5 Drivers of Successful Mergers, Acquisitions

Originally published: 07.01.12 by Tom East

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5 Drivers of Successful Mergers, Acquisitions

Due diligence is important, but so is identifying a growth strategy in advance.

In 2011, investment bank Berkery Noyes reported that more than 21,000 mergers and acquisitions were
completed, with a collective price tag estimated at more than $1.9 trillion. And although they are known
as highly effective means of achieving growth and a strategic advantage, these transactions are fraught
with pitfalls. Statistics indicate that a third of these deals will fail, and another third will not bear out the
expectations of the merger partners. If you are considering an acquisition, what can you do to ensure
that you dont fall victim to confusion, million dollar losses, declining market share and profits, or any
number of other negative results of failed transactions?

Several factors are influencing merger and acquisition (M&A) activity. Achieving economies of scale,
broadening geographic market coverage, and more effectively competing have helped to create a flurry
of acquisitions in the marketplace. In addition, the search for cost reductions through M&A, particularly
in the mature market conditions we have in the HVACR industry, are being used to offset companies
inability to grow profit through price increases.

My own experience in the late 1990s with a major HVAC conglomerate showed that M&As are usually
easy to envision but incredibly complex to execute. This article is by no means

a complete guide to M&A, as my formal education is in organizational behavior.

However, I want to share with you my experience and touch on highlights to provide you with
knowledge and tools that can contribute to a productive M&A experience.

Due Diligence

Due diligence is the series of exploratory activities used in evaluating a company prior to finalization of
the M&A. The traditional approach to due diligence focuses on several key areas: financial, legal and
regulatory, and accounting and tax. Without question, each of these areas is highly complex, and scores
of business and academic textbooks have been devoted to the topics. Broad treatment of them is
beyond this article, yet it is important for you to understand the fundamental financial and legal
orientation toward due diligence investigations in order to identify an M&As principal shortcomings and
pitfalls.

When an M&A is first envisioned, the focus is on whether or not it makes financial sense. In due
diligence, legal and accounting experts are retained to identify potential fiscal, regulatory, and tax-
related liabilities of the target company. Concurrently, investment bankers are devising the financing
strategy, determining where and how much capital must be raised to complete the trans- action, while
auditors pore over the books of the target to arrive at the most accurate valuation.

Clearly, traditional due diligence is largely focused on making the numbers work.

You should not pursue a transaction unless assurances are provided that a detailed examination of the
tar- get companys financial affairs has been conducted. In the broadest sense, the goal of due diligence
is to look at and beyond the numbers to identify hid- den vulnerabilities. One of the main purposes of
due diligence is to identify under- or overvalued assets and liabilities, which could be property, plant,
and equipment: inventory levels; marketable equity securities; work in progress; excess pension plan
assets; and intangible assets such as licenses, franchises, trademarks, and patented technology. As you
see, accountants and attorneys play a critical role in determining how a successful transaction needs to
be financed and structured.

When everything in the examination process checks out from a financial, legal, and regulatory
standpoint, the merger partners typically move forward.
Strategic Drivers

There are several strategic drivers or reasons why you would want to get involved in an M&A, according
to Mark N. Clemente and David S. Greenspan, authors of the book Winning at Mergers and Acquisitions:
The Guide to Market Focused Planning and Integration. These are:

Effecting organizational growth

Increasing market share

Gaining entre into new markets

Obtaining products

Keeping pace with change

I will briefly examine these key drivers so you can get a sense of their valuable role in devising a
successful, growth- driven acquisition strategy. There are several other reasons for M&A, but these will
get you thinking if a strategy of M&A s right for you and your company.

Effecting organizational growth: Often, we envision the opportunity to increase our scope and leverage
simply by becoming bigger. This usually in- creases liquidity and access to capital and broadens name or
brand awareness in additional markets. On its own, actualizing the strategic advantage of size can
improve financial performance through leveraging basic economies of scale. Yet, when combined with
other strategic synergies, the advantage of size can act as the foundation and a means for increased
market share, product enlargement, and new market penetration that can, in turn, lead to a distinct
competitive advantage.

