PwC M&A Integration

www.pwc.com

Seven Fundamental Tenetsof Successful Integration

This Morning’s Agenda

1. PwC and the Deal Lifecycle

2. Presenter Introduction

3. Seven Tenets of a Successful Integration

4. Recent PwC Survey Findings

5. Common Integration Questions and Considerations across Functions

2

PwC and the deal lifecycle

DiligenceIntegrationPlanning

IntegrationTransform/Evaluate

Day 1 Day100

• Validate the originalassumptions fordoing the deal

• Size and verify thevalue and timing ofsynergies

• Highlight risks to thecombined businesscase – uncertainty ofassumptions andimplementation risk

• Develop plans toachieve thebusinessgoals/objectivesand seamlesslyoperate“day-one” ascombined entity

• Identify and gaincommitment fromaccountableownersfor future results –synergy attainmentandon-going businessperformance

• Convene, monitorand manage theteams toimplement theplansto obtain thebusiness rationaleobjectives

• Track decisionsand progress, andensureteams capture theidentifiedsynergies

• Maintain accountability atthe business leader levelfor capturing synergies

• Maintain accountabilityfor delivering thebusinessresults per the strategicrationale

• Measure results to thebusiness rationalebaseline

• Elevate/improveperformance to the nextlevel where gaps overcompetition exist

Increasing Detail/Accountability

StrategicRationale

Strategy &Target

Screening

InitialNegotiation

PwC advised clients throughout the phases of the deal lifecycle; We work on the buyerand seller side of the deal, maximizing the value of the deal activity.

3

4

• 14 years of technology and consulting experience specializing in post deal integration, separation activities, transitionservices agreements, project management, process definition, and pre-deal IT /Operational due diligence.

• Brings a range of industry experience particularly within media & entertainment, technology, communications, andmanufacturing / supply chain.

• Has managed extensive vendor partnerships and led teams through significant periods of change.

Selected Project Experience

• Led the post-deal merger integration and customer conversion efforts for a large telecommunications acquisition, focusedon support of the complex IT conversion requirements across billing, customer, and network inventory systems.

• Led the post-deal merger integration effort at a leading digital media advertising client(s), responsible for supportingintegration efforts across all functional groups, with particular focus to product, technology, sales, and operations.

• Developed a carve-out implementation plan and detailed process review to establish a target operating model, focusing onIT and finance/accounting operations for a large Financial Services client.

• Led the post-deal merger integration effort for multiple technology acquisitions while working in the media industry,focused on intellectual property assessment and patent harvesting, IT, product operations, organization design, costavoidance reporting and justification, knowledge transfer, and the Integration Management Office.

• Led the divesting of a large business unit , carving out an event management service and digital media property from amajor media company and developing supporting TSA schedules to ensure a smooth transition for separation.

• Managed numerous pre-deal due diligence efforts working with private equity clients, focusing on IT and back officeoperations across various sectors including life sciences, consumer and industrial products, technology, and retail.

Before PwC

• 8 years in the media industry and held the position of Director of Content Systems Integration (PMO and QA) at ESPN.

• Began her career with Accenture as a process and technology consultant (5 years)

• Graduated with honors from Syracuse University.

Key Solution Delivery Areas:• Post-Deal Integration (IMO, IT)• Carve-Out Activities• TSA Development• IT/Operations Due Diligence• Process Analysis and Development

Selected Technology Clients and/orPartnerships:

Selected Media Clientsand/or Partnerships:

Selected Private EquityClients:

• EMC• Lockheed Martin• Covidien• Extreme Reach

• Barnes&Noble• Google• Toshiba• Frontier / AT&T

• Disney / ABC• ESPN• Millennial Media• EA Sports

• Clayton, Dubilier & Rice• The Carlyle Group• Altamont Capital Partners• Centerbridge Partners

Presenting – Lori Bistis, PwC Deals Director

PwC Seven Fundamental Tenets of Successful Integration

1. Accelerate the transition TM

2. Define the integration strategy

3. Focus on priority initiatives

4. Prepare for “Day One”

5. Communicate with all stakeholders

6. Establish leadership at all levels

7. Manage the integration as a business process

Capturing sustained economic value in a merger or acquisition is a significant challenge.Regardless of deal size, complexity, or geographic reach, some fundamental tenets arekey to success for realizing deal objectives.

