M&A Integration

February 2007
M&A Integration
A mergermarket report on issues surrounding
post-deal integration for European companies
In association with:
Contents
Introduction
Forewords
M&A Integration Survey Findings
M&A - A Game of Skill not Chance IBM
13
Unlocking Potential CMS Cameron McKenna
16
Investor Relations Survey Findings
21
Hedge Funds A worrying Factor in the

M&A market? Georgeson
28
Notes & Contacts
31
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Introduction
With M&A activity so pronounced in Europe over the past two years following a decline in the
early part of the decade, the spotlight has fallen once again on the need to conduct post-deal
integration quickly and effectively, and to demonstrate a protection and enhancement of business
and shareholder value. A significant difference between the current and forecasted M&A market
and the M&A bubble of the late 90s is the performance of the capital markets: in the past, a
bullish global market all but guaranteed a rise in shareholder value, in many ways disguising how
effectively integration served to build a strong underlying foundation for the business. This is no
longer true - and the market is more aware than ever of M&A that does not deliver value.
In light of this increased attention, we are delighted to
publish M&A Integration - in association with CMS Cameron
McKenna, Georgeson and IBM. The aim of the report is
to provide the reader with an insight into the integration
experiences and views of senior European corporates who
have carried out M&A programmes in recent years. We
explore their rationale for and approach to M&A integration,
and hope to illuminate some key factors in determining a
successful merger.
Furthermore, we conducted a survey of 20 heads of Investor

Relations regarding proxy solicitation on M&A transactions,
and how pre-deal shareholder issues impact on post-deal
success.
CMS Cameron McKenna, Georgeson, IBM and
mergermarket hope you find this report both interesting and
insightful, and would welcome any questions, comments or
feedback you might have. Full contact details are available at
the back of the report.
We interviewed 80 C-level corporates for our survey: 20

CEOs; 20 CFOs; 20 COOs; and 20 IT and HR Directors. All
had undertaken M&A transactions in the past 3 years.
M&A Integration, February 2007
Two-thirds of the CEOs we interviewed expect their organisations to be

inundated with over the next two years. Some writers and analysts,
like Tom Friedman, view the world as
. Others, like ,
assert that its spiky. But virtually everyone agrees that the topography is
fundamentally . The forces overturning the status quo are many
and varied. At the top of their list, CEOs mentioned market forces such
as and unexpected market shifts. But there were more.
CEOs told us that workforce issues,
, regulatory
concerns and are all bearing down on their organisations,

forcing significant change. We believe that their views are justified.
Something tells us
youll want to fill in the blanks.
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ibm.com/special/uk/ceo
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IBM, the IBM logo and What Makes You Special? are registered trademarks or trademarks of International Business Machines Corporation in the United States and/or other countries.
Other company, product and service names may be trademarks or service marks of others. 2006 IBM Corporation. All rights reserved.
Foreword
It was late Friday evening, and, rather than leave for his usual round of golf, Simon was still
at his desk fighting fires. For one of the few times in his career, he was stumped. The friendly
acquisition by his company of their closest competitor, completed three months ago, had gone
extremely well. Everyone from outside investors to his top management team had commented
on how thorough the due diligence and negotiations had been.
The two groups had a complimentary range of products and
skills, opportunities for cost-cutting were spotted early, and now
everyone were doing what was key staying focused on the
business. Why was it then that almost every day some new
problem cropped up? The first months data showed an alarming
drop in on-time order fulfilment. On Wednesday he had been
told that, rather than being easy to integrate, the IT department
was going to need an extra 500,000 and twelve months to sort
out the mess. And now, to top it all, his long-standing FD had
just resigned, saying somewhat cryptically that he just couldnt
carry on working this way, and could no longer see a long-term
future for himself in the new firm. That makes the fifth senior
resignation since the merger, four of whom were in fact prior
employees of his own company.
It remains an established fact a majority of all mergers or
acquisition fail to reach the value goals set by top management.
While the figures are improving, this survey clearly demonstrates
that there remains some way to go many respondents stated
for example that their most recent deal did not significantly
improve factors such as operating cost, customer satisfaction,
staff turnover, or share price, reasons often cited pre-deal in
support of the acquisition.
What is clear is that a majority of deal failures are not due to poor
selection of business partner, nor ineffective negotiation of the
deal. More often than not, mergers and acquisitions fail to deliver
because of poor post-deal integration. Failure comes in many
forms: an inability to secure the cost savings anticipated, loss of
customers, a reduction in combined shareholder value, or even an
embarrassing de-merger twelve months on. In some cases poor
integration of an acquisition has been directly responsible for the
ultimate collapse of the business. Recent high-profile examples
of troubled mergers abound, from HP Compaq to AOL Time
Warner to DaimlerChrysler. In all of these cases, it is now widely
recognised that success or failure was determined largely by their
ability to integrate quickly and effectively.
So why is successful integration so elusive? Several obvious
trouble spots tend to quickly appear loss of business focus,
difficulties with IT, defection of key talent, conflicting working
practices, and unaligned HR policies, especially in the area of staff
remuneration. But these are only symptoms of deeper issues, and
to deal with them, an understanding of root causes is necessary.
This post-merger integration survey provides some interesting

insights and benchmarks into what management found key
to integration success, both before and after deal closure. It
highlights areas where management effort is typically focused
during the process, who is typically involved at each stage, and
when key activities such as combined business blueprinting
are typically conducted. In line with other research, the largest
problem areas continue to centre around people, specifically
around softer issues such as culture, executive leadership,
clarity across the business of the future vision and strategy, and
insufficient communication of specific objectives to be delivered
through the acquisition. On the harder side, the survey also
tells us that some management teams fail to take sufficient time
up-front to fully understand the way in which integration impacts
all facets of an organisation, how to deal practically with this
complexity, and how to prioritise the truly important vs integration
distraction. Comprehensive, advanced planning and structured
execution continue to rank highly as critical success factors.
Acquisitions are once again playing an increasingly major part
in the growth strategy of most businesses. This trend is likely
to accelerate over the coming few years due to factors such
as the relative availability of cheap debt, the rise of private
equity activity, and the consolidation and global expansion of
businesses within emerging economic areas including Brazil,
Russia, India and China. What differentiates this recent surge
from the M&A boom of the late 90s is the fact that todays
more volatile stock markets cannot be guaranteed to hide the
impact of a poor integration. For some, the increasing financial
transparency brought on by Sarbanes-Oxley also requires a more
open view of acquisition and integration performance.
Successful acquirers always remember that the benefits of
mergers and acquisitions do not come automatically once a
deal is closed. Completing an acquisition only buys you the
opportunity to generate value in your business, integration is
what delivers it.
Carlos Keener
Post Merger Integration Specialist
In fact, understanding is what sets us apart. It grows from the great relationships
we have with our clients, and it means we can respond in a clear and focused way.
And the result? We deliver better legal solutions to your commercial problems.
A key strength is the way CMS Cameron
McKenna gets to understand our business
by getting to know us.
Commercial Director,
leading construction firm
They were very knowledgeable, very responsive.

Great people to deal with.
General Counsel,
financial services
We call it the power of understanding.

