post-closing integration issues in m&a: developing...
TRANSCRIPT
Post-Closing Integration Issues in M&A:
Developing and Implementing a PlanTransfer of Assets and Contracts, Workforce Adjustments, Corporate Structure,
and Tax Considerations
Today’s faculty features:
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
The audio portion of the conference may be accessed via the telephone or by using your computer's
speakers. Please refer to the instructions emailed to registrants for additional information. If you
have any questions, please contact Customer Service at 1-800-926-7926 ext. 1.
WEDNESDAY, DECEMBER 11, 2019
Presenting a live 90-minute webinar with interactive Q&A
Zeid Barakat, Senior Director, Scimitar, Boston
Kate W. Hardey, Partner, McGuireWoods, Charlotte, N.C.
Tips for Optimal Quality
Sound Quality
If you are listening via your computer speakers, please note that the quality
of your sound will vary depending on the speed and quality of your internet
connection.
If the sound quality is not satisfactory, you may listen via the phone: dial
1-877-447-0294 and enter your Conference ID and PIN when prompted.
Otherwise, please send us a chat or e-mail [email protected] immediately
so we can address the problem.
If you dialed in and have any difficulties during the call, press *0 for assistance.
Viewing Quality
To maximize your screen, press the ‘Full Screen’ symbol located on the bottom
right of the slides. To exit full screen, press the Esc button.
FOR LIVE EVENT ONLY
Continuing Education Credits
In order for us to process your continuing education credit, you must confirm your
participation in this webinar by completing and submitting the Attendance
Affirmation/Evaluation after the webinar.
A link to the Attendance Affirmation/Evaluation will be in the thank you email
that you will receive immediately following the program.
For additional information about continuing education, call us at 1-800-926-7926
ext. 2.
FOR LIVE EVENT ONLY
Program Materials
If you have not printed the conference materials for this program, please
complete the following steps:
• Click on the link to the PDF of the slides for today’s program, which is located
to the right of the slides, just above the Q&A box.
• The PDF will open a separate tab/window. Print the slides by clicking on the
printer icon.
FOR LIVE EVENT ONLY
FACULTY
Mr. Barakat brings over fifteen
years of experience in healthcare
and life sciences, driving cutting-
edge initiatives in new product
launch, ‘big data’ adoption,
mergers & acquisitions, portfolio
optimization, operational
enhancements and corporate
restructuring efforts.
Ms. Hardey advises healthcare and
life sciences clients on regulatory
and compliance matters and in all
types of transactions including sales
and acquisitions, joint ventures,
contractual affiliations, as well as
evaluating regulatory risks in cash
flow, asset- based and lending
transactions.
Zeid Barakat
Senior Director
Scimitar
Kate W. Hardey
Partner
McGuire Woods
5
✓ Competitive pressures ~48%*
✓ Portfolio diversification ~40%*, typically with
compatible product pipelines and supply chains
✓ Patent expiry ~20%*
✓ Access to disruptive new products
✓ Affordable cash
✓ Tax advantages based on geography
Key Drivers of Recent M&A Activity
* Economist Intelligence Unit 2018 survey, broad cross
industry survey; participants selected all areas that applied6
Healthcare M&A Activity
Closely tracking 2018 Activity
Source: Kaufman Hall M&A Quarterly Activity Report Q2 2019
Healthcare mergers and acquisitions increased 10 percent from Q1 to Q2 2019 and outpaced
Q2 2018 activity by 18 percent.
7
• Key Sectors where transactions have increased
• Behavioral health
• Healthcare IT
• Home health
• Autism
• Other sectors remain steady
• Hospice
• Laboratory
• Home health
• Physician practice/ASC
• Pharmaceutical/Device/Life Science
Healthcare M&A Activity
Key Sectors
Source: Hammond Hanlon Camp LLC Q2 2019 Maintains Strong Pace for Healthcare M&A (Aug. 2019)
8
Asset vs. Stock
• Asset
• More ability to leave
behind potential
liabilities and historical
risk so long as
practices that were
potentially an issue
are changed
immediately
• Stock
• Buyer gets everything,
positive and negative
• Successor liability
• Employee relationships
remain intact
Transaction Structure Considerations – Impacts Post-Close
No One Size Fits All: Consider the Key Components
9
• Expenses
• Employee
• Litigation
• Contractual
• Go forward capital requirements
• General Revenue Considerations
• Understanding key coding issues during diligence
− risk of over-coding issues and subsequent potential revenue decrease.
• Additional monitoring and auditing expenses
• Overpayment liability
• Reputational Risk Considerations
Transaction Structure Considerations – Impacts Post-Close
(cont.)No One Size Fits All: Consider the Key Components
10
1. Over-Optimistic/ Non-Discounted Financials – Often based on insufficient diligence.
2. Under-estimation of the Details – Tight deadline pressures cause key inter-dependent
details to be overlooked, e.g. supply chain issues or IP/ technology threats.
