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M&A Activity Acquisition Overview Taking Control Full Integration Hostile Acquisition Conclusion
PwCs 16th Americas School of Mines May 21-24, 2013 Los Cabos, Mexico
Slide 2
M&A Activity
M&A Activity
6/10/2013 3
PwCs 16th Americas School of Mines May 21-24, 2013 Los Cabos, Mexico
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PwCs 16th Americas School of Mines May 21-24, 2013 Los Cabos, Mexico
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PwCs 16th Americas School of Mines May 21-24, 2013 Los Cabos, Mexico
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PwCs 16th Americas School of Mines May 21-24, 2013 Los Cabos, Mexico
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M&A Activity
Acquisition Overview
6/10/2013 8
Typical Acquisition
Strategic Screen
Investigate
Execute
Integrate, Operate
Pre-close
Negotiation and Closing
Close
Short-Term
Execute 100 Day Plan
Longer-Term
Organization/Cultural Alignment
Integration Management Office Org. Design Governance/ Org Structure Project Team Structure Risk/Issue Management Cultural Alignment
Strategy Articulation
Facility Alignment
Operations Integration/Optimization Valuation and Structure Day 1 Plan and Execution Merger Communication Employee/ Customer Retention
Systems Integration/Optimization
Customer Integration
Supplier Integration
PwCs 16th Americas School of Mines May 21-24, 2013 Los Cabos, Mexico
Slide 9
Start too Late. Speed is critical to executing the transaction, integrating, and transitioning back to business as usual. Effective acquirers engage functional leaders early in the due diligence process to jumpstart the planning process.
2. Failure to Address the Soft Issues. Poorly run integrations typically focus only on tactical development and execution of workplans. Cultural, communication, and governance components are critical to a large-scale integration.
Working in Silos Lost in Details
3. Working in Silos. Effective acquirers develop a single integration strategy that incorporates all functional areas. This ensures consistency of delivery, levelsets expectations, and provides complete visibility of execution across the enterprise. 4. Lost in the Details. Many organizations view integration as a tactical project, focused purely on workplan development and execution to integrate all business functions. Proper time should be spent rethinking the business model prior to executing a generic integration plan. 5. Closed Minded (We are the best at what we do). When executing large-scale mergers, effective acquirers take time to understand the target and collaboratively select the best people, processes, and technology to support the new business. 6. Market Awareness at the Lower Levels. For public companies, the market expects to see value in two quarters after a large acquisition. By educating and holding the integration team to these timelines, the success of the integration is much more likely to achieve shareholder objectives. 7. Delayed Decision-Making. Leadership and Executives need to take active involvement in the integration. Early in the process, regular involvement is critical to make decisions that will guide the overall planning and execution of the integration.
Value can be diminished by through the impact of multiple factors. While acquirers focus their efforts to address the most prevalent issues, they often lose focus of others.
PwCs 16th Americas School of Mines May 21-24, 2013 Los Cabos, Mexico
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Environmental and health & safety risk Consistency of operations with Buycos code of conduct and ethics Control of board and management Access to site Vanishing assets Fraud, theft and corruption Legal complications Vandalism or sabotage Securing IT infrastructure and data
Personnel security and safety Management support Retention of key staff for continued operations Possible litigation claims against Buyco Communication with all stakeholders Labour unrest Supplier demands Data gathering for possible litigation Tax and financial reporting Change of control issues
PwCs 16th Americas School of Mines May 21-24, 2013 Los Cabos, Mexico
Slide 11
Integration Fundamentals
A clear statement on the integration fundamentals will gain alignment of the leadership team and ensure appropriate direction is provided to integration workstreams
Governing principles What are the key principles by which the integration will be delivered?
Integration Fundamentals
Vision & merger rationale What is the vision for the combined organisation? Degree of integration and scope To what degree will various organisations integrate vs. remain separate?
Priorities & resources Integration priorities vs. business as usual and capacity to deliver change? Controlling & reporting What process will be used to monitor, control and report progress? Structure, roles & responsibilities What is the programme structure and who will assume key roles in the integration?
Sources of value How will integration synergies be identified and initiatives launched? Timetable & milestones What are the key integration milestones and what will be in place for Day One?
