The domain model will consist at least of the following parts:

• A data model that shows the data objects that are involved in M&A transactions and processes.

• A Hierarchy of tasks in different phases of M&A Processes.

• APIs for data objects and tasks.

The domain model is a programmable model. This means it is available electronically and can be navigated and displayed as you wish. It is implemented in a set of Prolog facts and rules.

Here is a first view at the phase Due Diligence. It consists of the tasks Target Due Diligence, Integration Approach Blueprint, Merger Integration Due Diligence, Deal Making and Finalize and Approve Due Diligence Business Case. Each tasks will be documented by its goals, the data objects used and a task description.Each of the data objects will be also represented in JSON notation as well as an API documentation.

Here is an example of the documentation of each task. The task Review Merger Integration Project works on concepts

 Integration Project Plan, Integration Budget, Stakeholder, Integration Success, Integration Project, Integration Project Resources.

It has the goal (that describes the result):

Integration project: tested and verified

and the objectives, which describe the qualities of the result:

 Integration success: maximized

 Quality: maximized

It has the following task description:

We review the structure and behaviour of the merger project. It is important to remember that the word "project" means that we have a professional management of integration by professional project managers who are experienced with complex projects and equipped with the skills of a certified project manager. We should also set up a project steering committee that has comprehensive competencies and can make decisions quickly.

The word "project" means that we have a project structure plan with tasks to be performed in the project. Buying companies that make frequent acquisitions have a project structure plan template that they adapt to each of the new merger integration projects. This ensures completeness and also allows a correct assessment of whether we have sufficient resources and whether the resources know what to do in the merger.

But we also focus on providing answers to questions like: Do we have the right resources for the integration tasks in mergers? Are the resources able to perform the tasks assigned to them? Do the resources have adequate social skills to guide people and convince them to integrate?

So stay tuned for more information. One of the next blogs will talk about programming on top of the domain model.

The domain model will consist at least of the following parts:

• A data model that shows the data objects that are involved in M&A transactions and processes.

• A Hierarchy of tasks in different phases of M&A Processes.

• APIs for data objects and tasks.

The domain model is a programmable model. This means it is available electronically and can be navigated and displayed as you wish. It is implemented in a set of Prolog facts and rules.

Here is a first view at the phase Due Diligence. It consists of the tasks Target Due Diligence, Integration Approach Blueprint, Merger Integration Due Diligence, Deal Making and Finalize and Approve Due Diligence Business Case. Each tasks will be documented by its goals, the data objects used and a task description.Each of the data objects will be also represented in JSON notation as well as an API documentation.

Here is an example of the documentation of each task. The task Review Merger Integration Project works on concepts

 Integration Project Plan, Integration Budget, Stakeholder, Integration Success, Integration Project, Integration Project Resources.

It has the goal (that describes the result):

Integration project: tested and verified

and the objectives, which describe the qualities of the result:

 Integration success: maximized

 Quality: maximized

It has the following task description:

We review the structure and behaviour of the merger project. It is important to remember that the word "project" means that we have a professional management of integration by professional project managers who are experienced with complex projects and equipped with the skills of a certified project manager. We should also set up a project steering committee that has comprehensive competencies and can make decisions quickly.

The word "project" means that we have a project structure plan with tasks to be performed in the project. Buying companies that make frequent acquisitions have a project structure plan template that they adapt to each of the new merger integration projects. This ensures completeness and also allows a correct assessment of whether we have sufficient resources and whether the resources know what to do in the merger.

But we also focus on providing answers to questions like: Do we have the right resources for the integration tasks in mergers? Are the resources able to perform the tasks assigned to them? Do the resources have adequate social skills to guide people and convince them to integrate?

So stay tuned for more information. One of the next blogs will talk about programming on top of the domain model.

Scaling new, unfamiliar  business models is a popular topic in large corporates. These new business models might originate from internal or external initiatives, even from acquisitions. How can corporates scale new business models successfully in such situations? Here are my views on it.

