Your roadmap to success in the world of postmerger integrationNearly half of today's executives attribute M&A failure to poor integration between merging businesses. This thoroughly revised edition ofThe Art of M&A Integrationprovides you with updated facts on integration of compensation plans, new FASB and GAAP accounting rules, strategies for merging IT systems and processes, and more.

Alexandra Reed Lajoux is senior research analyst for the National Association of Corporate Directors.

Preface

xiii

Acknowledgments

xvii

PART ONE Prerequisites

1

(106)

Introduction and Acknowledgments

1

(2)

Chapter 1 Basic Definitions and Data

3

(14)

Introduction

3

(1)

The Meaning of Integration

4

(6)

International Considerations

10

(2)

Appendix 1-A: Postmerger Performance: A Review of the Research

12

(2)

Notes

14

(3)

Chapter 2 The Path to Integration

17

(18)

Introduction

17

(1)

Alternatives

17

(2)

Growing versus Shrinking

19

(1)

Building versus Buying

19

(2)

Keeping versus Selling

21

(5)

Integrating versus Managing Separately

26

(1)

International Considerations

27

(2)

Appendix 2-A: Postmerger Sell-Offs: How Common Are They?

29

(1)

Following Up on the 10 Largest Acquisitions of 1985

29

(2)

Appendix 2-B: Valuing the Divestiture Option

31

(1)

Notes

32

(3)

Chapter 3 Integration Planning and Communication

35

(72)

Introduction

35

(1)

Forming Integration Plans

36

(5)

The Role of Insiders in Planning M&A Integration

41

(2)

The Role of Outsiders in Planning M&A Integration

43

(5)

Integration Elements in the Merger Agreement

48

(2)

Internal Communication: Key Challenges

50

(6)

Formal External Communication of the Integration Plan

56

(2)

Taxable M&A Reporting

58

(4)

Communicating with Stakeholders

62

(1)

Merger Scenarios

63

(3)

International Considerations

66

(1)

More Is Better: A Case in Point

67

(1)

Appendix 3-A: Sample Mission, Team, and Timeline of Acquisition

68

(16)

Appendix 3-B: Communications Plan Matrix

84

(9)

Appendix 3-C: Integration Planning Worksheet

93

(3)

Appendix 3-D: Integration Plan Outline (Sample Outline Focusing or, HR, Communications, and IT)

96

(7)

Notes

103

(4)

PART TWO Integrating Resources

107

(112)

Introduction and Acknowledgments

107

(4)

Chapter 4 Retaining and Integrating Human Resources

111

(36)

Introduction

111

(1)

Retaining Human Resources

112

(3)

Legal Issues

115

(3)

Cultural Issues

118

(1)

Merging Boards of Directors

119

(2)

Reshaping the Chairman and CEO Roles

121

(5)

Merging Senior Management Teams

126

(1)

Turf Typical and Special Scenarios

127

(6)

Merging Sales, Merchandising, and Distribution Forces

133

(2)

International Considerations

135

(1)

Appendix 4-A: Sample No Compete Agreements

136

(2)

Appendix 4-B: Human Resources Integration Planning Grid

138

(4)

Notes

142

(5)

Chapter 5 Integrating Financial and Tangible Resources

147

(32)

Introduction

147

(1)

Acquisition Accounting for M&A (under GAAP)

148

(12)

Enhanced Financial Reporting for M&A (Non-GAAP)

160

(1)

Valuing and Combining Tangible Assets

161

(4)

International Considerations

165

(4)

Appendix 5-A: Selected Unaudited Pro Forma Condensed Combined Financial Data (in thousands, except per share data)

169

(6)

Notes

175

(4)

Chapter 6 Integrating Reputational and Other Intangible Resources

179

(40)

Introduction

179

(1)

The Challenge of Company Name Changes

180

(5)

Managing Brand Identity after a Merger

185

(3)

Integrating Mission Statements

188

(2)

Valuing and Combining Intangible Assets

190

(20)

International Considerations

210

(2)

Appendix 6-A: Sample Vision Statements from Companies Involved in Mergers

212

(2)

Appendix 6-B: Branding Case Studies

214

(2)

Notes

216

(3)

