Jan Christiaens, CFO Corporate Investments at Philips - Value creation by integrating in an effictive way newly acquired companies
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The document provides an overview of Philips' approach to acquisitions and post-merger integration. It discusses that 80% of M&A deals do not boost shareholder value due to poor integration. Integration is key to value creation by realizing synergies. The New Venture Integration team helps acquired companies integrate effectively by developing integration strategies and tracking integration metrics. Some lessons learned are that detailed planning before closing and retention of key talent are critical success factors.
Jan Christiaens, CFO Corporate Investments at Philips - Value creation by integrating in an effictive way newly acquired companies
- 1. Jan Christiaens Value Creation by Integrating in an effective way newly integrated companies. Philips Corporate Investments & New Venture Integration
- 2. Agenda • Introduction • Philips and its acquisitions • The New Venture Integration team • The M&A process and integration • Drivers of success • Objectives of integration • Key lessons learned • Monitoring and review • Q&A
- 3. Acquiring and integrating companies - the importance of doing it right Studies show that ~80% of M&A deals don´t boost shareholder value Daimler-Benz acquired Chrysler for $38 billion and seven years later sold it for only $7.5 billion Quaker Oats purchased Snapple for $1.7 billion and three years later sold it for $0.3 billion BHP Billiton spent $875 million pursuing three major deals that subsequently collapsed Integration is key to achieving value creation Acquiring companies tend to focus on which targets to pursue without a clear understanding of how to integrate them into their organizations Too often the transaction itself absorbs most of the company's energy: CEO and organization focus on consummating the deal, not on making it work Value is created not in the transaction itself but in successful implementation: Catastrophic failures are rare, but failing to realize the potential value of the merger is common
- 4. Philips: a strong diversified industrial group Who we are Our businesses Operating in >100 countries Founded in 1891 Headquartered in Amsterdam, The Netherlands 26% Sales of €22.6 billion in 2011 40% - 33% in Growth Markets 2011 - 65% in B2B - EBITA 7.4% of sales Globally recognized brand (world top 50) 34% Our brand value doubled to $8.7bn since 2004 Healthcare Growth Markets 122,000 employees Sales and service outlets in over 100 Lighting Western Europe countries Consumer Lifestyle North America €1.6 billion investment in R&D Other
- 5. Healthcare Philips Healthcare Businesses Geographies Imaging Home Patient Care Customer North Growth All Other Systems Healthcare and Clinical Services America Geographies Geographies Solutions Informatics 38% 14% 23% 25% 45% 22% 33% €8.9 37,000+ 8% 450+ Billion sales People employed of sales invested in R&D Products & services in 2011 worldwide in 100 countries in 2011 offered in over 100 countries
- 6. Consumer Lifestyle Philips Consumer Lifestyle Businesses1, 2 Geographies1 Personal Health & Domestic Lifestyle Mature Growth Care Wellness Appliances Entertainment Geographies Geographies 24% 14% 31% 29% 56% 44% €5.6 19,000+ 5% 27% Billion sales People employed of sales invested of green product in 2011 worldwide in R&D in 2011 sales in 2011
- 7. Lighting Philips Lighting Customer Segments1 Homes Offices Outdoor Industry Retail Hospitality Entertainment Healthcare Automotive 25% 15% 15% 8% 15% 4% 4% 3% 11% €7.6 52,000+ 5% 80,000+ Billion sales People employed of sales invested Products & services in 2011 worldwide in 60 countries in R&D in 2011 offered in 2011
- 8. Amsterdam: NVI global footprint 3x Program Manager 1x Project Assistant Eindhoven: Boston: 1x Head of NVI 3x Program 1x Assistant Manager 2x F&A Expert 1x HR Lead Seattle: 1x Communications Business Partner 1x IT Business 1x Procurement Business Partner Partner Shanghai: 1x Program Manager Delhi: 1x Program Manager Healthcare Lighting Consumer lifestyle Emerging Markets
- 9. M&A process & NVI Involvement Deal Financials & Data & Acquisition Metrics M&A Process Preliminary Due Strategy -> Diligence Integration & Negotiate Definitive Due Diligence & Valuation Closing & Post- Target Transaction Letter of Merger Screening & Negotiate Final Closing Identification Intent Full Due Diligence Deal Preparation Integration Build Initial Valuation Project Intake Non-Binding Term Sheet Binding Transfer of Post-Close Form Offer Offer & Ownership / RFA (Start NVI RFA Start Closing Validation Involvement) document • Early involvement PMI in planning/business case & synergy definitions & validation • Sales & Standalone numbers ownership/Assigning ownership during pre-close • RFA (Request For Approval) business case benchmark
