EY Human Capital Conference 2012: People drive business success - human capital and M&A

2012 Human Capital Conference23–26 October

People drive business successHuman capital and corporate transactions

Disclaimer

► Ernst & Young refers to the global organization of member firms of E t & Y Gl b l Li it d h f hi h i t l l titErnst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited located in the US.Thi t ti i © 2012 E t & Y LLP All i ht d N► This presentation is © 2012 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying facsimile transmission recording rekeyingincluding by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is d st but o o t s o o a y o t e ate a e e s p o b ted a d sin violation of US and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party.

► The views expressed by panelists in this session are not necessarily those of Ernst & Young LLP.

Human capital and corporate transactionsPage 2

Presenters

► Silke Jensen ► Karl Wirth► Fidelity Worldwide

Investment► Ernst & Young GmbH► [email protected]

► [email protected]


Agenda

► Introduction► About Fidelity► Methodology► Methodology► Case study: “Project Genesis”

► Due diligenceg► Sale and purchase agreement (SPA) negotiations► Day one readiness► Post-merger integration

► Contact details


Introduction

Fidelity Worldwide Investment

► Formed more than 40 years agoMission

y g► More than US$217.4 billion in assets► 5,667 permanent employees

“To act always in the best interests of our clients and enable them to achieve their fi i l i i h h

► Truly global company —operates in 24 countries worldwideS

financial aspirations through outstanding investment solutions and client service. ”

► Specializes in active, company research-driven investment management

► Private company 100% dedicated to investment management► Private company, 100% dedicated to investment management — independent, not owned by a bank or an insurance company

► Sister company of FMR, established in US in 1946p y ,

Human capital and corporate transactionsPage 6Source: FIL Limited

* as at 30.06.2012

About Fidelity

Fidelity worldwide investment in Germany

Fidelity Germany

Asset managementPlatform business Market entry in 1992 2005 Foundation of Investment Management

Company („KAG“) 2006 pension solutions as new business area 2009 acquisition of FFB

Market entry in 2002 12.3 billion EUR AuA* Germany’s number 2 in reference to AuA,

number 3 in reference to number of accounts**

10.9 billion EUR AUM* Germany’s number 10 in reference to AuM**

Personal investing WholesaleRetailDCFFB DC DBll s

ervi

ce

Personal investing (unbranded)(branded) DCFFB

I/ODB

Fu

Customer service and IT infrastructure

Business services model

* t 30 06 2012


* as at 30.06.2012** BVI 31.12.2011

8

Logos courtesy of Fidelity

Methodology

HR’s contribution at the strategic level is critical to transaction successcritical to transaction success

47% 75%%and

70%leave within the first three years*

of key employees leave within the first year yfollowing a transaction*

of failed acquisitions are attributable to mismanagement of cultural issues by some

85%of acquisitions fail to achieve the projected synergies***

***Source: Harding D, Rovit S. Mastering the Merger: Four Critical Decisions That Make or Break the Deal. Boston, Mass: Harvard Business School Press; 2004

issues, by some estimates**

*Source: Galpin, Herndon, “The Complete Guide to M&A”


**Source: Industrial Management

Human capital enablers in the transaction life cycleManage risk, preserve value, accelerate synergies

• Carve-out — spin• Carve-out — sale

• Sell-side due diligence• Restructure/reorganizationor

ate

ctio

ns

Phase 1 In-scope employee

identification

Carve out sale• Buy-side due diligence

and integration

Phase 2

Day one

Phase 3 Phase 4 Expatriates

Employment law

HC enablers

g• Initial public offerings• Joint ventureC

orpo

tran

sac

Due diligence

Right purchase price, risk

Executive compensation

Global equity compensation

Global pensions and benefits

Negotiations Day one readiness Post-close

Determine financial Facilitate speed

Executing on value drivers

Goals

Employment law

On-boarding, employment transfer

Employee communications

Culture

Applyenablers to achieve

l implications on deal value and

integration planning

and benefits

Global employee compensation

HR operations, TSA, vendors

Payroll, HR

liability, representations, warranties and indemnification

to close, compliance and risk mitigation

Integration, synergy

achievement, harmonization

Mitigate deal-triggered risk

Organization structure

Executive and key talent assessment, selection and alignment

Perquisites policies

goals throughout the phases of a transaction

information systems

Retention, redundancy, relocation

Accelerate transaction value realization

Identify employee related valuation

Perquisites, policies and procedures

HR financial synergy realization

Managing human capital enablers across the transaction life cycle is critical to manage related risks and extract value of the acquisition.


to manage related risks and extract value of the acquisition.

Case study: “Project Genesis”

The target: subsidiary of a German private bank founded in 2002 with four business segments


The target: also has approximately 130 employees residing in one legal entityemployees residing in one legal entity


“Project Genesis” started with a kickoff meting and was concluded eight months later with closing

20102009

MärFebJanDezNovOktSepAugJulJunMaiAprMär

20102009

Kick-off workshop

Phase onedue diligence

Key findings

Phase two

Letter of intent

Phase twodue diligence

SPA neg.

