merger integration - building a better working world - ey - · pdf file ·...
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1Merger Integration ASEAN hub |
1Our point of view
Too many companies across the world find themselves tinkering with change by focusing on organic growth and operational improvements. However, organic growth and cost cutting has its limitations. Companies should invest more effort in structural actions like acquisitions or divestments if they desire to achieve
breakthrough growth. Companies in Asia are focusing on building scale in its core market through acquisitions and shedding non-core part to fund the ambition.
But are we prepared?
Failure in strategy
Failure in M&A deal
Failure in integration
Reas
ons
for l
oss
of d
eal v
alue
” Value is lost from failure of execution, not strategy. Firms need to ‘de-risk’ the investment, capture value through synergies and control the process through strong governance and control.”
66% of all merger failures can be attributed to failure in integration
66%
20%
14%
• Lack of deal strategy or low strategic fit
• Synergies not achieved
• Lack of integration plan or philosophy
• Failure to de-risk the asset
• Lack of communication
• Organization misalignment
Deal rationale
“ M&A rebounds strongly to drive corporate growth in Southeast Asia.”
“ Think Big and Act Bold.” Vikram Chakravarty The Business Times
17 March 2015
Growth Market expansion or entry
Scale Top 2 players have two-third of the profit pool
Synergies Value through M&A
Capability Gaining access to new technologies, skills, patents and people
DefenceStrategic stakes to offset threat, future bargaining power
EY Capital Confidence Barometer Survey 2014
Source: EY analysis
Vikram Chakravarty EY Merger Integration Lead, Asia-Pacific
2 | Merger Integration ASEAN hub
2EY offering
“ The lack of clear integration philosophy and plan leads to destruction of value.”
Vikram Chakravarty EY Merger Integration Lead, Asia-Pacific
“ Planning for integration should begin once you identify the target and continue throughout the deal process.”
Yew-Poh Mak EY Merger Integration Lead, Greater China and Hong Kong
a. Integration vision: Strategy and control
Integration philosophy and guiding principles
Typical Asian non-negotiables
1 Control over people, brands, IP etc.
2 Establish control over cash and treasury operations to de-risk the investment
3 Establish governance, compliance and controls to comply with company policies e.g., FCPA
4 Establish financial and executive reporting requirements
5 Early announcement to key stakeholders
6 Adapt a softer approach in integration. E.g., no headcount reduction
Complete autonomy
Run as a standalone entity
Soft approach on people side
No change in business model
Replace target management
Fully integrate
Large synergies planned through lay-offs
Optimize business model of the target
E.g., Replace the CFO, COO
E.g., Full integration of back-office
E.g., Reduce headcount
E.g., New supply chain model
Due to the complexity associated with Asian mergers, it is imperative to define the integration vision and strategy early in the deal process. Define integration guiding principles and non-negotiables before the launch of the integration process.
3Merger Integration ASEAN hub |
Back office Procurement and suppliers Manufacturing and supply chain Sales and marketing Customers
Cross-sell additional volumes
New customers
Centralization of back-office (HR, IT, finance, procurement)
Procurement leverage
Capacity optimization
Quality improvements
Supply chain optimization - reduce logistics costs through a more efficient utilization of the combined network (transportation contracts, supply chain, warehouse space)
Quality improvements
Working capital optimization
Consolidate sales office locations and facilities
Cost to serve for customer portfolio
Restructuring - review target locations and assets
Restructuring - review manufacturing assets and facilities
Restructuring - target sales office assets
CAPEX review CAPEX review CAPEX review
Back office Procurement and suppliers Manufacturing and supply chain Sales and marketing Customers
“ Seasoned acquirers prioritize on key value drivers and allocate adequate resources to ensure success.”
Konstantinos Dimitriou EY Merger Integration Specialist
“ At EY we have detailed understanding of where the synergy can be found by deal and industry type.”
Karambir Anand EY Merger Integration Partner
b. Generate value: SynergiesR
even
ueCo
stA
sset
sCA
PEX
S1 S2
S3
S12S7
S4.1
S5.1
S6.1 S6.2
S5.2
S8
S4.2
S6.3
S5.3
S11
S10
S9
Longer term Medium term Quick wins
Achieved cost synergies as % of target’s revenue Announced cost synergies as % of target’s revenue
Sources: Capital IQ, ThomsonONE, company filings, press releases and investor presentations, EY analysis
Shareholders have rewarded successful acquirers in the past for realizing synergies from the deal. Acquirers should identify synergies and value drivers well in advance and validate it during the due diligence process.
Considering the complex business landscape in Asia, identified synergies should be tied to executable plans and should be tracked and reported on a regular basis.
Typical Asian synergy opportunities
Average announced cost synergies as a percentage of target’s revenue
The average per industry realized cost synergies range from 4% - 18% of target’s revenue
9%
18%
6% 6%4%
15%
8%
15%
5%6% 6%
14%
CPG Pharmaceuticals Oil and Gas Chemical Utilities Brokerage
4 | Merger Integration ASEAN hub
Fina
nce
and
trea
sury
Mar
ketin
g an
d br
andi
ng
Hum
an
reso
urce
s (H
R)
Ope
ratio
ns IT
Cor
pora
te
serv
ices
Adv
ocac
y an
d ov
ersi
ght
Risk
Stra
tegi
c so
urci
ng
c. Fitting it together: De-risking
“ We have helped clients in de-risking the investments and prevent value loss.”
Abhay Bangi
EY Merger Integration Specialist
“ Managing cultural difference proactively is critical for deal success in ASEAN.”