www.law-now.com
CMS Cameron McKenna LLP
Foreword
Lawyers are no strangers to the merger process. For some law firms, a merger of their own business
provides a route to increased opportunity, growth and profit As professional advisers, M&A is not an
occasional activity, its our bread and butter.
At CMS Cameron McKenna, we invest a lot of time and
effort in getting to know our clients and their businesses.
We build up an understanding of their industries and their
organisations, and grow to like their people. We become
attuned to the particular styles of individuals. We develop
a nose for the directions that problems come from. All this
makes relationships more rewarding, and more productive.
Sometimes a merger means we lose a client. Suddenly,
after days spent at each others side around the negotiation
table, a couple of scrawled signatures can spell the end of a
long and close collaboration, expressed in trust, respect and
even friendship. But just as often, it heralds the start of new
relationships, new collaborations, new adventures. Who says
M&A is just a transaction?
It is not just the hours spent drafting, or in data rooms, or
in meetings, that help us to help our clients. We know the
need to face compliance issues early, not to use money as
a substitute for treating people fairly, not to forsake existing
business and customers while becoming immersed in an
exciting new project. Above all, we know that mergers need
leaders, with a clear vision of where they want to end up, and
the courage to spell it out and to persuade people to follow.
And we know it will not all be plain sailing. We know this
because the lawyers job is to take care of difficulty and
detail, and to provide thought-through, workable solutions.
We will be involved in all sorts of areas: jumping through
regulatory hurdles, arranging funding, crafting internal
communications, terminating agreements with suppliers,
licensing new software, assessing environmental risk,
harmonising employee terms and conditions, merging
pension schemes, and many others besides. We work
in teams across different legal disciplines, all centred
on our clients.
Some mergers produce an awkward tension between two
seemingly irreconcilable forces: on the one hand, the cleareyed assessment of opportunities for profit and growth; on
the other, an emotional response to the threats of change,
and loss, and difference.
At CMS Cameron McKenna, we understand the need to

address the emotional, human side: the part that views
integration as a contest between them and us, or a cultural
crusade to impose our way of doing everything. We also
recognise the conflict of loyalties when hard-headed plans to
release synergies, efficiencies and cost-savings mean saying
goodbye to blameless suppliers or workers. And we know
the effect on morale when a reliable, if outdated, IT system is
upgraded to something newer and every bit as unpredictable
as it is unfamiliar.
We know too that all the upheaval can ultimately bear
fruit. Sooner than anyone expects, the merged entity will
emerge in a different, altogether better place. The bottom
line benefits come through. Change becomes a friend;
and uncertainty becomes the old word for exciting new
possibilities. Hope breeds success: mergers prove that being
bigger is good because it provides a chance to become better
too. Anyone who wants things to stay as they were will very
soon fall short of rising standards.
As we help to integrate and improve our clients businesses,
the pay-off is in strengthened relationships - and a little
reflected glory too. As we advise, we also learn. We meet
new people; and we get a chance to show what we can
do. We push ourselves to achieve new goals, backing our
judgement and experience. All this makes us better advisers.
It can even be fun, despite the long hours.
The results of the mergermarket survey provide fascinating
reading. They recognise not simply the bottom line by which
any mergers success or failure will be judged but also that
the bottom line does not invent itself: success is the product
of exhaustive preparation, detailed planning, careful research,
agonising allocation of priorities, sensitive handling of difficult
decisions and above all, unwavering vision and leadership
from the top. At CMS Cameron McKenna, we recognise
this recipe for a successful merger because we have helped
make it happen, time and again.
Dick Tyler
Managing Partner
CMS Cameron McKenna LLP

How many entities has your firm partly or
fully integrated into your business over the
last two years?
13%
11%
1 only
2 to 3
4 to 9
10+
28%
48%
The largest share of respondents interviewed 48%

have integrated either two or three companies with
their businesses in the last two years. However, a
narrow minority have only completed one integration
in this time period.
A further 28% have handled between four and
nine integrations within this timeframe, whilst 13%
of respondents have completed a significant ten or
more acquisitions.
EU accession in 2004 has served as a badge of respectability

for Central and Eastern European markets and encouraged
many smaller Western European companies to look at ways of
penetrating these markets. The motives for making acquisitions
include unlocking value, buying lower cost manufacturing
capacity and, increasingly, being able to exploit growing
consumer demand in these markets.
Iain Batty, Head of CEE Commercial Group
CMS Cameron McKenna
When considering your most recent merger or acquisition, to what degree do you believe
the following were important measures of overall success?
2 3
Increased potential for growth
14
Increased profit
12
New customers 4
34
18
19
Increased turnover 4
Enhancement of core business skills or intellectual property
Employee morale
11
18
29
26
15
30
22
27
20
14
29
26
29
35
14
29
33
24
28
20
17
35
22
20
14
31
26
Improved efficiency or reduced complexity of internal ways of working
23
30
22
14
26
23
27
26
Reduced operating cost
14
28
21
Retention of top management or key talent
35
24
19
Increased or retained customer satisfaction 3
36
35
18
11
Improved financial security
33
17
44
23
Increased share price

Increased range of products or services
52
10
2
5
Increased market share
29
12
35
40
60
16
80
3
1
100
Percentage of respondents
Crucial to integration outcome
Somewhat important
Of considerable importance
Not important for

evaluating success
Useful for measuring success
The overall rationale most used by respondents to measure

or justify a recent merger is Increased potential for growth.
This is selected by 52% of respondents as being Crucial to
integration outcome. The second most important measure
of success for respondents is Increased profit, which is
deemed crucial by 44% of respondents.
Looking within different respondent groups, these two

leading drivers Profit and Growth potential are
also top rated by CEOs, CFOs, and COOs. However,
interestingly, among IT directors Improved efficiency
of internal ways of working is second most important,
pushing Increased profit some way down in their
consideration. Meanwhile, in a similar fashion, HR directors
place Increased share price above both Increased profit
and Increased potential for growth.
We have seen a significant shift in the last three years

from purely cost driven objectives towards the desire to
grow revenue. However, delivering revenue synergies often
proves much more challenging than acquirers anticipated.
IBM
Considering your last integration, please rate the following factors in terms of importance
for the integration outcome:
1 2
9
Establishment of the right management team
29
2
4
Strutured execution of integration

Integration planning
Leadership & accountability for integration
11
32
16
1
Speed of integration
51
32
14
Internal communication
59
48
34
14
48
34
42
32
9
Integration-focused due diligence 4
30
31
31
31
25
2
Integration of IT systems & infrastructure
12
Sales & marketing integration
Rationalisation of product portfolios

Branding & public relations
7
4
22
36
34
15
38
11
Integration of HR policies & procedures
24
34
30
11
7
34
26
14
Cultural alignment 3
Supply-chain effectiveness
23
15
Retention of top talent 3

Focus on day-to-day business
28
15
25
16
33
17
36
16
25
24
15
27
29
24
20
13
38
10
42
20
40
24
60
80
6
100
Crucial for integration outcome
Somewhat important
Very important
Not important for

integration outcome
Significant
The Establishment of the right management team

is the most important overall factor for respondents
rated crucial by 59% of respondents. Meanwhile, a
Structured execution of integration is important for 51%
of respondents. Tied in equal third are Integration planning
and Leadership & accountability for integration.
Among the different respondent groups, HR and IT
directors again differ slightly from CEOs, CFOs and
COOs. HR directors place Integration planning as first
consideration. Meanwhile, IT directors place Leadership
& accountability for integration in first place.
It is not surprising that HR directors rate Integration planning

as the most important factor, given the mass of practical and legal
issues they have to deal with in an integration. New laws, like the
ICE regulations, increasingly require employees to be given much
earlier insights into corporate planning. Such early outline disclosure
can be a constructive device both for managing expectations and
smoothing the eventual disposal process.
Simon Jeffreys, Employment Partner, CMS Cameron McKenna
In our experience the one critical success factor is to have a

structured integration planning process. This ensures you put in
place the right leadership and governance, develop appropriate
communication plans, and have accountability for execution. The
risks are substantially reduced if integration planning is started
well before deal completion.
IBM
Considering your last acquisition or merger, please select the areas that attracted most
integration effort:
58
Information technology
Sales, marketing & business development groups
49
Financial management & supporting functions (ie treasury, legal)
49
Corporate values, principles, culture & behaviour
44
40
Product & service ranges
Supply chain operations
37
Employee salary & benefits schemes
23
Corporate branding
16
Research/new product development groups
12
Non-employee policies & procedures
10
0
10
20
30
40
50
60
Information technology is the area that requires the

most integration effort according to 58% of respondents.
Also requiring significant attention are the areas of
Sales, marketing & business development and Financial
management & supporting functions both selected
by 49% of respondents.
Next placed are the less business function related,
more intangible areas such as Corporate values,
principles, culture & behaviour.
It is understandable that IT is perceived to attract the most

effort on integration many of the IT issues are extremely
complex and the consequences of any change in IT can have
a significant impact. The key is how quickly and effectively IT
integration can be achieved in order to achieve additional savings
or efficiencies and understanding the consequences there may be
of not getting it right.
Isabel Davies, TMT partner, CMS Cameron McKenna
IT often consumes significantly more effort than it should.

