Feix, T., & Feix, T. (2020) - End-To-End (E2E) M&a Process Design. End-To-End M&a Process Design Resilient Business

Thorsten Feix
End-to-End M&A
Process Design
Resilient Business Model
Innovation
End-to-End M&A Process Design
Thorsten Feix
End-to-End M&A Process

Design
Resilient Business Model Innovation
Thorsten Feix
Hochschule Augsburg
Augsburg, Bayern, Germany
ISBN 978-3-658-30288-7 ISBN 978-3-658-30289-4 (eBook)

https://doi.org/10.1007/978-3-658-30289-4
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Introduction
The M&A market is with a global transaction volume of USD 3–5 trillion per year,
depending on the M&A cycle, an important segment of the global capital markets.
Between 5–6% of the global market capitalization finds a new ownership driven by those
M&A activities year by year. But more or less all recent studies and research focused on
the global M&A market highlight that between 50–70% of those deals fail (NBER 2004;
Kengelbach et al. 2005; Rudnicki et al. 2019). Failure rates within corporate finance-
based studies are typically defined as either destroying shareholder value in comparison
to a defined peer-group measured by the cumulative abnormal return or underachieving
on the intended and communicated synergy targets. Therefore, to find and understand the
root causes of those failed acquisitions and mergers is of paramount interest. Several rea-
sons, like the missing fit between the acquirer’s and the target’s business model, incon-
sistent due diligence, culture clashes, unsuccessful integration efforts or simply too high
purchase prices within contested bidding processes might contribute. But in the end, the
most severe drivers of M&A failures might be disruptions and missing links between the
different parts of the underlying M&A process.
Based on this assessment, this book, on the one side, develops an End-to-End (E2E)
M&A Process Design which tries to overcome those failures. On the other side, it will
challenge the robustness of such a design with the needs of twenty-first century digi-
tal business models and innovation strategies. The E2E M&A Process Design approach
is based on in-depth scientific research and co-operations with leading universities.
Besides, it was also stress-tested and verified in numerous international M&A consult-
ing projects, discussions with corporate development and M&A teams, as well as M&A
experts, like investment banks, Big 4 transaction managers and strategy consultants.
The target group of this M&A book is manifold. On the scientific side, courses and
lectures on advanced bachelor levels, intensive lectures focusing on corporate finance,
M&A and related fields, as well as master and MBA programs with a touchpoint on
M&A, corporate finance, corporate strategy or investment banking might find the book
useful. On the practitioner side, advisors in investment banking, strategy consulting and
M&A transaction management might be interested in the book. Last not least, corporate
v
vi Introduction
decision makers and in-house M&A, corporate strategy, corporate finance, controlling
and legal teams are typically highly interested groups.
This book will develop an innovative End-to-End (E2E) design for M&A processes
to address the following key questions, which are fundamental to improve M&A success
rates:
– How to invent a robust E2E M&A Process Design which avoids the typical pitfalls
of M&A projects? What should be the modules of such an integrated approach? How
to take care of the crucial linkages and feedback mechanisms between the different
parts of such a highly complex process model?
– How could twenty-first century digital tools and processes be applied within this
given M&A Process Design framework to increase efficiency, quality, speed and
robustness of M&A projects?
– How could transactions be designed to innovate business models, create or renew
competitive advantage and lever enterprise, or more precisely, equity value? How to
embed M&A in the wider toolset of corporate portfolio and business strategies?
– What are vice versa the challenges and impacts of digital business models for M&A
as a strategy tool and for the M&A Process Design?
These questions will lead us to a digital E2E M&A Process Design as a general frame-
work for M&A projects. Such a design has to be adjusted with respect to the specific
needs of a given corporate strategy, Business Design and M&A Strategy to provide a
tailor-made approach. The storyline and flow of thoughts, including the topics of each of
the following chapters of the M&A Process Design, are summarized in Fig. 1:
Seng the stage: An digital End-to-End M&A Process Design

Chapter 1 • The seventh merger wave: The blended challenge of Innovaon versus resilience
• A first overview of an End-to-End M&A Process Design
• The use of digital processes and tools to improve M&A processes and success
• The challenges of resilient digital business models and the role model of M&A
Part II: The modules of the digital End-to-End M&A Process Design
Chapter 2 Chapter 3 Chapter 4
Embedded Transacon Integraon
M&A Strategy Management Management
Chapter 5
Synergy
Management
Chapter 6
M&A-Project Management
& Governance
Fig. 1 Structure of the book and flow of thoughts