3. Late Start – Financial due diligence pre-empts timely start of the operational aspects of
the merger/integration.
4. Lack of Expertise – Common issues, e.g. regulatory compliance issues, flexibility, and
lack of competencies to manage external partners require specialized skill-sets.
5. Lack of Alignment Across Constituents – Suppliers, customers and employees not
involved early, hampering rapid decision-making and communications.
6. Inadequate Tools – Integration specific project/financial monitoring and management
tools/forums not implemented early, but only after crisis.
7. Inadequate Resourcing – Assumption that M&A can be a ‘day job’ activity for staff
Historically, a Number of Factors Typically Work Against
Effective Integration Efforts
11
Historically, a Number of Factors Typically Work Against
Effective Integration Efforts (cont.)
Xquadrant 2018 survey12
A Robust Integration Methodology Emphasizes
Delivery of Shareholder, Customer, and Employee Value
▪ Reduce the risk of not realizing acquisition synergies
▪ Reduce the costs of integration
▪ Increase the additional revenue stream projected from the acquisition
▪ Reduce operating costs within the acquisition
▪ Increase the additional net income stream as a result of the acquisition
Operations Continuity
Integration Activities
Value Delivery
Day 1 Day 100 Month 6 Month 12 Month 18
13
• Common areas of integration that are underestimated or overlooked:
• Losing focus after the signing of a deal
• Failing to properly assess the resources to integrate and operate two businesses
• Not addressing employees and “people issues”
• Overloading management with integration responsibilities outside their scope
of expertise
• Simple mistakes lead to a significantly slower integration effort that tends
to compound these and other mistakes.
− Lack of due diligence leading to surprises
− Delay in planning for integration (all effort put into closing the deal, not
digesting it)
− Too much (or too little) focus on short-term “cost synergies”
− Uncoordinated integration
− Unrecognized (or ignored) differences in risk profiles and cultures
Additional Complexities of Integration
14
Additional Factors Impacting Integration Value Capture
Source: Deloitte, The State of the Deal, M&A Trends 2019
15
Creating a Timeline and Checklist for Integration
16
Integration Lifecycle and Major Steps
Pre-Deal Due
Diligence &
Acquisition
Integration Readiness
& Capability-Building
Readiness for
Post-Close
Integration
Post-Close
Integration
▪ Target-setting
▪ Creation of M&A strategy
and targets
▪ Integration playbook
development
▪ Value chain and network
analysis
▪ Enterprise value
creation/ Core vs. non-
core analysis
▪ Target ‘short list’
development
▪ Target Identification
and investment thesis
▪ Core diligence
(operations, supply
chain, product
development and
commercial)
▪ Future state design
▪ Final and confirmatory
diligence and deal
negotiation
▪ Formation of a unified
pre-merger integration
team
▪ Definition of clear
decision-making
guidance and targets
to reduce confusion
▪ Baseline vs. Future-
state: Detailed
description of current
state operations and
operating plans, future
state design and
transition plans
▪ 100-day plan
development and
execution
▪ Creation of detailed
integration plans and
value-capture roadmap
▪ Execution of integration
strategies
▪ Management of
communication plans
▪ Monitoring of
implementation vs.
