Business Intelligence

Surviving a merger: Don’t think it can’t happen to you!

Posted on Sunday, 19 August 2007. Filed under: Business Intelligence, Commentary, Mergers, Personal Planning for Mergers |

[Note:  further information on surviving a merger can be found in my other blog:  www.survivingmergers.com]

On 7 August, Management-Issues had an article based on the final chapter of our book (Intelligent M&A:  Navigating the Mergers and Acquisitions Minefield).  That chapter, entitled ‘How to Survive a Merger’ provides a number of strategies and tips on how to increase your chances of being retained in a company that has just merged, acquired, or been acquired. 

The Management-Issues article was also entitled ‘How to survive a merger’;  it concluded with a reminder about a particularly critical point, as advised by one of their thought leaders, Patricia Soldati.  She’s put together a list of the top 10 smart ways to get ahead of ‘the corporate curve ball’, as she called it.  The one noted in the article (and the first of her list of ten) was:  ‘Don’t think it can’t happen to you.’  Said another way, that’s why everyone’s at risk, even the high performers.

During a merger or acquisition integration, all too often the decisions about who to retain and who to make redundant are made on political grounds or with an appalling lack of due diligence and ‘intelligence gathering’ on the part of those responsible for the hire/fire decisions.  Even the top performers should be concerned that they may not be part of the post-merger organisation.  Or perhaps especially, as they are high profile, likely to be highly paid (at least relative to many others in the organisation), and all too often difficult to manage.

P.S.  Please do check out the blog noted above (Management-Issues);  when you get there, type ‘mergers’ into their search engine and you will find a number of very useful articles on M&A topics, especially in the career and talent development areas.

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ABN AMRO directors demonstrate well how to survive a merger

Posted on Friday, 10 August 2007. Filed under: Business Intelligence, Commentary, Mergers, Personal Planning for Mergers |

Christmas may be over four months away, but if ABN AMRO is acquired by Barclays or the RBS consortium, it looks as if the current members of the ABN AMRO board will be able to place better Christmas presents under the tree this year. 

As reported in The Times on 2 August 2007 (see the full article online here at TimesOnLine), if the Barclay’s bid goes through, the ABN AMRO supervisory board chairman, would see his pay increase from €113,000 (£76,000) a year to as much as £750,000 if he become chairman of the enlarged group.  This is the level of compensation of Marcus Agius, Barclays’ present chairman. The Scottish bank doesn’t pay it’s chairman as well, by-the-way, as Sir Tom McKillop, the chairman of RBS since April 2006, receives a basic salary of £471,000.  [Note on the foreign exchange:  to translate the pounds into dollars, just double the pound amount.]

It’s not just the Chairman of the Board who benefits.  ABN AMRO’s finance director would get £600,000 a year should he become chief administrative officer at the new company (up from about £444,000 at ABN AMRO) and would be eligible for a maximum bonus of £1.5 million next year (and a minimum of £600,000, not including other benefits such as a company car).  According to the regulatory filings sourced by The Times for their story, the six ABN AMRO supervisory board members expected to join Barclays’ board if the bank wins control of ABN AMRO would see their pay jump from between €40,000 and €70,000 a year to between £76,000 and £200,000.

Although this appears to be a conflict of interest that would lead those directors to prefer the Barclays bid, The Times also made the following point about the RBS bid: 

‘Sources … pointed out that RBS’s higher cash offer would give ABN’s board members a more immediate financial boost, based on their share options in the Dutch bank, than the salaries on the table at Barclays.’

In my earlier blog posting in June on Surviving a Merger, we questioned whether the ABN AMRO directors would be adding post-merger compensation agreements to their employment contracts.  In this case, they probably didn’t need to re-write their contracts, but rather knew that the deal — no matter which bidding bank won — would result in large increases in their personal wealth.  As we noted in that blog, ‘not a bad deal if you can get it.’ 

This is just one more example of the personal planning that goes into surviving an acquisition and the application of good intelligence:  in this case, doing the due diligence to determine how the acquirer’s board was compensated and then negotiating to keep the terms of the acquirer, not the target (despite one stated goal of the deal being to reduce expenses). 

Such compensation increases need not be limited to board members.  Intelligence can be gathered about positions at just about every level in the two merging companies before any deal is consummated.  Such information is essential to have BEFORE making a decision whether to stay or take a redundancy package.

