Phil Dunmore at Cognizant outlines what every CEO should know prior to embarking upon a merger or acquisition
As the UK powers out of recession, the investment banks are gearing up for an anticipated glut of IPOs. If businesses finally find the confidence to dig into the piles of cash that they accumulated during the recession, acceleration in M&A activity may not be far behind. But, as has been demonstrated by several recent unions, value can be destroyed as easily as it can be created when two companies come together. The management of both companies have a responsibility towards their shareholders and employees, to make sure that the result of a merger is greater, not less, than the sum of its parts. That means it is crucial to perform due diligence — not just the obvious interrogation of the numbers that props up such a large slice of the boutique banking market, but the bigger picture, looking at what happens three, five and more years after the merger.
Of course, all companies entering into M&A activity believe that theirs will be a successful venture. If the numbers are right, success surely ought to follow? Unfortunately, that is not always the case. Putting together ‘the deal’ and closing it effectively, even if the numbers look stellar, is only one of many aspects to take into consideration. Precedent suggests this is not where complete success lies.
Success is about being clear and focussed on the benefits, and foreseeing and minimising the downstream risk, and this is about planning. The best planning follows a definite route and starts when the board first decides it wants to wade into M&A waters — is the target ideal, or is it just the best available? What is the motivation, and does it serve the interests of all (or the majority) of clients and other stakeholders? If it does, will it result in greater market share, perhaps the removal of a competitor, increased skills, diversified products, access to new markets, or the acquisition of technology unavailable elsewhere? Clarity of purpose at the outset will make the process more likely to succeed.
However, there is another sort of planning that is often overlooked: planning how the management team is actually going to bring the two entities together — on time, on budget and with minimal distraction and loss of morale and staff — ensuring the value is physically realised, not just a remnant on the acquisition proposal for shareholders to beat you with.
In parallel with closing the deal, plans for integration must be drawn up and clearly owned. Ideally, an experienced senior executive should be put in charge to liaise across the two companies, and ‘run’ the process over the first year of the new company’s operation. The right leadership is essential in order to motivate staff on both sides, and prevent the long and costly delays to integration that can so often destroy value.
In successful projects, this person needs to be an independent, experienced decision maker whose only vested interest is making the deal work properly. This independence will reassure staff, and the chances are that their input will follow five basic principles of integration.
1. Keep a sharp eye on the performance of the main business. This sounds simple, but neglect here is often the root cause of integration failures, resulting in a fall in business as clients – and staff – are neglected and defect to the competition. Keep sales teams motivated, morale high and clients informed during the process; monitor KPIs closely, be they daily, weekly or monthly. If something appears to be going wrong, address it immediately to get it back on track.
2. Integration versus optimisation — no contest. Integration must be the priority and should only be eclipsed by keeping the show on the road or mandatory imposed change. This is not the time for fixing every operational issue or pandering to internal pressures to add functionality or structures, but for finding ways to remove complexity.
3. Do not strive for planning perfection…it will never be achieved. Aiming to create an integration plan that answers all of the questions before the organisation moves into execution will just result in delays and prolonged debate. Events will occur that, no matter how long you take in planning, you will never be able to predict. The level of success will come down to how the organisation navigates through these points of pain.
4. Single accountability and dedicated focus on delivering integration. Whoever is in charge must be accountable and have direct access to the board. Managing the delivery of a successful integration (or any major change programme) is not a part-time activity nor is it for the uninitiated. A dedicated, experienced team will inject speed into decision making and create the relentless focus on the goal.
5. Manage the market and communicate regularly. The post-acquisition world is alive with uncertainty for both the external market and the enlarged organisation. This is the time to intensify communications, increasing the frequency of updates to clients and staff; ensuring key third parties are clear on their roles in the integration process; and keeping the myriad of interested by-standers including the media and analysts on your side. Across all of these groups, you must constantly communicate the logic of the acquisition, the integration plan and its progress. The importance of this cannot be overstated.
There is no ‘one size fits all’ model to integration; success is closely linked to keeping sight of the above principles. Doing so should allow the new company to run its business better and more efficiently than its two components. It should also help the new company run differently, and innovate in ways that the original organisations were not able to do. That massively increases the chances of unlocking the full potential in a merger, and creating value from the deal.
Phil Dunmore is Head of Consulting, UK and Global Head of Programme Management, Cognizant Business Consulting
Nvidia forecasts sales above estimates as gaming chip sales surge
By Chavi Mehta and Stephen Nellis
(Reuters) – Nvidia Corp forecast better-than-expected fiscal first-quarter revenue on Wednesday, expecting strong demand for its graphics chips used in gaming PCs and artificial intelligence chips for data centers.
As people wait for COVID-19 vaccine rollouts around the world, stay-at-home orders have helped sustain the demand for chips used in personal computers, gaming devices and data center infrastructure that enables remote working.
The Santa Clara, California-based company’s gaming chips have also regained popularity for mining cryptocurrency, a trend Nvidia is trying to counter by throttling its gaming chips ability to mine for currencies and instead offering specialty chips for mining.