This effort can be reduced by starting IT planning early
and ensuring IT planning is tightly integrated with the
overall programme management.
IBM
Considering your last acquisition or merger, in what way was your business
different two years post-deal?
3
Increased market share
10
34
Very much improved
38
Improved significantly
2
5
Increased potential for growth
15
10
45
Perceivable improvement
38
Only slight improvement
1
Increased turnover
24
37
29
Not at all improved
1
Increased profit
33
36
25
2
14
New customers
23
Increased range of products or services
15
26
22
Increased share price
29
18
Increased or retained customer satisfaction 4
21
17
38
14
22
31
11
39
21
24
46
20
13
27
32
34
10
Retention of top management or key talent

12
14
Reduced operating cost
Improved efficiency or reduced complexity of internal ways of working
27
13
31
26
25
42
28
13
Improved financial security
33
27
14
Employee morale
Staff turnover
21
37
18
16
52
20
40
60
5
17
80
100
Respondents are broadly very positive about the

acquisitions they have made in recent years. In not
one area does a majority feel there has been less than
a perceivable improvement.
The top three leading areas of improvement are
Increased market share, Increased potential for
growth, and Increased turnover.
Improved financial security and Staff turnover garner
the weakest endorsement, but even here over half of
respondents believe there has been at very least a
perceivable improvement.
Employment law increasingly forces employers to make an

early announcement about redundancies and the new right for
employee representatives to be informed about takeovers (The
Takeover Directive Regulations 2006) only adds to this. British
employers will need to adapt their approach to become more
nearly like that of their continental counterparts. Many of them
have legal environments where deals cannot be concluded or
restructurings implemented until information and consultation
processes have concluded with an agreement.
Considering planning is rated as the most important driver of

success it is surprising how many start their detailed planning
so late in the process. Our experience is that acquirers often
underestimate the scale of change required to deliver synergies.
Once the deal is done they want rapid results but delivering these
without proper planning can be risky and potentially destroy
value in other areas of the business.
IBM
10 M&A Integration, February 2007
At what point in the process did each of the

following activities begin to take place at a
detailed level?
Which of the following individuals or groups

played a leading role in each of the following
steps in the process?
50
80
41
50
60
66
22
19
19
18
10
23
38
14
40
20
30
37
Development
of an outline
'blueprint'
for the
combined
business
16
23
13
100
40
30
41
34
31
20
21
18
Evaluation Evaluation of
of core
IT systems
business
processes
(e.g. supply
chain)
14
13
3
Evaluation Development
of cultural
of formal
differences acquisition
& integration
measures of
success
During due diligence
During integration
Shortly pre-deal
Not at all
10
10
14
13
11
8
8
5
0
Integration
planning
29
21
15
10
1
30
Integration
execution
Integration
communication
Measurement
of integration
success
CEO/MD
CFO
HR Director
COO
IT Director
Shortly post-completion
Perhaps unsurprisingly, respondents prioritise the

Development of an outline blueprint for the combined
business. Two thirds of respondents attended to this
task during due diligence.
Of least relative priority is the Development of formal
acquisition & integration measures of success, which
only 30% of respondents attended to during due diligence.
Instead, a greater 38% preferred to deal with this shortly
pre-deal, and somewhat alarmingly, 7% have not felt any
need for such an activity.
As external advisers on many transactions, the benefits of
getting a greater understanding of the acquisition issues and
integration strategy earlier on are without question. We would
much rather our clients understood and addressed the problems
early on even if that puts them off the deal than have to deal
with an unsuccessful transaction.
Unsurprisingly, according to respondents, the CEO/MD

takes a pre-eminent role in all but one of the steps in the
integration process above. In Integration execution, it is
the COO who is deemed most likely to lead, with the CEO
second most likely.
Meanwhile, in the area of Measurement of integration
success it is the CEO who leads, but very closely followed
by the CFO. This is not surprising considering that the
majority of these measures will be based on financial KPIs.
In transactions involving the separation of related and complex

businesses, the time and effort it takes to determine the best way
to split, terminate and transfer customer and supplier contracts,
or to address procurement or change of control issues should not
be underestimated. Developing and implementing a coherent
strategy in this regard can be critical to the successful sale of the
relevant businesses.
David Bresnick, Corporate Partner, CMS Cameron McKenna
M&A Integration, February 2007 11
Survey Findings
Did you nominate a dedicated Integration

Manager? If Yes, when did he or she
assume responsibility?
What, if anything, would you have done

differently with regard to integration
management?
9%
1%
Pre-deal
22%
Quicker integration
4%
25%
On deal announcement
6%
More communication
Shortly post-completion
Later into the integration
process
Nothing went smoothly
Better planning
7%
HR issues
Better marketing
15%
Cultural factors
62%
13%
19%
Other
17%
The following key themes emerged from respondents answers:
Almost three quarters (74%) of respondents nominated

a dedication Integration Manager as part of their M&A
process.
Among these respondents, 62% did so pre-deal, and a
further 15% on announcement of the deal. A relatively
sizeable 23%, however, were prepared to wait until after
sale completion.
Successful acquirers appoint their integration director

pre-deal. This enables them to start planning earlier and
hit the ground running on day one, giving them a head
start in delivering synergies.
IBM
1. Quicker Integration: start early; pay

particular attention to IT issues
For a quarter of respondents their M&A integration process
could have been quicker. As one respondent remarks: Give the
integration process more speed and targets at the beginning.
For a couple of respondents it is not just a case of a speedier
integration process, but also about starting the process earlier.
The area of information technology emerges as a particular
area of concern. Two respondents in particular mention the
requirement to have earlier involvement of IT people, or
start earlier evaluation of IT compatibility. Meanwhile, another
respondent laments: We should have been much more
challenging of our IT team who turned out to be very weak.
Whilst a number of respondents suggested that things could
have been done more quickly, speed is speed is not a panacea.
Take for example the IT integration. The consequences of getting
that wrong can be significant damage to the existing businesses.
Whilst not being totally efficient, it may be possible, and indeed
better, to run two IT systems in parallel until an optimum
solution is found than to attempt an early IT transition onto the
wrong platform.
For many acquirers IT is a key enabler of synergies. This should

put it at the heart of synergy planning.
IBM
2. Nothing it went smoothly
4. Better Planning
A sizeable 19% of respondents feel that their integration

process could not have been improved. In the words of one
respondent: We have a lot of experience with M&A activities in
the last ten years. Therefore we are convinced that we made no
substantial mistakes in our last business integration projects.
Perhaps inevitably, planning also emerges as an area that

could be improved upon. As one respondent says: Begin
earlier with planning (during due diligence process); be more
strict and focussed on origin planning while excecuting; more
detailed integration controlling and reporting; define earlier
concrete responsibilities of integration team members.
3. More Communication
Another recurrent theme is the need to prioritise and ensure
strong lines of communication between employees and
management, coupled with the cultural meshing required. As
one respondent says: We would have exerted more effort
to explain the reasons behind the acquisition, established a
common vision between the merging companies and shown
more respect for the culture and business model embedded in
the acquired company.
More communication is a theme that runs throughout all the
EU-derived new laws on workplace information and consultation.
Companies need to do as much as they can to carry staff
with them, as well as to comply with their heightened legal
obligations. Notification and consultation with employees can,
and will, drive deal timetables.
The mergermarket survey supports our experience of corporate

clients carrying out strategic acquisitions or buy and build
programmes. Generally, those clients who put the most resource
into forward integration planning and prioritise, in particular,
the integration and management of head count tend to be in a
position to push through the synergy/growth benefits they seek far
more quickly than those who see this as an optional due diligence
activity which can be left and dealt with later.
David Bresnick, Corporate Partner, CMS Cameron McKenna
Most acquirers expect high value synergies from M&A deals;

there are a number of enablers and must do projects; and existing
business must be protected. Whilst these projects are underway the
business structure is changing around them. This requires careful
coordination and needs dedicated resource to deliver value.
IBM
People are at the heart of any merger. At the same time many
staff are at best nervous and at worst already dusting off their
CVs. The more you communicate the more people are reassured
and can engage in delivering the desired outcomes.
IBM
M&A - A game of
skill not chance
Introduction
1. Exposition
Once again, deal activity hits an all time high; the revered
failure statistics trotted out and the old integration chestnut
paraded as the chief culprit. Do we never learn? It is not about
integration. In fact the mere presumption of integration is
enough to cause failure.
Even in the biggest most complicated transactions there are

only ever a handful of true value drivers. And in the faithful
application of such fundamentals to the Transition Strategy lies
the secret of success. But between the euphoria of closing the
deal and the shock of running it, this vital connection is almost
always missed. Nature hates a vacuum and the Integration
Plan rushes in. Weve all seen them, dozens of projects,
hundreds of Gant charts, thousands of activities, all based on
the presumption of integration and, by design, doomed.
Is it a surprise that bringing together two former competitors is

fraught with difficulty? The sheer scale and complexity of the
challenge means that things will inevitably go wrong. And if
your enthusiastic Integration team is diligently executing the
wrong plan, is it a surprise that you spend money instead of
making it?
One investment banker likened the challenge to replacing the
wheels on an aircraft in mid flight. If thats all it involved, the
job would be easy. Try moving the passengers at the same
time, but with all the seats rearranged. How about replacing
the pilot with one trained on a different plane? The CAA wants
your engines to be quieter and more fuel efficient before you
land. And a cheap carrier just cut prices on the same route by
40%. You begin to get the real picture.
So if not integration, then what?