Obviously, in every M&A, the immediate hope is to increase the companys size. However, after
duplication in operations is eliminated, workforces downsized, and noncore operations spun off, the
resultant company may not necessarily be bigger. In a large number of cases, the streamlined M&A
entity is a smaller yet more effective operation with more muscle and less fat.

Increasing market share: The battle for customers over products and services is a zero-sum game in
which customer bases shift as product and service loyalty is strengthened or weakened. To in- crease
market share requires seizing al- ready established customer loyalty from a competitor and then
building on it to increase your own share further. Just as growing in size does not guarantee success,
simply adding market share via an M&A does not make you immediately more competitive. Conducting
an investigation of market due diligence to indentify the areas of competitiveness which is still
contingent on effective integration will help you to make the leap to market share gains.

Gaining entry into new markets: It is exciting to make a purchase that allows you to target a broader or
more responsive audience that gives you a greater number of potential buyers. It can also help bring
about enhanced distribution capabilities in new territories. Entering new markets for the first time,
however, is an act fraught with multiple risks. Acquiring another company that already has a foothold in
a market and knows the ropes can ease the process of entering a new market and minimize your risks.

Obtaining new products: Today, one of the keys to gaining strategic advantage is products that have
restricted access before the next wave of competition, which comes more quickly and more intensely
every day. Some companies prepare for it, but most do not. Often, by the time a new product has
cleared its beta stage, competitors and developers of knockoffs or cheaper versions are already
releasing rival offerings, driving the price down so no one makes a decent margin.

Technological gains have helped to shorten the time it takes to promote and ultimately deliver a
product or service to the marketplace. Consequently, competitors will quickly replicate the best new
product ideas. It is for this primary reason that many companies opt to buy an existing producer rather
than create products in order to avoid extended periods of marketing and procuring products that may
be inordinately expensive and may not yield the desired results.

Keeping pace with change: A multitude of variables can act as catalysts for change within a given market
or sec- tor. Social, economic, and demographic shifts result from factors beyond a companys control
and may be viewed as either opportunities or threats; and they must be acted upon accordingly. As
change occurs, companies often are forced to modify their services and hone their products and
perspectives in order to stay competitive. Sometimes employees must be retrained to create the
behavioral shift that must accompany the new strategic direction. If a massive change in the
marketplace prompts a massive change in the companys vision, the culture must embrace the new
vision in order to maintain focus and continue to create value for its customers. When this fails, even
the most solidly grounded of businesses can run into trouble.
Change can be analyzed from the vantage points of both reactive companies that merge or acquire to
keep pace; and proactive companies that make visionary decisions that anticipate change or even force
it. In short, strategic acquisitions are those made from a position of strength rather than from a position
of weakness. Experience shows that acquisitions done because they support the companys growth
strategy have a reasonably good chance of working out. On the other hand, acquisitions have tended
not to work when management thought that, by doing a deal, it will overcome one or more threats
posed by changing market conditions or by fundamental errors made in the past. You should not make
any acquisition from a defensive posture.

In order for an M&A to succeed over the long term, more than one of the drivers I have mentioned
should be motivating you. Indeed, there are many transactions that focus on one particular driver; the
goal, however, should be to maximize your M&A investment by striving whenever possible to realize
more than a single driver. However, each driver can complement other drivers, but each is unique and
must be fully explored be- fore combining it with others.

Aligning Cultures

When two companies merge, the usual assumption is that there is a fit between them. Often that claim
is based on a presumed cultural compatibility. The notion that two disparate groups of separately
trained employees, working in a unique environment under varying circumstances will automatically
coexist as a merged workforce is wishful thinking at its best.

So how do you evaluate and then act upon something as intangible as culture? The first step is to
identify the variables that collectively define the concept of culture. Too often, people attempt to define
culture by saying that it defies definition. However, I like one definition I heard above all the rest:
Culture is simply how we do things around here.