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Harry Potter and the ABN AMRO takeover battle

Posted on Wednesday, 1 August 2007. Filed under: Business Intelligence, Commentary, Mergers |

I expect that not many of the readers of this weblog were up at 5:30am on 30 July watching World Business Report on the BBC (or it’s rebroadcasts in the UK later that morning and globally on BBC World).  So you did miss my discussion on the ABN AMRO takeover battle.

Later that morning, ABN AMRO’s board was to decide whether it would continue to recommend the Barclay’s offer over the RBS (Royal Bank of Scotland) consortium’s offer.  The RBS team (which included Banco Santander of Spain and Fortis of Belgium) still had the higher offer, despite Barclay’s attempts over the prior days to sweeten their offer.

But back to Harry Potter.  I did say on the air that it was likely that the ABN board would hedge their bets and provide no recommendation — that is, letting the shareholders decide without guidance from them.  Here’s where the Harry Potter reference occurs:  ‘No longer can the ABN AMRO board consider the RBS consortium as the Death Eaters from the Harry Potter books, and Barclays as The Order of the Phoenix good guys.  They must consider both to be equally satisfactory acquirers.’

The BBC presenter, Sally Bundock, didn’t miss a beat when she responded with the question, ‘Well, I guess that means that it isn’t going to be a Fight to the Death.’ 

Hopefully, the interchange did wake some people up who were otherwise not paying attention to the business news.

But on a totally serious note, this decision by the ABN board was not without precident.  Just remember the Manchester United board who had done everything they could to stop Malcolm Glazer from purchasing the team, but since his offer had been so attractive, they couldn’t in all fairness tell shareholders that they should reject the offer.   So the Manchester United board reluctantly stood on the fence in 2005, just as the ABN board did on Monday.

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Value for money: M&A fee income related to business intelligence

Posted on Tuesday, 3 July 2007. Filed under: Business Intelligence, Commentary, Mergers |

It was difficult to miss the headlines last week about fee income for M&A deals.  The Financial Times reported that the advisory fees paid to investment bankers was $10.7 billion for the first six months of the year.  This is 20% higher than last year’s first six months.  Not surprising, either, given the deal volumes also running.  For comparison, note that the low point in this millenium was in 2003 when the first half of the year yielded ‘only’ $3.0 billion in M&A fees. 

 There’s been talk of pressure on the amount that dealmakers can bill for deals, especially as the deals get larger.  This appears to be true, as the value of deals has increased by 50% this year (first half 2007 vs first half 2006:  $2.8 trillion vs $1.4 trillion).  But this is as much as case of their being more mega-deals, where the fee level is smaller as a percentage of the deal.  Note that the total fees earned by investment banks in the first half of the year is just under 0.4% of the announced deals.

The value for money comes in what is provided by the investment banks in this advisory work.  We’ve been addressing ‘business intelligence’ in this weblog, and would suggest that this could be something that companies seek more from their advisors, often from consultants other than the investment banks:

Despite their expense,studies conducted at Cass Business School have shown that the inclusion of a financial advisor is good for buyers because the advisors increase shareholder wealth by finding bidders or targets with greater value, providing advice on premiums, identifying liability concerns (including demonstrating to shareholders that they did the most they could to achieve the best deal for the shareholders), providing local knowledge in the increasingly complex cross-border deals and because of their competence demonstrate a higher probability of deal successful completion.

Each of the advisors can play an important intelligence role, although often each advisor’s actual role is limited to their traditional functions.  Accountants check and produce the numbers, but if asked, can provide important information about the industry and other companies in the market.  Investment banks may drive the overall process and be responsible for the valuation, pricing, and negotiation, but are also important reservoirs of information about the market, and competitors.  They have Chinese walls that operate to keep information from one deal being used on another, but the general experience of the senior investment bankers themselves is often enough to provide a client with information that otherwise could not be obtained.

Both large, global consultants and small boutique advisors are renowned for their ability to seek out non-public information about client and customers.  There is a demonstrated willingness of employees, suppliers, and clients to provide information for no other reason than having been asked.  Often it is difficult for a company to ask this information directly, because they would need to identify who is asking.  Consultants, on the other hand, do not need to disclose their clients unless asked – and frequently are just not asked!  Why people are so willing to divulge confidential information to experts is not always clear, but what is clear is that many will do so for no other reason than that someone has asked them.

Some specialist consultants focus specificially on due diligence work and intelligence gathering.  One or several steps up from the detectives made popular by Hollywood, these consultants can be masters at finding information that is otherwise difficult to obtain.  Although there are those that operate on the wrong side of generally acceptable ethical and moral principals (granting that these may differ by culture, country, and individual), there is also much that can be done for targets or bidders by these investigative firms on the totally right side of the law.  Selection of such consultants is therefore a key factor in successfully obtaining the information required.

