process activities
Infrastructure – effectiveness of the information and management systems that
support the process activities
Metrics – quality of measures used to track process performance
Note: Adapted from the ”Process & Enterprise Maturity Framework,” created by Michael Hammer
See “The Process Audit” published in the Harvard Business Review, April 2007
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11. Acquisition Integration: Surviving the “Day After”
Common Tactics for Integration Survival
• Concentrate on real value drivers –
anticipate issues; plan appropriate responses
• Maintain continuity across deal phases –
from structuring to due diligence to implementation of integration plans
• Coordinate resources/timing and assign responsibility –
a lack of speed or accountability may kill potential benefits
• Manage change proactively –
take action to remove uncertainty while bridging any “cultural” gaps
• Communicate with internal and external constituents –
provide information early, often and carefully to build support and
acceptance
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 11
12. Acquisition Integration: Surviving the “Day After”
Concentrate on Real Value Drivers
Value Realization: Synergy action plans
• Identify and prioritize synergy opportunities (and
related challenges) during due diligence and adjust
throughout the transaction lifecycle – remember the
“20/80 rule”
• Each synergy challenge should have an unique action
plan with responsibilities assigned
• Synergy action plans should consider one-time
transition/integration costs or capital outlays (as well as
timing of cash flows) and be linked to financial
forecasts
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 12
13. The Integration Challenge
Desired Outcome Typical Results
• Rapidly capture • Synergies not achieved in
cost & revenue synergies 70% of cases
• Streamline organization and • 45% of executives leave by
critical business processes year 3
• Minimize disruption to • Customers frustrated by
employees and customers change
• Execute an issue-free Day One • Employee uncertainty
• Maintain focus on current translates into disengagement
business • First 4-8 months
• Quantify progress and results productivity reduced by 50%
Source: Deloitte Consulting LLP M&A Survey 2008
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14. The Integration Challenge
How Do You Capture Synergies….
Personnel Reductions Facilities Consolidation Sourcing/Purchasing….
…..While Integrating….
Customers Management/Employees Suppliers/Systems….
…..Without Negatively Impacting….
Financial
Customers Employees Vendors/Suppliers
Performance…
…All while relying on the same leaders/employees who are attempting to do
their “day job” and maintain current business momentum
14
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15. Integration Management Office (IMO)
Integration Playbook: Typical Elements
Planning Execution
EXECUTION AND MONITORING PROCESSES
PURPOSE
Functional Integration Planning with Acquired Company Resources
SCOPE
Project Portfolio Management Processes
Playbook Scope INTEGRATION PROJECT CLOSING
Relationship between Playbook Elements End State Tracking Process
INTEGRATION MANAGEMENT PLAN Lessons Learned Process
Organization COMMUNICATION MANAGEMENT PLAN (CMP)
Governance Communication Schedule
Communication Management Execution Processes
INTEGRATION PLANNING PROCESSES
Reusable Integration Message Products
Integration Phases Overview
SYNERGY MANAGEMENT PLAN (SMP)
Pre-Close Processes and Tools
Synergy Initiative Planning
Integration Planning Discovery Phase
Synergy Initiative Process Management
Human Resources Data Requirements
CULTURE/TALENT ASSESSMENT PLAN (CTAP)
Accounting Data Requirements Culture Assessment Tools
Initial Integration Plan Culture Analysis/Recommendations
Talent Assessment Tools
Retention/Separation Planning
15
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 15
17. Post-Closing Challenges
• The closing of a merger or acquisition usually brings a great sigh of
relief to the buyer, seller, and their respective advisors. Everyone
has worked hard to ensure that the process went smoothly and that
all parties are happy with the end result. But the term closing can be
misleading in that it suggests a sense of finality, when in truth,
particularly for the buyer and the integration team, the hard work has
just begun.
• Often one of the greatest challenges for the buyer is the post-closing
integration of the two companies. The integration of human
resources, the corporate cultures, the operating and management
information systems, the accounting methods and financial
practices, and related matters are often the most difficult part of
completing a merger or acquisition.
• It is a time of fear, stress and frustration for most of the employees
who were not on the deal team and may only have limited amounts
of information regarding their roles in the post-closing organization.
