The ABC’s of Merger Integration

1. The ABC’s of Merger Integration

2. Agenda • Merger Integration as a Competitive Advantage • The ABC’s of Merger Integration • Align the business model • Be quick • Culture is key to success • Define synergy targets • Execute the plan • Focus the organization

3. Many mergers fail to deliver the expected value Principal Challenges: How do you capture synergies … • Personnel reduction • Sourcing/purchasing • Facilities consolidation … while integrating • Systems • Customers • Management • Suppliers • Processes • Employees Integration facts: • Synergies not achieved in 70% of cases • Only 23% of cases earn their cost of capital • 47% of executives leave by end of year 1; 75% by year 3 • First 4 to 8 months productivity reduced by 50% and building a strategic platform … • New customer value proposition • New processes • New organization … without negatively impacting • Customers • Employees • Shareholders • Vendors/Suppliers • Financial performance Must integrate the acquisition and capture synergies while maintaining current business momentum and operating within FTC and EU constraints Source: Deloitte Consulting M&A survey (2000); DC analysis

4. Companies can create a competitive advantage by proactively developing an internal merger integration capability • Reduce M&A transaction lifecycle • The ability to complete and rapidly integrate transactions will allow companies to benefit from the acquisitions sooner. • The key to speed and synergy capture is a robust, proven approach that is well understood and supported by the management team. • Reduce M&A cost structure • A well-documented, widely understood, and repeatable process executed by trained resources reduces the organization’s dependency on outside advisors. • Strengthen credibility with key constituencies • Proven integration capability strengthens management’s case to the Board of Directors, rating agencies and the target and shows that the company has the ability to execute and deliver on transactions. • More effectively capture integration synergies • Strong correlation exists between an organization’s ability to effectively integrate and the extent to which their process has been defined and documented. Documented capability increases probability of success.

5. The ABC’s of Merger Integration

6. Align the business model of the new merged company to leverage strengths and meet customer requirements Blend of customer and functional/ separation of unique models Customer/market-focused Functional/product line Newco Newco Newco Mkt. A Mkt. B Mkt. C Mkt. D Mkt. E Prod. 1 Prod. 2 Prod. 3 Prod. 4 Prod. 5 Mkt. A Mkt. B Mkt. C Mkt. D Prod. 1 Prod. 2 Key Criteria • Establish clear roles and responsibilities for senior management • Provide incentives to talented management to show there is a place for them in the new organization • Avoid “lame duck” positions — catastrophic for building strong organizational buy-in • Develop senior level organization structure to establish clear ownership of synergy capture • Regardless of the model selected, incentives and accountabilities must be clear and must reward behavior Mergers create opportunities to make fundamental changes in the business model that support the strategic rationale of the deal

7. Be quick with your integration so you can get back to running your business • Define “end state”; develop a roadmap • Phase in small “30-day” chunks • Set tangible targets; measure performance; celebrate early wins • Manage priorities to focus organization Announcement Close Pre-Close Integration Pre-Close Integration 0 – 100 Days 100 – 200 Days n+ Days Integration Framework Rapidly Manage Capture Sustainable Value Reinvent “Win” “Win” “Win” “Win” “Win” Well-defined and managed integration process increases speed

8. Culture is key to success; eliminate uncertainty Commitment • “It is the right thing to do” • “We will succeed” EarlyEuphoria Adaptation Fear/Uncertainty • “Change is exciting” • “Our company is taking a bold step” • “The train is leaving, I better get on” • “It’s hard, but we can do it” • “What does this mean for me?” • “What are my priorities now?” Organization Momentum Paralysis Withdrawal • “I can’t act with all this uncertainty” • “My highest priority is to stay on top of the integration news” • “I’ll do what is necessary to survive” Departure • “This is not something I want to be a part of” Time Address culture and model behavior through day-to-day business events

9. Define synergy targets and set accountability for achieving them Category Duplication Avoidance Human Resources Created Savings Economies of Scale Operations Expenditure Avoidance Information Systems “Would not be available except for the merger” Operational Efficiency Logistics Prioritize Skill Transfer Product Development EnabledSavings Practices Adoption Technology Transfer “Potentially unlocked through the merger” Spans of Control Organizational Streamlining Work Reduction Activity Avoidance DevelopedSavings Performance Realignment Centralization “Could be accomplished absent the merger” Outsourcing Contractual Arrangements Best Practices Information Systems Capturing the full value of the deal requires a detailed assessment of the potential synergy opportunities