Introduction vii
– The first chapter of the book will start with the assessment of the long-term and the
most recent developments on the global M&A market. Distinct market indicators
highlight that we are in the later stage of the seventh global merger wave, which is
driven on the one side by business model innovations, digital disruptions and think-
ing in new ecosystems instead of linear competitive environments. On the other
side, the glut of liquidity on the global equity and debt markets supported in the
years before the covid-19 crises financially the flow of mergers and acquisitions. To
address the needs of this challenging environment a tailored M&A Process Design
will be introduced.
The E2E M&A Process Design is based upon five modules: the first three, the pri-
mary M&A process modules, are the Embedded M&A Strategy, the Transaction
Management and the Integration Management. These primary M&A process modules
will be supplemented by two support M&A processes, the Synergy Management and
the M&A Project Management & Governance.
Digital processes and tools, like artificial intelligence, analytics, big data, block-
chains and others offer significant potential to improve M&A processes. Given the M&A
Process Design, a whole new set of M&A tools are introduced to increase the effec-
tiveness and efficiency of M&A projects in the 20s. Further more, the role of M&A for
innovations in digital business models and, vice versa, how digital business models chal-
lenge M&A processes, will be assessed. Along the M&A Strategy digital business mod-
els demand a wider scan of potential targets within a given ecosystem. For example, an
Ecosystem-Scan as a tool for the necessary 360-degree, in-depth view on and assess-
ment of a company’s corporate environment might be applied. A second, more holistic
tool for corporate development and value creation is the Business Model Innovation
(BMI)-Matrix. By comparing and evaluating acquisitions, mergers, joint ventures, incu-
bators, accelerators and business model innovation approaches, the best option could
be chosen. Another digital business model challenge is the valuation of digital targets
and platform strategies within the Transaction Management. A Reversed Discounted
Cashflow Model (DCF) might offer here new insights.
Chapters two through six present the specific modules of the M&A Process Design
in detail and will highlight the importance of an integrated approach in the sense of an
E2E process. Especially at the interfaces of the different M&A modules, for example
at the hand-over between the modules Transaction and Integration Management, many
M&A projects fail. These interphase problems of M&A projects are also to be found
between individual processes within a given module, for example within the Transaction
Management between the Due Diligence, the valuation and the negotiation part. Besides,
a dedicated focus will be on selected, newer topics with lasting impact on the success of
viii Introduction
M&A projects, like the Due Diligence for digital targets and intangible assets, cultural
integration issues, the tracking and controlling of the integration progress, the manage-
ment of synergies or the design of a professional M&A project house and lasting tacit
M&A-capabilities:
– In Chap. 2 the Embedded M&A Strategy module sets the stage for a M&A pro-
ject: The first critical milestone is here the review of the corporate and the business
unit strategies. Any M&A project should pay in double-sided: On the one-side, M&A
projects have to contribute to the corporate and business strategy of the acquirer and,
on the other side, it has to be financially assured that any transaction will lever share-
holder value. Based on these guidelines the key pillars of such an Embedded M&A
Strategy will be defined. Besides, a special emphasis will be on the Frontloading
of Integration issues, like the Standalone Business Design Diagnostics of the target
company and the acquirer, the drafting of a Joint Business Design, as well as on the
Standalone Culture Diagnostics and the Joint Culture Design Blue Print. The E2E
M&A Process Design proposes that already within the M&A Strategy such a sketch
of the key pillars of a potential Integration Approach should be developed.
– The second module, the Transactions Management, will be discussed in Chap. 3.
Core elements within the Transaction Management module are the Due Diligence,
the valuation of the target company or merger with and without synergies, the acqui-
sition financing, the negotiation as well as the drafting of a share purchase, asset pur-
chase or merger agreement and the Purchase Price Allocation (PPA). Last not least
the Blue Print of the Joint Business and Culture Design must be stress-tested along
the Transaction Management phase. This book will focus foremost on the latter
issues, as well as valuation and Due Diligence topics.1
– Chap. 4 provides a detailed framework for the Integration Management. The
Integration Approach Blue Print has to be detailed in an Integration Strategy.
Additionally, the freezing of the Joint Business and Culture Design has to be assured.
Thereafter, the dedicated Integration Masterplan will be designed and executed in
four waves, short-, mid- and long-term as well as post-transaction to lever strategic
and value upsides beyond the first-hand integration process. In parallel, the integra-
tion success has to be tracked and controlled, as well as learning-loops initiated.
– M&A projects only generate value, if the realised synergies overcompensate
the agreed upon and finally paid acquisition premium. Therefore, the Synergy
Management, which will be described in Chap. 5, is especially important for
the value creation of an M&A project. The M&A Process Design understands the
Synergy Management, in line with Michael Porter’s value chain idea, as a sup-
plementary process, which runs in parallel, meaning End-to-End, to the three
1The second edition intends to cover all parts of the Transaction Management.
Introduction ix
primary M&A processes, the M&A Strategy, the Transaction and the Integration
Management.
– In the end, any M&A process has project characteristics, having a defined starting—
latest at the signing of the nondisclosure agreement—and end point—the closing of
the Integration or post-mortem report-. In this sense, a professional M&A Project
Management & Governance is, as a second supplementary process, mandatory
for a seamless E2E M&A Process Design. An M&A and Integration Project House
might serve as a capability and knowledge platform throughout the whole acquisition
process and might scale M&A Project Management and Governance tools, as well as
M&A specific, often tacit knowledge. This will be covered in Chap. 6.
The entire book stresses the idea that an M&A Process Design has to be tailored accord-
ing to the needs of a specific M&A Strategy, Business Design and ecosystem. The
chosen pattern will be defined as a tailor-made E2E M&A Process Design: A M&A
Process Design of a multiple acquirer, for example in the sense of a “pearls-of-string”
acquisition strategy, is obviously quite different as one for a company which realizes
only from time to time a dedicated M&A project or from one of a Private Equity (PE)
player. Accordingly, the M&A Process Design needs to be tailor-made.
Contents
1 End-to-End (E2E) M&A Process Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.1 The 7th Merger Wave: The Age of Digital Disruption and
Business Model Innovation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 End-to-End M&A Process Design for Digital Times . . . . . . . . . . . . . . . . . 7
1.2.1 Overview of the End-to-End M&A Process Design . . . . . . . . . . . . 7
1.2.2 Modules of the End-to-End M&A Process Design. . . . . . . . . . . . . 9
1.2.3 Interrelations between the M&A Modules:
An End-to-End View . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
1.3 Digital Touch Points of the End-to-End M&A Process Design. . . . . . . . . . 20
1.3.1 Digital M&A Processes and Tools. . . . . . . . . . . . . . . . . . . . . . . . . . 22
1.3.2 The Impact of Digital Business Models on M&A and
Vice Versa. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2 Embedded M&A Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.1 Reframing of Corporate Portfolio and Strategic
Business Unit Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.2 M&A for Strategy Development on Corporate Portfolio and
Strategic Business Unit Level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.2.1 M&A for Corporate Strategy and Portfolio Management. . . . . . . . 36
2.2.2 M&A for Business Unit Strategies and
Competitive Advantage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
2.3 Purchase Price, Synergies and Shareholder Value. . . . . . . . . . . . . . . . . . . . 58
2.3.1 M&A Value Added Versus Dilution. . . . . . . . . . . . . . . . . . . . . . . . . 58
2.3.2 Synergies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
2.3.3 The Tao of Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
2.4 Embedded M&A Strategy Design. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
xi
xii Contents
2.5 M&A Target Profiling and Pipeline. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

2.5.1 Criteria for Target Profiling and Target Scorecards. . . . . . . . . . . . . 65
2.5.2 Assessment of the Fit Diamond. . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
2.5.3 The Process of Screening and Target Pipelining. . . . . . . . . . . . . . . 72
2.6 Frontloading of Integration Approach Blueprint. . . . . . . . . . . . . . . . . . . . . 73
2.6.1 Standalone Business Design Diagnostics and
Joint Business Design Blueprint . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
2.6.2 Standalone Culture Design Diagnostics and
Joint Culture Design Blueprint . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
2.7 Embedded M&A Strategy for Digital Targets. . . . . . . . . . . . . . . . . . . . . . . 99
2.8 Summary of Embedded M&A Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
2.8.1 Critical Cross-Checks and Questions. . . . . . . . . . . . . . . . . . . . . . . . 102
2.8.2 Key Success Factors and Takeaways. . . . . . . . . . . . . . . . . . . . . . . . 103
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
3 Transaction Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
3.1 Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
3.1.1 M&A Valuation Framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
3.1.2 M&A Valuation Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
3.1.3 Valuation Methods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
3.1.4 Valuation Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
3.2 Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
3.2.1 Due Diligence Targets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
3.2.2 Due Diligence Management and Process. . . . . . . . . . . . . . . . . . . . . 144
3.2.3 Due Diligence Tools. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
3.2.4 Core Parts of the Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
3.3 Blending of SCDs and SBDs and Redrafting of JCD and JBD. . . . . . . . . . 159
3.3.1 Business Design Due Diligence: Blending
of SBDs and Redrafting of JBD Blue Print. . . . . . . . . . . . . . . . . . . 159
3.3.2 Culture Design Due Diligence: Blending
of SCDs and Redrafting of JCD Blue Print. . . . . . . . . . . . . . . . . . . 162
3.3.3 Due Diligence and Verification of Integration Approach. . . . . . . . . 162
3.4 Valuation and Due Diligence of Digital Business Designs. . . . . . . . . . . . . 163
3.5 Summary of Transaction Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168
3.5.1 Critical Cross-Checks and Questions
of Transaction Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168
3.5.2 Key Success Factors of Transaction Management. . . . . . . . . . . . . . 169
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
4 Integration Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
4.1 Integration Strategy and Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
4.1.1 Integration Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
4.1.2 Integration Approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
Contents xiii
4.2 Integration Masterplan: Planning the Transition. . . . . . . . . . . . . . . . . . . . . 197