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 17
18. Post-Closing Challenges (Cont’d)
• The seller must facilitate a smooth transition of
ownership and management to the buyer's team without
ego, emotion, or politics. The buyer must have
procedures in place to prevent the seller undermining
these transitional efforts and assume control of the
company--also without ego, emotion, or politics.
• Post-closing challenges may arise in a wide variety of
subject areas, e.g., operations, finance, personnel, and
information systems and many other areas as set forth in
the post-closing check list set forth below. In order to
achieve desired synergies from a deal, an effective and
rigorous synergy management with a constant eye on
milestones is required.
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 18
19. Strategic Post-closing Issues
• Who should lead the transition team?
• Which changes should be made and how quickly?
• How will the changes be presented and sold?
• How can the seller’s transition from owner to employee
status be managed?
• How can “turfmanship” be avoided?
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 19
20. Common Post-Closing Problems
• Lack of Communication • Indecisiveness
• Weak Leadership
• Inexperience Among Executives
• Mistakes Made In Due Diligence
Process or Advisors
• Realization of Efficiencies and • Post-Closing Synergies Over-
Synergies Took Too Long (or Were Estimated or Unrealistic
Obsolete or Stale By The Time They
Were Achieved) • Stakeholder Resistance Under-
• Unexpected Rapid Shift in Post- estimated
Closing Market or Economic
Conditions • Customer and Channel Partner
• Unexpected Post-Closing Third Party Loyalty Over-Estimated
Claims on Liabilities • Technology Integration or
• Cultural Differences Greater Than Infrastructure Costs Well Above
Predicted Budget
• Market Share or Valuation Failed To
Be Accretive
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 20
21. Communication is Hyper Critical
• The primary tool for dealing with fear, and many of the other emotions
that surface during the course of acquisition transition, is
communication. If a merger is thought of as the beginning of a
marriage, think of the amount of communication that is necessary in
the first few weeks and months of such a relationship. As with any
relationship, a lack of communication typically means a lack of
success.
• In a merger, the two keys to effective communication are to determine
(1) the importance of the information and (2) who should communicate
it. Information should be communicated in the order of its importance.
This means that you want to first communicate that information that
affects people directly, including changes in the organization,
especially who is staying and who is leaving:
• Reporting structures
• Job descriptions and responsibilities
• Title, compensation, and benefits
• Job location and operating procedures
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 21
22. Post-Closing Focus Area Check List
Human Capital Issues
• Cultural Alignment
• Integration of Leadership Team
• Integration of Staff
• Termination Plan Due To Efficiencies and Overlap
• Overseas Workers
• Union Issues
• Regulatory Issues
• Temporary Workers and Part-time Employees
• Independent Contractors
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 22
23. Post-Closing Focus Area Check List
(Cont’d)
Relationship Capital Issues
• Integration of Customer Relationships
• Integration of Supplier Relationships
• Integration of Channel Partners
• Integration of Advisory Teams and Consultants
• Integration of Strategic Alliance and Joint Venture Partners
• Subcontractors and Teaming Relationships
Infrastructure
• Physical facilities
• Warehousing and Logistics
• Information Management and Computer Systems
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 23
24. Post-Closing Focus Area Check List
(Cont’d)
Regulatory and Contractual Controls
• Regulatory Approvals
• Post-closing assignments and consents
Branding and Marketing
• Branding issues
• Communications issues
• Public relations strategy
• Redefining the customer value proposition
Operational Issues
• Store/office trade dress and alignment
• Community relations
• Amendments to Real Estate and Operating Leases
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 24
25. Key Post-Closing M&A Employee Issues
• What’s going to happen to me?
• What’s expected of me?
• What’s in it for me?
• Be sure that post-closing planning and communication addresses
these three fundamental human concerns. Take control of the rumor
mill before it takes control of you and your transaction. Most rumor
mills begin as a result of an information gap.
• It is the responsibility of senior management to fill this void with clear
and consistent information at all levels, even if some of the data
shared is bad news.