My approach to defining corporate culture is based on viewing it on three levels, with both internal and
external variables:

Structural. Culture as determined by such factors as company size, industry, and other readily
identifiable characteristics.
 Emotional. Culture as influenced by the personal feelings individual employees hold toward the
company, its policies, and the overall corporate context.

Political. Culture as driven by the distribution of power throughout the organization and the primary
modes of managerial decision making.

Think of culture as an iceberg. The visible part such as how the office is structured, whether it is
formal or in- formal is generally not as important as what lies beneath the surface. What you dont
see are elements such as the assumptions that a group holds assumptions about the nature of
people, time, economics, business success, reality; fundamental assumptions that are seldom explicit,
and less often elicited. Their significance doesnt become apparent until theyre put beside another
culture. Its much like trying to combine two totally different automotive engines in an effort to make a
bigger, better one. In fact, it wont work at all.

Culture is another article for another day! What I would I like for you to take away from this section is
that when you acquire people via a merger or acquisition, you are gaining employees who bring with
them an entirely different set of beliefs and values than your existing workforce. Either those peoples
former culture will gel with yours and there can be actualized alignment, or it will clash. But remember
the merged organizations culture will ultimately define itself.

The real task of aligning the culture of two companies centers on a thought- ful and thorough analysis
of the people you are acquiring. If you do not truly want them, do not go through with the transaction. If
you want them to change, make sure they are malleable. And if you want them to be part of your vision,
know that your vision must be inclusive and flexible.

Summary

No merger is perfect. There are special risks and challenges from analysis through integration in any
deal. But in- tense trepidation is anathema to good decision making. The serious acquirer that keeps the
market in view knows when to abort the bad deal and when to strike fast for a good deal.

Either way, a solid game plan based on the market is the blueprint for strengthening competitive
advantage through the best means available. Deals dont create value. Acquirers create value.
The best evidence of that came during the lame duck session in December when he bypassed his own
partys Congressional leadership and negotiated directly with Senate and House Republicans on
extending several expiring tax incentives. While it angered his fellow Democrats, Obama shrewdly
settled the issue of extending the popular tax cuts before the next Congress, when Republicans would
take control of the House and become a stronger force in the Senate.

Tom East is President of Refrigeration Sales Corp., a wholesaler based in Valley View, OH.
Merger Di ACE
Indonesia MERGER

SUMBER
DAYA
MANUSIA
A Greenberg, 3rd in Family, To Be Chief Of an Insurer
By JOSEPH B. TREASTERMARCH 12, 2004

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Like father, like sons.

More than three years after he broke with his father, Maurice R. Greenberg, and gave up the chance to run the American International
Group, one of the world's biggest insurance companies, Evan Greenberg yesterday was named chief executive of his own growing
company.

In May, he will become the chief executive of Ace Ltd., a Bermuda-based insurer with worldwide reach, the company said yesterday.
He will succeed Brian Duperreault, 56, who will remain chairman. Evan Greenberg, 49, becomes the third member of his family to be
the head of an insurance company. His older brother, Jeffrey, is chief executive of Marsh McLennan & Companies, the world's largest
insurance broker.

In style and leadership, Ace is widely regarded as a smaller version of the company that Evan Greenberg's father built, although Ace, a
company with $14.6 billion in revenue last year, still has lots of growing to do before it seriously challenges A.I.G., which reported
$81.3 billion in revenue last year.

Both companies did exceptionally well in the insurance boom that followed the World Trade Center attacks because they were willing
to take on the riskiest business at what they regarded as appropriately high prices.

The size and youth of Ace, founded in the mid-1980's, were big attractions for Evan Greenberg when he joined the company in late
2001.
In his decade as chief executive, Mr. Duperreault is widely credited with transforming Ace from a small specialty company into a
major force in insurance with operations in 50 countries.

''I wanted to be part of something where I could help shape the organization,'' Evan Greenberg said in an interview yesterday. ''Build
it, help create it, take a young company and make it into a great company.''

Continue reading the main story

He had abruptly left A.I.G. about a year before joining Ace without a job or clear plans for the future, seemingly ending the possibility
of dynastic rule at A.I.G.