business case
This framework has been applied to companies during all stages of
integration, and in nearly all functional areas
17
Key Pre-Close Priorities and Activities
# Objective Key Activities Outputs
1Pre-merger Integration
Team
▪ Rapidly identify members and kickoff team▪ Define team’s operational cadence to finalize pre-
close decision-making and operating norms▪ Facilitate mitigations for key issues as needed▪ Coordinate sub-teams or functional teams▪ Manage information flow from team to functions
▪ Newly-created team▪ Pre-merger checklist ▪ Information and decision
request process
2
Decision-making and Operating
Norms
▪ Create clear decision-making model to guide pre-close and immediate post-close activities
▪ Develop clear issue escalation pathways between staff and pre-close integration leadership, as well as across functions
▪ Pre-merger decision-making model
▪ Documented decisioninventory
3Current State Description
▪ Develop current state description of operations across key functions (programs, org., performance, systems, governance, …)
▪ Identify 2020 and 2021 plans and underlyingassumptions as part of the on-going operating plan (budget) efforts
▪ Identify integration guiding assumptions by area to avoid confusion and risk to operations
▪ Departmental overviewsacross key operating model dimensions
▪ 2020/2021 budget▪ List of critical
assumptions by ET member
1
2
3
18
Objective #1: Pre-Merger Integration Team (pMIT)
1
Establish a Pre-Merger Integration Team (pMIT) to provide senior level guidance for coordinating decision-making and information exchange
EXECUTIVE TEAM (ET)
PRE-MERGER
INTEGRATION TEAM (pMIT)
Program SupportR&D
Research
Clinical Science / Biometrics
Quality
Tech Ops
Global Regulatory Affairs
Clinical Development
Program Leadership
Scientific Affairs
Program Management
Fu
nctio
nal S
ME
Finance
TreasuryProcurement
Accounting
IT
Tax
Facilities
G&AFunctional SME
Commercial
Franchise B
APAC
Business Analytics
Latin America & Canada
New Products / Commercial Access
Franchise A
Reimbursement, Value, and Access
Product Strategy
EU
Fu
ncti
on
al S
ME
R&D
Lead(s)
Commercial
Lead(s)
G&A
Lead(s)
Extended Team
LegalPublic Affairs
Corp Dev’l
HR
Communication & Change Management
▪An efficient, effective team is normally <10 members with sufficient representation across all functions
▪During Implementation: PMOw/Bi-weekly Meetings Should be Used to Drive Progress
19
Objective #2: Decision-making and Operating Norms
2
Develop clear operating and decision-making principles and a defined escalation
path to allow day-to-day operations and projects to continue as appropriate
Functions
Functional
Heads
Department Heads /
Pre-Merger
Integration Leads
Executive Teams
▪ Empowered to make
recommendations to
functional leads
▪ Escalate as appropriate
▪ Accountable for
function-specific
decisions and direction
▪ Escalate as appropriate
▪ Accountability for
department decision-
making
▪ Resolve escalated
functional and cross-
functional decisions as
required
▪ Escalate as appropriate
Serve as the final
decision-maker for
pre-merger
requests
20
Objective #3: Current State Description
3
Partner Networks and
Collaborations
Process, Standards, &
Metrics Architecture
Global Assets &
Footprint
Decision Making
&Governance
Organizational
Effectiveness
Technologies & Tools
Strategy and vision
Current State Description:
Quickly develop departmental descriptions
of current state operations with an
emphasis on using what already exists
2020 & 2021 Operating Plan:
Use content under development as part of
the budget process to provide a summary
of plans for the next two years
2015 (by quarter)
2014 (by month)
Revenue
COGS
Headcount
OpEx
CapEx
View 1: By ET Departments (primary focus)
View 2: As reported per GAAP
View 3: By product/franchise
View 4: By region
Primary Operating Plan Content*:▪ Functional Strategy and Goals▪ Key Initiatives and Projects▪ Resources Required ($, HC, …)▪ Primary Risks▪ Base, Gated, and Over-Target figures
Onyx-wide and Targeted Views
Fin
anci
al A
reas
Operating Plan Dimensions
Current volume, scale, …
2020 (by month)
2021 (by qtr)
21
Clear Transition Plans must be in Place for Asset Transitions
and Supply Chain Continuity
Complex integrations can benefit from adopting a few fundamental principles
• Require alignment from both organizations on specific transition goals
• Establish a time horizon to motivate managers and staff to finalize transition
activities by a specified date
Close
Planning and Deal Closure 100 Days Transition & Execution
Target Selection
Strategy Development
and Corporate Plan
Financial Analysis Due Diligence
Pre-Close Plan &
Execution
Governance and Leadership
LT Kickoff
Implementation K/O
Objectives and Goals
Governance and Leadership
Project Team Structure
Workstream Leads
Project Managers
Team Members
Templates / Tools
Oversight and Program Management
▪ Establish forums for cross-functional
engagement (e.g., program meetings,
integration workshops, Steer Co, etc.)
▪ Define an operational dashboard based on
key objectives and implement as a tool to
communicate status
▪ Cultivate effective behaviors (e.g. report
issues, escalate obstacles, etc.) without
fear of punishment or consequences
Operational and System Integration
▪ Consistent approach via template for work
stream goals, project planning, core team
structure, resources required, etc.