5

The Transition Phase

• Faster capture of return on dealinvestment

• Exploitation of post-deal opportunities• Reduced organizational uncertainty

Value of an Accelerated Transition TM

• Slower than market growth• Diminished profits• Decline in morale and productivity• Missed opportunities• Loss of market share

Impact of a Prolonged Transition

Tenet #1. Accelerate the transition TM

ShareholderValue

Time

$

There is no value in delay. A focus on obtaining bottom-line results as quickly as possibleto maximize shareholder value is critical.

66

Acquisition Strategy Integration Strategy

Acquire new products and services Define product roadmap; develop marketing plan;align sales and partner channels; train sales force;align compensation systems

Open new markets and distributionchannels

Negotiate distribution agreements; consolidatesupply chain operations; align sales and partnerchannels

Acquire key talent (people) Assign staffing roles; define retention plans;integrate compensation, health, and welfare

Obtain key assets and capabilities Align operating policies, procedures, andprocesses; secure asset custody

Consolidate businesses Rationalize facilities and headcount; mergefinancial systems; drive procurement synergies

Acquire new business model Define and communicate new direction

Tenet #2. Define the integration strategy

Integration priorities are easier to identify when a clear integration strategy is definedand communicated.

7

Tenet #2 (continued). Define the integration strategy

Planning the degree of integration across functions and geographies is critical totranslating acquisition strategy into integration strategy.

Degree of Integration

Low to None

Full

Partial

High

Low

Considerations

High

Low

Approach

Best of Breed/Hybrid

Absorption

Standalone

Incorporate target intobuyer infrastructure

Back-office Integration

Choose best from buyer &target for combinedbusiness

Front-end businessremains “as-is” withback-office integration

Take control andminimize risk; minimalintegration of target intobuyer infrastructure

Ris

ko

ffi

na

nci

al

mis

sta

tem

ent

Dis

rup

tio

nto

bu

sin

ess

Sim

ila

rity

of

bu

sin

ess

Syn

erg

ies

Co

ntr

ol

81/16/2015

Deal Type

Transformative/Industry Convergence

Product/ServiceExtension

GeographicExpansion

IndustryConsolidation

Intellectual Property& Other Assets

AbsorptionTransformative Tuck - In

8

Define the Sources of ValueCapture and Value Creation

Allocate Resources based onFinancial Impact and Timeline

Initiatives are ranked with respect to financialimpact and probability of success. Those with highfinancial impact and high probability of successreceive resource priority.

Tenet #3. Focus on priority initiatives

Limited management time and the need for speed requires prioritization of integrationinitiatives. Shareholder value must drive resource allocation.

Business Case Development

• Build financial impact for initiatives

• Perform risk assessment for initiatives

• Rank initiatives on a risk/reward basis

• Validate assumptions

Detailed business case for each ValueDriver initiative, including qualitativeand quantitative information based onextensive analysis

9

Tenet #3 (continued). Focus on priority initiatives

The PwC Value Driver Lifecycle follows a sequence of coordinated steps to identify,prioritize, execute, and track the drivers of value across the integration continuum.

