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Internal Audit, Risk, Business & Technology Consulting
Planning and Executing Successful TransactionsKey Highlights From Protiviti’s Merger, Acquisition and Divestiture Playbook
Planning and Executing Successful Transactions: Key Highlights From Protiviti’s Merger, Acquisition and Divestiture Playbook · 1protiviti.com
Few merger, acquisition and divestiture (MAD) transitions1 qualify as successful — and no transition is seamless. MAD teams must keep their eyes wide open to every detail and manage everyone’s expectations throughout the entire process. This is no small undertaking.
To help guide organizations through the MAD lifecycle, Protiviti offers a unique approach based on decades of hands-on corporate leadership roles in MAD transitions. Our approach covers all components of the MAD lifecycle and can be applied to enterprises of any size and any level of experience with MAD events.
While our approach is comprehensive, it is also a bit unconventional. We address some aspects not typically considered in MAD transitions — from culture and fraud assessments to cybersecurity. We work with companies to apply it in a way that fits their needs,
their target and the circumstances specific to the deal.
We approach the MAD lifecycle through five phases — Strategizing, Decisioning, Operationalizing, Transitioning and Stabilizing, and 14 components as outlined in the figure below. Each component features broad and deep processes and subprocesses that enable a successful transition. To be successful, a company must consider all of these components diligently and in a manner that recognizes their interdependence. Protiviti helps companies address the challenges and risks throughout the lifecycle, offering broad and deep services with a focus on planning, executing
and integrating a successful transaction.
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The Protiviti MAD Approach
1 In this brochure, “transition” refers to the planning and execution work that takes place before and after the MAD deal is finalized with signatures (the “transaction”).
2 · Protiviti
It is well known that MAD transitions require seasoned management skills and expertise across multiple functional areas. Organizations should keep the following high-level principles in mind when conducting process-intensive MAD work:
Ensuring Successful Transactions
• Successful execution of a MAD transition depends
on recognizing that everything depends on
everything else. The quality and depth of work
conducted at any point in the lifecycle determines
the work necessary during parallel and subsequent
phases and components.
• MAD transitions are inherently disruptive; rigor
prevents them from becoming destructive.
Steering committees and transition management
teams must recognize that disruption is unavoidable
but a thorough approach can prevent disruptions
from leveling destruction.
• Set expectations early, manage them throughout.
The rationale for a potential MAD deal is set out
clearly in the beginning of the strategic decision-
making process. The rationale defines the value the
organization intends to achieve by investing in this
decidedly high-risk, disruptive activity.
• Avoid the “deal zone,” the “transaction zone” and
the “transition zone.” MAD missteps arise from a
siloed mindset which ignores the interdependency
of components and processes.
• Continually strive to make intangibles tangible.
Planning and executing a successful MAD transition
requires a practical mindset. The team managing
the transaction and subsequent transition should
vigilantly identify and address sources of uncertainty
and confusion.
• Focus on execution and keep it practical.
Managing all the moving pieces of a MAD transition
requires in-the-trenches thinking and change
management work. Continually ask and answer
candid questions, such as: What are we doing? How
are we going to manage the transition? Where do we
need more help?
Planning and Executing Successful Transactions: Key Highlights From Protiviti’s Merger, Acquisition and Divestiture Playbook · 3protiviti.com
The work that takes place during the Strategizing phase
has powerful ripple effects that can greatly influence
an organization’s future value. Put simply, the purpose
of this phase is to identify the “what”: What do we want
to do? Grow organically or through acquisition? Scale
operations or divest back to core operations?
The two primary activities in this phase — ideation and
screening — help the business chart its future course,
identify the external factors likely to affect the journey,
and determine which vehicles can get the organization
to its desired destination in an optimal fashion.
Component 1: IdeationIdeation is the process whereby the board of directors
and the executive leadership team convene to decide
which direction the company should take. The company
will rely on the decisions made in this component to
reach its desired state.