100
Days
22
Longer-Term: Highly Effective Oversight and Escalation
Bodies should be Formed to Manage Integration Efforts
Team 1:
Demand &
Distribution
Planning
Team 2:
Supply
Planning &
Systems
Team 3:
Packaging &
Labeling
Team 4
Distribution &
Cold Chain
Team 5
External
Networks &
Comparators
Global Clinical Supply
Integration Core Team
Manufacturing
Alignment
Quality
Systems
Alignment
Network Management
Organization Integration, Training, and Roles
Process and Operating Model Refinement
Metrics and Additional Synergy Savings
Cutover Planning and Execution
IT Alignment
Communication and Change Management
Finance and Resource Planning
Often a matrix of vertical and horizontal teams must be formed to manage the integration workload…
Oversight Council
Operating Committee
Supply Planning and Systems
Manufacturing Packaging Distribution
External Network Management
Clinical Supply Regional Leads
Early
Development
Demand Planning
Late Development
Demand Planning
Quality
…and a new, two-tiered governance structure should be deployed to oversee strategy and execution of the integration efforts
23
Integration Team Use a Range of Dashboards, Analytics and
Solutions to Fit the Project and Team Needs
Program-Wide Cross-functional
Integrated Scorecard (11 teams)
Program Milestone/
Deliverables Schedule
2009
Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
BP/SAP
Demand
to Supply
Procure to
Pay
Maintain
to
Improve
Hire to
Retire
Genentech
Informatics
Quality
Finance
EHS /
Security
LBXS Program Milestones Overview12-mth Schedule
Avastin Qual Lot Start
Avastin Qual LotsComplete
Avastin Start-Up CompleteEng Run Start
Avastin Eng RunComplete
L1
Plan
L2
Plan
L3
(25%)
L3
(50%)L3
(100%)
Initial
Budget TSA
Final Budget
Program
Milestones
Option Close
Comprehensive Lonza policy
review completed
Quality Strategy
Policy gap assessment completed
All team strategies completed
Learning from Events & STARI deployed
Complete access control converted
1-2 local EHS staff hired
Begin EHS post-close procedure implementation plan
HazOps study completed
Oper. Permits to GNE
WCS Gap Assessment
CSR ApprovedSchedule drafted
CIT Resource Plan complete
CIT Strategy
Equipment Ordered
Design Doc Complete
Lonza Environment
Complete MTI Integration Roadmap
Conduct Maintenance Integration Workshop
Devl Scope Document
Devl PrototypeComplete Data Migration Req
Complete DesignLoad Data
Complete Training Plan
Final Post Go-Live Support Plan
Complete Gap Assess and Remediation Plan
Complete Bus Proc Review
Define Training Req
Define Security Role Trans
HRIS Data Mapping
HRIS Selection
HR Strategy
Decision onPPSFT 8.8
Complete Data Definition
Complete SOP Review
Badges Issued
ACS software mapped to card readers
Identify new to GNE vendors and materials
Complete Data Conversion Design
Design tracking ECP1 & LBX Bal Sheets after 7/6
IT Testing
SC Approver Set-up
Integration Budget
Comp & Ben Harmonization
/ Total Rewards Approval
Review open LBX contracts
.
Finalize approval flows
Define post-Integration PRO Organization
Define Day 1 Business Process Hand-off Flows
Vendor agreements for HER critical items Outline agreements
for long lead items
Wave 1 H2R processes
Business Readiness Pilot
Complete Business Documentation
Execute / Complete Training
Also
Apply to
P2P & M2I
Policy-level risk assessment complete
GNE & Lonza QS shown as “substantially equivalent”
WE ARE HERE
Network Infrastructure Cutover Complete
PROP Applications Deployed
Enterprise Applications Deployed
LonzaComputers
Retired
AcctsLIMS-PT Deployed
LIMS-RM Deployed
QP52, 22, & 75 Deployed
QP76Deployed
Identify POs to be open post acquisition
Create GNE POs to replace LBX POs
Execute new service contracts
Disburse Payroll
Combine entity
FIN training
Value Assets
Phys. Inv.
Tag AssetsCost Stnds Approved
OnboardingJob
Mapping
Job Offers
HRIS/Payroll ready
Focal & PP&R Process in place
Other Wave 2-H2R processes
Talent Review for S’pore Org
ExtranetLaunch
Benefits Enrollments
Complete BRP
Execute LBX Maint. Transactions in GNE SAP
Complete MTI Business Process
Training
Red-Lined
SOPs to Doc
ProcessingLBX / ECP-1
Warehouse
Consolidation
Pre-close Training Completed
LIMS-EM Deployed
LBS Transition / Integration Program Scorecard
LBS
Sub-Team Lead Team Status Comments (for yellow / red or key risks)
Business
Process and SAPMatt Kenning Green
Demand-to-
SupplyDan Hagewiesche Green
Procure-to-Pay Matt Kenning Green
Maintain-to-
ImproveKim Huat Poh Green
Hire-to-Retire Virginia Vega Green
GNE Informatics Sean McMillen Green
Quality John McShane Green
Finance Peter Andrews Green
EH&S Mike Ratelle Green
Security Daniel Brasse Green
Training Suzanne Behnke Yellow See dashboardLegend: Overall Status
On track Green
Potential delay Yellow
Behind Red4GENENTECH CONFIDENTIAL
LBS Transition
and Integration
Green = work on track and milestone to be achieved on schedule; Yellow = some activities are off track but end date of milestone not impacted; Red = activities are off track and project team likely to miss a milestone
Recent Accomplishments (1-week back)
▪ Completed distribution of medical cards to employees
▪ Successful Day One/Week One Execution!!! (2 All Hands/4 Onboarding Sessions
from 31-Aug to 1-Sep) – onboarded 223 employees + TSAers!