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More on the need for Scenario Planning

Posted on Monday, 11 June 2007. Filed under: Business Intelligence, Commentary, Mergers, Scenario Planning |

I’ve received a lot of e-mail traffic on the topic of scenario planning and the M&A process — and some postings on this blog — with much of the discussion focussed on the agreement that use of this technique (originally from the military) would yield better results for M&A practitioners.  Please see the earlier posting on this topic (M&A Frenzy and the Need for Scenario Planning). There are also some excellent websites (shown in the Blogroll at the bottom of this page) which cover this topic well in other fields.

This need not be done in the traditional sense of ‘scenario planning’ which is relatively formulaic.  Think perhaps about the following:

Because humans find it difficult to calculate probability rationally, a company’s intelligence function can use the power of the bookmaker.  Daymon Runyan, paraphrasing Ecclesiastes, said that ‘The race might not be to the swift, nor the battle to the strong but that’s where the smart money goes.’  By using trading (e.g., http://www.intrade.com) and/or spread-betting (e.g., http://www.cantorindex.com) sites, a company can see how the world really views the likelihood of specific events and, significantly, how their own company is viewed by the market. 

In 2003, an insensitive but smart analyst at DARPA (the Pentagon’s Defense Advance Research Projects Agency) proposed setting up a speculative futures market on terrorist attacks.  Notwithstanding the obvious temptation for real terrorists, the idea was sound.  Getting people to bet real money on future events focuses the thinking of those people and saves the inordinate costs of expensive computer models.  There really is wisdom in crowds.

Companies could actually create their own internal speculative markets to leverage the knowledge contained within the organization.  By allowing employees to bet on specific questions (using company money for real returns), an efficient market for ideas can be created.  More real, more relevant, and more fun than a ‘suggestions box.’  Apparently, the pharmaceutical company, Eli Lilly, has used this approach to predict the success of drug research with remarkable accuracy, and there is no reason to doubt its applicability to the M&A market as well.

Just think how this might have helped Multiplex – the Australian developers of England’s Wembley Stadium, which was delivered late and with large penalties (over A$200 million).  The result of their problems was the announcement today that they would be purchased by a Canadian infrastructure specialist.  Or another example:  Did Barclay’s (or, for that matter, ABN AMRO) do adequate scenario planning in the lead-up to their proposed merger?  Certainly, one very likely scenario would be the entrance of another bidder, in this case, a formidable one (Royal Bank of Scotland who joined forces with Santander Bank and Fortis – this forming a British / Spanish / Belgium consortium).  And if that wasn’t enough for Barclays, they now have Atticus Capital challenging them on the deal, saying that they do not want Barclays to enter into a bidding war.  Hedge funds and their like are becoming more activist – just look how they brought down both the CEO and Chairman of the Deutsche Börse when they targeted the London Stock Exchange in 2005.  All very predictable, and not even with 20/20 hindsight but rather with scenario planning.

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M&A Frenzy and the need for Scenario Planning

Posted on Monday, 28 May 2007. Filed under: Business Intelligence, Commentary, Mergers, Scenario Planning |

This past week has seen many articles about the continue growth of the M&A market (see, for example, the Financial Times for a discussion of European M&A, or other articles on the Asian market).   It is difficult to walk down the street in the City of London or Canary Wharf and not overhear people talking about M&A deals.  The higher equity prices in the market generally are attributed to the continuing number of deals being announced.  The trend is global.  It makes front page news — and in fact, some days the front page of the Financial Times has all three or four of its major stories being M&A deals (this happened on Wednesday of this week with the only exception being a picture of the charred ruins of the clipper ship Cutty Sark)

It make me, and many of those I speak with, wonder about the hype.  Yet the M&A market continues to defy anyone’s predictions of when it will end.  I thought in 2005 that it might be the peak, but 2006 certainly exceeded my expectations.  My foundation is in history (I actually have two degrees from university in history and only one in business).  History DOES repeat itself.  At some point the market will begin to decline.  But just as the trough between the 5th merger wave (late 1990’s) and the current one (started in 2003) was higher than the peak of the 4th merger wave (late 1980’s — and for anyone else who lived through that merger wave, we thought it was going to be a record level of deals for a VERY long time to come), so the downturn that will happen sometime may still be at higher levels than we think.  M&A is here to stay.  One cannot be global as a company and not do deals (although there are some notable exceptions, the few number of such exceptions does prove the rule).