Not the usual merger

A widespread perception of mergers and merger integration is that an important objective of such activities is collecting cost synergies or consolidating industries or buying your way up and down the supply chain. Scale and growth are a second thought, if at all. This is different in high tech industries, such as pharma and software. This is different and even more challenging when acquiring and scaling new business models.

Similarity of M&A and Digitization initiatives

A large company acquires a small company to adopt a new business model. An intrapreneur tries to implement a new business model in a large corporate.  Both represent the same type of challenge:  making an existing organization adopt a new business model.  Both can be solved with appropriate, new approaches.

Modulating the corporate immune system

Integrating new business models needs new approaches. The acquirer has to ask the question: “Why have we acquired the company?” If the answer is: “Because they are different” or “Because they have a business model that is new to us”, the acquirer should carefully select integration speed and depth. The acquirer should also make sure that he is preparing his own organization to be ready and able to integrate the new business model. Getting prepared for that might take some time, which influences integration speed.

The acquirer also has to manage the “corporate immune system” which typically rejects new business models due to employee statements like “not invented here” and “that is not the way we do it”.

Change intensity in your court

While in usual merger integration most of the changes happen to the target, this is a different ballgame. A massive change in the operating model  of the acquiring organization is needed. Such change is only possible if the large organization is willing and able to change.  In addition strong empowerment and executive support is needed to establish such change.

A (positive) synergy is the increase in shareholder value coming from mergers and acquisitions activity. Below is a list of potential synergies that are usually considered for mergers and acquisitions. If a synergy applies for a deal and how big the synergy is has to be analysed and planned for each deal.

Keep in mind that synergies are not self-fulfilling prophecies. You need careful planning, execution and tracking of synergy related work to realize synergies.

Synergies seen from outside of the companies

Looking at a company from the outside, the synergies of a merger can come from the following sources:

Relationship to Suppliers

• increased negotiation and purchasing power

• consolidation of existing suppliers and contracts

• leveraging better existing conditions for a supplier contract from target or acquirer

Supplied goods and services

• increase in purchasing volume and potentially a decrease in price

Relationship to financial institutions

• increased negotiation and purchasing power

Relationship to customers

• increased negotiation and purchasing power

• increased revenue from upselling and cross-selling opportunities

• increase in portfolio assets to be sold to customers

• increase in the number of customers and/or markets covered

Sold goods and services

• revenue effects from broadened portfolio

• faster time to market since acquired goods and services are available immediately for selling by the acquirer

Relationship to partners

• increased number of partners

Relationship to government and states

• potential synergies for corporate tax

Synergies seen from the inside of companies

Synergies for all corporate functions

• Centralization of tasks and elimination of organizational and functional redundancies is often cited as a main source of synergies

 Synergies for the business models

• The target introduces a new business model for the acquirer

Cost synergies

Looking at cost synergies, two main sources of cost synergies are often cited: elimination of redundancies and reduction of inefficiencies.

Learn more from my upcoming book on merger integration.....

(C) Dr. Karl Popp 2019

Every acquisition and merger integration carries numerous risks. Actually, acquisitions and merger integrations have a bad reputation due to risk. Many integrations fail or do not reach objectives in a sufficient manner. This is why it is important to detect, evaluate and to manage risk in M&A transactions and in merger integration.

Risks can e.g. originate from the target company, from the acquiring company and from the integration of the two companies. In the best case, these risks are determined in due diligence, mitigations are planned and all is being handed over to the integration team as soon as possible.

Risk discovery in due diligence

While the target related risks are analyzed in detail in due diligence, the risks related to the acquiring company and the risks related to the integration itself are often neglected. In addition, not all risks can be determined in due diligence alone, new undiscovered risks might come up during the integration.

What you see is all there is

We learn from Kahneman that the risks that are being found depends very much on the experience of the people looking for risk. He says that you will only find the risks that you have experienced, heard about or read about.