▪ Conducted employee support tables w/cross functional teams conducted throughout
Week One (1-Sep to 4-Sep)
▪ Received LBS employee performance ratings spreadsheet, and hard copies of LBS
2008 performance appraisals and 2009 LBS Employee Objectives
▪ Conducted 6 Comp & Ben Induction sessions for B10 colleagues; total 9 sessions
▪ Conducted 8 ProSoft eLeave training sessions for B10 colleagues; total 9 sessions
▪ Held combined HR team meeting with new Bldg 10 colleagues on 9-Sep-09
▪ Scheduled Resumix Webex training for new HR staffing colleague on 11-Sep-09
▪ Scheduled Prosoft training for new HR colleagues from Bldg 10 (23 & 24-Sep-09)
▪ Scheduled New Managers/Supervisors Orientation & PP&R training for B10
Managers/Supervisors on 15/16/17 Sept-09
▪ Scheduled PP&R training for B10 employees starting 18 Sept; total 12 sessions
▪ Transferred Leave balances from PaySonnel and loaded them to ProSoft
Upcoming Activities: 1-week forward
▪ Continue final HR Compensation & Benefits sessions for B10 collegaues
▪ Conduct Resumix Webex training for new HR staffing colleague on 11-Sep-09
▪ Conduct New Managers/Supervisors Orientation & PP&R training for B10
Managers/Supervisors on 15/16/17 Sept-09
▪ Conduct PP&R training for B10 employees commencing 18 Sept; total 12 sessions
▪ Detail out the “post-close/integration wave 2/3” H2R/HR project plan
▪ Conduct LBS H2R Integration Debrief/Lessons Learned session on 15/16-Sep-09
▪ Fully transition project leadership from GNE SSF HR Lead to GNE Singapore HRD
▪ Acquire / transfer Paysonnel Payroll balances by 18-Sep (w/ Brenda & Siew Lee)
Upcoming Activities: 2-week forward
▪ Continue PP&R training for B10 employees starting 18-Sep; total 12 sessions
▪ Conduct Prosoft training for new HR colleagues from Bldg 10 (23 & 24-Sep-09)
▪ Refine “post-close/integration” Wave 2/3 H2R project plan
▪ Prepare H2R materials for the program wide LBS Lessons Learned (30-Sep) and
post-close Wave 2/3 workshop (1-Oct)
▪ Load Payroll balances to ProSoft by 1-Oct
Key MilestonesMilestone / Date - Status / Change this period?
Job Mapping Completed 13-Aug-09 N
Job Offers Extended 19-Aug-09 N
TSAer Onboarding 27-Aug-09 N
Onboarding Execution 31-Aug-09 Y
Employee Support (tables) 4-Sep-09 Y
Comp & Ben / eLeave Sessions 14-Sep-09 N
Action Plans for any yellow / red milestones:
Top 3 Risks Action Plan / Status
Data transfer/data migration complexity Ongoing testing and validation by
GNE HR Ops w/Lonza Rep & Vendor
Resource Planning Adjustments to resources w/back-up
plan based on revised project plan
Employee Retention GNE/Lonza collaboration-recruitment,
communication, cross-training
SGP Travelers (1-week forward)
Name Dates Approved (Y/N)
Virginia Vega 9-Aug - 10-Sep Y
Period Leader Project Manager Workstream Overall Status
10/11-Sep-09 C. Cheng / V. Vega M. Sepulveda Hire-to-Retire Green
Transition and Integration - Status Update
Project Dashboards
and Budgets by Team
Weekly Status Reports & Detailed
Project Gantts (MS Project)
# Risk ImpactP
rob
ab
.
Fa
cto
r
Se
ve
rity
Fa
cto
r
Ris
k
Ra
tin
g
Response
1▪ Limited BP/SAP resource
availability (SSF & SGP)
▪ Delay: Success integration of
business processes8 8 64
▪ Identify key resources early, get
commitment, and allow for contingency in scheduling
2
▪ Restricted window for
detailed HR employee information
▪ On-boarding experience and
payroll continuity for LBXS may not flow smoothly
8 8 64
▪ Increase resources in SGP at opt. exercise
▪ Get access to HR employee information prior to opt. exercise
3
▪ Lack of approval of design
and accompanying requirements for Day 1
processing by either Lonza
management or SGLT
▪ Successful Day 1 processes 6 8 48
▪ Provide adequate lead time for BPOs,
SGLT, Functional Leads and Lonzacounterparts to review and discuss design
options
4▪ The GNE Quality System
will not be fully deployed at LBXS prior to the PAI. The
lengthening of the QS
rollout - as necessitated by the shortening of Avastin
and Herceptin windows -exacerbated this risk.