In our experience three things:
1. A brutally honest exposition of the real reasons for
undertaking the journey.
2. An unwavering focus on the destination objectives.
3. Relentless execution of the right Transition Strategies.
It is only by focusing with laser sharp clarity that you can

maintain purpose through the disruption that is a true merger.
And heres the rub - 50% of Integration activities destroy
value. In contrast, building the right Transition Strategy is as
much about what you stop as what you do.
Over the years we have established a structural approach
similar to finite element analysis that first exposes the true
value drivers and then uses them to build the Transition
Strategy. The rigour of this approach maintains design
integrity through legal, financial and operational due diligence,
negotiation, and closure to ensure synergy delivery.
Importantly, it puts you on top of the day one mountain. It
positions you for immediate deployment of key work streams.
It directs you straight into the single most vital phase - doing it
all again or Regeneration. Why is this so essential?
2. Focus
3. Execution
50% of synergies evaporate the instant you sign the deal. Is all
that expensive due diligence worthless? Not necessarily, but it
does have severe limitations. Asking a competitor to disclose
sensitive information which will be used to exercise control
over them is a strange contortion and in a Sarbox world, there
are real penalties for getting it wrong. The result is at best a
murky picture.
With synergy regeneration comes the ability to prioritise

radically those Transition activities that will deliver the
promised value and ensure that you are not deflected from
this purpose. Radical Prioritisation formally engages the most
senior leaders in deciding what Transition projects will be
done, and is the mechanism by which a huge amount of costly
Integration activity is simply stopped.
Moreover, up to the point of ownership yours is the dominant

perspective, often limited, always vulnerable to blind spots.
Time to engage the other side and root out synergies that
wont survive contact with reality. In one of M&As strangest
ironies it is not the list that got the deal done in the first place
- you have to go much deeper and regenerate the list.
So knowing the departure points and key destination

objectives, it remains to chart the migration paths of all
essential elements, both tangible and intangible. This is
where our structural design approach flushes out critical
interdependencies and binds the whole Transition Strategy into
a cohesive programme, focused and prioritised on delivering
the money.
Framing the targets with the new leadership team is the

first challenge. It is a rare group that even when in heated
agreement on the strategic rationale, have hammered out
the practical consequences for Transition. Equipped with this
revised insight, the next step is to mine the business with
the people who know where to look. This is where the real
discoveries are to be made - especially with revenue synergies
What gets measured gets done, so all synergy projects must
have clear business cases. The Transition Director measures
benefits realisation right through to the post implementation
review. The same benefits are also built into revised business
plans and, in parallel, tracked through the line. With this vital
triangulation, we ensure delivery.
Despite this hard won focus many synergies will be lost

without the right Governance. It is easy for the senior team
to be distracted designing the new organisation and making
essential appointments with inevitable delays and disruption.
Another vacuum, and in its presence, people will make
things up in the name of integration squandering value
as they go. Transition Governance, derived from Radical
Prioritisation puts the best and brightest leaders at the head
of critical programmes - fast. At the same time the original
flight plan must be maintained until the new one takes over,
also demanding your best and brightest - exposing by far the
biggest headache - scarce expertise.
Regeneration, Reframing and Mining typically identify

synergies well in excess of the original plan. It is in the
exploitation of these discoveries that we set out to beat
expectations.
M&A - A game of
skill not chance
Transition expertise
Would you submit to the ministrations of a surgeon whose
only experience is you? Unlikely, yet many executives bet the
farm on little or no Transition experience because they know
their business. Of course they do. Transition is another matter.
The more you do it, the better you get. You wouldnt hesitate
to get the best deal advice or due diligence. Why would you
risk it all in the maelstrom of integration?
Summary
In a phrase, Follow the Money. All deals are the same. There
are only ever a few value drivers. All deals are different. Your
drivers will be unique. Structural Analysis* gets to the point
and stays there - so much so that weve patented it. It can
help you beat the odds. So can we.
* IBMs Component Business Modelling process applied to
M&A Transition
Steve Wood
Mergers & Acquisitions Global Leader
IBM Global Business Services
steve.wood@uk.ibm.com
Paul Price
Mergers & Acquisitions UKISA Leader
paul.price@uk.ibm.com
For further information visit ibm.com/gbs/uk
Unlocking Potential
This was a great quarter. By any measure, we hit our stride and demonstrated what the merger was all about.
This was Carly Fiorinas view shortly after completing the
Hewlett Packard / Compaq merger. Others had misgivings,
both at the time and subsequently. It was these misgivings
which ultimately cost Ms Fiorina her job, and the merged
company US $21.4m in compensation.
What was the merger all about? Is success simply the
fulfilment of a mergers original rationale and objectives, or
does it always depend on increased revenue, profitability or
other metrics? Is there a right and a wrong way to measure
success? How long does it take before a valid judgment can
be made?
Rationale
The mergermarket survey reflects CMS Cameron McKennas
own experience that there has been recent buoyancy in the
M&A market, and shares our confidence that M&A activity
will stay high for a while yet. In particular, since EU accession
served as a badge of respectability, many smaller western
European companies have started to look at ways to grow in
central and eastern Europe.
In the UK when we look at M&A activity we often look at
it in comparison to activity in the US and other traditional
western European markets. However we should also compare
activities in other parts of Europe. Companies have continued
to look for targets in the more traditional CEE markets such
as Hungary, Poland and the Czech Republic, but we have also
seen a massive increase in interest in countries further south
and east, across Europe. Our Bulgarian and Romanian offices
have seen greatly increased levels of demand for assistance in
the purchase of companies across a wide range of sectors.
The survey also demonstrates that, whatever their geography,

businesses buy or merge with other businesses to make
money. Rated measures of success are about growth: growth
potential, turnover growth, profit growth, share price growth,
customer base growth, market share growth, product range
growth, IP asset growth. The buyer has seen something that
they believe to be undervalued in the sellers business they
think they can improve on or they see some added value
from the combination of their existing business with that of
the target. This can often turn negotiation and due diligence
into tense affairs, as buyers try not to reveal where they think
the unrealised value is, in case the price starts going up.
The survey also examines the timing of key activities. Ignoring
a tiny minority of respondents claiming not to have addressed
these issues at all, it is reassuring to see that businesses are
bringing forward the moment they start facing up to the main
potential headaches of integration, whether they be employee
issues, pensions, IT or other business drivers. It is the
responsibility of the senior management of both the acquirer
and the target to work together to address these issues, aided
of course by their professional advisers. They also need to
put aside any mixed personal feelings they have about the
transaction and, in some cases, differences of both style and
substance with the other party.
The traditional role of lawyers in business integration is as
executors of a pre-defined strategy decided on by the acquirer
or merging companies. However, our experience indicates
that this is not always the optimum approach. Lawyers are
usually brought in during the pre-deal stage, perhaps to finalise
a term sheet or heads of agreement before full contract
negotiations. However, rather than confining us to this role we
can contribute experience, analysis and insights which go far
beyond mere legal guidance, for instance, in developing the
strategy for integration as well as its implementation.
Unlocking Potential
Key drivers
Problem issues
Mergers and acquisitions take place for a variety of reasons.

