4° Regional Integration Management Forum Amsterdam, Sheraton Schipol November 16th , 2012

1. ACQUIRING FAMILY OWNED COMPANIESCASE STUDIES AND LESSONS LEARNED FROM AN HR AND ORGANISATIONAL PERSPECTIVE 4° RegionalIntegrationManagement Forum Amsterdam, Sheraton SchipolNovember16th, 2012 Francesco Picconi

2. Introducing Francesco Picconi Group Head of HR at Falck, Italy HR Director, South Europe & Africa, ArevaT&D, Italy HR Director, BUCorusColors, Corus Group, UK Group OD Director, Indesit Company, Italy HR DirectorBU, Transolver/Fraikin, Fiat Iveco, France OD Manager, AutomotiveLighting, Fiat Magneti Marelli, Germany HR Manager Global Marketing and Sales, GEOil&Gas, Italy BUTMOSTIMPORTANTLY…… A Multicultural HR passionateforM&A, JV, Post-MergersIntegration in International/ Global contexts it.linkedin.com/in/francescopicconi/ Phone +39 335 5351875 2

3. Multinational companies acquiring family owned companies • Multinational company (MNC): to acquire or not to acquire? “Over the past 20 years, US takeovers by large firms have led to losses of more than $ 200 billion for stakeholders. However, this result is dominated by the big losses experienced by shareholders in big companies” (NBER Working Paper n. 9523) • Family company owner: family succession or selling? More than 50% of all owners are 50 years of age or older. Family succession is risky: 70% of all owners fail to successfully transition their business to their direct heirs. (Brownstone Capital Advisors LLC)

4. Financing options for family owned companies in crisis times Having successors ready within the family is not sufficient to ensure long-term sustainability of a family owned company. Trends like: Market globalization Business diversification New technology developments require capital investments which may be difficult/too expensive to be obtained by leveraging debt (f.i. credit crunch in Southern Europe economies) Therefore, raising equity capital can be the only option to finance increasingly capital-intensive companies Conclusion: more and more profitable and promising family owned companies are for sale

5. Financing options for family owned companies in crisis times • The stock exchange option: creating a public company by floating a minority or a control stake.But: is it a real choice in today’s depressed stock market? • The private equity option: opening up to financial partners.But: equity investors are increasingly selective in today’s less liquid market. Unless a control stake is released, such deals are today less rewarding than few years ago. • The industrial partner option: today MNC’s are constantly considering family owned companies for acquisitions.

6. Selling a family owned company to a MNC: the owner’s perspective • As industrial partners, MNC’s are normally familiar with the business to be acquired and can better understand its challenges and opportunities. • The acquired company can be placed within a larger industrial context, where its unique strengths can be put at service of a larger Group (f.i. new technology/innovation, distribution networks). • The business/industrial knowledge of MNC’s may result in a longer perspective and/or a better risk assessment in comparison to a purely financial partner. • Family company owners usually care for the future of their “creature” and for their employees. In times of crisis, they may consider that a MNC may ensure a better future for them. Of course, there are exceptions…

7. Case Histories OBJECTIVES: • Introducing the case history of a MNC (Areva T&D) acquiring two family owned companies in Italy (Passoni & Villa and VEI Electronic Industries) • The reverse perspective: introducing a family owned company (Indesit Company) acquiring part of a MNC (GE Hotpoint) in the UK • Each case history is presented in terms of: • case description • integration approach • lessons learned

8. T&D Areva T&D acquiring Passoni & Villa and VEI Electronic Industries VEI Electronic Industries

9. AREVA T&D acquires PASSONI & VILLA and VEI • In 2007 Areva T&D, the Transmission & Distribution business of the French multinational Areva, acquired Passoni & Villa, a 80 year-old company based in Milan with 30ml € sales and 130 employees from the descendants of the founders • Areva T&D rationale for buying: among other products, P&V had a global leadership in HV and UHV insulators (n.3 worldwide after ABB and Siemens). Areva T&D wanted to focus exclusively on these products, creating a global central of excellence for the Group • P&V rationale for selling: P&V had a strong “technological nugget” (HV and UHV insulators) and an outstanding global market potential (mainly China, India, the U.S.). However huge capital investments were needed to develop this technology. Moreover, the owners were in their 70s CASE DESCRIPTION: THE PASSONI & VILLA ACQUISITION

10. AREVA T&D acquires PASSONI & VILLA and VEI • In 2008 Areva T&D acquired from the founder VEI Electronic Industries, a 40 year-old Company based in Piacenza, with 46ml € Sales and 360 employees • Areva T&D rationale for buying: VEI had a strong market positioning in Italy, Spain, Saudi, South East Asia, Russia. Plus, VEI had a technological leadership in some MV Equipment (Gas and Air insulated switchgears). Again, Areva T&D wanted to focus exclusively on these products/markets • P&V rationale for selling: the founder was in his late 70’s and no family members were in condition to take over. Moreover, there was a strong moral committment to ensure the long-term development of the company and the well-being of the employees CASE DESCRIPTION: THE VEI ACQUISITION

11. AREVA T&D acquires PASSONI & VILLA and VEI INTEGRATION APPROACH • An in-depth “hard” HR due diligence supported by a local consulting company identified several potential liabilities (consultants, agencies, social contributions, executive compensation). • In a “soft” HR due diligence, HR interviewed the Key Managers identifying potential cultural issues with Areva T&D management style . • Areva T&D focused intensively on securing and “converting” the two GM’s, planning the retirement of one of them after one year. • As the managerial pipeline was dry, in one year both Management Teams were rebuilt with external or Areva T&D Managers. A “not without you” approach was chosen, persuading the former Key Managers to stay with Areva T&D, accepting to report to a new Manager with MNC culture.

