Organization, culture and people factors – how to realize the value of the deal

1. Organization, culture and people factors – how to realize the value of the deal 10 April 2019 MENA Mergers Dubai

2. Today’s conversation

3. Today’s Presenter and Mercer Team AMIRA SADEK Multinational Client Group Manager KONRAD DEITERS M&A Transaction ServicesInternational - Partner NUNO GOMES Mercer’s Career - Partner FABIO TAKAKI Multinational Client Group Leader

4. Mercer M&A Research Top “People Issue” as identified in Mercer’s M&A research report 2017 2018

5. Culture, organization and TalentCritical Drivers of Deal Success • 30% failed to realize expected value due to cultural issues Culture 60-70% of deals fail to realize expected benefits 4 10 causes are interdependent of the top Organization Structure Leadership Talent 71% of deals included a retention bonus Source: Mercer’s M&A Readiness Research™ Series 3.0

6. Organization design In M&A

7. Organization design Opportunities in m&A • Degree of structural integration – standalone to fully integrated • Reporting relationships • Oversight/approvals • Redundancies/Cost Synergies • Structure to achieve revenue synergies (e.g. product development, marketing, sales, business units) Integrations / Consolidations • Incremental investments, reporting relationships, degree of integration • “RemainCo” reporting structure, consolidation, reporting Divestitures / Separations /Care-outs / Spin-offs • What stays, what goes? • Redundancies/cost synergies • Governance/Oversight/control of new owner • Decision making authority JVs/Partnerships / Change in Ownership

8. Degree of integrationDesign Depends on Deal Thesis The deal thesis and intended end-state operating model are the key drivers.

9. Organization design – the M&A realityheavy focus on structure and headcount The formal design of an organization/operating model is a critical element that influences how a business is able to achieve its strategic objectives Culture / Operating Environment The aggregated behaviors, beliefs, and norms that influence decisions and outcomes Input Results • Deal Value • Revenue synergies • Cost synergies • Capabilities • Structural Outcomes: • Grow efficiently • Achieve short-term cost reductions • In parallel – lean and more effective • Simplify approvals • Sustainable behavior change: • Improved agility • Outcome focused • Accountability • Manage performance – “Every dollar counts” • Deal thesis • Mission • Environment • Markets • Competition • Government • Suppliers Structure Formal enterprise and business structures, functions, and policies, including performance incentives Work The activities and steps required to drive the work and add value to the business • Resources • Capital • Plant • Technology • People • Intangibles Strategy Execution • History / Brand • Key decisions • Norms and values • Brand DNA People The characteristics of employees and leaders: skills, knowledge, behaviors/ preferences, and reward expectations How are we going to run this place? How do we realize expected deal value?

10. Organization designIn the Deal Context END “XX DAY” PLAN BOARD/EXEC COMMITTEE APPROVAL TARGET SELECTED CLOSING/ DAY 1 INTEGRATION COMPLETE SIGNING/ ANNOUNCE Immediate Integration Long Term Integration Deal Pipeline Review Target Assessment Business DD & Integration Strategy Comprehensive DD & Purchase Agreement Negotiation Business Continuity and Employee Engagement Stage 1 PRELIMINARY DUE DILIGENCE Stage 0 STRATEGY & READINESS Stage 2 DETAILED DUE DILIGENCE Identify and manage pool of suitable Targets and prepare the organization to manage acquisitions Preliminary evaluation for Board go/no-go to proceed with detailed due diligence Detailed analysis to negotiate the deal, terms and conditions STRUCTURAL DILIGENCE Stage 3 INTEGRATION PLANNING Stage 4 INTEGRATION MANAGEMENT Rigorous governance and planning to ensure business continuity on Day 1 and longer term integration planning Successfully assimilate Target from a business, function and culture perspective DAY ONE OPERATIONAL DESIGN END STATE DAY ONE TALENT SELECTION END LEADERSHIP SELECTION CULTURE, COMMUNICATION AND CHANGE MANAGEMENT Ensure effective and timely communication throughout the acquisition and manage the change for transitioning and current employees