10. Example Execute the integration plan Rapidly stabilize and prep for Day One Capture sustainable value –5 Close –150 –120 –90 –60 –30 Day 1 +30 +360 +720 High- Level Milestones Phase 1 (Analysis) Phase 2 (Design and Build) Phase 3 (Implement) • Implement Newco organization • Implement performance metrics • Monitor Strategic Framework • Vision/mission • Integration approach • Operating model • Organizational design • Performance metrics L O C K D O W N • PMO setup • Workplan “close” • Staff teams • Manage execution of projects • Manage interdependencies • Implement FastTrack™ decision-making process • Monitor and coordinate all plans and resources • Report status, manage interdependencies and facilitate decision making • Track synergy progress Program Management • Design lockdown session • Validate/develop synergies • Prioritize synergies • Develop projects • Implement synergy projects • Track synergy capture • Capture 50% of synergies by T+360; 100% by T+720 • Launch select “clean teams” – design, prototype, select synergy areas ValueCapture Integration Disciplines • Define “must have” requirements & risk points • Prioritize • Develop projects • Prototype • Implement System 3 • Plan and implement long-term system and process changes • Certify Day One Readiness Organizational Preparedness • Launch select clean teams • Define business future state • Conduct baseline assessment • Develop migration plan • Develop organization plan Communications Change Management • Notify 100% of impacted employees by T+30 • Develop communications strategy & plan • Develop and coordinate internal and external messages • Develop transition tools and methods • Conduct transition training Regulatory/ Closing • HSR filings • Second requests • Proxy • Contingency planning • Shareholder approval • Deliberation • Close • Regulatory approval • Develop HR processes – payroll, benefits, etc. • Change of ownership and executive contracts • Detailed HR plan & selection process • Implement Human Resources RISC Review

11. Focus the organization on the integration Challenges Five Focus Areas Outcome How do you capture synergies … while integrating systems, processes … and building a strategic platform … without negatively impacting customers, financial performance … Control the integration • Gain control by installing rigorous toolset and process and making all organizational data transparent • Develop clear governance and PMO structure and processes • Clear accountability • Speedy integration 1 Capture synergies • Drive detailed bottoms up synergy estimates and focus on front-loading capture • High bar • Synergy capture on Day One 2 Plan for issue-free Day One • Identify and prioritize critical systems and processes that must be in place for Day 1 • Develop Day One Readiness requirements • Clear and focused priorities • Issue-free Day One 3 • Finalize organization design and transition • Define strategy/approach to for appropriate integration of business units and functions • Minimize disruption from workforce transition • Portfolio analysis • Workforce transition • Functional integration 4 Address culture immediately and communicate frequently • Proactively work to align leaders and individuals • Develop and deliver proactive communications • Management team alignment • Commitment at all levels • Workforce retention 5

12. Challenges to building a merger integration process • Merger integration must be viewed and accepted as a strategic business process • Develop a consistent approach and focus across all business units • Structure and discipline is needed to capture the full value of the transaction; synergies can be elusive • Recognize small isn’t necessarily easier, faster, or more successful • A formal, open process is needed to learn from our success and failures

13. Successful acquirers proactively develop their internal merger integration capability through an iterative process Knowledge and Capability Transfer Rollout Methodologyand Tools Learn by Doing Define End State Develop M&A Tools • Collaboratively define deliverables • Perform As-Is diagnostic to incorporate M&A activity to date • Define process considering deal challenges( • Structure PMO • Organize program and processes • Create support tools and protocols; Make specific • Develop education and knowledge transfer plan • Solicit review and comment • Ensure understanding of scope and identification of cross-functional issues • Create learning imperative • Identify barriers and enablers • Determine training and orientation requirements • Launch training and communications • Determine performance measurements • Follow process • Manage and drive discipline • Drive ownership to integration team s • Support teams and drive results • Monitor progress and capture learnings • Incorporate comments and feedback; be open to input • Share learning with integration team • Build a library of information for future use • Use lessons learned session to discuss process • Share information and learnings • Take action to educate and share Insight Emphasis was placed on “hands-on” learning and knowledge transfer.