Mergers & Acquisitions The real success factor = 1,5 or 2,5? 1

Key Facts Different studies came up with unsuccessful mergers & acquisitions between 50 – 75% List of well known underperformers is long BMW/ Rover American Online/ Time Warner JP Morgan Chase/ Bank One Alcatel/ Lucent more examples…. 2

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Selection Post-Merger Integration M&A Strategy Execution Integration Planning Controlling Project Management M&A Process – general overview A successful integration is a long term process… Phases … in which people aspects are vital! 4

Typical Acquisition Process Selection/ Due Diligence Dedicated Management team in place Key stakeholders are CEO, CFO and GAO Focus areas are markets, products, financials, manufacturing and logistics Involvement of consultants to verify the topics above Final decision being made mainly on above factors While Human Capital is the real asset it’s not evaluated accordingly 5

Typical Acquisition Process Execution/ Integration after D-Day Company would like to get ROI asap meaning lack of investment for professional integration plan Operational teams are tasked to handle integration on top of their day-to-day job The integration of Human Resource is treated second class Involvement of consultants ends with successful financial takeover 6

The real success factors The success of a company is mainly determined by high performing employees/ teams The real asset a company acquires is therefore the human one. Soft issues - such as leadership, employee communication, talent retention and cultural alignment are critical for success Management needs to focus on this asset not only during the due diligence process but even more importantly during the integration phase If 1+1 equals 1,5 of 2,5 depends mainly on how the company will manage the HR aspects The expertise of consultants in this area will make a huge difference 7

Success factors of value-creating M&A activities Strategy Definition of a clear strategy, vision and targets Integration planning, synergy evaluation Strategy Definition of a clear strategy, vision and targets Integration planning, synergy evaluation Leadership  Clear and early assignment of leadership  Professional integration project team Leadership  Clear and early assignment of leadership  Professional integration project team Growth  Strong focus on positive growth potentials (customers), not just on realization cost synergies  Optimization of core processes Growth  Strong focus on positive growth potentials (customers), not just on realization cost synergies  Optimization of core processes Early wins  Concentration on early wins to generate acceptance and motivation Early wins  Concentration on early wins to generate acceptance and motivation Culture  Accept the existence of cultural barriers and address these barriers appropriately  Professionally managing changes Culture  Accept the existence of cultural barriers and address these barriers appropriately  Professionally managing changes Communication  Early, open and direct external and internal communication  Motivating staff Communication  Early, open and direct external and internal communication  Motivating staff Risk Management  Holistic risk management avoids risks turning into threats Risk Management  Holistic risk management avoids risks turning into threats Acquiring company Acquired company … are the foundation of a solid house 8

Integration Plan General direction on integration strategy Identify all relevant integration tasks and prioritize them Identify a full-time Integration Manager to be on site who knows PKI very well and is culturally aligned Assign someone from each Function to participate in the Integration Team Establish Project Team and schedule weekly calls 99

Integration Critical Elements HR actively participates in the People Strategy for Integration through – In depth understanding of culture/ critical behaviors – Detailed screening of organizational structure – Detailed analyzes of skill sets – Detailed analyzes of individual performance categories and leadership capabilities – Solid understanding of all comp/ benefits aspects – Clear understanding of legal situation – Participation in the transition team (cultural alignment) – Providing selection, retention and severance processes – Ensuring Communication Processes Methods (when to use different communication vehicles) Audience (explaining different concerns people may have) Content (what to say and what not to say) Timing and coordination – Optimizing HR Operations HR staffing Transition architecture HR policies Service delivery model 10

Example HR Integration Plan during the first 6 months Prepare welcome letter for new employees Prepare Corporate employee communication Inform works council – if necessary Establish Integration Manager on site Install local integration team and get them together in a workshop Provide common information platform Conduct meetings with Key Employees Establish Retention Program Establish clear organizational structure and meeting culture Organize site visits Conduct Product Training and Training of core Management Processes Assess costs of harmonizing benefits and define strategy Align reward and bonus scheme Conduct leadership workshop for middle management Establish rigorous staffing and selection process 11

Employment / Labor Issues in PMI 1.Merger / Asset Transfer – automatic transfer of employment relationships? – consultation with works council, unions needed? – consent of employees needed? – realistic timeline? 2.Harmonizing Terms & Conditions – often consent of employees needed → strategy? – often consultation with works councils, unions needed – P : fate of stock options, company pension plans 3.Downsizing / Restructuring or Relocation of Business – often consultation with works council, unions needed – review if ban on closing down business or on terminations – awareness of industrial relation climate → strategy? Goal: minimize severance pay and other related costs 12

CULTURAL ALIGNMENT WORKSHOP Appendix 13

Cultural Alignment Questionnaire 14

Cultural Assessment Tool 15

Review and discussion of results Looking at the results from the questionnaire are you surprised or did you expect these results? Where are the most communalities and discrepancies? Are there any areas which we have not discussed and we would like to highlight? What would be good to keep for our new combined culture? How can we maintain the best of both cultures? What kind of barriers do we expect? How can we mitigate these barriers? 16