Organizational Learning Approaches to Mergers & Acquisitions

New Horizons Research Conference: George Washington University

October 8-9, 2010

Jim Sanders, ELP IVDirector, Strategy & M&A, Harris Corporation

Clinical Prof., Smith School of Business, Univ. of Maryland

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?

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

Sources of deal error

Percentage of respondents citing each reason as the primary source of errors in the M&A process

Integration is Key Element in Determining Acquisition Success

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

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.

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

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

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

Practices that Improve LearningBuild 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 typesof 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

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

Integration Models- The GE Pathfinder Model

“Lessons Learned About Integrating Acquisitions,” by J. Vester, 2002, Research Technology Management, 45(3), p. 34. 2002

Integration Models: The FIDESS FrameworkFIDESS: Focus, Innovation ,Discipline, Excellence, Speed, and Simplicity

Benchmarking Best PracticesThree issues that drive integration success:

1. corporate culture2. use of a full-time integration leader3. 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