4.2.1 Integration Framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198
4.2.2 Integration Masterplan Modules: Planning the
Transition to the JBD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203
4.2.3 Culture Transition Program: Planning the
Transition to the JCD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222
4.3 Transition Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225
4.3.1 Integration Principles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225
4.3.2 Implementing the Integration Masterplan. . . . . . . . . . . . . . . . . . . . 228
4.4 Integration Monitoring, Controlling and Learning . . . . . . . . . . . . . . . . . . . 232
4.4.1 Integration Tracking and Scorecards. . . . . . . . . . . . . . . . . . . . . . . . 233
4.4.2 Integration Controlling. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
4.4.3 Integrational Learning: Post Mortem Report
and Learning Platform. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
4.5 Integration Management for Digital Targets and Business Designs . . . . . . 237
4.6 Summary of Integration Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238
4.6.2 Key Success Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242
5 Synergy Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245
5.1 Transaction Value Added (TVA) and the Role of Synergies. . . . . . . . . . . . 250
5.2 Synergy Diagnostics and Patterns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252
5.2.1 Demystifying Synergies—I: Financial Diagnostics
of Synergy Patterns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253
5.2.2 Demystifying Synergies—II: Joint Business Design
Diagnostics of Synergy Patterns . . . . . . . . . . . . . . . . . . . . . . . . . . . 258
5.2.3 Valuation and Prioritization of Synergies . . . . . . . . . . . . . . . . . . . . 262
5.3 End-to-End Synergy Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264
5.3.1 Synergy Management & Embedded M&A Strategy:
Synergy Diagnostics & Scaling Approach. . . . . . . . . . . . . . . . . . . . 265
5.3.2 Synergy & Transaction Management: Proof-of-Concept
of Synergy Value and Scaling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267
5.3.3 Synergy & Integration Management: Synergy
Capture—Implementation & Tracking . . . . . . . . . . . . . . . . . . . . . . 269
5.4 Synergy Management Toolbox and Synergy Capture Assessment. . . . . . . 272
5.4.1 Synergy Toolbox . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272
5.4.2 Evaluating Synergy Capture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276
5.5 Synergy Management of Digital Targets and Business Designs. . . . . . . . . 277
5.6 Summary of Synergy Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279
5.6.2 Summary and Key Success Factors. . . . . . . . . . . . . . . . . . . . . . . . . 280
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280
xiv Contents
6 M&A Project Management & Governance: The M&A Playbook. . . . . . . . . 283

6.1 Purpose of the M&A Playbook: End-to-End M&A
Project Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286
6.1.1 End-to-End M&A Process Map. . . . . . . . . . . . . . . . . . . . . . . . . . . . 286
6.1.2 End-to-End M&A Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288
6.2 M&A Playbook and End-to-End M&A Process Design. . . . . . . . . . . . . . . 289
6.2.1 Development of an Embedded M&A Strategy . . . . . . . . . . . . . . . . 289
6.2.2 Execution of the Transaction Management. . . . . . . . . . . . . . . . . . . 290
6.2.3 Managing the Integration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291
6.3 M&A in the 20s: Management of M&A Capabilities. . . . . . . . . . . . . . . . . 294
6.3.1 M&A Capabilities in the 20s. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294
6.3.2 M&A Departments 2020+. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296
6.4 M&A in the 20s: Digital Tools of the M&A Playbook. . . . . . . . . . . . . . . . 297
6.5 M&A Project Management of Digital Targets and
Business Design. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299
6.6 Summary M&A Project Management & Governance. . . . . . . . . . . . . . . . . 301
6.6.2 Summary and Key Success Factors. . . . . . . . . . . . . . . . . . . . . . . . . 301
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302
End-to-End (E2E) M&A Process Design
1
Contents
1.1 The 7th Merger Wave: The Age of Digital Disruption and Business Model Innovation. . . 2
1.2 End-to-End M&A Process Design for Digital Times . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.2.1 Overview of the End-to-End M&A Process Design. . . . . . . . . . . . . . . . . . . . . . . . 7
1.2.2 Modules of the End-to-End M&A Process Design. . . . . . . . . . . . . . . . . . . . . . . . . 9
1.2.3 Interrelations between the M&A Modules: An End-to-End View. . . . . . . . . . . . . . 18
1.3 Digital Touch Points of the End-to-End M&A Process Design. . . . . . . . . . . . . . . . . . . . . . 20
1.3.1 Digital M&A Processes and Tools. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
1.3.2 The Impact of Digital Business Models on M&A and Vice Versa. . . . . . . . . . . . . . 26
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Abstract
The long-term development of the global M&A market is characterized by a highly
volatile pattern and was challenged by six merger waves. Multiple financial mar-
ket assessments indicate that the global M&A market is in the midst of a new, the
seventh merger wave, which is driven by business model innovations within tech-
nology as well as traditional industries. Besides, a glut of global liquidity due to
ultra-loose monetary policies of multiple developed market central banks sup-
ports M&A financing potentials. Given this highly dynamic macro-view, a robust
E2E M&A Process Design is mandatory to assure successful mergers and acqui-
sitions. This M&A Process Design is built upon 5 modules, the Embedded M&A
Strategy, the Transaction Management, the Integration Management, the
Synergy Management and the M&A Project Management & Governance. The
E2E M&A Process Design not only addresses these five modules, but also takes care
of the crucial linkages within and between those modules. This mission-critical
© Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2020 1

T. Feix, End-to-End M&A Process Design,
https://doi.org/10.1007/978-3-658-30289-4_1
2 1 End-to-End (E2E) M&A Process Design
interdependencies of modules demand an E2E architecture. The M&A Process

