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Organizational Learning Approaches to Mergers & Acquisitions

Organizational Learning Approaches to Mergers & Acquisitions. New Horizons Research Conference: George Washington University October 8-9, 2010 . Jim Sanders, ELP IV Director, Strategy & M&A, Harris Corporation Clinical Prof., Smith School of Business, Univ. of Maryland.

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Organizational Learning Approaches to Mergers & Acquisitions

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  1. Organizational Learning Approaches to Mergers & Acquisitions New Horizons Research Conference: George Washington University October 8-9, 2010 Jim Sanders, ELP IV Director, Strategy & M&A, Harris Corporation Clinical Prof., Smith School of Business, Univ. of Maryland

  2. Background/ Framework Background • M&A is a high impact activity with mixed success • Attempts to improve performance for serial acquirers is mixed • Improvements in integration have the highest potential of improving performance Questions- focus of this presentation • How do serial acquirers get better at integration? How do they learn? What methods and practices improve learning?

  3. More Experience in Acquisitions Does Not Necessarily Predict Better Performance However, consistent findings on the relationship between acquisition experience and post acquisition performance do not exist. Lahey and Conn 1990 found experience has no impact on acquisition performance Kusewitt 1985 found a decline in performance based on the number of acquisitions Two studies (Bruton, Oviatt, & White, 1994; Fowler & Schmidt, 1989) found that prior experience predicts success in later acquisitions

  4. Integration is Key Element in Determining Acquisition Success Sources of deal error Percentage of respondents citing each reason as the primary source of errors in the M&A process Companies that integrate well improve their return on deals by an average of 14% relative to laggards. “Buying a company and getting its systems integrated is one thing, but converting it into a great business is much harder.“ Source: Executive Board October 2010

  5. Tools and Methods Contribute to Improved Integration Maurizio Zollo and Harbir Singh examined a wide range of acquisition tools financial evaluation tools, due diligence checklists, conversion of information systems —they found that the creation and usage of these tools had a definite impact on increasing levels of integration. Major finding: “Firms develop collective competence by not only accumulating experience but also investing time and effort in activities that require greater cognitive effort in order to produce enhanced awareness of action-performance linkages.” Source: Maurizio Zollo and Harbar Singh, “Deliberate Learning in Corporate Acquisitions: Post-Acquisition Strategies and Integration Capability in U.S. Bank Mergers,” Strategic Management Journal, Volume 25,Issue 13, 2004, pp. 1233-1256.

  6. Strategic M&A: Creating Tools and Capabilities for Successful Integration. Conference Board. 2007

  7. Strategic M&A: Creating Tools and Capabilities for Successful Integration. Conference Board. 2007

  8. Strategic M&A: Creating Tools and Capabilities for Successful Integration. Conference Board. 2007

  9. Practices that Improve Learning Build organizational capabilities and tools to support the integration process • Improves current integration process • Captures lessons & models that can be used to train integration team Create a disciplined integration process that can adjust to different types of acquisitions • Project management with regular reporting deadlines to senior management. Recruit generalists not functional specialists for the M&A integration team • Focus holistic view and ability to avoid silo approach of functional specialists. Access integration professionals during the deal negotiation and due diligence phases Prioritize corporate cultures, merging IT systems, and building solid management teams • Diagnose culture through surveys and focus groups Develop evaluation and feedback procedures • Integrate learnings into “screens” for strategy and risk analysis • Insert integration team early in due diligence

  10. Integration Models- The GE Pathfinder Model Making the Deal Real: How GE Capital Integrates Acquisitions,” by R. N. Ashkenas, L. J. DeMonaco, and S. C. Francis, 1998, Harvard Business Review, 76(1), p. 167. 1998

  11. Integration Models: The FIDESS Framework FIDESS: Focus, Innovation ,Discipline, Excellence, Speed, and Simplicity “Lessons Learned About Integrating Acquisitions,” by J. Vester, 2002, Research Technology Management, 45(3), p. 34. 2002

  12. Benchmarking Best Practices Three issues that drive integration success: • corporate culture • use of a full-time integration leader • identifying the appropriate skill set for the full-time integration leader Early engagement-   formalize integration plans early Create an integration overview document before further diligence • Build upon the initial assessment during the diligence phase, focusing on identifying each driver of risk, or value, and developing a detailed action plan to monitor progress of each driver during the first 100 days after the deal closes Communication is a key element of integration, both internally and externally • Address employee questions and rumors as they arise • Communicate to external stakeholders top customers & suppliers early Leading Practices of Corporate Development Departments KPMG 2004

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