We work with company leaders to develop scenario
plans, brainstorming collaboratively and testing
assumptions in a constructive manner before deciding
on a course of action. This scenario planning allows the
leadership team to pressure-test plans and forecasts
while producing insights that can better equip the
business to handle unexpected changes and events.
Component 2: ScreeningScreening identifies the criteria for determining an
optimal merger, acquisition, alliance or joint venture
target — or, in the case of divestiture, a component
of the business to divest. During this process, we
develop a target management plan to enable the
organization to identify and assess targets and
develop a target risk profile. The criteria for target
companies should reflect the strategies and
objectives identified during ideation.
Strategizing Phase
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4 · Protiviti
The essential purpose of the Decisioning phase is to
lay the groundwork for identifying the “who”: Who
should we engage with? Who should we acquire? Which
portion of our business should we divest? This groundwork
consists of three principal components: evaluation,
due diligence and transition readiness.
Component 3: EvaluationThe evaluation process serves as an initial, scaled-
back version of the much more involved due diligence
activities that follow. During evaluation, the MAD
team determines valuation methodologies and
scenarios and assesses key risk areas that can affect
the valuation of the target or its viability. The team
also identifies potential revenue enhancements
beyond cost reductions, and potential synergies
resulting from the transaction.
Component 4: Due DiligenceDue diligence represents one of the most time-
consuming and potentially costly components
within the entire MAD lifecycle. However, this
component is one of the most, if not the most,
important and valuable components thanks to
its acutely interdependent nature. Protiviti’s due
diligence services include performing a number
of detailed due diligence assessments (financial,
accounting, cultural, anti-corruption and more).
This work requires a fair amount of technical expertise,
data repository prowess and governance capacity to
meet the rigorous requirements of a successful due
diligence process. Workflow tools are commonplace
in due diligence activities and often spell the difference
between an efficient and comprehensive process and
one that is ineffective and extremely costly.
Component 5: Transition ReadinessTransition readiness provides organizations with
valuable insights into the work to be conducted during
the Transitioning and Stabilizing phases of the MAD
lifecycle, essentially answering the question of “how.”
Leading industry publications indicate that companies
that invest early and sufficiently in this work have
dramatically higher odds of conducting a successful
transition later on. Protiviti performs pressure tests
to assess transitioning fitness, evaluates organizational
talent (both of the acquirer and the target), assesses
the ability of the organization to perform the transition
using current governance and staffing models, and
performs a multidimensional impact assessment
of the MAD transition on the organization.
Decisioning Phase
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Planning and Executing Successful Transactions: Key Highlights From Protiviti’s Merger, Acquisition and Divestiture Playbook · 5protiviti.com
The Operationalizing phase is the time in the MAD
lifecycle when organizations select which part of the
business they will divest or which company they will
merge with or acquire. Savvy organizations also will
begin planning for the transition during this phase —
the process that begins once the MAD transaction is
finalized. This phase’s key components are: determining
the deal structure, negotiation and transition planning.
Component 6: Deal StructureThe objective of the deal structure is to maximize
the net result from a financial, operational, risk and
tax perspective. Achieving the objectives of the buyer
and seller requires a clear focus on the transaction
value drivers.
Component 7: NegotiationComponents 1 through 6, when leveraged appropriately,
can inform and positively impact the negotiation process.
Component 8: Transition PlanningTransition planning is an overarching component in
this phase, and should commence in parallel with deal
structure activities. Protiviti’s services, which are
significant in scope, include:
• Defining a transition governance structure
supported, in most cases, by a steering committee,
which provides oversight, and a core transition
management office (TMO), which executes
the transition.
• Defining the transition strategy, to be used by the
TMO to guide the transition and by the steering
committee to govern the activities.
• Developing and implementing a change
management plan.
• Developing a target operating model (TOM) blueprint.
• Developing detailed Legal Day 1 (LD1) plans and
high-level LD1+ plans.