They can enable companies to achieve scale and revenue
beyond that which can be achieved organically, open up a
closed market or plug a gap in an existing portfolio. They can
also catapult companies into a different league: so-called
step change acquisitions, such as Morrisons acquisition of
Safeway or RBSs acquisition of NatWest. They can also be
defensive, to keep the target out of a rivals hands, maintain
market position or kill off a new competitor. They may also
occur for cost saving where the sheer scale of the new
business can drive cost savings and efficiencies.
There is a whole host of issues that need to be addressed if

the value sought from any merger is to be released, whether
in markets, products, customers, technology or some other
aspect of the business.
There are other drivers too: the technology sector experienced

a surge of activity in the late 1990s, predominantly driven by
companies looking for new technology and solutions for their
existing businesses. The dotcom boom led to huge premiums
being paid for companies with technology which was
perceived to be leading edge but which was often unproven
or still in development.
Loss of morale or loss of key employees, either within the

acquiring company or more particularly within the target,
can seriously undermine the integration process. There are
those who will automatically think that their career prospects
are limited or that there will be changes they will not like.
It is imperative to establish a positive and encouraging
environment that will incentivise the doubters, and allow the
full benefits of the merger to be realised.
An acquisition can even be driven by other factors. During the

dotcom boom Nortel Networks, a long established company,
acquired internet start-up company Bay Networks. Nortel
identified the target company for its technology and its new
Silicon Valley culture and business methodology to enable
Nortel to adapt its corporate culture. Today companies also
acquire for reasons such as speed to market or a new type or
geography of customer (eBay and Skype). The acquisition of
MySpace by News Corp gave News Corp an immediate leap
into the internet to rival both Google and Yahoo.
As the survey shows, a range of strategies drives mergers; but
acquisitions to increase profitability may only achieve a shortterm spike unless the acquirer can ensure a pull-through
transfer of the targets experiences and practices to its own
organisation. Other acquisitions, say to increase market share,
may seek a push-through transfer of an existing business
practice to the target. Either way, the key measure of success
is whether the desired benefits can be realised within a
sufficiently short timescale to prevent the destruction of value
through a protracted and problematic integration process.
A number of the key issues in any merger integration strategy

relate to the human element. There will be a due diligence
and verification process involving a thorough investigation of
the targets workforce in terms of headcount, payroll cost,
statutory and contractual rights but the real value lies in a
separate exercise: addressing the wider strategic and business
impact of employee issues at an early stage.
This requires early assessment of whether the cultures of the

two organisations are compatible. It also requires effective
leadership to ensure that morale and drive is maintained
throughout the integration process. Good and regular
communication can go a long way towards giving people the
reassurances they need. Most difficulties are better faced
than feared; and most rumours expand to fill a vacuum.
There may be commercial, regulatory or confidentiality
considerations which make it difficult to reveal the full
underlying logic of the transaction. On the other hand, painting
a picture of a profitable combined future could be exactly what
is needed to quell employee insecurity and unrest. Sell them
the benefits, as the marketers would say.
Some kind of communication may anyway be required

as part of workforce consultation or as part of regulatory
requirements. This should generally be started at the earliest
opportunity. Across Europe, there is a wide variation in the
extent to which employee representatives (trade unions or
works councils) have rights to be informed and consulted
about mergers and acquisitions. Some benchmarks have been
laid down by the European Union, principally the Acquired
Rights Directive (ARD) which has been around in various
forms since 1977 and applies to asset deals, but the European
Works Council Directive may apply in some cross-border deals,
and more recently we have had the Takeovers Directive of
2004 which applies to share deals.
There is a wide divergence in the way in which member
states have implemented requirements of the ARD such
as the information and consultation aspect. For example,
in France the transfer of ownership does not take effect
until the necessary process of informing and consulting the
representatives has taken place; but in the UK, the deal can
be completed whether or not representatives have been
consulted but a default penalty of up to 90 days pay is payable
to the affected employees.
Irrespective of the differences at national level, ensuring good
relations with the current and future workforce can sometimes
not just be a matter of best practice but of vital commercial
importance. Some aspects of the consultation process may
have to be carried out with a view to reaching agreement.
However, avoid putting yourself in a position where the
whole transaction is conditional on employee negotiations.
If more than a few redundancies are contemplated, there
are statutory timescales that must be observed, which may
also affect the progress of the transaction. There may also
need to be a harmonisation of terms and conditions. The law
does not always make this easy to achieve. Upwards-only
harmonisation could be prohibitively expensive. Downwards
harmonisation could lead to a barrage of claims.
A related and equally significant area is pensions. As

much time can be spent on pension issues in a merger and
acquisition process as can be spent on the acquisition itself.
This is not surprising given the figures involved: the cost
of addressing pensions issues can comprise a significant
proportion of the overall transaction value. Deals can fold due
to the impact of pension deficits.
For example in the sale of the business of Marconi to Ericsson
in 2005, the treatment of the 2.7 billion fund was a prime
consideration and the sale was only approved by the Pensions
Regulator once arrangements for protection of the scheme
were agreed. These involved a substantial initial contribution
in the scheme and a 500 million escrow account which
could only be distributed after any further amount required by
the pension scheme had been paid. Expert advice is always
needed to understand the full pensions implications of a
transaction, from future funding requirements to scheme
closure. Last minute negotiations may help to round the
edges but pensions can easily make or break a deal and
cannot be ignored.
Arrangements with customers of the target also need detailed
investigation. Contracts with customers of the target may
include provisions that allow the customers to terminate or
renegotiate their supply arrangements following a change
of control. Often, when the target is not a company but the
underlying business, then the transfer of the contract with the
customer may require the consent of the customer. If such
consent was not to be forthcoming, the loss of the contract
or key customer could greatly affect the profitability of the
business being acquired so it is essential to make a realistic
assessment of any potential impact on top line revenue
through the due diligence process and then to formulate a
mitigation strategy.
Unlocking Potential
Ensuring that customers are comfortable with the

prospective transaction, while working within the boundaries
of confidentiality and disclosure requirements, can be an
enormous challenge. Some customers can feel offended if
the first they hear of the acquisition is in the media, which
means that discussions get off on the wrong foot and may be
difficult to retrieve.
It may be perceived that lawyers have less to contribute to
customer and market issues but it is impossible to overstate
the importance of detailed investigation and analysis by those
with broad and deep experience of the commonly-occurring
issues affecting the particular market sector and transaction
type. The due diligence process will cover all the key aspects
of the business, including supply arrangements, sales or
business contracts, intellectual property rights and IT, many of
which have a large market-facing element.
As the transaction proceeds and the experts are scouring
the paperwork, it is important to ensure that the existing
businesses of both acquirer and target are not left
unattended. This can often happen in large transactions where
management has such a job of integration that the existing
business may suffer. The acquisition of Safeway by Morrisons
was so significant that initial results following the merger
suggested that not only was the target business affected, but
so was the underlying Morrisons business. The merger was
impacting the core business. The main lesson to be learnt
is the compound effect this can have, not just in immediate
loss of sales and morale, but in market jitters and longer-term
damage to the integration itself. More recent results are
encouraging, suggesting that the merger, after a sticky start,
may be beginning to pay dividends.
Equal care and attention must be shown where the target is
dependent on a particular supplier for a key component or sole
source arrangement. Although a supplier will not want to walk
away from a significant revenue stream, it may be in the same
or similar business as the acquirer and reluctant to supply to a
competitor. These situations are not insoluble, but they need
to be identified and dealt with decisively.
The survey identifies IT as the issue needing the most

integration effort, even though it is not necessarily viewed
as an important driver of the transaction. In our experience
at CMS Cameron McKenna, it is more important to get the
IT integration right than to get it done quickly. There is often
no reason why two or more IT systems cannot be run in
parallel for a while. This may not be the most efficient way
of operating but it can be a lot less risky and expensive than a
hasty and botched implementation of a poorly thought-through
IT integration strategy. It may be that the acquirer is working
on one financial accounting system whereas the target has
just implemented another. What is the best long-term solution
for the combined group? It may be that the target has more
efficient systems which it would be sensible for the acquirer to
adopt, even though this would involve the tail wagging the dog.
Where IT is outsourced, there may be other considerations.
There may be two different outsource providers. The acquirer
may be looking to exit one of the arrangements, or to bring
them both under one roof. Careful consideration should be
given to the consequences and implications of doing so.
In addition to IT audits in corporate transactions an Intellectual
Property (IP) audit can provide a springboard to the
understanding, integration and rationalisation of IP within the
merged organisation. This not only relates to IP in the context
of IT but across the board, not least as highlighted by the
survey in the area of corporate branding.
Compliance can also create unexpected problems. In a recent
acquisition, the acquirer put its own regulatory compliance
into question simply because the target was not compliant
with Sarbanes Oxley reporting requirements. It is necessary
to understand the processes and procedures of the target
because wholesale changes may be needed to ensure that
the acquirer remains compliant with regulatory requirements.
Early planning and action will invariably save more time and
expense than they create.
The survey also reveals some interesting views about where