12. AREVA T&D acquires PASSONI & VILLA and VEI LESSONS LEARNED WHEN MNC’s ACQUIRE FAMILY OWNED COMPANIES DUE DILIGENCE PHASE • Invest time and money in an in-depth “hard” HR due diligence, possibly with a local consultant: dealing with family owned companies may highlight potential liabilities which can even become dealbreakers. In any case their early identification may avoid future issues. • Invest time in an in-depth “soft” due diligence through structured interviews with Key Managers: MNC’s often have structured processes, matrixed organisations, complex decision-making difficult to be understood and followed by a family owned company culture.

13. AREVA T&D acquires PASSONI & VILLA and VEI LESSONS LEARNED WHEN MNC’s ACQUIRE FAMILY OWNED COMPANIES POST-MERGER INTEGRATION PHASE • If possible, ensure a smooth transition of 1-2 years. It would be ideal to “convert” the GM (if exists) and let him/her lead the transition phase • In any case, an external GM must gain his/her credibility: often family owned companies have rhytes and myths connected with charismatic leaders (the founder and his/her heirs, their trusted GM). • Quickly identify potential “ready-now” successors for all key roles, within or outside the family owned companies: cultural issues are normal and possible Key Managers resignations in the first year should be anticipated. • Family owned companies’ organisational model is often “solar”, with the entrepreneur or his/her trusted GM at the hearth. As a consequence, the Management Team could often be weaker than expected in terms of management/commecial/technical relations and skills.

14. INDESIT COMPANY ACQUIRES GE HOTPOINT

15. INDESIT COMPANY ACQUIRES GE HOTPOINT CASE DESCRIPTION • In 2002 Indesit Company, a listed company controlled by the Merloni family and Europe’s n. 2 in the Household Appliances industry, acquired GE Hotpoint, market leader in the UK and Ireland. GE Hotpoint at the time had around 1bn € sales, about 6.000 employees and 6 plants in the UK. • Indesit Company rationale for buying: decision to better penetrate the UK mature, sophisticated, service-oriented market by acquiring the market leader. Moreover, some products typical of the UK market (f.i. tumble-dryers, double oven) could have a larger niche market in Europe. • GE Appliances rationale for selling: GE was reconsidering its presence in the European market, a mature, relatively low margin business, with a medium-level technology. Focus on the top level high margin segment.

16. INDESIT COMPANY ACQUIRES GE HOTPOINT INTEGRATION APPROACH • Over the years, Indesit Company had become familiar with the UK and Ireland market by setting up a relatively limited commercial and logistics organization, with Service largely outsourced. Over the years the local management was ready to take some key leadership roles in Hotpoint. • A “breed” of Italian Key Managers moved to the UK from Russia, where Indesit had just finished to integrate Stinol, its last large acquisition. The Stinol CEO, trusted by Merloni family, became CEO at the Hotpoint and was later nominated Group CEO.

17. INDESIT COMPANY ACQUIRES GE HOTPOINT INTEGRATION APPROACH • In the first phase, few new processes were introduced in Hotpoint, largely tied to Finance, Administration and Control. GE Manufacturing, Product Development, Sales and Service processes were basically kept in place, while other processes (f.i. Six Sigma) were simply dismissed. • After 3 years of market experience, Indesit Company restructured Hotpoint, reorganizing its businesses along the Group’s global business lines (Washing, Dishwashing, Cooking, Cooling, Service), closing down 2 plants and streamlining all the administrative/ transactional functions. • The Company focused on Manufacturing efficiency, the Sales, Service and Distribution network, in an effort to get “back to basics”.

18. INDESIT COMPANY ACQUIRES GE HOTPOINT LESSONS LEARNED WHEN A FAMILY OWNED BUSINESS ACQUIRES A MNC • Family owned companies tend to have a less structured Due Diligence process, where HR rarely plays a key role. They tend to spend less money in local consultants for DD purpose. However MNC’s tend to follow rigorous policies and guidelines, and therefore potential liabilities are normally low. • In the integration process, family owned companies tend to rely more on trust than on processes: Key Managers are trusted because of their long-term service and their previous successes in acquisitions integration. The process tends to be less formalized and more flexible/adaptable. • Family-owned companies tend to refocus the acquired MNC businesses “back to basics”. Transactional processes are simplified, top-down HQ-driven initiatives are dismissed. • Not all Key Managers from MNC being acquired by family-owned companies will withstand the “cultural shock”. Careful succession planning should be implemented as soon as possible.

19. Thank you ! Any questions ?