11. culture

12. The facts: The financial impact of culture misalignment in transactions

13. a pattern Why is culture important?Culture, left to chance, will derail operations Expected Return • Most prevalent and costly operational derailers: • Productivity loss • Customer disruption • Flight of key talent • Delayed synergies DEAL REALITY VALUE Contribution to EPS Breakeven Actual Return • 30% failed to realize expected value due to cultural issues • 67% experienced delayed synergy realization due to culture issues • 43% experienced culture issues causing delayed close, no close or impact to purchase price • “How leaders behave” (Say vs. Do) – the #1 driver of organizational culture (61%) Close 36 months 100 days *Mercer - Culture Left to Chance Will Derail Operations in M&A. (Authored by B. Heslop)

14. The operating environmentCulture is at the center of business transformation Cultural alignment is critical for effective organizational change in M&A. Culture is your operating environment. Results Business Strategy Operating model Revenue Growth Customer Satisfaction Operational Efficiencies Employee Engagement Deal Rationale Deal Structure Change Agenda External Environment INTEGRATION PLAN CULTURE DEAL THESIS DRIVERS BEHAVIORS OUTCOMES RISK MITIGATION talent platform Culture Deal Process Map™ (Authored by J. Koob)

15. the CRITICAL DIMENSIONS OF your organization’s OPERATING ENVIRONMENT Organization Design Leadership Governance, Risk Management & Decision -Making Rights Work Processes Communication Style Employee Value Proposition Talent Management Rewards& Recognition Work Environment

16. CultureIN THE DEAL CONTEXT END “XX DAY” PLAN BOARD/EXEC COMMITTEE APPROVAL TARGET SELECTED CLOSING/ DAY 1 INTEGRATION COMPLETE SIGNING/ ANNOUNCE Immediate Integration Long Term Integration Deal Pipeline Review Target Assessment Business DD & Integration Strategy Comprehensive DD & Purchase Agreement Negotiation Business Continuity and Employee Engagement Stage 1 PRELIMINARY DUE DILIGENCE Stage 0 STRATEGY & READINESS Stage 2 DETAILED DUE DILIGENCE Identify and manage pool of suitable Targets and prepare the organization to manage acquisitions Preliminary evaluation for Board go/no-go to proceed with detailed due diligence Detailed analysis to negotiate the deal, terms and conditions STRUCTURAL DILIGENCE Stage 3 INTEGRATION PLANNING Stage 4 INTEGRATION MANAGEMENT Rigorous governance and planning to ensure business continuity on Day 1 and longer term integration planning Successfully assimilate Target from a business, function and culture perspective DAY ONE OPERATIONAL DESIGN END STATE DAY ONE TALENT SELECTION END LEADERSHIP SELECTION CULTURE, COMMUNICATION AND CHANGE MANAGEMENT Ensure effective and timely communication throughout the acquisition and manage the change for transitioning and current employees

17. People Factors in M&A

18. Mercer researchthree People Practices drive transaction value 1 2 3 Transaction Management to Retain Top Talent Engage the Workforce through the Event Align Rewards with Behaviors

19. Mercer Researchreasons employers offer retention bonuses 1 2 The top two REASONS Insurance for the deal: Provide additional layer of protection above usual incentives for key people Drive transaction value: Align interests with successful completion of transaction 84% Gave #1 or #2 as top reason

20. mercer researchkey Employee stakeholders Eligibility for Retention CEO, Direct Reports & Senior Management 65% Critical for Integration 70% 150% Other Employees 35% From 2012 Research 42% Energy, Metals & Mining 94% Professional Services

21. Mercer ResearchProven Decision Framework Strategic Buyer - (Synergy Targets) Financial Buyer - (Preserve Entity) Understand Business Objectives 1 2 3 4 Through Close < 6 mo. Review % of Deal Value as Insurance Policy Identify Key Talent “Bottom-up Approach” Integration 6 mo. - 12 mo. Long Term > 12 mo. Design Retention Program

22. People Factors in M&AOverview People factors are important across all deal phases

23. Wrap up & Q&A