PART THREE Integrating Processes

219

(136)

Introduction and Acknowledgments

219

(2)

Chapter 7 Integrating Management Systems

221

(40)

Introduction

221

(1)

Integrating Organizational Structures

222

(7)

Sharing Space

229

(1)

Sharing Goals

230

(1)

Sharing Standards

230

(1)

Sharing Services

231

(1)

Integrating Processes for Product or Service Design, Production, and Supply

232

(5)

Integrating Internal Financial Controls

237

(4)

International Considerations

241

(1)

Appendix 7-A: Types of Organizational Structure

242

(4)

Appendix 7-B: Internal Control—Integrated Framework: Excerpts from the Original COSO Report

246

(7)

Appendix 7-C: Benchmarking Postmerger Integration of Internal Control: A Sample Guidesheet

253

(3)

Notes

256

(5)

Chapter 8 Integrating Compensation Plans

261

(32)

Introduction

261

(1)

Postmerger Compensation Basics

262

(8)

Planning Pay Integration: A Strategic Overview

270

(5)

Merging Benefit Plans

275

(7)

Disclosure and Trading Rules

282

(2)

International Considerations

284

(1)

Appendix 8-A: Pay for Performance

285

(4)

Notes

289

(4)

Chapter 9 Integrating and Enhancing Technology and Innovation

293

(62)

Introduction

293

(3)

Postacquisition Knowledge Management

296

(4)

Integrating Technologies: The Big Picture

300

(7)

Integrating Systems for Research and Development (R&D)

307

(5)

Valuing and Combining Patents and Trade Secrets

312

(5)

International Considerations

317

(1)

Appendix 9-A: IT Buzzwords for the Twenty-First Century

318

(4)

Appendix 9-B: Integration Planning Worksheets

322

(11)

Appendix 9-C: Integration Planning Worksheet for IT

333

(11)

Appendix 9-D: Information Security Program Elements

344

(7)

Notes

351

(4)

PART FOUR Integrating Corporate Responsibilities—Fulfilling Stakeholder Commitments

355

(88)

Introduction and Acknowledgments

355

(2)

Chapter 10 Fulfilling Commitments to Customers and Suppliers

357

(30)

Introduction

357

(1)

Commitments to Customers

357

Legal Aspects of Customer Relations

261

(103)

Postmerger Pricing

364

(3)

Postmerger Quality Management

367

(1)

Continuity for Customers

368

(3)

Commitments to Suppliers

371

(5)

Legal Aspects of Supplier Relations

376

(2)

Key Supplier Issue: Postmerger Outsourcing

378

(1)

Continuity for Suppliers

379

(1)

Technological Considerations for Customers and Suppliers

380

(4)

International Considerations 383 Notes

384

(3)

Chapter 11 Fulfilling Commitments to Shareholders, Bondholders, and Lenders

387

(30)

Introduction

387

(1)

Commitments to Shareholders

388

(1)

Owners/Investors

389

(4)

Building Shareholder Value

393

(6)

Postmerger Returns

399

(1)

Legal Aspects of Shareholder Relations

400

(2)

Commitments to Bondholders

402

(1)

Bondholders

403

(2)

Commitments to Lenders

405

(1)

Lenders

405

(1)

International Considerations

406

(3)

Appendix 11-A: Simple Formulas for Calculating Shareholder Value

409

(3)

Notes

412

(5)

Chapter 12 Fulfilling Commitments to Employees and Communities

417

(26)

Introduction

417

(1)

Commitments to Employees

418

(13)

The Context for Commitments

431

(2)

Commitments to Communities

433

(5)

International Considerations

438

Notes

440

APPENDIXES

Appendix A: Acquisition Process Overview

443

(14)

Appendix B: Sample "Assets" Checklist of Resources, Processes, and Responsibilities

457

(8)

Appendix C: Pairwise Comparison

465

(8)

Appendix D: Sample Integration Planning Process (as shown in Table 3-1)

473

(6)

Appendix E: Sample Press Releases

479

(12)

Appendix F: Screen Shots from an M&A Planning "Cockpit"

491

(14)

Appendix G: Baldrige Self-Analysis Worksheet for Quality Assessment (optional)

505

(4)

Index

509

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