Operationalizing Phase
TMO Structure
TMOLeadership
Change Management
Communications
Customer Advocates
Tiger Teams
TSA Management
Employee Ambassadors
Customer-Facing Workstream Program Leaders Non-Customer-Facing Workstream Program Leaders
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6 · Protiviti
The Transitioning phase of the MAD lifecycle is squarely focused on how two distinct organizations will be brought together or how a unit will be carved out. It spans the period before the closing of the deal (pre-Legal Day 1, or pre-LD1, activities), the closing itself, the LD1 execution,
and the activities following the execution.
Component 9: Pre-LD1Pre-LD1 (often referred to as T-60) activities give the TMO a final opportunity to finalize and test plans. Processes include implementing the governance structure, instituting management frameworks and escalation paths, assigning key workstreams to TMO staff members, and more. This component also includes the TMO kickoff, in which leaders and managers are educated on what to expect during the next 30, 60 and 90 days, and a TMO sit-down with the functional and business leaders to lay out the daily tasks for each function or business line during
the transition.
Component 10: ClosingThe closing effectively begins the actual combination or separation of companies. This component includes a waterfall analysis to determine, among other things, how funds from the sale price, once they enter the acquired organization, will cascade to various parties and obligations before the owners receive the remaining balance. A closing balance sheet is also created at this time to show what the new organization will look like on the closing date from a finance and accounting perspective. This prepares the organization to produce accurate financial statements and file taxes on time
once the deal closes.
Other activities include preparing the first month-end report subsequent to closing, which bridges the financials immediately before and after the transaction, and preparing financial reporting
templates for the new organization.
Component 11: LD1 ExecutionThe pressure-packed LD1 execution is perhaps the most intense 24 hours in the MAD lifecycle. Critical activities at this stage include implementation of controls and procedures related to finance and accounting, and cybersecurity. Processes and protocols related to corporate governance, business continuity management capabilities and more should also be
implemented at this time.
Component 12: LD1+LD1+ activities, more commonly referred to as T+100, can continue for up to 24 months or more, depending on the scope and complexity of the MAD transaction. These activities include consolidating TMOs, uploading LD1+ plans into the workflow tool, executing the transaction services agreement and performing the talent audit. Other key processes include a culture integration risk assessment (identifying critical aspects of organizational culture that could be affected during the transition) and assimilating acquired employees and related third parties into the company’s anti-
corruption compliance program.
Transitioning Phase
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Planning and Executing Successful Transactions: Key Highlights From Protiviti’s Merger, Acquisition and Divestiture Playbook · 7protiviti.com
The Stabilizing phase is about returning to solid
footing following the (sometimes) controlled chaos of
Transitioning activities and deadlines. It is the start
of long-term transitioning activities and, in some
cases, marks the formal closure of the TMO and the
transitioning of accountability to the business units.
This phase has two key components: transformation
and post-transformation assessment.
Component 13: TransformationTransformation focuses primarily on the future and
addresses the key question: What do we need to do now
to achieve the underlying objectives of the transaction in
the days ahead?
The primary processes here focus on assessments, and
testing and rationalizing of key controls. Among the
assessments conducted at this stage are: operational
assessment, assessment of synergies and value drivers, a
cultural impact assessment and a fraud risk assessment.
A leading practices audit may also be conducted at this
time. This audit should be conducted as objectively
as possible to evaluate TMO performance, customer
experience and employee/associate experience. TMO
performance should be assessed in several areas, including
program management and change management.
Component 14: Post-Transition AssessmentThe post-transition assessment looks back at the
entire process, asking: How well did we perform the MAD
transaction and transition, and how can we improve our
capabilities for future MAD transactions?
Objectivity is key in this assessment, and in most
cases, all or most of it is conducted by a third party
with extensive MAD experience. Typically, Protiviti’s
assessment includes:
• Transition review. What could the organization
have done better throughout each phase of the
MAD lifecycle?