Binding offer

4.8. SPA signed

Day one readiness Closing

Post-merger integration


Due diligence

The primary focus of the HR due diligence is around potential deal breakers, finding the right purchase price and integration risks

HR due diligence focus Potential deal breakers Potential deal breakers Purchase price: pensions, HR-related liabilities, personnel cost Value leakage: key employee attrition, integration barriers and cost

No deal breakers found Purchase price: Net liabilities for pensions and similar obligations amount to €0.5 million taking into account p g g

liabilities and pension assets held off and on balance sheet. Given the complexity of transferring plan assets, it is recommended to include pension

liabilities of €2.7 million in net debt (and don’t attempt to transfer any plan assets).Ri k Risks: FFB does not seem to operate its own HR department. Include amount in integration model. There is no information on key employees or performance ratings available. Managing directors are seen as the leaders of the target If the o ld lea e other ke Managing directors are seen as the leaders of the target. If they would leave, other key

employees are also likely to leave. We strongly recommend implementing a retention plan. Relocation to the buyer’s premises may trigger terminations and should be planned carefully. FFB operates in a German cultural environment whereas FIL is a global enterprise.


FFB operates in a German cultural environment whereas FIL is a global enterprise.

SPA negotiations

During SPA negotiations, pensions were a major issue and agreement was only achieved at the last minute

Focus SPA negotiations Agreeing on where there is disagreement g g g Finding a mutually acceptable compromise Put the right wording in the SPA

What were the issues?Agreeing on the exact

amounts of net liabilities foramounts of net liabilities for pensions and similar obligations

Including the numbers in th SPA di tthe SPA as an appendix to obtain an indemnity for all undisclosed amounts

Achieving consent on the carve-out issues and whether plan assets will be transferred or not


Day one readiness

During a day one readiness assessment, we identified a number of issues that required further action

Day one readinessy Identifying critical HR issues that must be available on day one Implementing HR-related SPA clauses Have post-merger integration plan ready for execution at closing

Replace HR services T iti ll Transition payroll

Convincing staff presentation/town hall — “What do we want to achieve together” Compare employment terms and conditions side by side and decide on any adjustments Align remuneration plans as appropriate Align remuneration plans as appropriate Retention plan for managing directors Decide on future of pension plans and other benefits Issue new standard employment contract for new hires Issue new standard employment contract for new hires Simplify policies by issuing a new employee handbook The target is a member of the tariff association, the buyer is not contingency for legal entity

strategy


gy

A pension strategy was developed that included a side-by-side comparison of existing plans and action defined items

Acquisition phase Integration phase one (during first 6 months)

Integration phase two (preparation can start

1 2 3

► Carving out assets from BHF Versorgungsverein and BHF

(during first 6 months)

► Keep existing plan rules► Duplicate plan administration with

(p pimmediately)

► Decide on plan rules for new FFB hires –— duplicate FIL plan rules

CTA may not be feasible► Purchase price should be

calculated on the basis that no assets will be transferred, net liabilities of € 2 7m to be

p pour current FIL plan administrator (Towers Watson)

► Set up compartment in FIL CTA to fund FFB liabilities

with different contribution scale and risk benefit levels. Keep existing plan rules until launch of new model to avoid complexity

liabilities of € 2.7m to be deducted from purchasing price (= DBO as of June 2009)

► Agree level of funding and select funds

► Check and decide if we want to take insurance for risk cover (General)

► In parallel: decide on asset-backing for FIL pension plan (CTA) + bring on DC platform

► Set up project to convert existing (General) DB promises into desired DC

pension plan:► Freeze acquired DB rights

and integrate this liability in new DC plan

► Prepare equitable individual proposal and seek individual agreement


Post-merger integration

Business transformation through successful integrationintegration

Post-merger integration Executing on integration plan and value drivers g g p Integration, synergy achievement and harmonization Motivation of (key) employees, performance monitoring

Significant FIL Ops headcount reduction in Germany, UK, India with a high redeployment rate Integration of more than 160 employees into the FIL group including transfer of 18 employees from

Kronberg to Offenbach g Additional resources in sales/IT to support FFB business growth and new role as service hub for FIL Integration/cooperation of support functions, e.g., finance, internal audit, compliance, HR Retention of key staff ~ 100%, overall attrition rate below 4% Ongoing cultural integration activities linked to the normal day-to-day: holiday party, townhalls, get

together, mixed project teams and leadership trainings “Fidelity Vorsorgeplan” (pension + risk cover + opt-out deferral, target funds a investment vehicle, online

platform administration) launched January 2013 with more than 80% of FFB employees transferring from DB to new DC plan

Alignment but not full harmonization of compensation and benefits model to keep cost efficient-model Launch of HR Self Service Application including Performance Management FFB office move to Kronberg on 19 November 2012 including transfer package


FFB office move to Kronberg on 19 November 2012 including transfer package

Questions