This is why it is very important to use risk catalogues, experienced integration managers and risk managers. Walk through the risk catalogue to see if there are applicable risks, use your own or somebody elses experience to determine additional risks and run a risk workshop with an experienced risk manager.

Key risks in merger integration

Experience shows there are risks in merger integration that occur in each acquisition. While there are many risks outside of companies, let us focus here on risks inside the involved organizations. From my point of view, these reoccurring risks are:

1. Brain drain/Attrition: key employees or a large share of employees from the target are leaving.

2. Cultural integration problems: people don´t feel at home, feel lost or frustrated and thus attrition increases and people are leaving.

3. Wrong perception and estimation of integration complexity and effort: acquisitions can get complex on many dimensions like size of the target and acquirer business, number of companies, countries and locations involved. With the complexity, the effort may skyrocket.

4. Bad management of the integration scope and integration project: these are generic project management problems revisited. They also occur in merger integration projects.

How to deal with risk

In my view, there are four ways to deal with risk: Ignore, monitor, mitigate and sell.

Ignoring risk is dangerous alternative. If at all, you should use ignoring only for a risk that you think has very limited impact on the success of the merger integration and very small likelihood. And you have to be aware oft he difference between probability and likelihood. Likelihood means you only have a guess about the chance of a risk to become true and impact the merger integration.

Monitoring risks is a slightly better approach to risks. In this case you simply watch the risks to see if the likelihood or the impact has changed. If a likelihood or impact increases, you might switch to one of the following alternatives.

Mitigating risk is the preferred approach. This means you are trying to establish counter measures to be able to avoid the risk or reduce the likelihood or the impact of the risk. Be aware that mitigations needs people, time and budget to work.

If certain risks are perceived to have a massive financial impact and cannot be properly mitigated you might want to sell these risks to insurance companies. One example might be environmental risks of manufacturing plants.

Change management in PMI is the process and methods (tools) to manage the people side of the integration to achieve the declared PMI goals. Therefore, it is important to link the change management to the PMI strategy and the project management in the PMI project. (integrated change management approach). Both change management and project management support the PMI transformation – moving from the actual organization of the Target through a change period (managed via the PMI project) to the future state (successful integration of the Target organization). Integrating the newly acquired company into your own organization, you are ultimately going to be impacting the following aspects: PMI Strategy, Structure (process organization and structural organization), People (like job roles) and Culture. Whenever you adjust those elements in your own organization or at the Target level you need to manage the technical side as well as the people side.

The role of the Change Manager

Experience has shown that it is supportive to inform the top and middle management upfront and to use them as multipliers. In that regard the preparation of Q&As is helpful and enables to speak the same language and to deliver equal key messages.
Who might be the adequate change agent? This depends on your own as well as on the Target organizations. Supervisors and Managers are Change Agents. Change Management is a leadership topic. Enable managers in their role as change agents through empowerment and awareness-raising workshops. However the concrete involvement and role depends on your specific PMI project. Undertake a stakeholder analysis as early as possible to identify the sponsors and other important multipliers.
The key element in change management is to set up a good communication from the start of the PMI process onwards. There is a need to effectively communicate the change to the employees – communication cannot be overdone. Set up a communication plan already during the due diligence phase. The main questions in that regard are:
• What is my PMI vision and mission? Is my message clear?
• Who is my audience, who is the right sender? (strategy issues should be communicated by the
Top Management level, personal topics (WIIFM=what is in it for me) as new job role by the
direct lead)
• What are the key messages? When is the right time to deliver the message? What is the right
delivery method and frequency?

Let us discuss tools for successful integration. We are not not referring to system integration, but tools for managing and supporting the Merger integration process from pre-deal through due diligence, up to and including post merger integration.

Today, Excel and Power Point are currently the most used tools in the M&A transaction/integration world. There are also several Virtual Data Room providers that offer solutions at a high cost.