An agreed definition of what will be achieved, the structure employed, the processes implemented and timetable of deliverables
PwCs 16th Americas School of Mines May 21-24, 2013 Los Cabos, Mexico
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Integration Considerations
Planning the degree of integration across functions and geographies and tailoring for the type of acquisition is critical to translating acquisition strategy into integration strategy.
Degree of Integration High Absorption Incorporate target into buyer infrastructure Best of Breed/Hybrid Partial Back-office Integration Front-end business remains as-is with back-office integration Standalone Take control and minimize risk; minimal integration of target into buyer infrastructure Choose best from buyer & target for combined business Approach High Considerations
Full
Disruption to business
Similarity of business
Low
Geographic Expansion
Industry Consolidation
Control
Low to None
PwCs 16th Americas School of Mines May 21-24, 2013 Los Cabos, Mexico
Synergies
Slide 13
4. Prepare for Day One, then the larger Integration. Critical Day One tasks need to be identified early, before longer-term, more detailed planning commences. This allows for prompt identification of long-lead time items, well before they can turn into closing day surprises.
5. Communicate to all stakeholders. Communicate early and often with all stakeholders, including customers, employees, investors, suppliers/vendors, and the general. Communication should articulate the reasons driving the deal, Initiatives are ranked according to financial reveal timing for key actions, and be candid in nature about what is known and impact and probability of success. Those with the what is unknown. highest financial impact and highest probability of success receive resource priority. 6. Establish leadership at all levels. The transition is critical for minimizing
Value Drivers
uncertainty, assigning accountability, defining functional authority, and establishing role clarity. 7. Manage the integration as a business process. Large scale integration efforts require significant, high-quality resources including committed members of the executive team.
Slide 14
PwCs 16th Americas School of Mines May 21-24, 2013 Los Cabos, Mexico
M&A Activity
Taking Control
6/10/2013 15
Taking Control is the foundation for delivering the value of your deal
PwCs 16th Americas School of Mines May 21-24, 2013 Los Cabos, Mexico
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PwCs 16th Americas School of Mines May 21-24, 2013 Los Cabos, Mexico
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Our approach provides a fast track to Taking Control within the first 100 days of ownership
Pre Close-Phase 1 Set the Course Define the key objectives Set up the Programme Management Office Develop communication plan
Phase 2
Longer Term
control along various key aspects: Assets Treasury Compliance Reporting People Secure resources and launch
Design the Future operating model Design functional and operational to be state Identify key initiatives
Programme Management Office (PMO)
Detailing initiatives Create action plan Assess resource requirements Monitor and address dependencies
Transition
Into other project
Manage risks, issues, dependencies; deploy status reporting and synergy tracking; develop and execute communication plans;
Announcement
Deal Close
PwCs 16th Americas School of Mines May 21-24, 2013 Los Cabos, Mexico
Slide 18
M&A Activity
Full Integration
6/10/2013 19
Integration Blueprint
The PwC integration process follows a sequence of coordinated steps to focus resources and capital on the right activities at the right times.
Pre-Deal Assess synergies, costs, and risks Assess target operations, systems and supporting processes Assess the management team Identify and quantify costs and synergies Identify integration risks & opportunities Identify valuation opportunities to improve the bid Jumpstart the Integration Formulate an initial integration vision Engage resources to lead integration activities Deploy a structure to govern the integration process Capture key insights Obtain operational insights that impact /drive the deal value Identify operational risks that need to be addressed before integration Set the course Articulate the strategy for the combined company Determine the degree of integration and non-negotiables Identify and protect core operations out of integration scope Customize integration structure and approach Designate integration leadership at all levels and establish the Integration Management Office Develop communication plan and execute early communications Pre-Close First 100 Days Post Deal
Design functional and operational "to be" states Identify, value, and prioritize key integration initiatives and synergies Develop leadership and organization structure Assess cultural differences and develop people change program
Consolidate all integration initiatives into an executable plan Ensure plan fits with core business and prioritize with other initiatives Assess resource capacity and requirements Align incentive arrangements with integration objectives Monitor and address dependencies
Maximize value through future state implementation Implement, track and monitor integration execution to ensure deal value capture
Integration Management Office (IMO): Manage risks, issues, dependencies; deploy status reporting and synergy tracking; develop and execute communication plans; monitor delivery against integration strategy. Target identification Announcement Deal close
PwCs 16th Americas School of Mines May 21-24, 2013 Los Cabos, Mexico
Slide 20
Integration Blueprint
People and HR integration activities span the entire deal continuum.
