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Organizational Learning Approaches

to Mergers & Acquisitions


New Horizons Research Conference:
George Washington University
October 8-9, 2010

Jim Sanders, ELP IV


Director, 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

Integration is Key Element in Determining


Acquisition Success
Sources of deal error

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

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 actionperformance 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


Learning

Build 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 types


of 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

Integration Models- The GE Pathfinder


Model

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 FIDESS Framework


FIDESS: Focus, Innovation ,Discipline, Excellence, Speed,
and Simplicity

Lessons Learned About Integrating Acquisitions, by J. Vester, 2002, Research Technology


Management, 45(3), p. 34. 2002

Benchmarking Best Practices


Three issues that drive integration success:
1.
corporate culture
2.
use of a full-time integration leader
3.
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

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