Synergy

Model

BusinessCases

Workplans

SynergyTracker TM

Synergy Analysis Value Driver Analysis Value Driver Execution/ Synergy Tracking

Announcement Deal Close

Initial financial modelbased on limitedinformation and set ofassumptions

Detailed business case for eachValue Driver initiative, includingqualitative and quantitativeinformation based on extensiveanalysis

Detailed project plan for eachValue Driver initiative basedon qualitative informationfrom business cases; includestasks, resources, dates, anddeliverables

Tool used for trackingand reporting synergyachievement based onquantitative informationfrom business cases

Due Diligence Integration Planning Integration Execution

Tim

elin

eO

utp

uts

10

Tenet #4. Prepare for “Day One”

Products and Technology

Sales and Marketing

Operations

Human Resources

Information Technology

Procurement

Finance

• Treasury management

• Revenue recognition

• Purchase accounting

• Credit and collections

• Fixed asset inventory

• Financial reporting

• Budgeting and forecasts

• Entity consolidation

Report to theIntegration

Management Office

Integrated “Day-One” Plan

Product Roadmap

Sales and Marketing

Operations

Human Resources

Information Technology

Procurement

Finance

Integrated Plan

Tasks/Actions

Critical “Day-One” tasks are identified early, before detailed planning commences.This allows prompt identification of long lead items before they turn into closing daysurprises.

11

Tenet #5. Communicate with all stakeholders

Identifying stakeholder issues and building a communications plan to aggressivelymanage these issues is essential to achieving a smooth integration.

• Be Clear: Communicate what you know and what you don’t know

• Give Direction: Set expected timing and milestones

• Describe a Process: Develop the context for the decision process

• Keep Management Visible and Credible: Deliver consistent messages at alllevels of the organization

• Prepare Initial Communication: Draft key messages that clearly articulate thereasons behind the deal

• Create a Communication Plan: Develop a timeline based on key transitionmilestones, and communicate progress or decisions on each issue

• Continuously Communicate Decisions and Key Milestones

12

Tenet #6. Establish leadership at all levels

Organization

• Define organization structure and operating model

• Determine personnel requirements, roles, and responsibilities

Leadership

• Select and announce executive and leadership positions

• Develop retention plans and incentives

Employees

• Identify and select employee headcount

• Termination

• Transition

• Retention

Swift selection of key management positions early in the transition is critical inclarifying authority, assigning accountability, and mitigating the crippling effects ofuncertainty.

13

Tenet #6 (continued). Establish leadership at all levels

A team based integration structure is important to link strategy and leadership with tasklevel action, and to coordinate activities and dependencies across the organization.

Integration Leader

IntegrationManagement Office

Communications

Sales ServicesInformationTechnology

FinanceMarketing Maintenance

Facilities

Legal

HumanResources

Integration Teams

Executive Steering Committee

Synergies

International

Research &Development

Tax

14

Tenet #7. Manage the integration as a business process

• Identify and execute Day One requirements across all functions

• Identify and resolve Day One risks

• Develop 100 Day Plan including quick wins

• Secure resources and implement retention plan

• Articulate the strategy for the combined company

• Plan the degree of integration and non-negotiable

• Identify and protect core operations out of integration scope

• Customize integration structure and approach

• Designate integration leadership at all levels and establish theIntegration Management Office

• Develop communication plan and execute early communications

Set the Course

Plan for Day One and First 100 Day Execute 100 Day Plan• Deliver tactical integration projects

• Deliver and execute quick wins

• Design functional and operational "to be" states

• Identify, value, and prioritize key integrationinitiatives and synergies

• Develop leadership and organization structure

• Assess cultural differences and develop peoplechange program

Design the Future State• Consolidate all integration initiatives into an executable

plan

• Ensure plan fits with core business and prioritize withother initiatives

• Assess resource capacity and requirements

• Align incentive arrangements with integration objectives

• Monitor and address dependencies

Create Detailed Integration Plan

• Implement, track and monitorintegration execution to ensuredeal value capture

Maximize ValueThrough Future StateImplementation

Announcement Deal Close 100 Days Post Close

Phase I Phase II Phase III

The PwC integration process follows a sequence of coordinated steps to focus resourcesand capital on the right things at the right times.