Pre-Deal Assess synergies, costs, and risks Assess target operations, systems and supporting processes Assess the management team Identify and quantify costs and synergies Identify integration risks & opportunities Identify valuation opportunities to improve the bid Jumpstart the Integration Formulate an initial integration vision Engage resources to lead integration activities Deploy a structure to govern the integration process Capture key insights Obtain operational insights that impact /drive the deal value Identify operational risks that need to be addressed before integration Set the course
Pre-Close
Post Deal
Change Management and Communications Planning and Execution Determine the degree of integration and non-negotiables
Identify and protect core operations out of integration scope Customize integration structure and approach Designate integration leadership at all levels and establish the Integration Management Office Develop communication plan and execute early communications Plan for Day One Identify and execute Day One requirements across all functions Identify and resolve Day One risks Develop 100 Day Plan including quick wins Secure resources and implement retention plan Design the future state Design functional and operational "to be" states Identify, value, and prioritize key integration initiatives and synergies Develop leadership and organization structure Assess cultural differences and develop people change program
Execute 100 Day plan Deliver tactical integration projects Deliver quick wins
Create detailed integration plan Consolidate all integration initiatives into an executable plan Ensure plan fits with core business and prioritize with other initiatives Assess resource capacity and requirements Align incentive arrangements with integration objectives Monitor and address dependencies
People, Organization and HR monitor integration execution to ensure deal Integration value capture
Integration Management Office (IMO): Manage risks, issues, dependencies; deploy status reporting and synergy tracking; develop and execute communication plans; monitor delivery against integration strategy. Target identification Announcement Deal close
PwCs 16th Americas School of Mines May 21-24, 2013 Los Cabos, Mexico
Slide 21
Research tells us that 75% of change initiatives do not fully reach expectations*
and the majority of reasons are related to people issues such as: Lack of change management skills in senior and middle management
Specific People Considerations for an integration: Engagement and sustaining business performance Keeping employees informed, engaged and focused on business as usual activities to minimize the performance dip during the transition period Management focus on the right things - Design senior management roles to take into account operational and governance needs and align management team members with common goals/vision Allocation of resources - Determining that key activities are prioritized and that the right resources to the short and long term actions are dedicated. Workforce retention Employees may be uncomfortable or experiencing significant anxiety about moving to a new company and may potentially leave. Ensure that high performers are given the right opportunities. Education and Training - Employees hired to staff the new Company will need time to understand current operations and potentially develop new processes, technology, and provide training and leadership to junior resources.
In addition, research shows other challenges to be: Lack of linkage between changes, benefits and measures of success Competing priorities Organizational inertia Insufficient cross-functional collaboration Resource constraints
*Findings are from interviews with 133 top executives of large, US based multinational businesses; PricewaterhouseCoopers Management B arometer
PwCs 16th Americas School of Mines May 21-24, 2013 Los Cabos, Mexico
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PwCs 16th Americas School of Mines May 21-24, 2013 Los Cabos, Mexico
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Program Management Office (PMO) Project office leadership and support Monitor project objectives and milestones Coordinate activities of functional project teams Assess and monitor resource needs, prioritize Acquisition Support Finance Accounting and Reporting Tax Treasury Forensics Define requirements for functional take control and discovery Identify risks and mitigate with planned actions Assign resources and team roles and drive team activities Develop functional organization design in short and medium term Identify significant change management issues Develop and execute Day One workplans PMO Support Teams Communications Culture and Change Management Synergy Tracking Provide regular Status Reports, issues, and dependencies to the PMO Provide tools, templates and protocols for teams Monitor results and report to the SC
Human Resources
Exploration
Public Relations
Environmental
Legal
Regulatory
PwCs 16th Americas School of Mines May 21-24, 2013 Los Cabos, Mexico
Slide 24
Time Commitment
Large and complex acquisitions such as Targetco require significant resource commitments.