• Leaving the door open to water cooler-driven information channels
will often lead to the best and the brightest people heading for the
exits, when it is often those exact folks that need to be directly
motivated, incentivized and retained.
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED 25
26. Dealing With Post-Closing M&A
Customer Issues
• When a buyer acquires a business, one of the most
valuable assets is the customer base.
• One of the post-closing challenges is to determine the
profitability of the customers.
• Often the acquired company has legacy customers that
they have been unwilling or unable to terminate if the
customer is unprofitable or difficult to manage.
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 26
27. Dealing With Post-Closing M&A
Customer Issues (Cont’d)
• The acquirer should review all customers for profitability
and sustainability.
• It makes little sense to keep a customer if it is not possible
to make a profit on the relationship, unless the customer
enables the merged company to penetrate a new market
or if the customer helps achieve scale economies, thereby
enabling other customers to be profitable. However, even
in these cases, there is a limit to the amount of losses that
make financial sense.
• In addition, the customer may be a direct competitor of the
buyer or of one of the buyer's customers. As a result, it is
important to evaluate the seller's customer base.
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 27
28. Dealing With Post-Closing M&A
Customer Issues (Cont’d)
Perhaps more important, however, is for the seller to transfer
the goodwill of its customers to the buyer. A disgruntled
employee can very quickly destroy this goodwill and perhaps
jeopardize a significant income stream on which the value of
the acquisition was based.
The key steps to transferring this goodwill are:
• Personal introductions to customer contacts
• Social events to acquaint customers with the new
owners
• Letters from both the seller and buyer that thank
customers for their business and announce the new
management and plans for the merged entity
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 28
29. Post-Closing M&A Issues:
Physical Facilities
• Often one of the larger expenses on the income
statement, rent and/or lease payments are a natural
place for a buyer to focus when evaluating the
efficiencies to be gained by a merger.
• When examining the space requirements of the
combined entity, it is certainly helpful to consider the
square footage.
• The space should be evaluated to determine if the
rent is more or less expensive than other company
space and if the amount of space is more than is
needed. This will go a long way toward helping to
cut expenses in order to reach the target return.
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 29
30. Post-Closing M&A Issues:
Physical Facilities
However, there must also be human considerations:
• How long have the employees been in this space?
• How does the commute compare to where they might be
relocated?
• How much interaction is required between the staff being
relocated and staff in a different location?
• How much reconfiguration of the office and facilities of
each company will be required to accommodate additional
staff or functions?
• How much productivity can be expected from these people
during the course of the move?
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31. Post-Closing Integration
Best Practices Overview
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32. Post-Merger Integration Key Challenges
& Best Practices
Here are some key lessons learned for developing an effective post-
closing integration plan:
1. Pick your poison. Many deals fail because a strategy for integrating
(or not) the 2 cultures was never clearly defined.
• Will the seller’s culture become dominant?
• Will the buyer’s culture be absorbed by the seller’s team and
employees?
• Or will, if feasible, the cultures allowed to “peacefully co-
exist?”
• Or will it be a hybrid driven by compromise and merit (e.g.
they do that better, but we do this better, so let’s find ways to
truly combine the best of the best in each area)
• Buyers should not lose sight of the value of the culture that they
are buying, just because their ego or ignorance assumes that
their culture must be dominant on a post-closing basis
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 32
33. Post-Merger Integration Key Challenges
& Best Practices (Cont’d)
2. Align cultural decisions with overall M&A goals and
growth strategy.
• Employees want to see a fit between the post-
closing integration decisions made and the overall
strategy which is driving the transaction.
• If the CEO of BuyerCo talks about the need to cut
costs, but then nobody is fired, then employees
are relieved (for now) but confused.
• If the BuyerCo CEO talks about the need for
geographic expansion, but then closes offices and
plants, the decisions do not appear aligned with
the strategy which has been articulated.
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 33
34. Post-Merger Integration Key Challenges
& Best Practices (Cont’d)
3. Compatibility does not always mean an exact match.
• Post-closing executives and consultants will often “force
feed” a quest for “sameness” that is unnecessary.
• Cultures can be compatible and functional even if they are
not an exact mirror image of each other.