▪ Operations: Potential confusion on extended usage
of two parallel Quality Systems
▪ Cost: Increases TSA costs for IT systems and risk of needing
Lonza staff longer▪ Staffing: Increases resource
load required from GNE CQSS
8 6 48
▪ Developing clear Quality Transition Plan▪ Developing Day 1 Quality operations plan
▪ Leveraging CQSS resources to provide
support for LBXS operations▪ Pre-training GNE mgmt. on LBXS QS
▪ Developing detailed staff training plans▪ Extend Lonza TSA IT syst. & staff if
required
5
▪ PAI: Potential impact to FDA approval depending on
regulatory sensitivity4 10 40
▪ Demonstrate "substantial equivalence" of Quality Systems through QP review
▪ Deploy QP's prior to Herceptin qual runs.
▪ Impl. for critical Quality Standards prior to PAI (Herceptin runs in some cases)
▪ Gap assessments and remediation plans in place for lower criticality QS's prior to PAI
Team Risk Management Plans
(with Severity/Probability and Mitigation Strategies)
# Decision
Fu
nc
tio
na
l
Te
am
Le
ad
SS
F/
SG
P
Co
un
terp
art
Wo
rkin
g
Te
am
Imp
ac
ted
Fu
nc
tio
na
l
Le
ad
(s)
LB
XS
Inte
gra
tio
n
Le
ad
er
BP
O
ES
C
1
▪ Affects function onlywith no material*
impact to overall timelines, deliverables, or resources)
D A R I
2
▪ Affects function only with material*
impact to overall timelines, deliverables, or resources)
R A I D
3▪ Affects timing of interdependent
functions (e.g., CIT, HR, quality, …)R A I A D
4▪ Requires change to GNE established
Global Business Processes (GBP’s)R A A** I D
5
▪ Affects integration strategy . . .
▪ . . . with impact to tech transfer, quallots, or licensure goals
R
R
A
A
A**
A**
D
I
I
D
* Refer to following page for “material impact” guidelines ** If applicable
RACI Type (RAPID) Decision
Making Framework
• Increases in TSA and
consulting offset by
decreases in nearly all other
areas
2009 LBXS Integration Spending (US$K)
$-
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
Travel Employee Exp Repairs &
Maint
Equipment TSA Consultants Contractors Temp Help Service Cont Other
May Fcst
Current
2009 2009 % 2010
May Fcst Current Inc/Dec Change Current
Travel 2,480$ 2,026$ (454)$ -18% 1,099$
Employee Exp 264$ 279$ 16$ 6% 192$
Repairs & Maint 498$ 518$ 20$ 4% -$
Equipment 733$ 733$ 0$ 0% -$
TSA 3,219$ 4,069$ 850$ 26% 284$
Consultants 5,056$ 5,461$ 404$ 8% 128$
Contractors 1,616$ 1,139$ (477)$ -30% 625$
Temp Help 1,709$ 1,239$ (470)$ -27% 1,040$
Service Cont 893$ 773$ (120)$ -13% 0$
Other 147$ 94$ (53)$ -36% 315$
Total 16,616$ 16,333$ (283)$ -2% 3,682$
24
• Assets and liabilities
• (transaction structure)
• Material contracts
• Licenses/Permits
• Regulatory/Fraud & Abuse
• Litigation
• Workforce/employment
• Tax
Identifying Post Acquisition Tasks: Legal Lens
Key Areas of Focus
25
• Understand low, medium and high-risk areas and resources
needed to address each
• Initial plan and steps:
• Goals
• Regulatory requirements: licenses, surveys, permits
• Material Contracts/Contract oversight
• Transition Services Agreements
• Technology
• HIPAA/Privacy Security
• Employment/People: employee defection
• Ongoing claims or litigation matters (indemnity/escrow)
Acquisition Roadmap: Legal Lens
Before Day 1
26
• Pre/Post Close: What contracts licenses and permits were
completed pre-close and what is outstanding post close.
• Post-Close Checklist
• Create a timeline and list for the following taking into
consideration the specific industry requirements, e.g., hospice,
home health, pharmaceutical, device, etc.