• Look-back assessments. How effective were the
earn-out and claw-back provisions negotiated
and included in the transaction agreement?
• Reverse due diligence. Were the various due
diligence activities the organization conducted
during the Decisioning phase sufficient?
• Cultural impact assessment. How well did the
organization identify its mission-critical cultural
traits and was it able to preserve, share and fortify
these traits during the transition process?
• TOM assessment. Did the target operating model
(TOM) conceived, planned and executed during
previous phases perform as planned?
• Regulatory assessment. Did the organization
meet all of its regulatory compliance obligations
throughout the MAD lifecycle?
Stabilizing Phase
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8 · Protiviti
This brochure represents all of the components of the MAD lifecycle and Protiviti’s services related to each
component in a condensed and succinct manner. To learn more about our approach and service offerings
throughout the MAD lifecycle, visit www.protiviti.com/playbook.
How Corporate and Private Equity Firms Engage Us
CORE SERVICES
Financial: pre- and post-investment
IT: organization, infrastructure, governance, process
Operational: L1 and L2 core processes
Regulatory compliance
Fraud and corruption
Human capital
Cultural
Develop TOM
Establish governance structure
Review pre-announce and LD1 activity
Review Day 1 execution
Perform resource requirement gap assessment
Conduct readiness workshops
Perform human capital and cultural assessments
Assess and align TOM
Assess governance structure
Set up transition management office
Develop detailed execution plans
Manage transition program
Human capital optimization
Staff augmentation
Manage specific workstreams and programs
Operationalize “master plan”
Identify and validate synergies
Partner with other external service providers
Resource leveling
Staff augmentation
Working capital optimization
Strategic cost reductions
Technology: strategy and delivery
Operations: revenue enhancement, core processes, supply chain
Process and control rationalization
Financial management: core functions and policy development
IPO readiness
Due Diligence Transition Readiness Transition Management
Workstream Management
Performance Improvement
Learn More
9 · Protiviti
ABOUT PROTIVITIProtiviti is a global consulting firm that delivers deep expertise, objective insights, a tailored approach and unparalleled collaboration to help leaders confidently face the future. Protiviti and our independently owned Member Firms provide consulting solutions in finance, technology, operations, data, analytics, governance, risk and internal audit to our clients through our network of more than 70 offices in over 20 countries.
We have served more than 60 percent of Fortune 1000® and 35 percent of Fortune Global 500® companies. We also work with smaller, growing companies, including those looking to go public, as well as with government agencies. Protiviti is a wholly owned subsidiary of Robert Half (NYSE: RHI). Founded in 1948, Robert Half is a member of the S&P 500 index.
Jim RyanGlobal Transaction Services Leader+1.314.656.1745jim.ryan@protiviti.com
Randall CoxworthGlobal Business Performance Leader+1.312.476.6957randall.coxworth@protiviti.com
David HauflerGlobal Mergers & Acquisitions Leader +1.704.916.6599david.haufler@protiviti.com
Charles GoldsteinDue Diligence Leader +1.410.454.6830charles.goldstein@protiviti.com
AMERICASDavid Haufler+1.704.916.6599david.haufler@protiviti.com
EUROPEAnneke Wieling+31.6.1505.7224anneke.wieling@protiviti.nl
MIDDLE EASTEhsun Khan+9714.438.6909ehsun.khan@protivitiglobal.me
JAPANTakehito Yamada+81.3.5219.6600takehito.yamada@protiviti.jp
CHINABerry Song+86.21.5153.6900berry.song@protiviti.com
AUSTRALIAMike Purvis+61.02.8220.9513mike.purvis@protiviti.com.au
TRANSACTION SERVICES LEADERS
REGION LEADERS
© 2017 Protiviti Inc. An Equal Opportunity Employer M/F/Disability/Veterans. PRO-0717-101097a Protiviti is not licensed or registered as a public accounting firm and does not issue opinions on financial statements or offer attestation services.
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