Steering Committee
Led by CEO (or C-Suite Sponsor) driving the deal; key members with decision level responsibility. (5-10% Buyco Time Commitment)
Overall Program Manager named by the Steering Committee as the Project Lead; accountable for the day-to-day oversight, coordinating interdependencies, communicating status to the Steering Committee and overall execution of the planned activities. (100% Buyco time commitment)
Functional Directors or Experienced Managers responsible for the planning and execution of activities for their specific function. (25 to 100% Buyco Time Commitment) Leads a broader group of functional sub-team members and coordinates with Target counterparts. Additional individuals within the same functions as the Functional Leads that help plan and execute initiatives at the working level (25 to 75% Buyco Time Commitment). Regularly report progress and issues to the Functional Lead. Part-time role with periods of high involvement.
Functional Sub-Teams
PwCs 16th Americas School of Mines May 21-24, 2013 Los Cabos, Mexico
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20xx
Develop Integrated Communications Strategy
Day One: Welcome to the Company 4Q XX - 1Q XX+1
20xx + 1
20xx + 2
1Q XX
Compensation Analysis; Develop Incentive Program Strategy Communicate Day One Incentive Communication; Align CLs
Functional sub-team. The activities and milestones Payroll related to these sub-team initiatives are highlighted in the swim lane to the right
Specific one-time milestone to be achieved by the functional sub-team as part of the integration initiatives
Benefits Migration
1Q XX
Oversight - Vendors Conduct Benefits Gap Analysis Open Enrollment Benefits Communication
Policies
1Q XX
Day One
Primary activities necessary to complete the sub-team initiatives and achieve the specified milestones. Only key high-level activities should be captured on this milestone template; other activities will exist as well.
Milestone
Slide 26
Workplan Development
The workplan development process leverages the output from the Integration kickoff meeting to create detailed integration workplans by functional area, including required actions or deliverables.
Description
The integration workplans contain the required actions by function required for deal close, Phase I (45 days post-close), and longer-term. These workplans will help ensure: Value is preserved and shareholders interests are protected Immediate control is secured for required areas Statutory/contractual obligations can be fulfilled Significant risks/issues that must be addressed immediately post deal close are identified Each workstream develops a workplan that is monitored weekly by the Integration Management Office. Ensure critical, time sensitive integration activities across workstreams are identified and acted on by accountable individuals responsible for completion Ensure critical gaps are identified and functional dependencies identified Protect core business operations Functional teams identify and document critical actions, issues, dependencies, decisions required, information needed, and resources assigned to tasks IMO monitors and tracks progress against critical milestones Report to Integration Leader on integration status Integration Workstream Leaders, Team Members, Integration Management Office Started during the Integration Kickoff meeting and completed over a the following few weeks. What are the integration must haves for integration? What are the statutory requirements for Day One? What cross-functional dependencies exist for integration tasks? What critical requirements exist for 90 Days post-close?
Comm. Sales
Traditionally, the cash management function is provided by the OldCo parent. In a carve-out situation, new policies and procedures must be established.
FI.4.1
Objectives
Process
PwCs 16th Americas School of Mines May 21-24, 2013 Los Cabos, Mexico
Slide 27
Status Report
During the first few weeks of the integration, the IMO will roll out integration management tools, templates and processes, such as status reporting, to ensure coordination across functions and geographies.
Overall Team Status Accomplishments / Decisions Made / Next Steps
Completed follow up confirmatory diligence meetings on Wed, Thursday, and Friday covering the following topics: Topic1, Topic 2, Topic3, Topic 4 Completed first pass draft of Integration work plan including the following sub-work streams: Sub-Stream 1, Sub-Stream 2, Sub-Stream 3 Decided to leave any integration activities related to TrialCos Division A business off our integration work plan Assigned resources to identified sub-work streams including: A Smith (Stream1), B Johnson (Stream2), P Milch (Stream3) Next Steps Schedule follow up meetings with TrialCos functional team to continue to answer open diligence items and continue to develop integration workplans - Tuesday: Onsite to cover Topic 1, Topic 2, Topic 3 - Wednesday: Telephone calls to cover: Topic 1, Topic 2, Topic 3 Incorporate IMO and executive feedback into draft Integration Work plans and make final edits Begin to populate Value Driver templates with expected synergies
Status as of: 10/27/2011 Team Lead(s): Axcan T. Walsh Eurand A. Smith PwC J. Thompson
HR ET Comms
Assigned To
T Walsh John Doe M Shah M Shah
Need By
12/19/11 12/19/11 12/16/11 12/16/11
Complete?