• Licenses and Permits
• Healthcare Service Providers
− License
− Permit
− Survey: are you aware of all prior deficiencies
• Life Sciences Pharma/Device
− FDA registrations, clearances, approvals
− Inspections: status of corrective actions
• HIPAA/Privacy gaps
Acquisition Roadmap: Integration Plan
27
• Post-Close Tracking as Important as Diligence
• Immediate plan to address any identified issues (e.g., HIPAA Security
Risk Assessment)
• Don’t file away the purchase agreement
− Indemnification
− Understand survival of representations and warranties, escrow
matters
• Potential Missteps
• Failure to assign workflow tasks
• Failure to ensure specialized expertise is part of integration
• Failure to develop integration plan pre-close
Key Integration Challenges: Legal Lens
28
Identifying Post-Close Acquisition Tasks
29
• Regulatory/Permitting Consents
• M&A transactions frequently trigger approvals, notices or waiting periods
from governmental authorities, including licenses and permits.
• The structure of the transaction may matter.
• Contract Counterparty Consents: Plan for Material Contracts
• M&A transactions may breach or change the rights and obligations of the
parties under certain contracts of the target without the consent of the
target’s counterparty.
− Anti-Assignment provisions – may be triggered by asset sales and certain
merger structures.
− Change in Control provisions – triggered in most M&A transactions.
− Termination for Convenience provisions – “triggered” in any event.
• Who is responsible?
Implementation Strategies: Regulatory & Third Party
Consents
30
• Licensure/ CHOWs can impact
closing and post-close
implementation timeline
• Medicare/Medicaid typically post-
closing
• State licensure varies
• CON programs often biggest
timing impact
• Facilities, e.g., hospitals, ASCs,
SNFs, dialysis, hospice/HHA &
others
• Ownership changes
• Payors, too!
Post-Close Change of Ownership / Licensure
Certificate of Need States
Source: NCSL CON-Certificate of Need State Laws (Dec. 2019)
31
• Relationships with healthcare professionals
• Compliance
• Culture
• Integration of policies, procedures and practices
• Compliance leader
• Leveraging best practices
Implementation Strategies: Key Relationships and Compliance
32
• A robust compliance program teaches executives and employees to
recognize and avoid issues, ensures that questions can be answered
before they become problems, and allows existing problems to be
addressed.
• Compliance in “3D”:
− Deterrence
▪ Compliance programs can effectively communicate the risks to executives and employees and
arm them with the knowledge to recognize and avoid problems.
− Detection
▪ Effective compliance programs help companies to detect and address violations or problems at
an early stage, as well as take advantage of opportunities to reduce liability.
− Defense
▪ Effective compliance programs are integral to criminal and civil defense. For example, in
certain circumstances, if a company is found guilty, the sentencing guidelines will allow for a
reduction in a fine if the company has a compliance program in place. (See U.S. Sentencing
Guidelines section 8C2.5 (f)(1)).
Why Invest Post Close Compliance/Processes?
33
• If you don’t know your information, you cannot protect against:
• Theft of IP
• Loss of competitive edge
• Data breaches / inadequate response
• Legal noncompliance
• Agency enforcement actions
• Reputational damage
Privacy/Technology – Post-Close Implementation Focus
• HIPAA Policies and Security Risk
Assessment (state privacy
requirements)
• Payment Card Industry Data Security
Standard (PCI DSS)
• All merchants who accept credit/debit
cards are required to comply with PCI DSS
34
Technology Integration Key
Technology integration is a big risk factor. Recent survey notes the following
regarding three (3) key areas for potential issues for technology integrations:
1. Human error and configuration weakness (51%)
2. Connected devices (50%), and data
3. Management and storage systems (49%)
• 49% of respondents in a recent survey indicated they
encountered unknown or undisclosed cybersecurity incidents,
issues, or risks when integrating the acquired company’s
information and technology that delayed the integration timeline.
Source: Forescout, THE ROLE OF CYBERSECURITY IN MERGERS AND ACQUISITIONS DILIGENCE (2019) There were a total of 2,779 respondents from around the globe. Two audiences were chosen for
this study: IT Decision Makers (ITDMs; n=1283) and Business Decision Makers (BDMs; n=1496). The data was weighted to evenly represent audiences and regions.
35
Corporate Restructuring
36
• Addressing employment law issues identified during diligence
• Wage & hour issues seem to be most common (misclassification of
exempt/nonexempt, misclassification of employee/independent
contractor)
• Union
• Complaints/litigation
• Post-acquisition leadership selection
• Proper documentation
• Consistent communication regarding process
•
Employment
37
• Reductions in Force
• Discrimination claims and proper OWBPA notices
• Disparate impact analyses
• The WARN Act (and similar state laws)
• Understanding offer letters, employment agreements, severance
plans, severance histories, etc.
• Understanding change-in-control agreements
Employment Implementation Issues
38
• Merging Corporate Cultures & Aligning HR Policies
• Policies
− How company policies will be handled during post transition?
When are policies were effective, when they be revised?