Design integrates also digital challenges and opportunities: Digital tools and pro-
cesses might be used to increase the efficiency, speed, quality and robustness of
M&A processes. Additionally, M&A could be used as a corporate development tool
to design robust digital business models, resilient innovation strategies and to reshape
corporate portfolios for the needs of the 20s.
1.1 The 7th Merger Wave: The Age of Digital Disruption

and Business Model Innovation
The global M&A market is with a yearly transaction volume between USD 3–5 tril-
lion not only a significant, but also a volatile part of the global capital market. Within
the M&A community, a common understanding exists, that these ups and downs of
the global M&A market were shaped by six merger waves. Merger waves are thereby
defined as multi-year clusters of extraordinary high global merger and acquisition
activity (DePamphilis 2015, pp. 18–20; Maksimovic et al. 2013; Gugler et al. 2012)
(Fig. 1.1).
Macro view: Development and paerns of the global M&A market

• Brief summary of the six tradional merger waves and their drivers
• The 7th merger wave: its drivers and challenges
Resilient business model Global glut of

innovaon liquidity
Micro view: The E2E -M&A Process Design

Synergy -
Management
M&A Project Management
& Governance
E2E M&A Process Design, digitalizaon and business model innovaon

+ Venturing (CVC)
Speed
Business Incubaon / Accelerators

BMI distance from core
Efficiency
E2E
M&A
M&A Alliances & Partnerships
Process
Design
Quality Joint Ventures
Minority &
Cross Shareholdings
Robustness -
Inhouse Business Model Innovaon
Short term Implementa on me Long term
Fig. 1.1 Structure and flow of thoughts of Chap. 1

1.1 The 7th Merger Wave: The Age of Digital Disruption … 3
Background Information
There are two competing schools of thought on the phenomenon of merger waves:
The theory of “external shocks” argues that merger waves occur due to significant changes in
the wider ecosystem of companies. The drivers of those changes might be redesigns of the regu-
latory environment, tectonic shifts in the macroeconomic environment like significant commodity
price increases, disruptions due to new technologies1 or the sudden appearance of new distribution
channels like the Internet. These macro-shifts in the external environment challenge corporations
to overhaul their corporate strategies and portfolios and therefore foster mergers and acquisitions
as important corporate strategy tools.
The second argumentation line is based on the theory of the “merger mania phenomenon”
and temporary corporate mis-valuations. Here the line of thought is that managers use shares of
their own company believed to be temporarily overvalued to buy perceived lower-valued firms
and assets. Further, the argument goes, management confidence is high during merger waves due
to booming capital markets, and therefore managers might use a significant proportion of debt to
finance their acquisitions.2
All in all, the external shock theory might explain the phenomenon of merger waves better than
the temporary mis-valuation theory (Garcia-Feijoo et al. 2012). Nevertheless, high liquidity on the
global debt and equity markets seems to have fueled merger activity in recent times, as the devel-
opment in the aftermath of the Global Financial Crisis (GFC) of 2008 proved.3
The Six “Traditional” Merger Waves

– The first merger wave (1897–1904)—Horizontal consolidation: Around the
turn of the last century merger and acquisition activity kicked-off. The underlying
route-causes were new anti-trust regulations like the moderate enforcement of the
Sherman Anti-Trust Act in the US and new technology developments. This led to
mergers between and acquisitions of competitors and enforced a significant consoli-
dation process, especially in the raw material and transportation industries. Financial
turbulences due to the stock market crash in 1904 put a halt to this first merger wave.
1Carlota Perez (2018) describes from an e conomic-historical point of view, that revolutionary tech-
nologies first go through a “gilded age” in line with an investment hubble that pops after a couple
of years, before entering a “golden age” of widespread development.
2For this theory to be valid two assumptions have to be met. First, that capital markets might
behave from time to time irrational. This is in line with the explanation of irrationalities by behav-
ioral economics, but is in contradiction to the traditional theory of corporate finance. The latter
proposes the efficient market hypothesis. Secondly, that the method of payment within merger
waves is more share- than cash-based, which was in contradiction to the empirical findings within
the first six merger waves.
3Another interesting fact about merger waves was highlighted by Netter et al. (2011). The corre-
lation between merger waves and external shocks is more obvious in studies which use smaller
data samples than those which use larger ones. It seems therefore, that M&A activity that includes
smaller deals and private acquirers is less sensitive and wavelike then M&A patterns observed with
only public acquires and larger deals.
– The second merger wave (1916–1929)—Increasing concentration: The interim

period between World War I and II and its economic boom have been the foundation
for the second merger wave which resulted in a further concentration within several
industries. Once more, a stock-market crash, this time in 1929, and the introduction of
the Clayton Act in the US to limit monopolistic behavior stopped this second merger
wave.
– The third merger wave (1965–1969)—The diversification and conglomerate era:
New management theories and portfolio techniques, as introduced by management
consultants of the likes as the Boston Consulting Group and McKinsey, have been
the intellectual backbone of the third merger wave. Corporate managers used M&A
to diversify their business activities and to create a balanced portfolio of strategic
business units concerning their cash flow, growth and risk patterns. The third M&A
boom was tapered off by the stock market underperformance of most of those new
conglomerates.
– The fourth merger wave (1981–1989)—The LBO and core competency era:
Starting in the 1980s, corporate raiders enforced the breakup of, foremost under-
performing, major conglomerates by using hostile takeovers and leveraged buyouts
(LBOs), meaning significantly leveraged acquisitions of the target companies. After
closing the acquisition, the target companies have been restructured by the new own-
ers and resold as secondary buyouts or in public markets. Driven by this takeover
threat conglomerates began by themselves divestment strategies of non-core busi-
nesses and refocused their corporate portfolios on their core competencies. This wave
collapsed by massive LBO bankruptcies and a slowing global economy.
– The fifth merger wave (1992–1999)—Global plays and TMT: A stock and bond
market boom, the transformative power of innovations in the technology, media and
telecommunication (TMT) industries combined with the trend to establish a global
footprint on the corporate side drove the global M&A marking to new records. At the
millennium, the bust of the TMT bubble also crashed global M&A activity.
– The sixth merger wave (2003–2008)—World awash in money, PE and financial
engineering: The global capital markets, on the debt side with low interest rates and
driven by aggressive monetary policies of the leading global central banks, on the
equity side with high stock market valuations, fueled more or less unlimited growth
and financing possibilities before the Global Financial Crisis in 2008 took off. A sig-
nificant portion of this exuberance in liquidity was used to finance acquisitions with
global ambitions and high risk. This contributed to highly leveraged acquisitions and
encouraged acquirers to overpay for attractive target companies within competitive
bid environments. In the end, the Global Financial Crisis in 2007/2008, with the crash
of Lehman Brothers and massive asset write-offs, forced the global banking industry
to stop excessive lending activities and to rebuild their capital structure. In addition,
the European sovereign debt crisis triggered additional capital market shocks. No sur-
prise, that M&A activity collapsed and recovered unusual slow in the aftermath of the
Global Financial Crises.
1.1 The 7th Merger Wave: The Age of Digital Disruption … 5
A 7th Merger Wave?

