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M&A Deal Rescue

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M&A Deal Rescue

Opting for M&A deals is a powerful business strategy that can create weighty value for shareholders. It can also be a complex and traumatic experience for senior management, employees and clients. By the end of the integration phases, it is rare for companies to find themselves on budget or on schedule, with all key talent retained and synergies realised. In fact, more than 70% of M&A deals fail to create their expected value. Some of the main reasons for M&A failure are lack of pre-planning, over-payment, poor communication, culture clashes, loss of key talent, and a slow and inferior integration execution. 

If you find that the vision of your deal is becoming unrealistic, how can you turn things around to capture more value? Let’s explore indicators of the deal heading in the wrong direction as well as some survival tactics.

To make it more accessible I’ll divide the integration process into three phases: Phase 1, the first three months post-announcement of the deal, Phase 2, the next 3-6 months of integration, and Phase 3, the rest of the time it takes to wrap-up implementation based on your deal objectives.  

Phase 1 – the first three months post-announcement of the deal

This is an intense phase as decisions are being shaped and delivered, new roles are created, and processes and systems are turned upside down. Without a clear vision and integration strategy on announcement of the deal, senior management quickly loses credibility and trust is affected. If you haven’t done so already, develop a sharp integration roadmap that includes goals, actions to be taken, by whom, by when, resources needed, risk assessment and milestones. Crucially, and too often neglected, decide how to measure success. Begin early on to formally examine progress against all objectives and action plans. Don’t lose sight of productivity, profit and people as your focus.

 This is the ‘ME’ phase where the main concern of employees is “What will my future look like?” Avoid making statements early on such as “There will be no changes” as this is not realistic and will backfire. Without early answers, worries turn into insecurity and frustration. The result is a fall in trust levels, slumped morale and reduced productivity. You may feel people are only focusing on the negative.

 Make communication and employment engagement priority. And keep communication regular and transparent. We may not have the answers but saying so is much better than not communicating at all. Develop efficient external communication with clients, suppliers and media. Change Management is also key in motivating people at all levels. Offer training to both senior management and employees on how to deal with change in M&A.

 The most common complaint in mergers is “What is taking so long?” Inject some pace and urgency into delivering your decisions, even the tough ones. Think of the lack of clarity around the UK and Brexit and the effect uncertainty has on business confidence. We can deal with a surprising amount of change, but uncertainty and ambiguity often result in more resistance.

 The first vulnerable turn-over peak in a merger is during the first weeks of the integration process. People leave after being poached but also as part of our natural defence mechanism. To avoid losing your key talent to competition you need to focus on talent retention at the very beginning. Identify your most valuable individuals and re-recruit them by offering higher salaries, merger specific reward programmes and other incentives.  

 Phase 2 – the next 3-6 months of integration

This phase often hits the organisation hard. You may feel you’re approaching stability but now is typically where most turbulence occurs. The global M&A consultancy Pritchett tellingly calls this stage “Death Valley” and explains that “This is the danger zone where deals most easily start to die”.

Management may experience a sense of merger burnout having worked solidly and non-stop since target evaluation and negotiations. In addition, when senior management is initially formed, board- members typically avoid airing any strong feelings of disagreement. The dialogue is positive and polite as everyone is keen for the merger to run smoothly. But when energy runs out, nerves are on edge, bottled-up views are aired, and power battles around roles and responsibilities take the stage.  Leadership may also be distracted by new potential deals during this phase.

Meanwhile, employees are emotionally exhausted and tired from the extra workload integration brings. They talk about wanting to “go back to normal” and are critical of new colleagues and new ways. As a result, the integration begins to drag and productivity drops. A second turn-over peak often happens during this phase. People are desperate to see any positive results at this stage. Try to communicate quick-wins: a new logo, new clients and any-size concrete financial victory. Also encourage social interaction between the various teams; a sense of community.

 We need effective tools to manage this “Death Valley” phase. Individual and team coaching is one tool and it needs to start from the top. To maintain momentum in the merger it is imperative that the board members show a strong and united leadership supporting both each other and the integration strategy. 

 Merging companies need to make more than economic sense. When executives talk about M&A deals that fail, they blame corporate and national culture clashes more than anything else. It is therefore mind-boggling that 60% of organisations do not conduct culture due diligence. Just like you do with the financial, legal and tax due diligence, use the results to identify any vulnerable areas and urgently decide which differences to leverage. But welcome the shift towards cultural diversity as a corporate asset in your M&A for creativity, new perspectives, added client targets and new market opportunities.

Phase 3 – Finalising implementation

If your company managed to survive the dangers of Phase 2, chances are that you will enjoy a much smoother Phase 3. Here, threat levels drop significantly as implementation is carried out. An official closure celebration is a good investment in the future.

