#divestments

UnityKapital Assurance Plc has notified The Nigerian Stock Exchange of the plan by Unity Bank Plc, its major shareholder, to divest the bank’s holdings in UnityKapital Assurance Plc. The divestment of the holdings of the Bank is in compliance with the…

In line with Phil. Global Comm. Inc's quasi-reorganization, APC will reduce its total shareholdings in Phi. Global Comm to 18.46% from 73.85%.

ICT subsidiary Cebu Int'l Container Terminal will be sold to Cebu Asian Rim Property & Dev't Corp and Hong Kong Land Phils. BV.

ICT owns 51% of the 250,000,0007 common shares representing a 100% equity interest in Cebu Int'l Container. ICT aims to complete the sale on or before Jan 10 2014.

Cebu Int'l is registered owner of 200,000 sqm in Mandaue City, Phils.

Most M&A deals fail to achieve their original intended goals and many, in fact, actually destroy shareholder value. The M&A playbook is a tool which improves the reliability and speed at which organizations can divest or integrate.

Companies that use playbooks in a merger or divestment tend have greater success and ultimately achieve higher shareholder returns than those that do not. In this article, I outline the benefits and anatomy of a playbook.

  It is both a surprising and concerning fact that between 45%-60%1 of mergers fail to achieve their original intended goals. This can be for a variety of reasons, the root of which is either an unrealistic expectation of the organizations’ leaders concerning the value that a merger will bring - the ‘deal synergy assumptions’ - or due to flaws in the actual integration itself - ‘the execution’.  In this article I will focus on execution aspect.

Benefits of an M&A Playbook

An M&A playbook comprises a library of processes, tools and assets which, when followed, enables an organization to merge or divest in a standard, repeatable way. By employing a playbook, organizations are able to ‘industrialize’ their merger or divestment efforts; i.e. get faster to higher quality outcomes with more consistently, more efficiently.

Another benefit of the M&A playbook is that it enables adopters to take advantage of frameworks that represent industry leading practice as the assets have been built up based on what has worked well across thousands of previous integrations and divestments. Given the high stakes of an integration program, the ability to leverage previous experience is critical.

The Playbook As An Enabler For A String Of Pearls Acquisition Strategy

Acquisition has become a crucial way in which organizations achieve their growth strategy.  I have seen an increasing tendency in the market for large organizations (typically $1bn and larger) to adopt a ‘string of pearls’ approach to growth whereby they bolt on smaller companies onto their core Business operations over a number of years to expand their offerings and enter new market segments.

In this acquisition model, rapid, effective and low risk integration is critical to the ability of the organization to grow rapidly and maintain its competitive positioning. This is why organizations are turning to the playbooks as a way of achieving a level of industrialization to their merger and acquisition capabilities.

A good example of a ‘string of pearls’ acquisition model is in life sciences which is an industry characterized by high R&D expenditure and the long development timelines required to get new products to market.

The costs of and risks surrounding product development are staggering - the average cost of bringing a new drug to market is $1.3 billion and of 5000 compounds discovered in the pre-clinical stage, only about 5 will make it through the entire FDA approval process2.

As the patent cliff draws near with an unprecedented amount of patents due to expire3, many organizations are about to see their drug revenues suffer a dramatic decline as generics cannibalize their customer base.

These organizations are instead turning to acquiring a ‘string of pearls’. In this metaphor, the ‘pearls’ are small biotech startups that have passed most of the screening clinical hurdles. Here, the acquirers are seeking to integrate, in an industrialized manner, many small organizations that have a mature pipeline of highly developed drugs.  

To be successful, acquirers are moving from a model where they beat their competition through developing products through superior R&D capabilities to one where they win by effectively identifying, acquiring and rapidly integrating small organizations with advanced stage product (“molecule”) development.

The Anatomy of an M&A Playbook

At its highest level of abstraction, the playbook articulates the integration or divestment lifecycle as a series of high level phases; firstly establishment of the ‘Merger Integration Framework’, secondly planning for the integration or divestment, and finally the actual execution itself. Each of these phases are broken down into sub-phases with a set of standard operating procedures, designs and tools.

The establishment of the ‘Merger Integration Framework’ is a fundamental component that defines the structure of the integration/separation teams, and how they will work together to achieve the program goals and the overall design parameters of the program.  This includes tools such as kick-off presentations, guiding principles, governance design and well as Program Management Office tools such as dependency logs, issue and risk tracking tools.

The ‘Merger Integration Framework’ enables the integration or divestment team to hit the ground running. Organizations that do not employ a framework at this point tend to spend a greater amount of time in mobilizing and internally organizing themselves which given the typically short timescales between deal announcement and ‘day 1’ (the day of legal separation or integration), can place a significant limitation on the extent that the organizations can operate as respectively separate or combined entities.

The latter two phases comprise planning and execution across two or more key events ‘day 1’, and TSA exit; the point at which the parent organization will no longer provide an interim set of services to the divested entity.  The playbook then provides process flows, sample designs, tools and templates to enable the integration/separation team to work through each of these phases to deliver the necessary work products.

Conclusion

With the greater emphasis on growing Business capabilities and extending product lines through acquisition and divestment, organizations are turning to the M&A playbook as a tool to increase the change of merger success. By doing so, they are able to significantly increase their shareholder returns by minimizing the cost and risk involved in mergers and divestments.

Organizations that go it alone risk a myriad of issues and are unable to take advantage of lessons learned from thousands of previous mergers and integrations.

However, simply procuring a playbook, is an insufficient solution without a good understanding as how to use it effectively to drive good merger and divestment outcomes…

...In my next article, I share some of the key lessons learned from developing and employing a playbook.

1 Multiple sources including Booz-Allen & Hamilton 2001

2 Source http://www.fiercebiotech.com, PhRMA, the U.S. pharmaceutical industry's advocacy group (in 2005 dollars)

AEV land unit has finalized its acquisition of a 60% stake in Lima Land Inc, a company that operates LiMA Tech Center, a business park in Lipa-Malvar Batangas employing over 24,000 employees.

Lima Land businesses manufactures automobile components, plastics and various electronics. LiMA Tech Center is PEZA designated and enjoys tax incentives.

ACR's divestment of Lima Land Inc is in line with company plans to focus on Mindanao power generation as its core business.