His father, a task master who analysts say was even tougher on his sons than on his other executives, had already created a giant
company with a great earnings record and, even now, with his 79th birthday approaching, shows no signs of wanting to step down as
chief executive.

When Evan Greenberg left A.I.G., neither he nor his father would discuss the reasons for his departure. An A.I.G. spokesman said
Evan Greenberg had resigned, but some analysts speculated that he had been fired in a burst of anger from his father.

Yesterday, Evan Greenberg said his departure from A.I.G. was his decision. ''I wasn't fired,'' he said. ''I clearly wasn't fired.''

He suggested that he also did not want to remain in the long shadow of his father, revered for digging deep into his company with the
intensity of an actuary yet completely at ease in steering industry policy in the corridors of power in Washington.

''I wanted an environment where I felt I was a true partner with colleagues, a true part of senior management that ran the company,'' he
said. ''So that I could have the opportunity to create our own vision of and put our own stamp on building a great organization.''

Evan Greenberg's appointment as chief executive is also a vindication of his skill and leadership abilities. After finishing prep school,
he hitchhiked around the country, picking up odd jobs as a short-order cook and bartender.

He later attended New York University and the College of Insurance in New York, but never earned a degree. Analysts and some
industry veterans joked about him as an intellectual lightweight. But those doubts seem to have faded.
Several analysts praised his abilities yesterday. Jay Gelb of Prudential Securities said in a note to investors: ''We feel very comfortable
with Mr. Greenberg.''

Evan Greenberg said his father called him in Bermuda yesterday morning to offer congratulations. ''He's proud of me,'' he said. ''I'm
his son.'' His father, he said, had not been told in advance about the promotion.

As for whether his father was disappointed when he left A.I.G., Evan Greenberg said that question should go to his father. And on
their relationship now, he said: ''It's a father-son relationship. It's decent.''

But they don't see much of each other, he said. Since Evan Greenberg has been at Ace, he and his father have been competitors.
''Business is business,'' he said. ''In that regard, we compete.''

As pleased as Evan Greenberg's father may have been about the promotion, he would not talk about it. ''I'm very proud to have two
sons who are C.E.O.'s in the insurance industry,'' he said in a statement through his spokesman.

For years after Jeffrey, the oldest of four Greenberg children, left A.I.G., analysts speculated that his father would buy Marsh &
McLennan and bring him back into the A.I.G. fold.

But that seems increasingly unlikely, not only because of the conflict that would be created by a giant insurer owning a brokerage firm
with an obligation to get the best insurance prices for corporate customers, but because the chief executive of A.I.G. has begun
grooming a successor from the company's talent pool beyond his family.

Last December he appeared to place two executives in competition to replace him eventually, naming Donald P. Kanak and Martin J.
Sullivan to split the duties of chief operating officer of A.I.G.

Mr. Duperreault and Evan Greenberg have been colleagues for many years, first at A.I.G., then at Ace. Before joining Ace in 1994,
Mr. Duperreault, spent 21 years at A.I.G. Evan Greenberg joined A.I.G. when he was 20.

Mr. Duperreault twice recommended him as his successor at A.I.G.: once as chief of the company's operations in Japan and Korea,
then as head of most of its international insurance business.
At first at Ace, Evan Greenberg was in charge of units that sell insurance to other insurers and are a relatively small part of the
company. A few months later, responsibility for Ace's international business was added to his portfolio and in mid-2003 he became
chief operating officer and president.

''He was the natural choice,'' Mr. Duperreault said in an interview yesterday. Mr. Duperreault said he told Ace's board he felt it was
time for him to step aside. He will not be sharing power with Mr. Greenberg, who he said will have full authority as chief executive.

Mr. Duperreault, who has become wealthy at Ace, says he has long felt that chief executives should step down while still in their
prime. He said he expected to remain as chairman for at least a year.

Since then, ACE has evolved from a monoline excess insurer owned by its policyholders to a global publicly traded insurance
company and one of the world's leading providers of commercial property and casualty insurance.

Scroll down to see some of the milestones in ACE's history or explore the ACE interactive timeline.