Having discussed the historical six merger waves the question is obvious if we are in the
midst of a new merger wave. The significant volume of the global M&A market in the last
years might indeed indicate a 7th merger wave. The latter could serve as a showcase of the
before mentioned theories: On the one side the glut of global liquidity due to the still ultra-
loose monetary policy, especially by the US-Fed, the ECB and the Japanese central bank,
to combat the long-term effects of the GFC. On the other side technology disruptions of
and business model innovations within multiple global industries and ecosystems.
New Heights
From a disruptive and strategic point of view, four trends stand out driving the global
M&A markets nowadays:
– New regulatory initiatives, especially in the energy & power and in the financial indus-
try, led strategists to reshuffle corporate portfolios by divestments and M&As. The
triggering event for the energy and power distribution industry was the environmen-
tal disaster in Fukushima. This enforced a massive investment in renewable energy
sources and energy storage as well as energy distribution systems. The restructuring
of the global banking industry was driven by the need to rebuild capital structures due
to new global regulatory frameworks like Basel III as well as national regulatory initi-
atives, like the Dodd Frank Act in the US, in the aftermath of the GFC. Besides, also
technology disruption played out in the banking industry driven by the new business
models of FinTechs, meaning startups and unicorns who enter the banking industry
with technology-driven value propositions and business models (Fig. 1.2).
– A second driver are M&As within the technology ecosystem. Especially globally
leading technology and platform companies like Apple, Google, Amazon, Tencent,
IBM, SAP as well as social media companies like Facebook and Alibaba, apply
external growth initiatives to extend their service and product portfolios beyond their
cores. Additionally, technology companies leverage the newest digital developments
like the Internet of Things (IoT), industry 4.0 applications, big data and augmented
reality to enter more and more traditional industries using their tech capabilities,
thereby shifting industry boundaries in an unprecedented way. To scale and speed
up their market entry in these more traditional industries they also use mergers and
acquisitions.
– Closely linked to this development are business model innovation driven M&As of
incumbent companies and newcomers within traditional industries, like automotive,
pharma & healthcare or the media, telco and entertainment industry. This trend will
be discussed in more detail within Chap. 2 on Embedded M&A Strategy. The “new
technology alphabet” of the automotive industry, for example, describes how the
disruptive power of multiple technology innovations at the same time shake up the
traditional mobility industry: Autonomous driving using a camera, radar and lidar sys-
tems, the electrification of the powertrain by hybrid and pure electric solutions, the
Technology ecosystem
M&A Being amazoned 2 driven M&A
volume 4 M&A
High
Tech
Retail
Media,
TelCo,
Entertain-
ment Pharma &
„Tradional“ or regulatory Health
1 driven M&A Care
Fashion &
Luxury Goods FinTechs &
Power & Banking Auto-
Industry
Energy move
Distribuon
Raw
Materials Business model innovaon
3 driven M&A
Indicave deal premia
Fig. 1.2 Drivers of the 7th merger wave: Digitalization and disruptive business model innovations
development of car-to-car communication and fleet learning, or business model inno-

vations like shared mobility, ride-hailing or robo-taxis. As incumbents have in most
of those activities limited capabilities, they use M&As to get access to those decisive
technologies of tomorrows automotive markets.
– By combining the second and third force an ultimate lever for the global M&A mar-
ket emerged: Driven by the threat of the market entry of digital natives, like Amazon
or Netflix, incumbents of traditional industries initiated early-stage M&A activities.
Examples are here the media industry, where the streaming revolution of Netflix and
the likes initiated a deal-making frenzy, with AT&T buying Time Warner and Disney
the 21st Century franchise from Rupert Murdoch. Amazon, the e-commerce levia-
than, rattled the entire retail industries with one swift move to acquire Whole Foods
for close to USD 14 billion. Amazon’s move prompted bricks-and-mortar retailers to
acquire other global shopping centres. Faced with the threat of Amazon’s entry into
the pharmacy business, the US drugstore chain CVS Health acquired the healthcare
insurer Aetna in a consolidation play for about USD 69 billion.
Taken these trends together, it indeed seems that the global M&A market is in the midst
of a 7th merger wave. But how to cope with those trends in the global M&A markets?
An E2E M&A approach, which starts with a detailed understanding of the strategy, that
supports an efficient and fast Transaction Management, as well as a high-class integra-
tion, is therefore mandatory.
1.2 End-to-End M&A Process Design for Digital Times 7
1.2 End-to-End M&A Process Design for Digital Times
Section 1.2 will introduce an E2E M&A Process Design to improve M&A performance
and to cope with highly dynamic markets and ecosystems. This E2E M&A Process
Design is the reference model4 and framework for this entire book. It could be defined
as the design of a holistic M&A process which covers all essential parts of an M&A
project. Therefore, it is an E2E process approach.5 This approach is based on two impor-
tant assumptions: The quality and success of an M&A project is on the one side defined
by the application of a structured, result driven M&A process and best-in-class perfor-
mance within the individual M&A modules of such a process design (Nikandrou and
Papalexandris 2007, p. 155; Singh and Zollo 2004). On the other side, the interrelations
between the M&A modules are of essence. This is the reason why this approach is called
an E2E M&A Process Design. The latter point is also in so far important as the missing
linkages between the different modules of M&A processes are one of the route-causes
for M&A failures. A standardized, but still tailored transaction process should offer a fast
and robust process with low transaction costs and a clear focus on the transaction spe-
cific strategic rationale and synergy capture.
1.2.1 Overview of the End-to-End M&A Process Design
 5 modules build the cornerstones of the E2E M&A Process Design:
1. Embedded M&A Strategy