15

Deal Evaluation

• Business Case

• Deal Structure

• Synergies and Value Drivers

• Preliminary Integration Plan

• Regulatory Requirements

• Financial Reporting

Go/No-GoDecision

Integration

• Establish the integrationstructure

• Deploy communication strategy

• Execute cross functionalintegration plan

• Achieve synergies

• Manage integration costs

• Comply with regulatoryrequirements

Price

Tenet #7 (cont). Manage integration as a business process

Experience shows that coordinated teams working in parallel to drive diligence andintegration increases efficiency as activities shift from diligence to integration.

16

PwC Integration Survey

Deal success remains a challenge by any measure, but, in particular, a rise in transformational deals hasincreased the complexity of integration.

• Finding #1: Strategic and financial goals are easier to reach than operational targets

• Finding #2: Transformational deals are on the rise, representing more complexity and challenge for integration

Integration risks are plentiful, though some common areas pose the greatest challenges.

• Finding #3: Integrating information systems, operating procedures, and people represent the biggest post-close challenges

• Finding #4: Integrating the R&D function and developing new products in connection with a deal have proven difficult

• Finding #5: Capturing cost synergies is easier than capturing revenue synergies

Success factors for establishing integration momentum involve early integration planning and rapid executionof specific activities.

• Finding #6: Performing integration planning early in the deal process improves deal results

• Finding #7: Speed of integration continues to play an important role in deal success

• Finding #8: Early and timely execution of a few key – but fundamental – integration initiatives are directly related to achievingdeal objectives

Delivering deal value over the long-term requires commitment and focus.

• Finding #9: Staying involved in integration efforts longer improves deal success

• Finding #10: Achieving full integration requires commitment and focus to delivering synergies, managing talent, and integratinginformation system

17

PwC recently surveyed management from over 100 US companies that completed amerger or acquisition in the past 3 years. Findings show that early and timely executionof a few fundamental integration activities directly correlate to capturing deal value.

Common integration questionsand considerations acrossfunctions

18

“What is the typical timeline for afinance/accounting integration?”

19

Topic of Interest #1: Financial Control of theBusiness on Day One

• Control the cash; Treasury management

• Close the books

• Address any tactical regulatory, tax and compliance-related requirementsresulting from a merger in the broadcast environment

• After Day One

• Understand capital budgeting across major projects (significant costs inbroadcast infrastructure)

• Understand financial systems and business process alignment

• Facilities and lease accounting

• Insurance

• Tax implications; Legal entity structure

• Identification and tracking of synergy initiatives

• Policies20

“What are some common pitfalls of anintegration?”

21

Topic of Interest #2: Common Pitfalls

• Losing discipline and delaying decision making in an effort to appeasemultiple stakeholders; “doing nothing”

• Assuming verbal agreements readily translate into operational policies andprocedures, and that trust can be maintained after communication miscues

• Failing to identify key assets and defining a plan for value creation (e.g. goto market strategy, sales channel alignment, key personnel on-boardingand training)

• Focusing on back office cost reductions prior to understanding service levelrequirements

• Failing to acknowledge that business process change and systemsintegration will occur over the long-term

• Cross boarder deals: Underestimating complexity brought by scale andgeographic diversity

22

“Where are there opportunities forsynergies when managing anintegration?”

23

Topic of Interest #3 – Operational Impacts andSynergy Opportunities

• Personnel

• Back Office Operational Workflow (IT in particular)

• Facilities planning

• Vendor implications; Cost reductions and strategic sourcing

• Potential TSA costs to maintain operations

24

“How should communications behandled to ensure the right transition forpersonnel?”

25

Topic of Interest #4 - Soft Elements of theIntegration

• Impact of personnel changes

• One time costs for retention, severance, training

• Close knit sector / competition; Risk of losing key employees

• Internal and external communications; financial messaging in the market

• Compensation alignment and impact (Sales in particular)

• Variety of employee contracts and arrangements

26