• For example, both could be driven by merit-driven
performance and rewards, even if the rewards are not
exactly the same.
• Both could be driven by customer service excellence, even
if that manifests itself in very different ways, especially if the
two companies are in different types of businesses.
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 34
35. Post-Merger Integration Key Challenges
& Best Practices (Cont’d)
4. Communicate early and communicate often.
• The more that can be done to reduce or eliminate
the stress and fear of the typical employee, the
better.
• If the leadership is perceived as playing their
cards too close to the vest or being fearful of
making the hard decisions, both cultures will erode
quickly, having a significant adverse effect on the
value of the entity on a post-closing basis.
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 35
36. Post-Merger Integration Key Challenges
& Best Practices (Cont’d)
5. Reach for the stars, but be realistic about post-closing objectives.
• The excitement and optimism expressed during the transaction is
wonderful and is energy which should be contagious but post-
merger goals should be realistic and attainable.
• Goals that are neither believable nor achievable will only
disappoint the investors, the employees, vendors and customers
and reflect poorly on the management team of the recently-
integrated company.
• I am sure that every CEO of BuyerCo believes in her “heart of
hearts” that getting this deal done will increase the value of the
company by tenfold or even twentyfold down the road …. but is
that realistic in the near-term?
• And if no, is it realistic to have employees believe that a tenfold
increase in value in the near-term is the actual goal, only to be
disappointed when it is nowhere even close.
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 36
37. Post-Merger Integration Key Challenges
& Best Practices (Cont’d)
6. Meaningful systems need to be in place to set, measure
and adjust the goals of the transaction.
• A clear set of 12/24/36 month “goals and objectives” to
be achieved as a result of this transaction should be
articulated as part of the post-integration plans.
• Yes, some portion of the results will be intangible and
difficult to measure (e.g. our customers just “feel
better” about us now), but even goodwill should
manifest itself in higher customer loyalty and increases
in sales that can be easily measured.
• Repeat sales, upsales, renewals to commitments,
lower turnover rates can all be measured and closely
monitored.
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 37
38. Post-Merger Integration Key Challenges
& Best Practices (Cont’d)
7. Treat both sets of customers as gold.
At the end of the day, you can write-up all of the press
releases in the world, but if customers are not convinced that
this M&A deal is good for them, then the objectives of the
deal will not be met.
Take the time to explain the post-closing value proposition to
both sets of customers.
If the deal will result in lower costs or better pricing, then tell
them and show them how and why.
If the deal will result in higher prices but better service and
support, then be ready to justify and explain the value of the
trade-off.
If the deal will result in broader and better product lines or
service offerings, then have your cross-selling strategies and
tools ready to go.
Remember that your competitors will try to attack the deal
and market to your customers if they see the opportunity;
you need to be ready to push back.
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 38
39. Post-Merger Integration Key Challenges
& Best Practices (Cont’d)
8. Don’t hide the poop under the rug.
• In an attempt to paint a rosy post-closing picture, buyers and sellers
may choose to defer problems and challenges identified pre-closing
to some undefined time period after closing.
• This “we’ll get to it later” approach is a time bomb just waiting to
explode and the clean-up will not be pretty.
• The failure to either unearth lurking problems, or worse, the
intentional decision to ignore them, is a recipe for disaster.
• Problems in the area of human resources, environmental liabilities, lack of
clear ownership in intellectual property, poorly-drafted earn-outs, unpaid
taxes, unclear major customer commitments, underfunded pension plans, etc.
are not problems that will go away with the waiving of a post-closing magic
wand.
• The parties may feel pressure from the marketplace or from their advisors or
from their sources of capital to “just go ahead and get this deal closed and
we’ll figure out these problems later,” which is bad advice and a bad strategy.
• The delays in closing that solving these problems would create are viewed as
the evil, instead of the problems themselves.
• Yes, momentum is important and there may be minor problems which are not
worth the derailing of a transaction, but material issues and challenges must
be resolved prior to closing.
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 39
40. Post-Merger Integration Key Challenges
& Best Practices (Cont’d)
9. Do your due diligence the right way the first time.
• Improper or hasty due diligence often results in post-merger
integration plans going awry.