2016

ACE Limited acquires the Chubb Corporation, creating a global insurance leader operating under the renowned Chubb name.

2015

ACE acquires Firemans Fund high net worth personal lines business in the U.S.

2014

ACE acquires the large corporate P&C insurance business of Ita Seguros
ACE and a local partner acquire a majority stake in Siam Commercial Samaggi Insurance, a major general insurance company in Thailand.
2013

ACE opens an office in Tunisia.

ACE acquires Mexican personal lines insurer ABA Seguros.
ACE acquires Mexican surety lines company Fianzas Monterrey.

2012

ACE acquires 80% of general and personal lines insurer Asuransi Jaya Proteksi in Indonesia.
ACE opens an office in Ukraine.

2011

ACE acquires New York Lifes Korea and Hong Kong operations.
ACE expands in agribusiness with the acquisition of Penn Millers Insurance Company, begun as a fire insurer for Pennsylvania flour mills
in 1887.
ACE acquires general insurer Rio Guayas in Ecuador.

2010

ACE acquires the crop insurance provider Rain and Hail Insurance Service, Inc., with origins as a hail insurance bureau dating to 1919.
ACE acquires Jerneh Insurance Berhad, a provider of comprehensive general insurance in Malaysia.
ACE celebrates its 25th anniversary.

2009

ACE opens an office in Turkey.

Brazil reinsurance acquires licenses and begins operations.
ACE Life begins operations in Indonesia.

2008

ACE Limited moves its place of incorporation from the Cayman Islands to Zurich, Switzerland.
 ACE nearly doubles its Accident & Health business with the purchase of Combined Insurance Company of America for $2.56 billion,
acquiring a business begun in the 1920s by insurance agent (and later, notable executive, author, and philanthropist) W. Clement Stone.
ACE acquires the high-net-worth personal lines business of the Atlantic Companies.
ACE opens offices in Panama.

2007

Evan G. Greenberg is elected Chairman of the Board of Directors of ACE Limited.

ACE opens a non-life insurance branch in Ho Chi Minh City, Vietnam.
ACE opens offices in Hungary and the Czech Republic and begins insurance operations in Bahrain and Peru.

2006

ACE enters the U.S. life reinsurance market with the acquisition of Hart Life Insurance Company.
Brian Duperreault, ACE Chairman, retires from the company.
ACE sells three run-off reinsurance subsidiaries to Randall & Quilter Investment Holdings Limited, an international insurance
management firm.
ACE opens an office in South Africa.

2005

ACE receives regulatory approvals to begin providing life insurance in China and Vietnam and commercial property and casualty
insurance in Poland and Russia.
ACE observes its 20th anniversary by hosting a Global Day of Service, during which more than 5,000 employees in 30 countries
participate in community service projects.

2004

Evan G. Greenberg becomes President and Chief Executive Officer of ACE Limited.
Assured Guaranty Ltd. initial public offering is completed on April 28, 2004.

2003
 ACE announces the formation of ACE Captive Solutions to provide solutions across the multiple ACE product lines to the captive
community.
ACE Limited forms ACE Risk Management International to address the risk financing needs of major corporations.
ACE Financial Solutions Europe and ACE Financial Reinsurance Europe are created to provide customized, non-traditional finite insurance
and reinsurance products to European customers.

2002

ACE and Huatai Insurance Company of China announce a strategic partnership that will allow both companies to jointly develop new
products and services for delivery nationally in China.
ACE Bermuda and Freisenbruch-Meyer Group partner to form a new Bermudian insurance companyFreisenbruch-Meyer Insurance
Services Ltd. (FMISL)to write insurance coverage for the domestic Bermuda market.
ACE European Group opens its new headquarters in London, England.

2001

ACE Limited changes its ticker symbol on the New York Stock Exchange from ACL to ACE.
Sovereign Risk Insurance Ltd., a subsidiary of ACE Bermuda is elected to the International Union of Credit and Investment Insurers (the
Berne Union) as one of only three private sector political risk insurers to be eligible and approved.