2. Transaction Management
3. Integration Management
4. Synergy Management
5. M&A Project Management & Governance
These modules have different characteristics, but as well multiple overlaps, iterations,
and feedback loops. For the design of a holistic M&A process approach, the idea of
Michael Porter’s value chain theory (Porter 1985, pp. 33–61) was applied. The first three
4The first journal description of the E2E M&A Process Design may be found in Feix, T. (2017a,
pp. 153–159) and Feix, T. (2017b).
5The need to view M&A as an E2E business process is also underlined by Galpin and Herndon
(2014, pp. foreword xix, 25). Their understanding of an E2E view is as well based on the entire
M&A life-cycle from strategy through Due Diligence to integration. Nevertheless, their deal flow
model is based on substantially different modules, like formulate, locate, investigate and negoti-
ate for the pre-deal phase, and integrate, motivate, innovate, and evaluate in the post-deal-phase
(Galpin and Herndon 2014, pp. 28–30). Also, their primary research focus is on the integration
part.
modules, the Embedded M&A Strategy, the Transaction Management and the Integration
Management, are the primary M&A processes (Müller-Stewens 2010, pp. 9–10).
These modules are also milestones and are for the ease of discussion presented as a
step-by-step process. Nevertheless, later the linkages and the overlaps between these
primary M&A processes will be assessed and highlighted. The M&A modules four and
five, the Synergy Management and the M&A Process Management & Governance are
supplementary processes, which run in parallel to the three primary ones (Feix 2017b)
and is a unique pattern of this E2E M&A Process Design (Fig. 1.3).
Historically, the scientific view on M&A started with the valuation of target com-
panies. The valuation issue was derived from the then already established corporate
finance literature and developed throughout the years to a separate corporate valuation
practice. Nowadays, corporate valuation focuses foremost on the different valuation
techniques, like Discounted Cash Flow (DCF) based valuations, and pricing techniques,
like transaction- or trading-multiples (Koller et al. 2015; Damodaran 2006). The M&A
Strategy idea, that any M&A project has not only to create value but also should con-
tribute to the corporate and business strategy of the acquiring company, was more an
outcome of the corporate strategy literature and discussions (Müller-Stewens 2010,
pp. 5–6). Integration issues became a primary field of scientific interest in the mid of
the 1990s, as many acquisitions and mergers failed or underdelivered with respect to
intended synergy targets and integration success.
Besides, within the corporate world, the different parts of an M&A project have been
often loosely knit. Jeffries highlights this briefly: “As recently as 15 years ago, most
acquirers did very little if any, integration planning until after legal close. This hap-
pened for a variety of reasons. Many organizations focused almost exclusively on the
transaction until it was complete, then merely threw the integration “over the transom”
#1 Embedded #2 Transacon #3 Integraon

• Embedded M&A Strategy: BMI Matrix • Dynamic Valuaon of Standalone Target (w/o • Integraon Strategy
• Ecosystem & Target Scan Synergies) and Integrated Valuaon (w Synergies) • Integraon Approach Freeze
• Pipelining: Long- & Short-List • Due Diligence JBD Freeze
• Fit Diamond Assessment • Verificaon of Integraon Approach JCD Freeze
• Integraon Approach Blue Print SBD Blending and JBD Proof-of-Concept • Integraon Masterplan (IM)
Standalone Business Design (SBD) SCD Blending and JCD Proof-of-Concept • Transional Change: Implement JBD
Diagnoscs & Joint Business Design • Negoaon and Purchase Price Allocaon (PPA) • Culture Transion
(JBD) Blue Print • Acquisions Financing Concept • Integraon Tracking & Controlling
Cultural Diagnoscs and Joint • Integraonal Learning & Best Pracce
Culture Design (JCD) Blue Print
#4 Synergy Management
Synergy Diagnoscs and Blue Print Synergy Paern and Scaling Approach Synergy Capture: Implementaon,
of Synergy Scaling Approach Proof-of-Concept Tracking and Controlling
#5 M&A Project Management & Governance

M&A Capability Map Integraon Project House (IPH) and digital M&A Tool Plaorm M&A Knowledge Management
M&A playbook
Fig. 1.3 The E2E M&A Process Design and its 5 M&A modules
to unsuspected and previously uninvolved functional leaders. Other organizations

viewed Due Diligence and integration is distinctively different processes that, at best,
were loosely aligned but not effectively coordinated. Still, other organizations interpreted
anti-trust and anti-competition laws as that literally no information could be exchanged
prior to closing and no amount of pre-closing integration planning could take place.
Regardless of the reasons, the results were the same. Most integrations were commenced
when it was already too late, organizations have become galvanized by ambiguity, uncer-
tainty, and a delay between the announcement and close, performance has declined, and
talent and customers left stranded. The result was a startling statistic from countless stud-
ies that 70% of deals underperform or became outright failures (Jeffries 2014, p. xvii).”
The corporate finance view on M&A is on the other side straight forward: M&A
projects increase only shareholder value if the realized synergies outperform the paid
acquisition premium. Therefore, surprisingly, the topic of Synergy Management, despite
being of utmost importance for M&A success, is only slightly covered in the existing
M&A literature. Limited research exist on the classification and valuation of syner-
gies (Damodaran 2006, p. 563). The same is more or less true for the Management and
Governance of M&A processes. Most ideas of the M&A Project Management have been
therefore derived from the traditional Project Management research.
Only in the last years a couple of authors and researchers tried to establish an entire
process view on M&A (DePamphilis 2015, p. 142; Davis 2012, p. 11; Müller-Stewens
2010, pp. 9–10). The E2E M&A Process Design follows these latter approaches. This
has the advantage that mission-critical success factors of the Transaction or even more
the Integration Management, like the definition of a tailored Integration Approach or
the Blue Print of the Joint Business and Culture Design, could be addressed at an early
stage. This Frontloading of integration intends also a higher speed of integration and will
support Day One readiness.
1.2.2 Modules of the End-to-End M&A Process Design
To stress the End-to-End idea of the M&A Process Design, a brief overview of its five
specific M&A modules and their linkages will be provided before the details of each
M&A module are analyzed throughout the following chapters.
Embedded M&A Strategy

In the first step, the framework in which the M&A Strategy plays out has to be defined.
A holistic, well-thought M&A approach starts with a recapitulation of the corporate port-
folio strategy and the underlying business unit strategies of the acquiring company. Such
an Embedded M&A Strategy approach is mandatory as M&A is an important, but just
one of multiple potential levers for the design of corporate portfolio strategies or initia-
tives on strategic business unit level to lever shareholder value and growth. Additionally,
the corporate strategy has to provide guidance, targets and the playground for such an
Embedded M&A Strategy. The integration of the M&A Strategy within the wider set-
ting of the corporate strategy is, therefore, a precondition for a successful transaction
execution.6
 The Embedded M&A Strategy frames the cornerstones of the design of merger and
acquisition initiatives, like:
– The detailed strategic targets which should be achieved by M&A initiatives.

