Merger & Acquisition Integration Methodology

1. Merger & AcquisitionIntegration Methodology An Overview of the Fundamentals of Merger Integration

2. Agenda • Objectives • Predictable Dynamics of Mergers & Acquisitions • Business & Integration Strategy • Roles & Responsibilities • Results of Initial Comparative Business Analysis • Integration Challenges • Integration Planning Methodology • Major Milestones • Communication Process • Questions

3. Objectives Today • Understand the Predictable Dynamics of Mergers & Acquisitions • Understand the Integration Strategy • Review Roles & Responsibilities • Overview of Merger Integration Methodology • Establish & communicate major milestones

4. Understanding Counter-Intuitive Moves They Help You Avoid theMost Common Mistakes Managers Make During Merger

5. Predictable Dynamics For Individuals • the Psychological Shockwaves For the Organization • the Growing Pains

6. What to Expect - The “Psychological Shockwaves” No Matter How Exciting the Merger Is … Expect a Sense of Loss The sense of loss triggers three emotional stages : Stage 1: Shock and Numbness Stage 2: Suffering Stage 3: Resolution :

7. Emotional Roller Coaster   Anxiety Excitement Enthusiasm   Anticipation Hope Relief Concern Fear Disappointment  Sense of Loss - triggered by announcement of deal, organizational structure, relocation, new boss, loss of compensation and benefits, etc. Stage One : Shock and Numbness Stage Two : Suffering Stage Three : Resolution       

8. Staggered Experiences Beginning of End of Transition Transition Resolution Suffering Shock & Numbness Executives Managers Employees TIME

9. The Three Emotional Stages • What stage are you in? • What stage are your people in? • How will you manage them through the Emotional Roller Coaster? • Develop an Action Plan for Managing Through to Resolution.

10. The “Psychological Shockwaves” No Matter How Competent People Are… Expect an Increase in Uncertainty and Ambiguity. No Matter How Well the Merger Is Planned and Executed, Expect the Loss, Uncertainty, and Ambiguity to Lead to a... Deterioration of Trust. Expect the Deterioration of Trust and the Ambiguity to Lead to… Self-Preservation.

11. MErger

12. Organizational“Growing Pains” • Communication Tangles • Productivity Drop • Loss of Team Play • Power Struggles • Lower Morale, Weak Commitment • Bailouts

13. Three Merger Pressure Points Communications Resistance Productivity

14. Ten Reasons Why Extra Communication Efforts Are Necessary 1. More questions than answers. 2. Rumor mill cranks at E-speed. 3. The truth is a moving target. 4. New and different information routes. 5. Confusion over whom to include. 6. Skepticism and lack of trust. 7. Desire for more information and better answers. 8. Less willing to commit to decisions. 9. More is happening. 10. Messages get “slicked up.”

15. Communication Guidelines • Silence is a major sin. • Over-communicate. • All communications should be two-way. • Explain the reasons for the change. • Communicate in mass. • Tell the full truth (good, bad, and ugly). • Tell people early…as soon as possible. • Tell people when you don’t know. • Don’t make any promises that you aren’t 100% certain that you can keep. • Magnetize yourself to bad news. • Don’t extemporize.

16. Communications Matrix Employees Senior Leaders Remote Employees Customers Contractors Vendors Investors

17. Communication Checklist • Did I give it to them straight - the good, the bad, and the ugly? • Did I tell them “why” before “how” or “what”? • Did I check for understanding? • Did I ask for feedback? • Do they need to hear the message again? ü

18. Three Merger Pressure Points Communications Resistance Productivity

19. Merger Productivity Curve

20. Productivity Coaching Points • Reprioritize. • Focus on short term results. • Exploit instability. • Engineer some early wins. • Push through the yield point. • Evaluate Capability and Commitment

21. Morale Trust Loyalty Stress levels Job satisfaction Productivity Quality Market share Stock price Customer satisfaction Actions versus planned integration objectives Measure Progress Wrong Right

22. Three Merger Pressure Points Resistance Communication Productivity

23. The Two Guarantees of Change Guarantee 1: During merger integration, there will be change. Guarantee 2: There will be resistance to change.

24. Sometimes People Resist Merger-Related Changes for Reasons They Personally ... • Cannot Articulate • Do Not Really Understand Themselves • Will Not Level With You About What is your action for finding resistance within your team?

25. Eight Reasons Why People Resist 1. Misperception of the situation. 2. Low tolerance for ambiguity. 3. Lack of self-confidence. 4. New standards of performance. 5. Can’t see the benefits. 6. Stand to lose more than they gain. 7. Displaced feelings. 8. Believe change is wrong or bad.

26. Resistance Dynamics Leadership Not Believing Performance Management Training Not Able Not Willing Not Knowing What Communication

27. Three Categories of Behavior Design Change Agents Default Fence Sitters Defiance Rabble Rousers

28. Where Do Your People Fall in These Categories? Place the initials of the individuals on your team in the box that you feel best represents where they are. Design Default Defiance

29. The 20-50-30 Rule Design 20% Default 50% Defiance 30%

30. Helping Someone“Move through Resistance” • What change are they resisting? • Why are they resisting? • What actions can you take to overcome the resistance? • What effect will taking the action have on individual and team performance?