For managing the end-to-end process, Excel, Power Point, and Share Point on their own do not really work. Every project is different and one needs to be aware of the complexity that tools bring with them. So do tools really work? Do they add value and justify the cost and time to introduce & maintain? Does email communication from a tool work?

We can at least specify a list of requirements that a tool should address:

• Project / Deal based

• Document repository capabilities

• Project Management capabilities

• Communication/collaboration capabilities (email/messaging/collaboration)

• End-to-End process management (i.e. transition of Due diligence /Data Room info to integration team)

• Reporting capabilities (i.e. on a project basis, and or for the entire deal pipeline/project portfolio)

• KPI tracking capabilities

• Knowledge bank capabilities

• Highly performant and highly secure (especially with cloud based solutions)

• Stable (i.e. updates must have no impact)

• Highly configurable

• Easy to deploy & configure

• Easy to use with little/no training

Best practices in merger integration have to include many aspects like timing, project management, handling exceptional situations and decisions and when to end the integration project.

In merger integration activities timing is essential. So when is the right point in time e.g. to merge teams of acquirer and target that do similar things? When is the knowledge of the acquirer complete to integrate HR functions of the acquired company? When is the right time to end the integration project?

Merger integrations are also high-risk, high effort topics that have to manage numerous exceptional situations. Project management practices are made for such projects. But there is the risk of keeping project members hostage in reporting activities instead of focusing on resolving issues and completing tasks. So a key aspect is to find the right dose of project management for keeping project control by providing appropriate follow-up and execution of critical tasks and minimizing the project management workload on project members.

Let us quickly look at the topics:  “When to mix up teams working on the same topics?” and “When to declare the end of the integration project?”

When to mix up teams working on the same topics?

So when is the right point in time e.g. to merge teams that are working on the same tasks, selling to the same customers, producing similar work results? We discussed different aspects.

The first one is that the acquirer has to have sufficient knowledge about all departments or teams that have to be integrated. Without that knowledge it is impossible to plan and execute change management needed for the transition into a merged team.

The second aspect is if the time is right to integrate if the immediate value of integration is maximized or the confusion and trouble is minimized. One example is the immediate integration of finance activities for maximizing the value for the acquirer to be in control of finance. Another one is integration of sales teams to avoid having two different, competing sales teams as “one” face to the customer.

When to declare the end of the integration project?

Ending the integration project makes sense when at least one or more of the following goals have been reached:

·         integration plan has been fully executed,

·         benefits of the acquisition have been reached or

·         organizational performance (fully functioning and stable merged organization) is ensured.

The selection of one or more of these goals depends very much on attributes of the merger, specifically on the department (or corporate function) to be integrated, on the culture of the target and the acquirer and on the integration strategy, like e.g. if the target should stay separate or should be fully integrated into the acquirer. Depending on the size of the M&A and merger integration team, the support of these teams might end earlier due to high workload or focus on new, different M&A and integration projects.

Find more information in the book “Mergers and acquisitions in the software industry” (click here for German version) and at the German Event Denkfabrik 2019

The success of a merger integration program highly depends on the skills of integration managers and the integration team´s skills. So, what are these skills?

Skills of Integration Managers:
Managers that assign responsible for managing an integration project on a day-to-day basis require various personal skills, such as listening, communication, stakeholder management and people skills. However, in addition to these “soft skills” Integration Manager require also more “harder skills” such as project management, business know how and organizational know how. The entire skill-set that is required for successfully managing a post merger integration can typically be acquired only through first hand experience on-the-job. Therefore a valid question in many cases is, if one single individual should manage an integration project alone. A team of people with complementary skills that is led by a senior executive might be a more appropriate solution for integration management in many cases. However, taking into consideration that corporate top performer are typically not sitting on the bench waiting to be assigned to any post merger integration project (but are rather already busy with other important tasks) staffing of Integration Management is a often marked by compromises.