- 10. Post Merger Integration Metrics, Tracking and Feedback loops PMI Metrics & Tracking PMI Process Executing Post-Merger Integration Closing & PMI Capture Lessons Close PMI Post-Calculation Kick-Off Tracking & Learned PMI Integration Audit Reporting Start Detailed PMI Integration Post-Close Post-Close PMI planning performance Audit 12- RFA Value Tracking 24mths Validation Calculation • After sign/close Go in and validate: • Synergies • Restricted Areas; R&D pipeline/Customer/Prices etc • Unknowns; auctions/listed • Conclusion: is our original case still alive or does it need adjusting? • Share/discuss PMI assumptions with the target! • PMI Metrics: everything we consistently check & measure in relation to the PMI Results and Approach
- 11. Drivers of successful post-merger integration* *MARC J. EPSTEIN – “Organizational Dynamics” • Coherent integration strategy • Strong integration team • Communication • Speed in implementation • Aligned measurement 11
- 12. Five steps towards successful integration Overall objective Deliverables before close • Integration objectives aligned with acquisition Integration rationale strategy • Translation of integration objectives in prioritized initiatives/workstreams and targets • Business leadership team in place and embedded in Successful Organization and key Philips organization person retention/ integration succession • Key integration team roles identified • Retention/ succession plan in place Cultural integration • Change management plan in place based on culture Value creation of and change mgmt / assessment combined • Communication plan in place communication company exceeds what both parts • Day 1 plan in place Detailed could achieve as • Detailed plan per workstream, including planning responsibilities, milestones, targets and key actions independent firms Execution and • Kick-off fully prepared tracking • Tracking and monitoring tools and process in place
- 13. Objectives when integrating companies - create value by realizing synergies, ensuring that: People Employees are constantly informed, motivated and feel part of our company The right leadership is put in place Key talent remains with the business to protect company-specific knowledge Business goals Best practices from both companies are shared before choosing which ones to follow The new company is provided with all necessary tools to perform Goals are set early, properly tracked and fully achieved The new business incorporates Philips’ global general principles
- 14. Key lessons learned • It is difficult to compensate for stand alone delay via synergies • Cross selling in a global company is time and resource consuming and we must account for regulatory approvals, adaptation of product specifications/ documentation, sales resources, sales training • Detailed integration planning before closing makes it possible to take advantage of excitement immediately after the deal closes to build momentum • Retention of (key) people is a critical success factor, especially in small businesses and solution focused businesses • Injecting our people into newly acquired companies soon after close can significantly improve employee engagement, communication and cultural integration • Cultural integration and communication continue to be critical success factors
- 15. High level PMI Cascading reporting structure Reporting mechanism Report to Frequency Discussion Topics Tracking tool workstream • Overview milestones management • Tasks Continuous • Synergies /PMI leadership • Issue recognition and resolution Progress reporting • Financial performance target Steering – Including synergies and project costs Monthly • Milestone reporting Committee • Key issue resolution • Financial performance target BBSC – Inc. synergies and project costs • Progress report Philips ExCo Monthly • People retention • Customer satisfaction (NPS) • Link to Original Business Case/RFA
- 16. From Charter to Project Tracker Workstream Project Charter Workstream: IT Applications (SBO+ suite) Integration Project: Philips Saudi Arabia Joint Venture Workstream Project Objectives and Workstream Project Scope and Approach Goals Provide and implement IT Applications for new KSA In Scope: JV legal entity CS (Call Mgmt, Long Term Planning, IB Mgmt, CSA Mgmt, FCO * create SBO+ instance for new KSA JV Mgmt, Logistics, Warehouse Management, Procurement, Field * roll out satellite tools of SBO+ suite for new KSA JV in activities, training, invoicing) harmonized set up (according to blueprint) Supply Chain (Logistics, Warehouse Management, Procurement * train new organization in ORP, CS and F&A blueprint factory&third party, processes Project Management) * train key users in SBO ways of working covering OAP, Pricing, fiscal ORP, CS and F&A F&A responsibilities: Equipment Invoicing, Credit check, * test tooling prior to go live * provide post go live support OoS: HHS Project Plan Index Activity (From Must Do List) Finish By Date Done Owner Milestone / Deliverable Define Gaps and solutions KSA blueprinted week 48 Busines clearly defined gaps and pro po sed 1 so lutio ns 2 Create KSA instance in SBO+ week 49 s team IT new instance in