These targets serve as the transaction rational of a specific acquisition. Examples
might be to get access to untouched regional markets or customer segments,
acquiring innovative products or services, gaining new core capabilities and skills,
or to create cost advantages by economies of scale or scope.
– The corporate finance framework in the sense of how the M&A projects might
be financed. This incorporates the definition of the financial headroom and bridge
finance possibilities, as well as the top-down value creation targets, including the
rough synergy deliverables of the M&A projects. Besides, the likely impact of
the intended deals on the consolidated financial statements of the acquirer has to
be broadly forecasted. Best- and worst-case scenarios could be used to define and
stress-test the bandwidths of likely outcomes.
– The preferred external growth design, like mergers, acquisitions, joint ventures,
corporate venturing, incubation or acceleration within a holistic, strategic frame-
work. A newer tool, the Business Model Innovation (BMI)-Matrix, describes
how to evaluate and select the best fitting approach.
– The criteria for the definition of the profile of the ideal target company and the
potential fit assessment, the Fit Diamond.
– The targeted Integration Approach, based on a first Diagnostic of the Standalone
Business and Culture Designs, but as well including a first Blue Print of the tar-
get Joint Business Design and Culture Design. The latter are intertwined with the
strategic rationale of the transaction (Chatterjee 2009) (Fig. 1.4).
Based on this detailed and consistent framework a first assessment of potential target
companies in the sense of a long-list of attractive targets could be defied. Especially in
the case of highly dynamic markets and digital business model innovations, it might
make sense to apply an Ecosystem-Scan of different potential scenarios with respect
to the future environment of the company, technology and market trends. Based on this
assessment, a detailed research of potential target companies is initiated. Given this scan
as a reference framework, the contribution of potential target companies regarding the
defined strategy and financial targets could be defined.
6The M&A Strategy phase might be roughly comparable with the phases formulate and locate in
the model of Galpin and Herndon (2014, pp. 28–30).
Rethinking Corporate Design of Embedded Fit assessment & M&A SBD & SCD diagnoscs,
and SBU Strategies M&A Strategy porolio JBD & JCD blue print
STRATEGIC RATIONAL
WHERE TO COMPETE REDESIGN CORPORATE FIT DIAMOND SBD DIAGNOSTICS &
(PORTFOLIO STRATEGY) PORTFOLIO ASSESSMENT JBD BLUE PRINT
Assess Corporate Porolio Build new Business Design Standalone
#1 CS
aracveness
Compeve & Parent Growth in adjacent markets
Advantage Divestment Risk Financial CA CR
profile Fit (synergec) #6 CV #4
Market aracveness Diamond
#8 #2
fit C
LEVER SBU CP CC #3 CH
M
HOW TO COMPETE #7 #5
COMPETITIVE ADVANTAGE BD and CD Strategic
#9 CF
Fit Fit (raonal)
(SBU STRATEGY)
New region, product, service #10CO
Compeve Advantage - SBU New Capabilies
M&A PORTFOLIO & SCD DIAGNOSTICS &
Business Design, VP, core Cost advantages
PIPELINE JCD BLUE PRINT
competencies and culture ACQUISITION DESIGN 1 2 3
Corporate value Regional culture Management
footprint Embeddedness style
STRATEGIC HOW TO ACQUIRE Leadership atude
INITIATIVES
Centricity Power distance
Alternave growth opons 1 2 3 4 5 6 7
Spirit
1 2 3 4 5 6 7
Group
1 2 3 4 5 6 7
Decision making
Product/service strategy Intended advantages and 1 2 3 4 5 6
Midset
1 2 3 4 5 6 7 1 2 3 4 5 6 7
Corporate Spirit
Uncertainty
Market strategy: Customers, synergies 1 2 3 4 5 6 7
Diversity
1 2avoidance
3 4 5 6 7 1 2 3 4 5 6 7
Gender Working principle
regional, channel strategies Valuaon & financing 1 2 3 4 5 6
Group values
1 2 3 4 5 6 7
Orientaon
1 2 3 4 5 6 7
Risk tolerance
Technology strategy Integraon approach 1 2 3 4 5 6 7
Communicaon
1 2 3 4 5 6 7 1 2 3 4 5 6 7
Driver for decisions
Valuaon & financial targets JBD and JCD blue print 1 2 3 4 5 6 7 1 2 3 4 5 6 7
Fig. 1.4 Embedded M&A Strategy: Sub-modules
In a follow-on step, the long-list of target companies has to be reduced by prede-

fined strategic, financial and business model fit criteria, the Fit Diamond, to a s hort-list
of highly attractive targets. This short-list serves as the starting point of an M&A pro-
ject. Additionally, for a specific transaction target, the Business and Culture Design
must be diagnosed and the targeted Joint Designs defined.
Transaction Management
The Transaction Management is the second module of an M&A project.
 Core parts of the Transaction Management are the valuation of the target com-
pany, the Due Diligence, the negotiation of a share purchase, asset purchase or merger
agreement, the acquisition financing, the Purchase Price Allocation (PPA) and last not
least the preparation of the integration by stress testing the Blue Print of the Joint
Business Design7 and Culture Design.
Core parts of the Transaction Management are highlighted in Fig. 1.5:

A specific M&A project typically kicks off with the first contacts and preliminary dis-
cussions between the management teams of the target company and the potential
acquirer or, more formally, with the signing of a non-disclosure agreement (NDA). The
NDA serves as a bridge to close the gap between the information interest of the acquir-
ing company and the protection of confidential and highly sensitive data, like financials,
7Zottet al. (2010) provide an in-depth overview on the historical roots and research with respect to
business model theories.
Valuaon Due Diligence Valuaon

• Rough • Back-tesng • Thorough
• Outside-in perspecve investment thesis • Informaon from inside
• Gathering detailed
informaon for
further valuaon
• Searching for
Negoaons „hidden“ risks Deal Closure
• Synergy proof
• First contacts • Aer detailed negoaons
• Gaining insights • Based on final valuaon & DD
• Outside-in perspecve for integraon &
negoaons
Fig. 1.5 Transaction Management: Sub-modules
business plans, IP rights or customer information, on the seller’s side. An alternative