31. Re-Recruitment

32. Re-Recruitingthe Keepers • Acquired firms, on the average, lose 4 out of 10 managers during the first 24 months of a merger. • That turnover rate is 3 times the rate found in organizations that are not involved in a merger. • What would the economic impact be of losing one or two of your key members?

33. Re-Recruitment Guidelines 1. Operate from the premise that everybody is considering other employment. 2. Identify your key people.. 3. Make the target person feel special, not taken for granted. 4. Keep communication lines open and active. 5. Take the person into your confidence, asking for his or her ideas or opinions. 6. Try to give the individual a key role, a special assignment that makes it clear that he or she is a highly-valued individual. 7. Understand what motivates your people individually and as a part of your team. 8. Consider giving a raise, a higher ranking title, or a “stay” bonus. 9. Above all, don’t assume people are planning to stick with you just because they’re not talking about leaving.

34. Example of a Re-Recruitment Matrix People and Groups Cost to Replace Re-Recruitment Actions Impact of Loss Assistance Motivators Timing Priority Status Delay would cost $295K/ month, $20K recruiting fees Loss of R&D knowledge--delay of product release FTJ is consider-ing the offer Promote to Chief Technologist, salary adjustment, purchase new test equipment FTJ, Lab 1 Freedom, access to lab equipment, responsibility KWL 31-Jan Manager Migration of database to XNS system would be delayed Delay would cost $65K/ month, $15K recruiting fees 3 Stay bonus at 90 days, lunch w/ CEO RKC, Database Specialist Money, Access to top mgmt. DRD 15-Feb In start up phase Would demoralize sales team, account mgrs. would follow Recognition, security, ego 2 $20K and $10K/ acct. mgr. recruiting fees, $100K/mo. new sales In nego-tiation with DLC, looks promising Meeting w/ LG, recognize at company meeting DLC, Sales Manager 7-Feb LFG

35. Business & Integration Strategy

36. Understanding the Deal 4 S’s • Strategy for the deal • Synergy for the companies • Structure of the deal • Steps for integration

37. Business & Integration Strategy • Acquisition Process-where are we? • Business Strategy for the Merger • Integration Strategy/Milestones • Integration Infrastructure

38. Acquisition Process Negotiation/Agreement Due Diligence Integration Planning Integration Announcement Planning Agreement Announcement Regulatory Approval Close

39. Business Strategy for the Merger • Why did we buy this company? • What is the strategic business objective? • What strengths do they have?

40. Synergy for the Deal • Business Goals for the deal • Time Frame to reach goals • Opportunities, Constraints, or Risks

41. Structure of the Deal • The Rescue • The Collaboration • The Contested Situation • The Raid • Various Types of Consideration • Cash • Stock • Combination

42. Structure of the Deal • Describe the structure of the deal • Understand the perceptions of the market of the deal • Understand the target company’s perception of the deal • Consciously target communication to match the structure of the deal

43. Integration Strategy for the Deal 1. The acquired company is a stand-alone entity with no change in strategy. 2. The acquired company is left as a stand-alone entity, but with significant change in strategy or structure. 3. The acquired company’s support functions are partially integrated in to the acquiring company. 4. The acquired company’s operations are partially integrated into the acquiring company’s operations. 5. The acquired company is totally integrated into the acquiring company.

44. Integration Strategy/Milestones • What Level of Integration? • What functions are to be integrated? • What functions are to be left alone? • What are the major milestones for integration? • What has been determined so far with regards to integration? (Headquarters location, sales offices..)

45. Integration Infrastructure • Executive Board or Management • Steering Committee • Integration Team • Task Forces • Sub Teams • Implementation Teams

46. Product Integration Dave Klinder, Beasley Hopkins, Hans Schmidt, Mike Thompson Sales & Marketing Jill Conroy, Paulo Gunsallas, Bob Foley, Bert Mender Information Systems Mike McFarland, Tori Stillman, Jason Motley, Rupert Potter Finance Michael Dean, Harry Gorman, Amber Short Communications M. Daniels, P. Parsons, M. Shelton, J. Gonzales, S.Napolis Human Resources Sally Anderson, Alex Mitchell, Joan Jacobson, Amy Baker Technical Support Pete Fanet, Prakash Patil Product Development eCommerce & Web Site James Davis, Elizabeth Crowley INTEGRATION PROJECT TEAM STRUCTURE STEERING COMMITTEE Hank Russell*, Peter Murphy, Bruce Davidson INTEGRATION TEAM Rafael Floyd*, Barb Baker, Phil Demtri, Brian Connelly

47. Roles & Responsibilities • Steering Committee • Hank Russell, Peter Murphy, Bruce Davidson • Responsibilities: • Oversight role for the entire merger integration process • Provide sponsorship • Make strategic decisions • Approve integration plans • Elevate issues to Board if required

48. Roles & Responsibilities • Integration Team • Rafael Floyd, Barb Baker, Phil Demtri, Brian Connelly • Responsibilities: • Coordination of the integration process • Instill Project Management Disciplines • Monitor Integration Progress against milestones • Assigning resources • Resolving integration issues • Approving integration plans

49. Roles & Responsibilities • Task Forces • Responsibilities: • Leaders facilitate the work of the group • Perform analysis of organizations • Identify priority initiatives • Develop detailed work plans • Coordinate work with other task forces

50. Roles & Responsibilities • Sub Teams • Responsibilities: • Work with Task Force on priority initiatives • Conduct additional research & analysis for integration • Prepare detailed project plan