If you decide you have overpaid for an acquired company, the temptation is to squeeze more value from it to restore the expected synergies of the deal.  This is likely to prove counterproductive.  Reneging on explicit or implicit financial terms of the deal to try to restore ‘value’ could result in a decent deal turning bad.  Focus instead on creating performance and shareholder value long-term.

Surveys show that earlier integration planning was the thing most executives would change about a deal made. Yes, ideally M&A management should be proactive but finding solutions to problems quickly and effectively is also important. Continue to measure progress against objectives and to learn from your mistakes. It is not too late to deliver but we need to listen and get stuck in to survive.

 Angelica Carr (CM&AI, ICF, EMCC), Founder of Aim Business Coaching, delivers talks on dealing with change in M&A for both senior management and employees.

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Exclusive: China’s Huawei, reeling from U.S. sanctions, plans foray into EVs – sources

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Exclusive: China's Huawei, reeling from U.S. sanctions, plans foray into EVs - sources 1

By Julie Zhu and Yilei Sun

HONG KONG/BEIJING (Reuters) – China’s Huawei plans to make electric vehicles under its own brand and could launch some models this year, four sources said, as the world’s largest telecommunications equipment maker, battered by U.S. sanctions, explores a strategic shift.

Huawei Technologies Co Ltd is in talks with state-owned Changan Automobile and other automakers to use their car plants to make its electric vehicles (EVs), according to two of the people familiar with the matter.

Huawei is also in discussions with Beijing-backed BAIC Group’s BluePark New Energy Technology to manufacture its EVs, said one of the two and a separate person with direct knowledge of the matter.

The plan heralds a potentially major shift in direction for Huawei after nearly two-years of U.S. sanctions that have cut its access to key supply chains, forcing it to sell a part of its smartphone business to keep the brand alive.

Huawei was placed on a trade blacklist by the Trump administration over national security concerns. Many industry executives see little chance that blocks on the sale of billions of dollars of U.S. technology and chips to the Chinese company, which has denied wrongdoing, will be reversed by his successor.

A Huawei spokesman denied the company plans to design EVs or produce Huawei branded vehicles.

“Huawei is not a car manufacturer. However through ICT (information and communications technology), we aim to be a digital car-oriented and new-added components provider, enabling car OEMs (original equipment manufacturers) to build better vehicles.”

Huawei has started internally designing the EVs and approaching suppliers at home, with the aim of officially launching the project as early as this year, three of the sources said.

Richard Yu, head of Huawei’s consumer business group who led the company to become one of the world’s largest smartphone makers, will shift his focus to EVs, said one source. The EVs will target a mass-market segment, another source said.

All the sources declined to be named as the discussions are private.

Chongqing-based Changan, which is making cars with Ford Motor Co, declined to comment. BAIC BluePark did not respond to repeated requests for comment.

Shares of Changan’s main listed company Chongqing Changan Automobile rose 8% after Reuters reported the discussions. BluePark’s shares jumped by their maximum 10% daily limit.

GROWING EV MARKET

Chinese technology firms have been stepping up their focus on EVs in the world’s biggest market for such vehicles, as Beijing heavily promotes greener vehicles as a means of reducing chronic air pollution.

Sales of new energy vehicles (NEVs), including pure battery electric vehicles as well as plug-in hybrid and hydrogen fuel cell vehicles, are expected to make up 20% of China’s overall annual auto sales by 2025.

Industry forecasts put China’s NEV sales at 1.8 million units this year, up from about 1.3 million in 2020.

Huawei’s ambitious plans to make its own cars will see it join a raft of Asian tech companies that have made similar announcements in recent months, including Baidu Inc and Foxconn.

“The novel and complicated U.S. restrictions on semiconductors to Huawei have slowly been strangling the company,” said Dan Wang, a technology analyst with research firm Gavekal Dragonomics.

“So it makes sense that the company is pivoting to less chip-intensive industries in order to maintain operations.”

In the United States, Amazon.com Inc and Alphabet Inc are also developing auto-related technology or investing in smart-car startups.

Huawei has been developing a swathe of technologies for EVs for years including in-car software systems, sensors for automobiles and 5G communications hardware.

The company has also formed partnerships with automakers such as Daimler AG, General Motors Co and SAIC Motor to jointly develop smart auto technologies.

It has accelerated hiring of engineers for auto-related technologies since 2018.

Huawei was awarded at least four patents related to EVs this week, including methods for charging between electric vehicles and for checking battery health, according to official Chinese patent records.

Huawei’s push into the EV market is currently separate from a joint smart vehicle company it co-founded along with Changan and EV battery maker CATL in November, two of the sources said.