Ashutosh Deshmukh
EY Merger Integration Specialist
EY tools: Springboard and Merger Integration Playbook
1 Tools and templates (by phase)
Illustrative
2 Tools and templates (functional areas)
Cross teams
Value realization
Customer experience
Employee experience
Functions
StableFlexible
Mission
Adap
tability
Cons
isten
cy
Involvement
78
88
92
88
81
96
37 58
80
7438
50
Organizational
learning
Custom
er
focus
Crea
ting
chan
ge
Empow
erment
Team
orientation
Capability developmentCore values
Coor
dina
tion
and
in
tegr
atio
n
Agreem
ent
Strategic direction and intent Goals and
objectives
Vision
Beliefs andassumptions
Internal focus
External focus
N =
121
Acq
uire
d co
mpa
ny
Internal focus
External focus
Organizational
learning
Custom
er
focus
Crea
ting
chan
ge
Empow
erment
Team
orientationCapability development
Core values
Coor
dina
tion
and
inte
grat
ion
Agreem
ent
Strategic direction and intent Goals and
objectivesVision
StableFlexible
79
Beliefs andassumptions
70
47
8
1922
32
49
47
50
82
15
Mission
Adap
tability
Cons
isten
cy
Involvement
Pare
nt c
ompa
nyN
= 1
66
Operational analysis and diligence
Integration readiness and mobilization
Integration planning and analysis
Integration execution
Organization culture analysis tool Company comparison report
There is a need to de-risk the merger event due to many instances of value leakage in Asia. Detailed functional integration planning and proactive risk mitigation ensures taking control of the target and business continuity post-close.
6012
7589
7494
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9474
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4492
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7868
3767
5892
3763
4775
4992
3795
25th
1st
50th
2nd
75th
3rd
100th
4th
Percentile
Quartile
Involvement
In this organization...
Empo
wer
men
tTe
am o
rient
atio
nCa
pabi
lity
de
velo
pmen
t
Most employees are highly involved in their work
Decisions are usually made at level where the best information is available
Cooperation across different parts of organization is actively encouraged
Authority is delegated so that people can act on their own
Information is widely shared so that everyone can get the information he or she needs when it’s needed
People work like they are part of a team
The “bench strength” (capability of people) is constantly improving
Everyone believes that he or she can have positive impact
Teamwork is used to get work done, rather than hierarchy
There is continuous investment in skills of employees
Business planning is ongoing and involves everyone in the process to some degree
Teams are our primary building blocks
The capabilities of people are viewed as important source of competitive advantage
Work is organized so that each person can see the relationship between his or her job and goals of the organizations
Problems often arise because we do not have the skills necessary to do the job
5Merger Integration ASEAN hub |
3Why EY
Select experience
3. Merger specialists — ASEAN hub
Experienced 30+ merger integration specialists in Southeast Asia (SEA), 100+ in Asia-Pacific and 900+ globally
4. Industry focus (Merger integrations)
Industry Global SEA
Financial Services 100+ 10+
Oil and Gas 70+ 15+
Consumer Products and Resources 80+ 20+
1. Leaders in M&A integration
2. End-to-end approach
Value creation
Turnaround
Restructuring
Integration and divestitures
Corporate finance strategy bu
sin
ess modeling
Valuationdue diligence
Financial
Transaction
evaluation
Transaction
tax
M&AtransactionInvestment strategy
• Growth strategy • Portfolio
rationalization
Transaction evaluation • Due diligence• Carveout and
integration diligence and planning
Value creation• Revenue growth• EBITDA margin
improvement – cost reduction
• Multiple expansion – improving exit value
• Cash flow and working capital
M&A strategy Due diligence Integration management office Synergy Functional
Integration of two top banks in Philippines √ √ √ √ √
Integration of European bank and local bank √ √ √ √ √
Integration of an Oil Field Services (OFS) player by European major √ √ √ √
Asset integration of utility company √ √
Integration of Thai LPG company by Korean Player √ √
HR due diligence and integration planning for refinery in Vietnam √ √ √
Integration by a US Oral Care company in Myanmar √ √ √ √ √
Palm plantation integration √ √ √ √
Dairy business post-merger integration √ √ √ √ √
Involved in top 30/50 deals in Asia
EY | Assurance | Tax | Transactions | Advisory
About EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.
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© 2015 Ernst & Young Solutions LLP. All Rights Reserved.
APAC no. 12000441ED None.
Ernst & Young Solutions LLP (UEN T08LL0784H) is a limited liability partnership registered in Singapore under the Limited Liability Partnerships Act (Chapter 163A)
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This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.
ey.com
Key contacts
ASEAN merger and divestment hub
Vikram Chakravarty Partner, Asia-Pacific Merger Integration [email protected]
Led 15+ merger integrations and is a well-known strategy expert in industry. Extensive experience in consumer goods, retail, commodities, oil and gas and financial services sector.
Karambir Anand Partner, Merger Integration [email protected]
Led 10+ merger integrations. Synergy and value capture champion for M&A initiatives. Extensive experience in oil and gas, resources and commodities sector.
SingaporeSwee Cher ChooPartner, Transaction Advisory [email protected]
IndonesiaDavid RimboPartner, Transaction Advisory [email protected]
MalaysiaGeorge KoshyPartner, Transaction Advisory [email protected]
ThailandPiyanuch Nitikasetrsoonthorn Partner, Transaction Advisory Services [email protected]
PhilippinesRenato GalvePartner, Transaction Advisory [email protected]
MyanmarAndre TohPartner, Transaction Advisory [email protected]
VietnamJason DoanDirector, Transaction Advisory [email protected]
Industry Leaders Financial ServicesVishrut JainPartner, Transaction Advisory [email protected]
Oil and Gas and ResourcesKarambir AnandPartner, Transaction Advisory [email protected]
Consumer ProductsJoongshik WangPartner, Transaction Advisory Services [email protected]
Life SciencesAbhay BangiDirector, Transaction Advisory [email protected]