Skills of integration team members:
Skills that are required on the level of integration teams might include among others leadership, operative know-howand team management. Different to Integration Management where only few peoplemight get involved (often located within one corporate center) 100 and more operationalmanagers across various geographic regions are easily tight up as team members in a post merger integration. This includes typically not only managers and staff from the buying company but also managers and staff from the target company. Therefore PMI training with regard to team members is often more complex than with regard to Integration Management. Due to confidentiality aspects, time constraints and geographic spread in many cases pure digital courses that are accessible across multiple technical devices and teaching environments are the only way to train 100 and more operational manager from both the buyer and target being.

Come to the European workshop on merger integration and learn more

Your Integration framework is in place. Functional leads are fully armed, and at their battle stations. Ready… Set… DAY 1!

As soon as the clock starts ticking, every second in a PMI project matters. Speed in M&A integration execution does bring value and it correlates to the success of M&A. With the ever-decreasing timeframe in which integration leads are expected to realize synergy targets, there are few things more important than a structured and diligent integration plan. But when day one hits and Pandora’s box is open, being able to track the success of your plan in real time is crucial to hitting your targets.

Weekly meetings are the lifeblood of most integrations, and have been the best practice until recently. Whether it is program meetings, project meetings, or Executive Steering Comittee meetings, there are a few data points that need to be tracked consistently at a high-level.

• Issues

• Task Status/Milestones

• Timeline

• Responsibility

Classically, the integration leaders ask for updates from each functional lead/project manager, and get a verbal play-by-play of the past week’s happenings. In our current, tech-driven world, there are now digital tools that can increase meeting productivity and give M&A teams instant transparency into their processes. Integration team members can see what’s happening prior to meetings, ensuring focus on how to address issues, decisions needed, cross-stream dependencies, etc. This means that meetings’ action items are clearer, and time is spent proactively working towards targets, rather than retroactively getting updates on who did what, when.

Each of the integration performance items above are affected by the PMI teams ability to have “real-time” visibility:

Issues

Having instant visibility into the status of any potential issue enables corporate development teams to address risks before they damage the deal. Any PMI project will run up against unforeseen challenges, but proactively resolving issues leads to an increase in deal speed and value realization.

Task Status/Milestones

Many teams have thousands of tasks per integration, but there are always key milestones against which success is measured. Having the opportunity to check on the mission-critical items at a moment’s notice shortens the feedback loop within teams and empowers integration leads with the information they need to benchmark their teams against their schedules in real time.

Timeline

Let’s face it. Integrations very rarely hit timeline expectations. But, knowing where you are in relation to your goal is crucial. Having that 1-week gap in status update between team meetings might just be the difference between being on time and falling far behind.

Responsibility

PMI projects have many moving pieces in play. Governance is complex. The PMI leads manage the functional leads, who in turn must allocate resources from within their teams. Having a central platform that acts as a single source of truth is invaluable. Immediately, it becomes clear who is responsible for a task, who has signed off on what action item, etc. When there are multiple chains of command, being able to see changes in real time gives Integration leads the bird’s eye view that is needed to execute.

To quote Mark Herndon of M&A Partners, "The time has come to upgrade M&A integration management processes with simple, secure and state-of-the-art software solutions." This real-time transparency gives cutting-edge PMI teams full visibility and control in the perfect storm that is integration.

Welche Auswirkungen haben Länder auf die Integrationsaktivitäten von Unternehmensfusionen? Wenn Sie an einer transnationalen Merger-Integration arbeiten, sollten Sie über Kenntnisse dieser Faktoren verfügen.

Multinationale Zielfirmen erstrecken sich über mehrere Länder mit Tochtergesellschaften in jedem der Länder. Es gibt viele Faktoren in einem bestimmten Land, welche die Integration von Fusionen beeinflussen, die auf überregionaler, nationaler und lokaler Ebene stattfinden. Hinzu kommen soziale und kulturelle Faktoren, die sich je nach Land oder Region unterscheiden, wie Arbeitstage innerhalb einer Woche, nationale Feiertagskalender, das politische Umfeld sowie die Präsenz und der Einfluss von Gewerkschaften.