(Reporting by Julie Zhu in Hong Kong and Yilei Sun in Beijing; additional reporting by David Kirton in Shenzhen; Editing by Sumeet Chatterjee and Richard Pullin)

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Facebook switches news back on in Australia, signs content deals

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Facebook switches news back on in Australia, signs content deals 2

By Renju Jose and Jonathan Barrett

SYDNEY (Reuters) – Facebook Inc ended a one-week blackout of Australian news on its popular social media site on Friday and announced preliminary commercial agreements with three small local publishers.

The moves reflected easing tensions between the U.S. company and the Australian government, a day after the country’s parliament passed a law forcing it and Alphabet Inc’s Google to pay local media companies for using content on their platforms.

The new law makes Australia the first nation where a government arbitrator can set the price Facebook and Google pay domestic media to show their content if private negotiations fail. Canada and other countries have shown interest in replicating Australia’s reforms.

“Global tech giants, they are changing the world but we can’t let them run the world,” Australian Prime Minister Scott Morrison said on Friday, adding that Big Tech must be accountable to sovereign governments.

Facebook, whose 8-day ban on Australian media captured global attention, said it had signed partnership agreements with Schwartz Media, Solstice Media and Private Media. The trio own a mix of publications, including weekly newspapers, online magazines and specialist periodicals.

Facebook did not disclose the financial details of the agreements, which will become effective within 60 days if a full deal is signed.

“These agreements will bring a new slate of premium journalism, including some previously paywalled content, to Facebook,” the social media company said in a statement.

The non-binding agreements allay some fears that small Australian publishers would be left out of revenue-sharing deals with Facebook and Google.

“It’s never been more important than it is now to have a plurality of voices in the Australian press,” said Schwartz Media Chief Executive Rebecca Costello.

Facebook on Tuesday struck a similar agreement with Seven West Media, which owns a free-to-air television network and the main metropolitian newspaper in the city of Perth.

The Australian Broadcasting Corp has said it was also in talks with Facebook.

Google Australia managing director Mel Silva said in a statement published on Friday the company had found a “constructive path to support journalism”.

She thanked Australian users of the search engine for “bearing with us while we’ve sent you messages about this issue”.

Facebook and Google threatened for months to pull core services from Australia if the media laws, which some industry players claim are more about propping up ailing local media, took effect.

While Google struck deals with several publishers including News Corp as the legislation made its way through parliament, Facebook took the more drastic step of blocking all news content in Australia.

That stance led to amendments to the laws, including giving the government the power to exempt Facebook or Google from mandatory arbitration, and Facebook on Friday began restoring the Australian news sites.

(Reporting by Renju Jose and Jonathan Barrett; Editing by Richard Pullin and Jane Wardell)

 

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China’s factory activity growth likely moderated during February holiday lull – Reuters poll

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China's factory activity growth likely moderated during February holiday lull - Reuters poll 3

BEIJING (Reuters) – China’s factory activity likely grew at a slightly slower rate in February as factories closed for the Lunar New Year holiday, a Reuters poll showed, although growth is expected to remain firm, buoyed by an early resumption of production.

The official manufacturing Purchasing Manager’s Index (PMI) is expected to dip marginally to 51.1 in February from 51.3 in January, according to the median forecast of 20 economists polled by Reuters. A reading above 50 indicates an expansion in activity on a monthly basis.

Chinese factories typically scale back operations or close for lengthy periods around the Lunar New Year holiday, which fell in the middle of February this year.

However, the resurgence of COVID-19 cases in the winter had prompted local governments and companies to dissuade workers from travelling back to their hometowns, giving a boost to the earlier-than-usual resumption of production at many factories, analysts say.

“Although government COVID-19 prevention measures may constrain some manufacturing activities in the near-term, the fact that a majority of migrant workers stayed in their workplace cities for the holiday should facilitate an earlier resumption of business activity following the holiday this year,” said analysts at Nomura in a note to client on Thursday.

Wang Zhishen, a migrant worker from Gansu, told Reuters that his factory, a manufacturer of logistics boxes in the manufacturing hub of Dongguan, only closed for three days during the holiday, thanks to overwhelming businesses. Lured by the 1,500-yuan cash subsidy his factory offered, he chose to work through the holiday.

The Chinese economy has largely shaken off the gloom from the COVID-19 health crisis, with consumers opening up their wallets after months of hesitation. Growth is now set to rebound sharply this quarter, also helped by the low base effect of a year ago.

The country has successfully curbed the domestic transmission of the COVID-19 virus in northern China, with the national health authority reporting zero new local cases for the 11th straight day. Cities that were on lockdown have since vowed to push for a work resumption at full speed.

The official PMI, which largely focuses on big and state-owned firms, and its sister survey on the services sector, will both be released on Sunday.

The private Caixin manufacturing PMI will be published on Monday. Analysts expect the headline reading will dip slightly to 51.4 from 51.5 in January.

(Reporting by Stella Qiu and Ryan Woo; Editing by Sam Holmes)

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