And I hear that Goldman Sachs is predicting a 30 year bull market.  I do think that different perspectives and forecasts are critical in planning what to do at this point in the M&A market.

Where can military and business intelligence techniques fit into this?  In our book, we discuss the need for scenario planning — a key military intelligence tool.  One section of our book, we discuss scenario planning as follows:

The first thing to realize is that the process of scenario planning is the consequence of a culture obsessed by the future – its risks and opportunities.  At Samsung, for example, scenario planning is enshrined in what is referred to as their VIP House (Value Innovation Programme).  The house is where the Samsung product managers, researchers, engineers, and assorted others ‘live’ while solving problems and/or planning projects.  The reason that this house is considered so important is because Samsung believes that 70-80% of ‘quality, cost, and delivery time is determined in the initial stages of product development.’ Samsung’s CEO and Vice Chairman, Jong-Young Yun, is clear about one thing, ‘the race for survival in this world is not to the strongest but to the most adaptive.’  Like the tsunami tribes and animals, he views the business world as an environment of existential threat and potential disaster.  The VIP house provides his disaster avoidance radar.

Another company famed for its extensive usage of scenario planning is Shell.  Using their own jargon, Shell’s scenarios team are tasked to ‘help charter routes across three interrelated levels; the Jet Stream level of long-term trends, uncertainties, and forces; the Weather Systems that reflect specific features of key regions; and the Turbulence of market level factors.’  To get a feel for the Jet Stream level, go to www.shell.com/scenarios.  Whether a scenario planning function is structured as a Samsung hot house or a highly centralised Shell-like group, the point is to monitor simultaneously the past, present, and future.  In all instances in addition to the expected, it is essential to attempt to imagine the unimaginable.  From those imaginings, scenarios must be built such that when a ‘new’ scenario presents itself, it is recognisable.

I wonder what Samsung and Shell are thinking now about future deals…

 

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The need for business intelligence and what we mean by it…

Posted on Thursday, 19 April 2007. Filed under: Business Intelligence, Commentary, Mergers |

As we have written in our forthcoming book, there is an urgent need to improve the M&A process through the use of business intelligence techniques.  Just to be clear at the outset as to what we mean by the term ‘business intelligence’, we show here part of the introduction to that book:

In the realm of corporate activity, mergers and acquisitions (‘M&A’) have played a defining role in shaping the corporate landscape over the past century. Given the breath-taking pace at which M&A transactions transform corporations and the sheer scope and scale of modern-day deals, it is no surprise that the work of investment banks and corporate finance boutiques alike has come to dominate the headlines. Yet, for all the bravura of M&A, such transactions also carry a high degree of risk as a result of the premiums paid and the organizational upheaval caused. The lament heard after most failed deals is that certain elements were not known, indeed it will often be claimed that they could not have been known.  Any intelligence specialist will tell you that all things are knowable — it is merely a question of how badly you want to know and how hard you are prepared to work to acquire that informationexplain that everything can be known.

For definitional clarity, when we talk about `business intelligence’ (often called ‘competitive intelligence,’ particularly in the US) we are referring to the `business intelligence function’ not the hard and soft information systems which have identified themselves as `b systems.’  The function itself (sometimes called ‘corporate intelligence’) is a vital aid to managerial decision making in any industry and at any time. By furnishing companies and other organizations alike with detailed and timely information about the commercial and competitive environment, the ‘art’ of intelligence enables companies to determine more accurately where they have been, to orientate themselves in the present, and to plan for the future.

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Intelligent M&A Book

Posted on Sunday, 8 April 2007. Filed under: Books on Intelligent M&A, Business Intelligence, Commentary, Mergers |

This is a website to share ideas about how business and military intelligence techniques can be used in merger and acquisition deals.  

If you wish to purchase the book, you can follow the link here.

The impetus for this blog is the recent publication of a book, co-authored by Scott Moeller and Dr Chris Brady, on the use of business (and military) intelligence techniques in business M&A deals.  This is the first book to cover this topic extensively.  It uses actual companies and deals in illustrating the effective — and often ineffective — use of intelligence techniques throughout the merger process from initial strategic idea generation through to the post merger integration.

Book Cover

The book was published on 29 June 2007 in the United Kingdom and will be available in mid-August in the United States. 

Despite extensive research in preparing this book, we know that many other examples must exist where M&A deals have used business intelligence techniques and even techniques used in the military intelligence world.  Please share them with us on this blog.

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