Mark Powell runs Andersen's M&A practice, and here talks about the trends in the M&A business, and how consultants are helping clients to make M&A work post-execution.
What have been the main findings of your new M&A report?
The main thing the report has tried to do is analyse what is going in Asia versus the US and Europe. The differences we've noted is that organizations in Asia had just come out of the 1997 downturn and were just getting their act together about what M&A could do, have now been hit with a second downturn. So M&A has now become less strategic and more a survival tactic.
Organizations in the US and Europe have the luxury of having had a more buoyant economy and several years of corporate empire building. Asian firms are now on the defensive and consolidation is being used for survival.
So M&A hasn't stopped. It has just slowed down.
There are differences throughout the region too. In Japan, mergers are typified as asset-combinations rather than organizational mergers, and it is much slower. It is based on assets rather than shareholder value. Whereas if you look at Singapore people are very focused on shareholder value, and building financial strength, so as to take on a regional role.
The single biggest thing is that culture is playing its hand.
Do you think there is more execution risk in mergers in Asia than in the US?
Yes. If you take the merger between UOB and OUB there are a lot of sensitivities. They are second generation family-owned banks, that speak two different Chinese dialects, and there are complexities about which technological platforms to use, and maintaining employee morale. This sort of thing is less evident in mergers in North America.
We're also seeing that speed is important. The lesson we have all learned is that you can't drag out an integration over two or three years. It has to be done within the first 12 months. Speed is of the essence. Integrate first and worry about optimization later.
What role are you taking on these Singapore bank mergers?
It's more on the advisory, post-merger side and less so on the deal structuring. We're being brought in to help with organizational structure and communication. And helping to form the strategy for three years hence. So we're going in and saying you need to focus on employee morale and employee's transitioning customers, and get that right. You need to look at IT integration, which is typically underestimated.
So how does what you are doing differ from 'strategy' and what Bain are doing?
Here's why you are acquiring this company and this is where you need to be in three years to derive shareholder value. Executing that strategy is something different and that's typically when we are brought into the process, to deal with the operational issues of integration. We deal with which processes do you need to streamline, how do you handle external/ internal communication, organizational change if there is retrenchment, initiating customer surveys.
So you would say "Bank X's marketing department runs this way and Bank Y's runs like this" and this is how they should be merged into one?
Yes. We would do a gap analysis to look at best practice and tell the client from our experience what would work best. We examine with management some of the trap doors they need to be aware of.
People are beginning to realize that human capital is the single biggest thing that is always overlooked in mergers. People fear for their jobs, wonder what role they will play, who will be in charge. So you have to get employees involved in the integration. Get people hyped up to feel it is a huge opportunity and not a negative and by coming together we're stronger and more competitive. We are in the business of making sure those messages get communicated internally. If employees don't know what is going on, it certain that customers won't know either, and customers won't hang around for a bank to integrate. They want enhanced service.
Once you are hired how long will your job take?
On the strategy front it is probably six months. At the project management level it could be 12 months. Project management involves coordinating what other consultancy firms are doing as well as internal processes. We provide reporting structures, methodogies, the communication channels, the HR retrenchment compensation package etcetera.
How many people would you put into a Singapore bank merger?
Typically you'd put in 15 to 20 people and vary it depending on the workload. Normally the team is anything from five to 15. We are very lean and focused on the areas where we can add value.
Which is the most lucrative area to be in from a consultancy perspective?
Due diligence and post-merger programme management. Downstream at the optimization integration, there is a narrower margin. Having said that, companies are now being very bold up front. They are saying we want to gain $250,000 of cost reduction from this integration, and if we engage you we want to see skin in the game from the consultancy firms. Fees will thus be correlated with the reduction in costs. So clients are being a lot more creative in the way they structure remuneration. It's almost a case now of putting your money where your mouth is. The other thing is that they are hiring people that have done it before. For example, I was involved in the Deutsche Bank and Bankers Trust integration, as an employee. A colleague of mine did JPMorgan Chase. We've thus got practical rather than theoretical experience.
Are Asian business leader still sceptical about consultants and the value they add?
It's a good question. Value-add is at the forefront of everyone's minds. This is why the clients are taking a best of breed approach. They also want people who can hit the ground running and become part of the internal team. And once you are done, you are out the door. You need to prove your value quickly. Clients are sensitive that professional service fees are quite high.
Given it is so competitive, fees must be under enormous pressure?
They are, so people are being more creative. Some firms are doing it almost for nothing, because they see it as an investment. Other companies are being creative and reducing up front fees but charging higher success fees.
Do clients, being cost-conscious, go for the cheapest?
I would say no. Clients realize that cheapest doesn't mean the best quality. But clients are being very serious about the scope. They're saying this assignment will last three months and you must achieve this cost saving.