2000

In a partnership with Egypt-based Commercial International Investment Company (CIIC), ACE International acquires a 51 percent
shareholding in Egyptian American Insurance Company (EAIC).

1999

ACE acquires the global property and casualty business of CIGNA Corporation for $3.45 billion, making ACE one of only a handful of truly
international property and casualty insurance companies. With this acquisition, ACE inherits the rich history of the pioneering Insurance
Company of North America (INA), which wrote its first policy in 1792.
ACE acquires Capital Re Corporation, a company providing specialty reinsurance for financial guaranty insurance and other financial
risks.
ACE Global Markets is formed in London from ACEs existing operations at Lloyds.
1998

ACE acquires Atlanta-based Westchester Specialty Group, Inc., a wholesale excess and surplus insurance group with origins tracing back
to a fire insurer organized in Westchester County, New York, in 1837. The business became the first ACE USA (now ACE Westchester).
ACE acquires CAT Limited, a property catastrophe reinsurance concern, and integrates it as part of ACE Tempest Re.
ACE Limited acquires Tarquin plc, holding company for another Lloyd's managing agency, now ACE Underwriting Agencies Limited.

1997

ACE Bermuda forms Sovereign Risk Insurance Ltd. a specialized Bermuda-based political risk insurance and reinsurance underwriter, with
strategic partners XL Insurance Company, Ltd. and Risk Capital Re.
ACE Insurance Company Europe Limited, now ACE Bermuda International Insurance (Ireland) Limited (ACE Bermuda International), is
incorporated and licensed to underwrite all classes of non-life insurance in the European Union.

1996

ACE Limited acquires Tempest Reinsurance Company Ltd., now ACE Tempest Reinsurance Ltd. (ACE Tempest Re Bermuda), a leading
Bermuda-based catastrophe reinsurance company.
ACE Limited acquires the London-based Lloyd's managing agencies of Methuen Group Limited and Ockham Worldwide Holdings PLC.

1995

ACE Bermuda enters three more product lines, including excess property, transforming itself into a diversified catastrophic risk insurer.

1994

Brian Duperreault is named Chairman, President, and Chief Executive Officer of ACE Limited.
ACE Limited opens a London Representative Office.
ACE Bermuda enters satellite insurance, its first successful expansion beyond the original two business lines.

1993

ACE Limited successfully completes its initial public offering and is authorized for listing and trading on the New York Stock Exchange.
Already the world's top insurer of excess D&O, ACE Bermuda expands into primary D&O with the acquisition of CODA.
1992

ACE Bermuda introduces a short-lived Executive Compensation Insurance (ECI) product.

ACE surpasses $2 billion in assets and $300 million in net premiums written for the first time.

1991

Walter Scott is elected Chairman of the Board of Directors of ACE Limited.

ACE Limited issues its first official mission statement, still the basis of its mission statement today.
ACE develops the first issue of Directors & Officers: The ACE Report, an informative periodical that becomes ACE's most enduring and
commended publication (other than its annual report).

1990

The first "ACE Building" opens at 30 Woodbourne Avenue, Hamilton, Bermuda.

The first ACE logo is introduced.
John Cox retires as Chairman.

1989

Walter Scott is elected President and Chief Executive Officer of ACE Limited.

1988

ACE Bermuda makes excess D&O available as a stand-alone product.

1987

A subsidiary of ACE Limited assumes management of Corporate Officers & Directors Assurance Ltd. (CODA), a specialist directors and
officers liability insurance (D&O) underwriter.

1986

ACE hires 11 employees and opens it first office in Hamilton, Bermuda.

1985

John Cox is appointed ACEs first Chairman, President, and Chief Executive Officer.
ACE Bermuda writes its first insurance policy, in excess liability. It also offers excess directors and officers liability (D&O) as an
endorsement to the excess liability policy.
ACE Limited and American Casualty Excess Insurance Company Ltd., now ACE Bermuda Insurance Ltd. (ACE Bermuda), are incorporated
in the Cayman Islands and establish headquarters in Hamilton, Bermuda.

- See more at: http://www.acegroup.com/about-ace/our-history/#sthash.QVYixGvh.dpuf