integration brings success, and where it doesnt. The findings
indicate that the financial/growth drivers for integration are
generally achieved within a couple of years but at an obvious
human cost of job losses, job insecurity, lower morale and
new ways of working. This may be what made the target
attractive in the first place: the growth opportunity existed
because the business was poorly managed, with too many
unproductive staff and insufficient technology. Mergers can
keep the HR and IT functions extremely busy in thankless,
under-recognised roles. Businesses can suffer considerable
reputational as well as financial damage if they fail to handle
systems migration properly. The same is true of workforce
reductions, especially given the protections available under
redundancy, unfair dismissal and discrimination laws, to
name but a few. These issues can also become a significant
distraction for senior management.
The survey clearly demonstrates the importance of leadership.
The drive for integration has to come from the very top, or
the difficult tasks will not be given enough priority. Facing
up to the most difficult issues is what leaders are there for.
According to the survey, the CFO achieves a heightened
importance at results time: success is clearly based on
financial metrics, not hygiene factors such as headcount, sales
volumes or systems improvements. The other members of
the leadership team are less conspicuous: like the lawyers,
they are often hard at work behind the scenes, doing a series
of thankless tasks that wont grab the headlines but still need
to be done. Indeed, this is often where increased growth
or profit comes from: it doesnt just magically appear out of
thin air, it is achieved through systems integration, customer
focus, overheads reduction, workforce realignment and other
unglamorous activities.
And lessons learned? The 19% of survey respondents

claiming they would do nothing differently next time round
are not to be believed. The more popular experience is that
integration needs to be planned earlier and an execution
strategy identified sooner rather than later. The call for better
communication also rings true: people are naturally resistant
to change and will fight integration unless they are shown a
positive vision of what their own future will look like and are
persuaded to welcome it rather than adopt guerrilla tactics to
spoil it and slow it down.
Finally, as we lawyers would say, capital invested in a wellplanned integration is money well spent. Of course, it must
be kept under control because it impacts on profitability and
therefore on success. However, experience tells us that the
most important aspects of business integration are usually
the most difficult. Expect these to cost money and take time.
Experience also tells us that the smartest money is often spent
earliest on strategy, on planning and on thorough due diligence.
Detailed work at the outset may well identify the hidden
costs of the transaction. These hidden costs can include
the cost of closure of competing product lines, IT costs for
continuing to run parallel systems, regulatory compliance costs
and many others. If these costs and risks are uncovered at the
right time, they can be reflected in the purchase price. It is not
until you know the worst about what you are buying that your
hard work can really begin.
| CERTAINTY | INGENUITY | ADVANTAGE |
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Cas Sydorowitz
Managing Director > Corporate Advisory
Georgeson Shareholder
68 Upper Thames Street
London EC4V 3BJ UK
Phone: +44 (0) 870 703 0302
Mobile: +44 (0) 7810 750 442
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cas.sydorowitz@georgeson.com
www.georgeson.com
Proxy Solicitation > Asset Reunification > Information Agent > M & A Advisory Services
Which party in your average M&A transaction

makes the final selection of a proxy solicitor?
How important is it for you to communicate

with the following stakeholders?
100
41
Company director
(CEO or higher)
24
Company
director (IRO)
24
Company director
(Comp Sec dept)
18
Financial advisor
18
Corporate banker
30
80
60
100
40
10
20
30
40
50
17
30
10
22
22
35
30
30
45
Foreign
shareholders
ADR
holders
15
10
10
15
Employee
shareholders
Retail
investors
Private
client
brokers
0
Institutional
shareholders
10
30
15
20
10
11
15
0
25
30
12
Legal counsel
28
Note: some respondents selected more than one reponse to this question
Crucial
Slightly important
Very important
Not Important
Important
According to 41% of our survey group of investor relations

directors, the selection of the proxy solicitor1 is typically
made by the Corporate broker. That said, this selection
process may also be made directly by someone in the
company, either in the guise of CEO (24%), Investor
relations officer (24%) or Company secretary (18%).

A specialist (firm) hired to gather proxy votes.
The evidence that in many cases the corporate broker

recommends the proxy solicitor, and that the decision is
made at a very senior level highlights the importance of
the role in an M&A transaction.
Cas Sydorowitz
Georgeson, Managing Director > Corporate Advisory
Given the dominant share of company ownership that

Institutional shareholders usually hold, it is perhaps
not surprising that respondents are unanimous on one
thing: the primacy of communicating with institutional
shareholders. Indeed, every single respondent believes it is
crucial to communicate with this group.
By contrast, other stakeholders are given markedly less
importance by respondents. Nevertheless, a sizeable
60% of respondents believe communication with Foreign
shareholders is either Crucial or Very important.
Employee shareholders are crucial or very important
with 55% of respondents.
The survey results confirm that issuers agree on the
overwhelming importance of reaching out to their institutional
shareholder base, with a particular focus on the foreign
component. This is commensurate with Georgesons experience
with the relative weighting of institutional ownership as part
of the issued share capital in most companies, and with the
complexities of cross-border voting.
Cas Sydorowitz
To assess the position of your shareholders on

the offer, have you used the proxy solicitor/
information agent to communicate with
either institutional or retail shareholders?
If so, who appoints the proxy solicitor/

information agent at the pre-deal stage?
100
58
IR department
80
44
Corporate
broker
50
50
Financial
PR agency
60
44
25
44
Corp sec
17
CEO
17
40
56
50
20
Investment
bank
8
0
Institutional
shareholders
Retail
shareholders
Yes
Respondents are evenly divided over using proxy solicitor/

information agents when communicating with either
institutional shareholders or retail shareholders.
Georgeson has seen a marked rise in the importance attached
by issuers to retail shareholder sentiment on transactions. As a
result, we have been retained on numerous occasions to flank an
institutional solicitation campaign with an information agent
role geared towards private investors.
20
30
40
50
60
No
Cas Sydorowitz
10
Note: some respondents selected more than one response to this question
If a proxy solicitor/information agent is appointed for

communication with shareholders at the pre-deal stage,
it is often a collaborative decision, with most likely the
IR department taking a decision 58% of cases, or a
Corporate broker in 50% of cases. Meanwhile, in a
quarter of instances a financial PR agency will have input.
Do you know which hedge funds are buying/

selling your stock during a transaction?
Yes
25%
When do you actively engage your retail

holders or private client brokers?
Yes, during the year
20%
No, we let that community

come in on their own
It depends/sometimes
No
Yes, during a
transaction only
40%
50%
30%
35%
The largest share of respondents (40%) are aware of

which hedge funds are either buying or selling their stock
during an M&A process. As one respondent explains, this
awareness comes through our share registrar, the broker
and also direct contact with the hedge funds themselves.
A further 40% of respondents, however, feel that
awareness of hedge funds buying activity is incomplete
at times. One respondent in particular says: yes and no,
it depends on which hedge funds are involved; whether
we have a relationship with the hedge funds and the size
and level of dealings. Meanwhile, another respondent
adds that It depends how their stock is registered, if its
via a CFD it is difficult to trace transactions via the register.
Half of respondents actively engage retail shareholders or

private client brokers during the year. A further 20% do
engage these parties, but only during an M&A transaction.
Meanwhile, 30% of respondents leave these groups alone.
Georgeson has seen a marked rise in the importance attached
by issuers to retail shareholder sentiment on transactions. As a
result, we have been retained on numerous occasions to flank an
institutional solicitation campaign with an information agent
role geared towards private investors.
Cas Sydorowitz
Otherwise, a quarter of respondents do not know which

funds are trading. As one respondent says: No, we dont
care. Its more important to get involved with institutional
and retail shareholders.