• Key issues that should have been discovered and dealt with pre-
closing wind up to be a source of tension and dispute post-closing
because due diligence was piecemeal or improperly staffed.
• Due diligence staffing means the right number of people with the right skill
sets who are prepared to invest the time and effort to ask the right questions
and challenge the answers that don’t make sense.
• Subject matter experts should be brought in when necessary, especially for
high-tech or biotech/life science transactions.
• For example, if you are buying a government contractor and one of the key
assets is a long-term supply contract with the Department of Defense for
providing advanced technology and support, then those contracts had better
be reviewed by someone more senior and more knowledgeable than a 2nd
year general corporate practice associate of your local law firm.
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 40
43. Key Strategic Questions
• New book out in Fall of 2011
• We can learn many lessons about
business growth and intellectual capital
development from the best practices of
our agricultural ancestors.
• We are all farmers. We mark our turf. We
protect our property. We plant our seeds.
We nurture the soil. We plow our land.
We combat adverse weather and
ecosystem conditions and overcome
adversities. We prepare for our harvest.
• We hope for the best and prepare for the
worst as the market sets a price for our
efforts. We embrace the notion that our
results will be directly tied to our levels of
effort and expertise.
• “We reap what we sow.”
• We begin anew with each new season.
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 43
44. Key Strategic Questions (Cont’d)
• Who will be on your team to assist you in
these efforts?
• Who will you hire to help you raise,
harvest and sell the produce at your farm?
• What tools, resources and expertise will
you require to maximize the fruits of your
harvest?
• What adverse weather or market
conditions must you overcome to be
successful?
• Who else is growing these same crops
and how does their experience compare
to your own?
• Do you have a keen sense for the cycles
and timetables that will optimize your
harvest?
• What is your game plan for bringing your
crops to the marketplace? Will you do it
alone or join with others?
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45. The Evolution of a Revolution
Agricultural Plant Digital
Revolution Cultivate Revolution
(Food) Harvest (Intellectual Capital)
• The picks and shovels of yesteryear have been
replaced by the laptops and smart phones of today
• Yet we must be committed to toiling in the fields for
long hours to harvest productive and profit-driven
assets (even if the venue and the crops have
changed)
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 45
46. Every Farmer Needs A Game Plan
• Put an intellectual capital
development and harvesting
plan in place
• Develop organizational charts
and accountability for
innovation (Chief Innovation
Officer)
• Alignment of seeds to be
planted and demands of
targeted market
• Adjusting the plan in real-time
around weather conditions and
competitive trends
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47. Planting Seeds
• What seeds will you plant
today?
• What crops is your land most
capable of growing?
• Have you assessed demand
and competitive trends?
• What adverse conditions will
you face?
• Establishing a genuine culture
of innovation
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 47
48. Irrigating the Field
• Gathering the water, the
nutrients and the fertilizer to
make sure that intellectual
capital can be harvested
(human capital, financial
capital, etc.)
• Predicting the unpredictable
(Mother Nature)
• Too much vs. too little water
(drought vs. floods)
• Fire hose vs. garden hose
(SME leaders spend too much
time and precious resources on
putting out fires instead of
irrigating new ideas)
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 48
49. Nurturing The Soil
• Finding the right mix of
nutrients
• Know the needs of the soil
• Building the right team for
nurturing and evaluating
new ideas: which are ripe
for picking and which need
more time?
• Google’s 70/20/10 Rule –
what’s yours???
