Stefanowski Robert Making M

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.There must be revenue synergies, new markets, complementary products, or other capabilities that the buyer does not currently have.In addition, the deal team has to convince senior management that the best way to get these capabilities is by buying another company, rather than trying to develop them in-house.One large advantage of a buy strategy is that the acquisition begins to provide benefits immediately after the deal closes.(See Exhibit 5-1.) It takes most companies a longer time to try to build a market or product specialty in-house.With Wall Street’s increasing focus on quarterly earnings growth, it may makeDue Diligence: The External Side71E X H I B I T 5-1Buy versus BuildPros to BuyPros to BuildImmediate scaleCheaperImmediate incomeOne cultureNew skills acquiredFewer integration issuesCons to BuyCons to BuildPremium paidTakes timeIntegration issuesLose focus on coreCultural differencesExecution risksense to buy rather than build as long as the price of buying is not prohibitive.To make a decision, buyers will compare the premium required to purchase the business to the delay in earnings in trying to build it themselves.Operations/Information TechnologyThe operations area is a frequently overlooked, but very important, part of the due diligence process.Operations are the nuts and bolts of how the company will run after it is acquired.In some situations, functions at the target (payroll, tax services, legal, financial reporting, internal audit, and so on) may have been part of the target and therefore come over in the acquisition.However, in many cases, the target’s parent company (the seller) has performed many of these services on behalf of the target subsidiary.In these situations, the buyer needs to make plans for who will perform these services postclose to avert a significant disruption of the target’s business.M&A “war stories” abound about target personnel who don’t get paid until weeks after closing because no provision had been made for payroll services that had previously been provided by the target’s parent.A transition services agreement is normally negotiated between buyer and seller to help deal with these areas.This agreement stipulates that the sellers will continue to provide these basic services for a short period (usually 90 days), until the buyer has the chance to get all the employees, customers, and target data on to its72CHAPTER 5operating systems.In most cases, there is not enough time during due diligence for the buyer’s operations representative to fully analyze every one of the target’s operating systems and translate it to the buyer’s system.A transition services agreement gives the buyer time to make the transition over a logical period, while still getting the services provided by the former parent.A monthly fee will normally be paid to the seller throughout the term of this agreement.For purposes of due diligence, the operations representative will prepare an outline of the target’s existing systems and how they will interface with the buyer’s.A systems integration plan is developed, outlining a schedule and timeline for these systems to be converted.In some cases, the target’s system applications may actually be better than the buyer’s, so that the buyer’s data are integrated into the seller’s system.In either case, a logical and orderly plan must be developed to prevent any disruption to the normal operations or interface with customers.IntegrationIntegration can be the single most important and most often overlooked aspect of the due diligence process.In fact, integration teams historically have not even joined the deal team until contract signing, well after due diligence.Frequent acquirers are getting smarter and now are engaging a team of integration professionals that is embedded in the due diligence team.This allows the integration team to get a feel for the operations, people, and culture of the target, and to help it be more effective in its job if the deal closes.Many acquirers will now require a separate report on the integration plan and the issues to be faced as part of the board of directors deal approval discussion.Chapter 10 provides a detailed discussion of integration and the issues to be aware of.However, some main focuses in due diligence need to beI Target culture.Particularly in international deals, the corporate culture of the target may be very different from that of the buyer.Buyers need to be sensitive to these issues and adapt their approach accordingly.I Employee attitude.Is this acquisition viewed as a good thing by the target’s employees? Most people don’t like change, and the thought of being owned by a new parent company can be very unsettling.Frequent, open, and honest com-Due Diligence: The External Side73munication is the best way to put employees more at ease with their company’s new owners.I Integration plan.What steps will need to be accomplished to properly integrate the target into the parent company’s operations? How can/should employees be handled toprevent any unwanted attrition?I Unique deal issues.Integration professionals have a better understanding of and sensitivity to deal-specific issues if they have been part of the due diligence team.They are not hit with the deal cold once the contracts are signed.Rather, they have the perspective and time to consider various solutions to the inevitable problems that will arise once the contracts have been signed.CHAPTER 5 SUMMARY1.Relations with target management during due diligenceare tricky, but can be critical [ Pobierz całość w formacie PDF ]

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