N N N N
Critical Dependencies
Talent Assessment Guidelines and Process Consolidated systems to support a integrated AP function Day One calendar of key messages and medium
Upcoming Milestones
1 Integration Kickoff Workshop 2 Draft Integration workplans 3 Draft Value Driver cases
Due Date
12/09/11 12/19/11 1/1/12
Complete?
Y N N
Status
G Y G
PwCs 16th Americas School of Mines May 21-24, 2013 Los Cabos, Mexico
Slide 28
Issue Log
An issue and dependency log will be used to track issues as they arise and their subsequent resolutions. Tracking critical dependencies ensures that all workstreams are coordinated and aware of the status of dependent activities.
Issue Resolution Log
Issue #
1.
Issue title
System Conversion Customer payment term rationalization Carrier selection procedure Vendor setup
Issue description
Determine if single/dual track approach will be implemented How to reconcile disparate payment terms when rationalizing customer records.
Proposed resolution
Hold meeting with RW Supply Chain, Finance, Cust Svc to discuss options. Business decision required by Commercial leadership team. Discuss when conducting UM conversation, since business leaders will be on the line.
Issue owner
T Jones
Status open/closed
Closed
Priority (H, M, L)
H
Due date
4/18120
2.
A Doe
Closed
4/9/12
5/2/12
3.
Test system when carriers are Procedure to define which not assigned, what does that carrier to use mean for shipping group (Test Procedure) Confirm w/T Smith that Supply Chain will enter vendors for AP A/R conversion will occur after customer orders are entered. Orders will need to be reviewed to ensure none are on credit hold. Discuss resolution with K Thompson After orders are entered and A/R is converted, review sales orders to ensure none should be held due to credit holds. Review RS1 in-process test results report to ensure SystemX has sufficient capability. Possibility of creating new report depending on level of effort.
B Smith
Closed
4/9/12
6/20/12
4.
A Doe
Open
4/9/12
4/11/12
5.
B Smith
Closed
4/9/12
4/25/12
6.
RS1 produces in-process RS1 in-process test result that may need reporting to be replicated in SystemX
B Smith
Closed
4/10/12
5/2/12
PwCs 16th Americas School of Mines May 21-24, 2013 Los Cabos, Mexico
Slide 29
Provide dates as to when these savings and costs will commence Identify an individual that will be responsible for tracking the results for each of the savings/costs initiatives
Financial Impact Summary FY11 FY12 FY13
Synergy Analysis Worksteam Workstream Owner Sub-Workstream Sub-Workstream Owner Key Activities Consolidate Organization Terminate Target Compliance Audit Eliminate Satellite Processing Center Third Party Service Consolidation
(290)
200 (90) (45) 1195
(225)
200 (25) (50) 1200
Net Recurring
Net EBITDA impact Capex Potential Risks
1150
1060 (10)
1150
1125 (20)
Key Assumptions One additional resource will be required in Anytown, CA to support the additional volume XYZ Business Unit will remain standalone
Ensure consistent and seamless transition of functional support Employees critical to the integration depart earlier than required 4Q 11 1Q 12 (180) (80) 2Q 12 (80) (50) (30) 200 200 (15) (15) 265 250 15 (10) (10) 3Q 12 (30) (30) (15) (15) 465 450 15 4Q 12 (15) (15) 465 450 15 FY 12 (290) (130) (60) 200 200 (45) (45) 1195 1150 45 10 10 FY 13 (225) (225) 200 200 (50) (50) 1200 1150 50 (20) (20)
PwCs 16th Americas School of Mines May 21-24, 2013 Los Cabos, Mexico
Slide 30
Culture Assessment
A four-phased approach is recommended for rolling out a series of culture integration initiatives over the course of the integration. In order to accelerate the integration and leverage interdependencies, the phases would run concurrently.
Culture Assessment
Research legacy cultures Identify key cultural attributes required for the future Analyze change impact
Communications Plan
A well structured communications plan minimizes the unknown; keeping key stakeholders engaged and informed throughout the integration process.