Corporate actions questions
What are the key determining factors
when considering an information agent/
proxy solicitor?
During an M&A transaction, under what

circumstances would you consider selecting
a Receiving agent other than the incumbent
Registrar to the target?
100
13
18
80
12
35
60
Company relationship
with non-incumbent registrar
37
35
63
Hostile
56
46
50
Services
44
40
53
31
35
18
31
25
Price
20
Adviser relationship with

non-incumbent registrar
12
6
6
Level of
acceptances
required
Size of
retail
holders
18
13
6
Percentage
held by
foreign
investors
Number
of irrevocables
13
Others
0
10
20
30
40
50
60
70
Note: some respondents selected more than one reponse to this question
Crucial
Slightly important
Very important
Not important
Important
A majority of 63% of respondents are most inclined to

employ a Receiving agent when an M&A situation is
hostile.
The most important determining factor for respondents
when selecting an information agent/proxy solicitor is the
Level of acceptances required. 88% of respondents select
this as either Crucial or Very important.
Determining factors in the decision over whether to use a
proxy solicitor are key elements that show a direct linkage to the
transaction itself, and to the shareholder base in question; in
most cases, there is a clear, quantifiable rationale for the role.
Cas Sydorowitz
Otherwise, 56% of respondents would select a Receiving

agent if there was no incumbent Registrar to the target.
This finding supports the logic behind adding the considerable
resources of a proxy solicitor to augment services provided by the
incumbent registrar for shareholders with questions. There is
a clear differentiation between service level and type offered to
holders with questions regarding their shares, and those relating
to the transaction at hand.
Cas Sydorowitz
80
On M&A transactions where the target

company will remain listed, how important
are the following factors in your selection
of a Receiving agent?
If a bidder from abroad targets a listed UK

company and the offer consideration includes
shares, how would you rate the importance
of the following factors in the selection of a
Receiving agent and ongoing Registrar?
100
100
13
13
29
15
60
34
43
39
47
23
20
15
15
29
20
20
25
6
21
13
80
Annual
Value-added
register
services
maintenance (e.g. proxy
fess
solicitaion)
33
26
Company
relationship
with
Registrar
Crucial
Slightly important
Very important
Not Important
Important
The leading considerations when selecting a Receiving

agent are cost based: the Receiving agent fees or the
Annual register maintenance fees. That said,Value added
services that a Receiving agent can offer, such as proxy
solicitation, are also important for respondents.
50
58
40
42
25
8
20
8
13
Adviser
relationship
with
Registrar
17
33
60
0
Receiving
agent
fees
17
25
80
40
14
23
15
8
Price
25
17
Depository
interest
expertise
International
presence
Relationship
with Registrar
Crucial
Slightly important
Very important
Not Important
Important
When an overseas bidder is targeting a UK company, the

core consideration in the selection of Receiving agent and
ongoing Registrar is Price 33% of respondents rate this
as crucial.
The second most important consideration with 25% rating
it crucial is Depository interest expertise. International
presence, whilst very important for 58% of respondents, is
deemed crucial by only 17% of respondents.
In a contested bid situation, how comfortable

would you feel in engaging a Receiving agent
that is already acting for one of the bidders, and
has a track record of working on more than one
side of a transaction?
At what stage in the preparation of an M&A

transaction would you typically think about
engaging the Receiving agent?
7%
13%
During the Due

Diligence period
Uncomfortable
Comfortable
20%
37%
Quite comfortable
During the early drafts

of the Offer document
Very comfortable
46%
Around the time

of a Rule 2.4 announcement
During the final drafts

of the Offer document
25%
27%
25%
Respondents are somewhat divided over whether they

would engage a Receiving agent that is already acting
for one of the bidders. Almost half of respondents (46%)
would be uncomfortable in such a scenario. However,
the remaining 54% would be either quite comfortable,
comfortable, or very comfortable if this were to happen.
Respondents would not appear to prioritise the

employment of a Receiving agent. Indeed, the largest share
(37%) would choose to engage a Receiving agent is during
the due diligence period. A further quarter would do so
during the early drafts of the offer document.
However, a quarter of respondents would employ a
Receiving agent somewhat earlier around the time of the
Rule 2.4 announcement.
How open are you to allowing for a beauty

parade amongst the Receiving agents?
How valuable do you feel it would be to

include the Receiving agent in daily all
adviser telephone conference calls on an
M&A transaction?
7%
Open
25%
Indifferent
Quite open
Valuable
Not keen
Quite valuable
21%
37%
72%
38%
Three quarters of respondents are Quite open or Open to

conducting a beauty parade amongst Receiving agents. A
quarter, however, are Not keen.
During an M&A transaction, how valuable do

you believe is the packaging of data that a
Receiving Agent compiles for a Financial PR
company you select to employ?
The majority of respondents (72%) are indifferent to

including the Receiving agent in the daily all adviser
telephone conference calls during an M&A transaction.
A minority of 21%, however, believe such a high level
inclusion would be Valuable to the M&A transaction.
7%
Valuable
Indifferent
33%
27%
Quite valuable
Very valuable
33%
Respondents are somewhat divided over the value of the

data that a Receiving Agent compiles for the financial PR
during an M&A transaction. A third believe such data is
valuable, whilst a further third are indifferent to it.
Hedge funds a
worrying factor in
the M&A market?
Hedge funds aim to make their investors richer every year, never mind in the long-term and
use a wide variety of investment techniques to achieve this goal. They enjoy great freedom to
invest in almost any financial instrument, and do not need to confine themselves to any particular
market place or type of investments.
Over the past few years, hedge funds have entered the
realms of common parlance, with even the uninitiated
investor being aware of the term, even if theyre not
completely sure what it means.
It has been argued that the upsurge in mergers and
acquisitions seen over the past 2 years has been due to
the influence of hedge funds which are able to use their
immense power and resource to help push deals through.
Such funds are estimated to have resources in the region of
$1.1 trillion globally, and this figure is expected to grow by
around 300 per cent over the next 5 years. With such vast
sums under hedge fund control, it is not surprising that their
impact in the M&A arena is becoming increasingly apparent.
One of the key differences with a hedge fund is its time
horizon its aim to make its investors richer now rather than
in 20 years time. That means that they are often likely to exert
pressure on companies to act for the short term, while in
actual fact company strategy may have a longer term horizon.
Hedge funds take advantage of market anomalies which may
make more money if a company fails, which is not in the best
interest of all shareholders. Their bet may be that a particular
M&A fails, because then the stock involved may go down and
the funds short position may make them more money than if
they were long on the stock and the M&A went through.
Sometimes a hedge fund is able to amass enough stock
themselves or alongside similar funds to prevent or frustrate
a deal from going through. A recent example was seen with
Polygon preventing Telent from completing their intended
scheme of arrangement. The M&A was pulled as Polygon (an
American hedge fund best-known for the aggressive positions
it has taken during corporate restructurings at British Energy
and Monsoon) thought that Telents stock was being picked up
too cheaply.
In this kind of situation, hedge funds are not necessarily only

holding out for a big payout just for themselves, but rather
trying to use their shareholding and ability to block a deal
and get a better price for everyone. In other cases they do
manage to achieve concessions that just benefit themselves.
The hedge fund may manoeuvre to a position where they get
to buy an asset that has to be sold off for competitive reasons
or as a pre-set agreement to get a particular shareholder
onside. Effectively the fund may be acting like a private
equity firm and buying an asset for less than market value in
exchange for support.
In another recent situation North Sound called an EGM to
remove the chairman of African Platinum plc:
At an extraordinary general meeting called by hedge fund
manager North Sound Capital yesterday, African Platinum
non-executive chairman Charles Hansard was ousted despite
a unanimous recommendation by the board to the contrary.
Director Mark Bristow, CEO of Randgold Resources resigned
on principle shortly thereafter. North Sound Capital owns a
10.10% stake in Afplats
Source: Resource Investor
The US-based hedge fund refused to talk to the company
while the existing chairman was in place, but once they had
succeeded in removing him, they agreed to talks. Many view
this power as too all-encompassing, feeling that hedge fund
managers are able to ride roughshod over a company while
not truly understanding its long-term prospects.
Worse still is when hedge funds dont own the underlying
stock, but instead own a derivative instrument, like a contract
for difference (CFD). They are able to buy the CFD for
less than the stock; can buy on margin AND avoid stamp
duty. They are purely betting on the companys stock price
moving in one direction or another with no economic or legal
entitlement of ownership. The fund peddles their influence
using these derivative instruments. In the Polygon Telent
example; the US hedge fund had some shares and a larger
position in CFDs.
They simply had to convert the CFDs into the ordinary shares
for them to block the proposed transaction. However, this
conversion does not always happen in practice, and instead
the hedge fund through their CFD position gets their prime
broker, whom they bought the CFD from, to vote on the
underlying shares according to the funds wishes, as if they
were the owners of the stock.
A big incentive to do business in this way is that buying CFDs
is stamp duty exempt. HM Treasury is currently missing
out on a huge opportunity to close a loophole that issuers
are paying for. Additionally, there is no disclosure on these
derivative instruments when issued with a 212 letter, which
requires ordinary investors to disclose how many shares they
own in a particular company. Why can these hedge funds
influence issuers and the corporate actions they engage in
and yet not have to provide the same disclosure that ordinary
owners are required to?
Cas Sydorowitz
Managing Director> Corporate Advisory
London Office
Vintners Place
68 Upper Thames Street
London UK EC4V 3BJ
Phone: +44 (0) 870 703 0302
Mobile: +44 (0) 7810 750 442
Fax: +44 (0) 870 702 0158
www.georgeson.com
New York Office