While Nvidia was long known for its gaming graphic chips, its aggressive push into artificial intelligence chips that handle tasks such as speech and image recognition in data centers has helped it become the most valuable semiconductor maker by market capitalization.
It has eclipsed rivals Intel Corp and Advanced Micro Devices.
Shares were up 3% at $597.50 in extended trading after the results.
On a conference call with investors, Chief Financial Officer Colette Kress said that a global chip crunch made it hard to keep the company’s flagship gaming chips introduced last fall in stock and that the chips would likely remain in tight supply through the fiscal first quarter.
The company also said it will make a change to its gaming chips starting with the RTX-3060s to make them less efficient for mining cryptocurrency. The company said it will instead introduce mining-specific chips.
“We would like GeForce GPUs (graphics processing units) to end up with gamers,” Kress said.
Kress said analysts have estimated that cryptocurrency mining contributed between $100 million and $300 million to Nvidia’s sales in the fiscal fourth quarter. The company expects the new mining chips to generate about $50 million revenue in its fiscal first quarter, Kress added.
The company expects first-quarter revenue of $5.30 billion, plus or minus 2%, above analysts’ average estimate of $4.51 billion.
Revenue in the quarter ended on Jan. 31 rose to $5 billion from $3.11 billion a year earlier. Analysts on average were expecting $4.82 billion, according to IBES data from Refinitiv.
Revenue in the company’s gaming segment was $2.5 billion, above analyst estimates of $2.36 billion, according to data from FactSet. Data center revenue was $1.9 billion, above estimates of $1.84 billion according to FactSet data.
(Reporting by Chavi Mehta in Bengaluru and Stephen Nellis in San Francisco; Editing by Maju Samuel and Will Dunham)
Running boom to help Puma recover after slow start
By Emma Thomasson
BERLIN (Reuters) – German sportswear company Puma expects the financial impact from coronavirus lockdowns to last well into the second quarter, but believes global growth in running should help to support a strong improvement after that.
“We clearly see a running boom in the whole world,” Chief Executive Bjorn Gulden told journalists, noting that yoga and other outdoor activities are also doing well. He expects the healthy living trend to continue even after the pandemic.
Gulden said his optimism is underlined by the fact that orders for 2021 are up almost 30% compared to a year ago, with bookings for running products particularly high.
However, there is still uncertainty about when lockdowns in Europe will end, with about half of the stores selling its products currently closed in its home region.
For the full year, Puma expects at least a moderate increase in sales in constant currency, with an upside potential, and a significant improvement for both its operating and net profit compared with 2020.
Shares in Puma were down 2.9% at 1100 GMT.
“The wording on outlook looks softer than we had anticipated, even by Puma’s cautious standards,” said Jefferies analyst James Grzinic.
Gulden noted that a shortage of shipping containers bringing products made in Asia would impact margins, with freight rates likely to double in the next 12 months.
Puma will put a stronger focus on the women’s market in future, Gulden said, creating shoes better modelled to female feet for running and soccer and capitalising on partnerships with celebrities like singer Dua Lipa and model Cara Delevingne.
Gulden admitted Puma had been slow in creating its own app, but it plans to launch one towards the end of the year, further supporting online sales, which grew by 63% in 2020.
Rival Nike in December raised its full-year sales forecast after demand for outdoor sportswear drove an 84% surge in online sales.
Gulden said he is hopeful that the Olympics will go ahead in Japan and the European soccer championship will also take place after both were postponed from 2020.
($1 = 0.8226 euros)
(Reporting by Emma Thomasson; Editing by Mark Potter and Keith Weir)
ExxonMobil to sell some UK, North Sea assets to HitecVision for over $1 billion
(Reuters) – Exxon Mobil Corp said on Wednesday it would sell its non-operating interest in its UK and North Sea exploration and production assets to private-equity fund HitecVision for more than $1 billion.
Exxon has been looking to sell its oil and gas assets since late 2019, seeking to free up cash to focus on a handful of mega-projects.
The deal includes ownership interests in 14 producing fields operated primarily by Shell as well as interests in the associated infrastructure. Exxon could also receive about $300 million in contingent payments based on a potential for increase in commodity prices.
Exxon’s share of production from these fields was about 38,000 barrels of oil equivalent per day in 2019, the company said.
Exxon said it would retain its non-operated share in upstream assets in the southern part of the North Sea as well as its interest in the Shell Esso gas and liquids (SEGAL) infrastructure, which supplies ethane to the company’s Fife ethylene plant.
HitecVision, in partnership with Eni, had bought Exxon’s Norwegian North Sea assets for $4.5 billion in 2019.
Initially, Exxon hoped to raise more than $2 billion from the sale, which was planned for late 2019. In June 2020 sources told Reuters that the portfolio was more likely to fetch $1 to $1.5 billion given the oil price weakness last year.
(Reporting by Arathy S Nair in Bengaluru; Editing by Anil D’Silva)
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