External Communications
Global and N.A. Press Releases announcing deal Cascade of Internal and External Communications
Global and N.A. Press Releases Global and N.A. announcing Close Press Releases Letters to all announcing customers regulatory approval Joint calls to Cascade of Internal common customers and External Communications
Analyst briefings Meetings with key accounts Planning meetings with vendors/JBRs/ Key Relationships Advertising, PR, updates to websites
Brand campaign Sustained marketing and advertising around combined products, services and people
Announcement Email to all staff with FAQs and Ask a Question button
Day 1
Day 30
Day 100
Webcast for all employees Manager Briefings Start the Countdown to Day 1 campaign
Webcast Training for On-boarding buddies Townhall via webcast Leader and manager Briefings
New leaders virtual or video webcast Employees Townhall live and via webcast Cascade of employee communications Launch Microsite My First 100 Days
Focus groups or interviews with new employees Knowledge Sharing and Connectivity events Planning around Business Development opportunities New Joiner Survey and/or Pulse Check
Internal Communications
PwCs 16th Americas School of Mines May 21-24, 2013 Los Cabos, Mexico
Slide 32
Synergy Tracker
Our proprietary Synergy Tracker tool is designed to monitor synergies to ensure targeted financial and non-financial benefits of the integration are delivered. It also identifies cash versus non-cash impacts indicates the ability to grow the business and reward the shareholders.
Synergy Tracker Tool Description
Capturing Deal Value Structures the collection of costs and savings by using standard templates and terminology Accumulates information from teams in a standardized format and allows central quality control Consolidates information and reports financial impact of integration activities Monitors progress of detailed integration tasks, creating accountability for achieving individual synergy targets Allows central quality control for accuracy of purchase accounting treatment, duplicate/missing tasks and standard assumptions Customizable for each integration based upon chart of accounts, report format, locations, value drivers, etc. Prepare financial model and identify potential costs and savings Assign functional ownership for synergy targets Revised synergy targets based on more detailed analysis Develop business cases for significant synergy initiatives Identify counterparts and validate synergy targets Include value driver business cases within integration workplans Deploy tool for tracking synergies Establish reporting cadence and communicate to owners Track progress of actual results versus targets
Process
Value Driver initiative owners, Integration Management Office, Integration Leader, Executive Steering Committee Once synergy plans (Value Driver Business Cases) are developed How will results be tracked and reported? What reports does management need or desire? How will synergies be communicated to stakeholders?
PwCs 16th Americas School of Mines May 21-24, 2013 Los Cabos, Mexico
Slide 33
M&A Activity
Hostile Acquisition
6/10/2013 34
Requirements
Experience with taking control under hostile circumstances. Resources beyond what you have internally. Access to a talent pool that can deal with the unforeseen. Good understanding of the mining industry. A plan and resources that have the flexibility to deal with changing circumstances. A governance model that facilitates rapid communication and mobilization. Resources in the target territory that understand the local environment and culture sensitivities. Ability to get more done than what time would seem to allow.
Level of Risk
In Transit Goods
Operating Assets
Inventory
Level of Hostility
PwCs 16th Americas School of Mines May 21-24, 2013 Los Cabos, Mexico Slide 35
Plan for Day 1 Taking Control Determine critical activities required to ensure control of various key areas: Operations (Enviro, Safety) Assets Treasury and banking Compliance Reporting People IT Address legal issues to gain control faster Secure Resources to Execute Identify nature of expertise required Determine location and timing of need Assess both internal and external resource options Develop clear plan of action for first few days
Programme Management Office (PMO): Manage risks, issues, dependencies; deploy status reporting and progress tracking; develop and; monitor delivery against acquisition strategy. Prepare for close Take control Stabilize
PwCs 16th Americas School of Mines May 21-24, 2013 Los Cabos, Mexico
Slide 36
Conclusion
Many acquisitions go bad upon execution rather than at a strategic level. Closing a transaction is the starting line not the finish line. A thoughtful and disciplined approach to post closing activities is imperative. Focus, measurement and accountabilities are all important to making a successful acquisition.
PwCs 16th Americas School of Mines May 21-24, 2013 Los Cabos, Mexico
Slide 37
Thank you
This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
2013 PricewaterhouseCoopers, S.C. All rights reserved. PwC refers to the Mexico member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.