SB O+ 3 Create KSA developments in SBO+ week 6 IT new develo pments in new instance 4 User Training week 9 Busines signed o ff training fo r key users UAT/ 2nd training week 12 Busines signed o ff UA T and retraining fo r key 5 users 6 Upload masterdata to production system week 13 s team IT migratio n o f clean master data 7 Go-live of SAPBO week 14 ALL system live to enable o peratio nal suppo rt Unique ID Milestone Task Description Task Start date Duration Finish Original % Planned Accountable (days) date Finish Complete Completio (frozen) n % (vs frozen finish) RD2 Impl ement Desi gn Control s Complete Gap Analysis Vacheron 28-Mar-11 Determine w hich existing Dameca process documents can be used or modif ied 39 6-May-11 6-May-11 100% 100% RD3 Impl ement Desi gn Control s Modify RICA Design Control Documents Correct documentation w here appropriate Vacheron 9-May-11 14 23-May-11 23-May-11 100% 100% RD4 Impl ement Desi gn Control s Review Design Control Documents Review updated documents and overall design Vacheron control implementation24-May-11 24 17-Jun-11 17-Jun-11 100% 100% RD5 Impl ement Desi gn Control s Release Design Control Documents Formally put processes in place Molberg 20-Jun-11 2 22-Jun-11 22-Jun-11 100% 100% RD7 Si esta I TS Desi gn Control Documents Create Initial Documents Create initial drafts of DDP, UN, DID, SHA, and FMECA Molberg 2-Jun-11 13 15-Jun-11 15-Jun-11 100% 100% RD8 Si esta I TS Desi gn Control Documents Review Initial Documents Correct documentation where appropriate Molberg 15-Jun-11 6 21-Jun-11 15-Aug-11 100% 100% RD9 Si esta I TS Desi gn Control Documents Release Documents Formally release DDP, UN, DID Molberg 21-Jun-11 2 23-Jun-11 17-Aug-11 100% 100% RD10 Si esta I TS Desi gn Control Documents Create FMECA & SHA RMA Improve details of FMECA & SHA QA manager 23-Jun-11 21 14-Jul-11 19-Aug-11 100% 100% Translate Action Plan to RD11 Si esta I TS Desi gn Control Documents Review FMECA & SHA RMA Correct documentation where appropriate QA manager 13-Jul-11 7 20-Jul-11 26-Aug-11 100% 100% RD12 Si esta I TS Desi gn Control Documents Release FMECA & SHA RMA Formally release FMECA & SHA QA manager 20-Jul-11 2 22-Jul-11 31-Aug-11 100% 100% RD14 Si esta i TS 510K functi onal changes Complete Final Changes List Agreement on final list between Marketing (Walter and RICA) and R&D Huehn 12-Apr-11 34 16-May-11 16-May-11 100% 100% RD15 Si esta i TS 510K functi onal changes Modify Design Documentation Re-design components and update drawings Molberg 16-May-11 137 30-Sep-11 30-Sep-11 100% 100% RD16 Si esta i TS 510K functi onal changes Working Prototype Available in RICA Working prototype delivered to RICA for evaluation Molberg 17-May-11 92 17-Aug-11 17-Aug-11 100% 100% Project tracking Si esta i TS 510K functi onal changes 14 31-Aug-11 100% 100% Charter to RD17 Final Prototype Input RICA marketing provides feedback for working prototype Vacheron 17-Aug-11 31-Aug-11 RD18 Si esta i TS 510K functi onal changes Update Design Documentation Re-design components and update drawings based on RICA marketing feedback Molberg 31-Aug-11 30 30-Sep-11 30-Sep-11 100% 100% RD19A Si esta i TS 510K functi onal changes First 2 Working Models Complete assembly of 10 working models (production equivalent) JC Pedersen 31-Aug-11 75 14-Nov-11 14-Nov-11 100% 100% RD19B Si esta i TS 510K functi onal changes 10 Working Models Complete assembly of 10 working models (production equivalent) JC Pedersen 31-Aug-11 200 18-Mar-12 15-Mar-12 100% 100% RD21 Veri fi cati on Testi ng Gap Analysis Identify testing necessary to complete 510K submission Battiste 28-Mar-11 119 25-Jul-11 31-Aug-11 100% 100% RD22 Veri fi cati on Testi ng Create Verification Protocols Create drafts of verification protocols Molberg 25-Jul-11 203 13-Feb-12 13-Feb-12 100% 100% Action plan RD23 RD24 RD26 RD27 RD29 Veri fi cati on Testi ng Veri fi cati on Testi ng El ectri cal Veri fi cati on Testi ng El ectri cal Veri fi cati on Testi ng Bi ocompati bi l i ty Testi ng Review Verification Protocols Release Verification Protocols EMC Electrical Safety VOC Correct documentation where appropriate Formally release verification protocols Molberg Molberg Complete EMC testing at an outside laboratoryMolberg Complete Electrical Safety testing at an outside laboratory Complete Volatile Organic Compound testing Molberg Molberg 1-Jan-12 8-Jan-12 15-Nov-11 14-Dec-11 15-Dec-11 48 43 136 184 198 18-Feb-12 20-Feb-12 30-Mar-12 15-Jun-12 30-Jun-12 18-Feb-12 20-Feb-12 30-Mar-12 30-Mar-12 7-Apr-12 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% & Metrics
- 17. PMI Project Tracking & Management 17
- 18. Regularly (monthly) reporting per Workstream Workstream Lead: Date Status is stable On target Overall status: Status is improving Slightly behind Status is deteriorating Significantly delayed Milestones/Key Activities current period: Milestones/Key Activities next period: Major issues/risks - issues or risks that will impact upon your project Description of issue/risk: Action Owner:
- 19. Employee Engagement: Pulse Survey Process • The Pulse Survey is a tool to provide employees of acquired organizations the opportunity to share their feedback regarding the integration • This feedback is used during the integration process to make changes to the approach where needed • The Pulse Survey measures: • Future/Vision/Trust • Inclusion and Team Work • Communication • Employee Engagement score 19 Ultimately it’s not the score that counts but the 2 way dialogue with Employees! 19
- 20. Integration Audit • All acquired companies go through a Corporate Integration audit after 9-18mths after close • Depending on the business size the audit takes 1-4 weeks and will: • Assess the efficiency and effectiveness of the key business processes of the acquired business • Do a risk assessment along with Management in order to short-list the high risk, critical processes • Perform an in-depth process review of some of the high risk processes. Audit Example: • Each observation is given a 1-3 star rating indicating criticality • Target & PMI team need to address all items within a 6 month window • Key leanings from Integration audits are fed back into PMI approach 20
- 21. Closing the PMI phase Example closing report: • Conditions to close PMI: 1. Due Diligence Risks 2. Project Planning 3. Project Planning changes 4. Corporate Internal Audit 5. Other compliancy issues 6. Synergies 7. Lessons Learned 8. Transfer to operation
- 22. Post-Calc Post Calculation: • After PMI close Corporate Controls audits the results • Audits focus on 3 areas: • Stand alone • Synergy realization • Strategic rationale and fit • Original Value Creation compared to new Value creation case & outlook
- 23. Food for thought… Value Creation: • Which companies measure value creation consistently? • How do you know what the ‘score’ is? Metrics vs KPI’s: A Key Performance Indicator is a Metric that helps the business know if things are on track or if something is about to change. How many KPI vs Metrics do you have? How many are truly leading/forward looking indicators?
- 24. Questions?
- 25. … and these roles and responsibilities in the integration execution phase Annex 1 Teams Project roles Key responsibilities • Key decision making strategy Integrat Integration • Project resource management • Steering committee ion steering – Incl. NVI member committee • Business integration leader (Philips) • Daily project management Integrati • Overall decision making manage Integration project • Integration manager (target) ment on management • Program manager (NVI) • Report to Steering Committee team • Project Office • Implement workstream plans • Workstream leaders (Philips + target) Functional • Report to integration management integrati Busines process • Functional experts (e.g. NVI, country or workstreams team on s sector function) Country teams • Project and/or Country manager Communication Communications • Implement communication plan and (in scope of HR workstream) support workstreams team Culture & change Culture team • Implement culture & change management (in scope of HR workstream) management plan & support workstreams
- 26. NVI supports the acquisition process from the beginning with… Annex 2 Acquisition rationale Set integration • 'Why we do the deal' objectives and translate (defined in the M&A into initiatives Prioritization of process) • Core integration initiatives and high level objectives to realize planning value creation potential Build detailed planning/ • Verify initiatives and • First view on initiatives milestones and tasks prioritize to meet the integration • Verify risks during due objectives (business • Plan initiatives in detail diligence and identify Implement and track initiatives and key (workstreams), mitigating actions enablers/ must-do's) including • Build high level • Build first view on key responsibilities, tasks, • Implement workstream planning including risks milestones, tracking plans and monitor responsibilities, • Prepare for due etc. milestones and KPIs of planned value creation diligence • Build day 1 plan initiatives and project costs Establish structure Planning Detailed planning Implementation Due diligence Non-binding RFA Binding RFA Deal close
- 27. New Venture Integration Annex 3 - roles and responsibilities • Work closely with the Business and Mergers & Acquisitions to effectively realize the value from acquisitions • Lead the preparation of an overall integration plan • Link the integration process and priorities to the strategic rationale and the size/ maturity of Roles & the acquired company Responsibilities • Organize the timely introduction of functional processes and expertise • Build and maintain a competence center by capturing, learning, sharing and developing know- how, standardized tools and metrics on acquisition integration • Track progress and report to Sector / Business Management, ExCo, Supervisory Board • Acquiring Business • Acquired Company Main Stakeholders • Sector / Business Mgt • ExCo, Supervisory Board, Audit Committee • Corporate Functions • M&A