Diese Faktoren sind:

• Rechtlicher Rahmen

• Soziologischer Rahmen

• Kultureller Rahmen

• Politisches Umfeld

• Technologisches Umfeld

• Ökologische Umwelt

• Lokales Umfeld des Unternehmens

Hier ist mehr Hintergrund zu einigen der Faktoren:

RECHTLICHER RAHMEN

Jedes Land hat eine spezifische Reihe von Gesetzen und Vorschriften, die für die Integration von Fusionen gelten. Diese betreffen z.B. die Übertragung von physischem und geistigem Eigentum, Compliance- und Berichtspflichten des Unternehmens, das Verhalten in Wettbewerbssituationen, Vorschriften und Verfahren zur Beschäftigung und Unternehmensübertragung sowie die Berechnung und Zahlung von Steuern.

Für die Verschmelzung setzt der Rechtsrahmen Grenzen und regelt Integrationsaktivitäten wie die Integration von Unternehmen in eine einzige juristische Person sowie die Umstrukturierung. Manager von Merger Integrationsmaßnahmen müssen über Kenntnisse dieser rechtlichen Rahmenbedingungen verfügen, um die Auswirkungen zu ermitteln.

KULTURELLER RAHMEN

Nationale Kulturen können sich unterscheiden, wenn es um Religion, Ethnizität und Klassenstrukturen geht. Nationale Kulturen definieren laut Hofstede aber auch die Gleichheit/Ungleichheit in der Gesellschaft, die individuellen und kollektiven Aspekte, die Geschlechterrollen sowie die Vermeidung von Unsicherheit und Angst in einer Gesellschaft. Für die Integration von Fusionen müssen Sie sich dieser kulturellen Aspekte bewusst sein.

POLITISCHES UMFELD

Wie wirkt sich das politische Umfeld auf die Integration von Fusionen aus? Aus aktiver Sicht treiben die Politiker Gesetze und Haushaltsentscheidungen voran. Sie werden mit dem Erwerber zusammenarbeiten, wenn die erwarteten positiven Auswirkungen der Fusionsintegration hoch sind und dem Politiker von Nutzen sind.

Aus passiver Sicht müssen Politiker auf mögliche negative Wahrnehmungen und Ergebnisse oder Nebenwirkungen von Fusionsintegrationsaktivitäten wie Streiks der Belegschaft im Falle von Umstrukturierungen reagieren. Für die Integration von Fusionen müssen Sie sich über das politische Umfeld in jedem Land im Klaren sein, das von der Integration betroffen ist.

TECHNOLOGISCHES UMFELD

Verschiedene Branchen haben unterschiedliche Anforderungen an das Vorhandensein oder die Verfügbarkeit von Technologie in einem bestimmten Land. Dies könnte sich auf die nationale technologische Infrastruktur wie Verfügbarkeit von Strom, Kühlung, Wärme, Transport sowie auf lokale Lieferanten mit der richtigen Technologie, Kompetenz und Versorgung beziehen, aber auch auf die Verfügbarkeit qualifizierter Mitarbeiter.

ÖKOLOGISCHE UMWELT

Ein Unternehmen ist immer in sein lokales ökologisches Umfeld eingebettet. Natürliche Ressourcen, Ökologie sowie Umweltschutzanforderungen sind Beispiele für die ökologische Umwelt. Die Ergebnisse der Due Diligence können zu Arbeitsaufgaben für die Fusionsintegration führen, wie z.B. Umweltsanierungsaktivitäten.

LOKALES UNTERNEHMENSUMFELD

Neben den oben beschriebenen makroökonomischen Faktoren ist jedes lokale Unternehmen in einen mikroökonomischen Kontext mit lokalen Wettbewerbern und Lieferanten und Mitarbeitern eingebettet und muss sich mit den lokalen Finanzierungsbedingungen und den lokalen Gesetzen und Vorschriften auseinandersetzen.