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 49
50. Monitoring Progress Carefully To Ensure
A Timely Harvest
• Building effective IAM
systems
• Accountability and internal
controls
• R&D spending: Know when
to say when
• Innovation metrics
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 50
51. A Bountiful Harvest
• Systems and processes in
place to ensure innovation,
not just invention
• Understanding the different
types of innovation
harvesting strategies
• Proper rewards and
incentives to encourage
innovation and effective
intellectual capital
harvesting
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 51
52. Bringing Crops To The Marketplace
• Developing efficient
distribution channels (don’t
try to do it all alone)
• Timing and balance issues:
how and when to bring
crops to market (The 8
track tape store and the
flying car)
• Impact of Web 2.0 and the
developing E-marketplace
• Wisdom of Crowds/Custom
Merchandise in Real Time
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 52
53. Evolving Strategic Views Towards Intellectual
Capital (IC) Assets
Traditional View Enhance the company’s competitive advantage and strengthen its ability to
defend its competitive position in the marketplace (IC as a barrier to entry
and as a shield to protect market share) (reactive and passive approach)
Current Should not be used merely for defensive purposes but should also be
View viewed as an important asset and profit center which is capable of being
monetized and generating value through licensing fees and other channels
and strategies, provided that time and resources are devoted to
uncovering these opportunities (especially dormant IC assets which do not
currently serve at the heart of the company's current core competencies or
focus) (proactive/systemic approach)
Future Premiere drivers of business strategy within the company and encompass
View human capital, structural/organizational capital and customer/relationship
capital. IAM systems need to be built and continuously improved to
ensure that IC assets are used to protect and defend the company's
strategic position in domestic and global markets and to create new
markets, distribution channels and revenue streams in a capital efficient
manner to maximize shareholder value (core focus/strategic approach)
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 53
54. Intellectual Asset Management (IAM)
(The IP Discovery, Management and Mining Process)
• IAM is a commitment to building systems to create, organize, prioritize and
extract value from a set of intellectual property assets. The intellectual capital
and technical know-how of a company are among its most valuable assets,
provide its greatest competitive advantages and are the principal drivers of
shareholder value
• (Professor Lev – NYU, estimates that only 15% of a company’s “true intrinsic
value” is reflected on its financial statements), yet rarely do smaller and growth
companies have adequate personnel, resources and systems in place to
properly manage and leverage these assets (“Finding and Harvesting The
Rembrandts in The Attic”).
Discussion Point:
What other major body part are we estimated to only use 15% of
its true capacity? Is there a correlation? When are our value-
drivers “blindspots”?
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 54
55. Intellectual Asset Management (IAM) (Cont’d)
• IAM systems facilitate collaboration and help break
down silos in communications regarding new
product development, the harvesting of intellectual
assets and provides training to employees at all
levels on the importance of the protection and
leveraging of intellectual property.
55
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 55
56. Harvesting Process
Intellectual Asset Chief Innovation and
Collaboration & Brainstorming, Intellectual Asset
Communication Retreats, Facilitating, Harvesting Officer
Creativity, etc. (“CIIAHO”)
• Software & Systems • Periodic Meetings & Retreats • Accountability &
• IP Audit (take inventory as to Resources for Identifying,
what already exists) Harvesting, & Leveraging
Rewards
• Market Screens
• Customer Demand Screens
• Resources Screens
Strategic Screens & • Human (Who?) Product/Service
Filters • Financial (How?) Development Plan
• Resource Allocation Screens
• Profitability/Prioritization
• Shareholder Value
• Patent
• Trademark
IP Protection • Copyright • Organic
• Trade
Harvesting • External
Strategy
Secret
• Other
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED #FirmexMC 56
58. Book Winners!
• A. Hawkins – Rawlison Butler
• D. Bastien - Deloitte
• C. McKillop - Cogeco
• M. Shimp – Venture Mgmt
• J. Yoon – CNJ Captial
Congratulations! We will be following up shortly
to get your book preference and mailing address.
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED 58
59. Thank You
Our next webinar is Jan 17th, 1pm Eastern
Alert to M&A Advisors:
What’s Ahead for 2012 and later?
Why are so many middle market M&A advisors not particularly successful? For
starters, this is not your father’s M&A world. In fact, there is a whole new
world out there. The realities of professional M&A practice have been
transformed during the 21st century. Know how to catch the right waves and
the right deals with the right techniques.
Featuring Dennis J. Roberts, author of the widely selling An Insider’s Guide to the
Purchase and Sale of Middle Market Business Interests.
www.Firmex.com/company/events
Today’s Recorded Webinar, Slides, and Complementary Checklists will be
made available in a follow-up email shortly.
©COPYRIGHT 2011. ANDREW J. SHERMAN. ALL RIGHTS RESERVED 59