Tom Kies
17 State St. 10th Floor
New York, NY USA 10004
Phone: 1-212-805-7000
tkies@georgeson.com
It appears that from the proliferation of hedge funds

and indeed the websites set up for the sole purpose of
undertaking recruitment for such companies, that this
aggressive approach to making money is here to stay,
whether or not it benefits the companies who are the
subject of the attention. The M&A market place has been
considerably affected by hedge fund practices and this
is set to continue apace.
Paris Office
Matthieu Simon-Blavier
38, Rue de Bassano
Paris, France 75008
Phone: (+)33 1 44 31 20 22
Fax: (+)33 1 44 31 20 79
msb@georgeson.com
Rome Office
Stefano Marini
Via Emilia 88-00187
Roma, Italy
Phone: (+)39-06-421711
s.marini@georgeson.com
Madrid Office
Pedro F Sa
Zubarn 18, 5a pl
Madrid 28010, Spain
p.saa@georgeson.com
FACING THE MUSIC

Sanctuary Group weathers a potentially contentious vote
CASE STUDY
FACTS
The Sanctuary Group Plc, the
international music company
responsible for managing renowned
names including Guns N Roses
and James Blunt, recently went
through a period of trading
problems, aborted takeover talks
and increasing debt levels.
As a result the Company share price fell
rapidly and the alternative to breaking
up the Group was to restructure and
refinance by way of a Placing, and an
Open Offer. This fundraising and related
debt restructuring was to be put to
shareholders at an EGM to seek their
support in what was a critical proposal
for the future of the company.
CRITICAL ACTION
A successful outcome was
dependent on at least 75% of
Sanctuarys shareholders voting
in favour of the resolutions. It was
important to contact as many
shareholders as possible for the
best chance of success.
Georgeson Shareholder worked closely
with the Sanctuary Group to produce a
report detailing shareholders holding
200K shares or more, including details
of underlying shareholders
administered by their brokers.
Once compiled, letters were sent to
the shareholders advising them of the
forthcoming EGM and inviting them
to vote on each resolution.
RESULTS
CERTAINTY
INGENUITY
ADVANTAGE
The speed and efficiency displayed by Georgeson

allowed us to achieve our objectives in full. A big
thank you to all involved
Philip Ranger, Managing Director, The Sanctuary Group Plc
GSCS0001v1F
Of the roughly 371 million shares in

issue at the time, over 30% voted
and Sanctuary had all of their
resolutions passed by a resounding
99.47%.
Contacts
CMS Cameron McKenna
Georgeson
Isabel Davies, Partner

CMS Cameron McKenna LLP (London)
Technology
Cas Sydorowitz
Managing Director > Corporate Advisory
Georgeson
T: +44 (0) 20 7367 2156

isabel.davies@cms-cmck.com
T: +44 (0) 870 703 0300 x7002

M: +44 (0)7810 750 442
F: +44 (0) 870 7020158
Iain Batty, Partner

CMS Cameron McKenna LLP (Warsaw)
Central & Eastern Europe
www.georgeson.com
T: +48 22 520 5505

iain.batty@cms-cmck.com
Simon Jeffreys, Partner
Employment
T: +44 (0)20 7367 2783
simon.jeffreys@cms-cmck.com
David Bresnick, Partner
Corporate
T: +44 (0) 20 7367 2729
david.bresnick@cms-cmck.com
mergermarket is an unparalleled, independent Mergers

& Acquisitions (M&A) proprietary intelligence tool. Unlike
any other service of its kind, mergermarket provides
a complete overview of the M&A market by offering
both a forward looking intelligence database and an
historical deals database, achieving real revenues for
mergermarket clients.
IBM
Sara Longworth
Managing Partner, Strategy and Change Consulting, UK,
Ireland and South Africa
SaraLongworth@uk.ibm.com
Steve Wood
Mergers & Acquisitions Global Leader
steve.wood@uk.ibm.com
mergermarket
Mark Durham
Publisher, Remark
80 Strand
London WC2R 0RL
United Kingdom
T: +44 (0)20 7059 6191
mark.durham@mergermarket.com
Consultant Editor
Carlos Keener
T: +44 7711 788765

carlos.keener@beyondthedeal.com
Part of The Mergermarket Group
80 Strand
London
WC2R 0RL
United Kingdom
895 Broadway #4
New York
NY 10003, USA
Suite 2001
Grand Millennium Plaza
181 Queens Road, Central
Hong Kong
t: +44 (0)20 7059 6100

f: +44 (0)20 7059 6101
sales@mergermarket.com
t: +1 212 686-5606
f: +1 212 686-2664
sales.us@mergermarket.com
t: +852 2158 9700

f: +852 2158 9701
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Disclaimer
This publication contains general information and is not intended to be comprehensive nor to provide financial, investment, legal, tax or other professional
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February 2007

M&A Integration Survey Findings

M&A - A Game of Skill not Chance IBM

Unlocking Potential CMS Cameron McKenna

Investor Relations Survey Findings

Hedge Funds A worrying Factor in the

Notes & Contacts

Part of The Mergermarket Group

t: +44 (0)20 7059 6100

t: +852 2158 9700

Furthermore, we conducted a survey of 20 heads of Investor

We interviewed 80 C-level corporates for our survey: 20

M&A Integration, February 2007 

Two-thirds of the CEOs we interviewed expect their organisations to be

concerns and are all bearing down on their organisations,

what makes you special?

This post-merger integration survey provides some interesting

M&A Integration, February 2007 

They were very knowledgeable, very responsive.

We call it the power of understanding.

At CMS Cameron McKenna, we understand the need to

M&A Integration, February 2007 

M&A Integration Survey Findings

The largest share of respondents interviewed 48%

 M&A Integration, February 2007

EU accession in 2004 has served as a badge of respectability

Enhancement of core business skills or intellectual property

Improved efficiency or reduced complexity of internal ways of working

Reduced operating cost

Retention of top management or key talent

Increased or retained customer satisfaction 3

Improved financial security

Enhancement of core business skills or intellectual property

Increased share price

Increased market share

Crucial to integration outcome

Not important for

Useful for measuring success

The overall rationale most used by respondents to measure

Looking within different respondent groups, these two

We have seen a significant shift in the last three years

M&A Integration, February 2007 

M&A Integration Survey Findings

Establishment of the right management team

Strutured execution of integration

Leadership & accountability for integration

Integration-focused due diligence 4

Sales & marketing integration

Rationalisation of product portfolios

Integration of HR policies & procedures

Retention of top talent 3

Not important for

The Establishment of the right management team

It is not surprising that HR directors rate Integration planning

In our experience the one critical success factor is to have a

 M&A Integration, February 2007

Sales, marketing & business development groups

Financial management & supporting functions (ie treasury, legal)

Corporate values, principles, culture & behaviour

Product & service ranges

Supply chain operations

Employee salary & benefits schemes

Research/new product development groups

Non-employee policies & procedures

M&A Integration

M&A Integration

M&A Integration, February 2007

M&A Integration, February 2007

M&A Integration, February 2007

M&A Integration, February 2007

M&A Integration, February 2007

M&A Integration, February 2007

M&A Integration, February 2007