• Leave policies
• Adhering to new state and local laws
• Comparing and combining benefit plans
• Addressing inconsistencies in restrictive covenants (and analyzing
successorship issues involving same)
• Identifying employees with performance problems and evaluating
documentation of issues and go forward plan
Employment Implementation Issues
39
• Consider overall business objectives
• What entity is the going forward employer for employees
• Retention of key employees
• Payouts of or significant changes to wages/vacations/bonus/commission
• Transition of employee benefits: will different packages be maintained or will all
employees transition.
• Contracts assumed or assigned
• Employee onboarding
• Job titles and employment responsibilities
• Duplicative positions
• Confidentiality requirements
• Non-Compete enforcement
• Employee release/severance
• Maintain employment counsel to help oversee transition
Employee Integration Considerations
40
• Key tax considerations conducted pre-close
• Tax consequences will be impacted by the structure of the
transaction and tax status of the Target
• Strategy may depend on structure (asset/stock), industry and
future strategic plans, e.g., future acquisitions or divestiture
• State law considerations
• Tracking/monitoring key during integration
• Continue to involve tax counsel during integration process
Tax
41
Best Practice: utilize operational levers tied directly to the P&L
to identify EBITDA opportunity and capture it (1 of 3)
P&L Impact Global Operations Levers (representative list)
▪ Buying Power Leverage
▪ Low Cost Country Sourcing
▪ Design For Manufacturability
▪ Value Eng./Standardization
▪ Long Term Agreements
▪ ….
▪ Strategic Make vs. Buy
▪ Labor rate restructuring
▪ Plant rationalization
▪ Load realignment
▪ Lean Operations
▪ Overtime Reduction
▪ Plant Capital Investment
(Equipment, Tooling)
▪ ….▪ Network Optimization
▪ Service Level Segmentation
▪ Fleet Rationalization
▪ Strategic Procurement
▪ Scheduling Improvements
▪ 3PL Utilization
▪ ….
▪ Span of control adjustment
▪ Mfg SG&A (procurement,
planning, logistics)
▪ Indirect sourcing
▪ Facilities management
▪ Sales force realignment
▪ HR, Finance restructuring
▪ MIS Program Control
▪ Outsourcing
▪ ….
▪ Competitive T’s & C’s
▪ Compliance Management
▪ Supplier Warranty Recapture
▪ Remote Diagnostics
▪ Self/Remote Service
▪ Six sigma
▪ ….
▪ Inventory Obsolescence
▪ Service Parts Pricing
▪ ….
EBITDA
Raw Material
Manufacturing Conversion
Freight and Logistics
Other Non-Manufacturing
Warranty
Other
42
Best Practice: utilize operational levers tied directly to the P&L
to identify EBITDA opportunity and capture it (2 of 3)
R&D Expense
Cost of Goods Sold
R&D Non-labor Expense
Warranty
▪ Revenue acceleration
(time-to-market)
▪ Product/Market strategy
(revenue growth)
▪ VoC (product/customer value)
▪ ….
▪ Engineering efficiency/lean
engineering
▪ Low cost country sourcing
▪ Co-development and alliance
management
▪ Technology/IP leverage
▪ Span of control
▪ Licensing
▪ ….
▪ Complexity reduction
▪ Technology standardization
(enables buying power leverage)
▪ Platforming/Technology re-use
▪ Design for cost
▪ Value Engineering
▪ ….
▪ Engineering services
sourcing
▪ Facilities sourcing
▪ LCC site development
▪ ….▪ Design for six sigma
▪ Complexity reduction
▪ Technology standardization
▪ Design for serviceability
▪ ….
Revenue GenerationRevenue
EBITDA Margin
EBITDA
P&L Impact Global Operations Levers (representative list)
43
Best Practice: utilize operational levers tied directly to the P&L
to identify EBITDA opportunity and capture it (3 of 3)
P&L Impact Global Operations Levers (representative list)
Selling Expenses
G&A Expenses
▪ Optimize use of direct and indirect
channels
▪ Channel cost-to-serve / expenses
optimization
▪ Sales force span-of-control and
delaying
▪ Sales effectiveness
▪ Sales compensation plan retuning
▪ Territory optimization
▪ Outsourcing of select sales funnel
activities
▪ ….
▪ Service effectiveness (utilization,
cycle times, etc.)
▪ Service delivery outsourcing
▪ Contact center consolidation and
outsourcing
▪ Remote diagnostic
▪ Parts management optimization
▪ ….
▪ Sales support / operations
consolidation
▪ Low-cost country service centers
▪ Outsourcing
▪ Span of control / de-layering
▪ ….
Revenue / Margin
Cost of Services / COGS
Revenue
EBITDA Margin
EBITDA
44