starting point in sell-side auctions might be the establishment of a virtual data room
(VDD) by the seller and the preparation of a teaser document, followed by the signature
of a NDA on buy and sell side.
Based on a joint understanding of the potential transaction interest on both sides the
target company’s management team prepares an information memorandum. The latter
covers the most important cornerstones of the target company, like key financials, organ-
izational structure, a rough strategy outlay, core products and services, management
information, IP, mission-critical know-how, management information, and others. Based
on this document and further information made available by the sell side, the potential
acquirer prepares a non-binding indicative offer that might be embedded in a Letter of
Intent (LoI). An LoI includes, besides the indicative valuation of the target company, the
assumptions on which the indicative offer rests and how the further steps of the acquisi-
tion process could look like.
If this indicative offer and the proposed futher process is roughly in line with the
expectations on the sell side, both parties might commit themselves to a Due Diligence
process. The Due Diligence is especially important for the buy side, as the potential
acquirer has to back-test within a very limited timeframe of a couple of weeks if the
assumed synergies and standalone financials of the target company justify the indicative
purchase price and proposed premium.
A crucial point is here the linkage between the Due Diligence and the valuation of the
target company, as pinpointed by Fig. 1.6: The valuation and indicative offer, as well as
the assumed synergies, are the starting point. As they are based on the value drivers of to
target company they also define the to be assessed financials and deliverables of the Due
Diligence. Vice versa, the Due Diligence serves as a crosscheck of the stand-alone valua-
tion thesis and assumed synergies. Therefore, the outcomes of the Due Diligence have to
be integrated into the update of the stand-alone and synergy valuation. In so far, the Due
Valuaon
• Indicave valuaon parally defines
deliverables for DD
Purchase agreement
• Detailed valuaon based on DD informaon
Definion of:
• Purchase price
• Adjustment mechanisms
• Deal structure
Due Diligence
• Reps & warranes to protect
• To idenfy strategic, financial, legal, operaonal and acquirer from idenfied risks
cultural risks as well as potenal Integraon needs • …
• To verify strategic, organizaonal & cultural fit
between acquirer and target company
• To detail financial and operaonal synergies
• To gather informaon for both valuaon and deal
negoaon
Fig. 1.6 Transaction Management: The linkages between valuation, synergies and negotiation
Diligence could be thought of as a process of verification or falsification of the original

investment thesis and indicative purchase price offer.
Valuation and Due Diligence are linked as well to the negotiations, especially at the
later stage of the Transaction Management. The purchase agreement includes much more
than just the final and agreed upon purchase price. It has also to describe, based on the
valuation and Due Diligence outcomes, the intended deal structure (share deal vs asset
deal, a precise definition of the potentially carved out business or assets of the target
company, …) and the representations and warranties to protect the acquirer from poten-
tials risks. Also, purchase price adjustments based on a locked-box principle or closing
accounts have to be defined.
The final financial part of the Transaction Management is the Purchase Price
Allocation (PPA). The PPA gained in the last couple of years in importance due to the
fact that, not only for digital acquisitions, the competitive advantage of target companies
is nowadays foremost based on intangible assets like brands, IP rights or customer con-
tact. A detailed PPA reduces the risk of potential impairments after closing as the valu-
ation of intangible assets reduces the goodwill which is exposed to a yearly impairment
test according to US-GAPP and IFRS accounting principles.
Integration Management
 The Integration Management complements the Embedded M&A Strategy and the
Transaction Management as the primary processes of a holistic E2E M&A Process Design.
Key parts of the Integration Management are the definition of the Integration Strategy
which includes the Freeze of the Joint Business and Culture Design, the design of an
Integration Masterplan (IM) covering a dedicated and tailor-made integration pro-

gram, the preparation of Day 1 readiness, the implementation of the IM short- and long-
term, the monitoring and controlling of the integration progress as well as the definition
of the lessons learned.
Fig. 1.7 summarizes the mission-critical sub-processes of the Integration Management:

Applying an E2E approach, the definition of the Integration Approach and priorities
should be driven and framed by the outcomes of the Due Diligence and the valuation.
The key target for the Integration Strategy is the refinement and freeze of the intended
Joint Business and Culture Design as a post-acquisition vision for the joint company.
Besides, the Integration Strategy has to define in detail the depth, intensity, and speed
of the integration as well as the time horizon. The Integration Strategy also has to assure
that the parenting and competitive advantages are preserved.
The integration is fundamental for the realization of the synergies and intertwined
with the Synergy Management. Synergies justify in the end the purchase price and assure
the long-term value creation of an acquisition. Therefore, within an E2E M&A Process
Design, the Integration and Synergy Management, especially the levers, the time horizon
and the value of the synergies, have to be coordinated with the integration initiatives.
Based on the targets of the Integration Strategy the Integration Masterplan (IM) for
the short-, mid- and long-term integration could be defined. Within most integration pro-
jects typical modules of the IM are the strategic, the financial, the process, the organiza-
tional, the management, and the cultural integration. The holistic M&A Process Design
uses the 10C Business Design from the strategy phase to structure the IM. This enables
Integraon Strategy Integraon Transformaonal Integraon

(JBD & JCD Freeze) Masterplan (IM) Management Monitoring
Integraon needs and Design of IM modules , Integraon guidelines Integraon tracking
priories defined on workstreams, -scorecards Definion of
Strategic raonal #1 CS responsibilies Integraon controlling
Valuaon & synergies High degree of
Gap assessment
Due Diligence blending
CA CR Definion of
#8 #6 CV #4 #2
transparency
Integraon risk analysis Focused, aligned
counter acons
CP CC #3 CH CM
#7 #5 communicaon
#9 CF Integraonal learning
Integraon Strategy Design
#10 CO Culture Transion Lessons learned and
Integraon vision &
Management Post Mortem
mission Culture Change Program
Report
Integraon Approach
Design of Integraon- Implementaon of Integrao Best-
Integraon model
Project House and built up Integraon-Masterplan Pracce Plaorm
Integraon targets
of necessary integraon Day one readiness (IBPP)
Integraon intensity
capabilies 100 days plan
Alignment with Redefine core areas of
Mid term plan
Synergy Management Design of and training on Integraon for long-
Full potenal leverage
Speed and ming term full-potenal
integraon toolkit plan
value leverage
JBD & JCD refinement and Coordinaon with Synergy
freeze Management
Fig. 1.7 Integration Management: Sub-modules

a consistent and efficient integration pattern. The integration modules have to be framed
by a transparent and in time integration communication strategy. To orchestrate and navi-
gate these complex tasks, especially for highly complex and international M&A projects,
an Integration Project House (IPH) with the necessary resources and responsibilities
has to be defined. The head of the IPH should be an experienced manager who is on the
one side responsible for the management of the integration, but on the other side has also
to communicate and discuss mission-critical integration questions with the top manage-
ment and decision-makers. Additional key targets for the IPH team are the project man-
agement of the integration, the coordination of the different integration modules and the
design of the necessary integration tools and reporting standards which are aligned with
compliance and governance principles.
Based on the Integration Strategy the integration has to be executed. Most companies
use a multiple-step approach, a short-, mid- and long-term implementation framework. A
clear definition of the responsibilities of the individual modules and sub-modules, trans-
parency as well as open and fast communication is mandatory for integration success.
To safeguard that all integration targets will be achieved, a permanent tracking, mon-
itoring and controlling of the integration projects and modules has to be assured. Digital
tools, as in other processes of the M&A Process Design, offer substantial improvements
in comparison to traditional approaches and will be discussed in the follow-on subchap-
ter. The top management and the IPH manage the integration process and take counter
actions in case of deviations, based on an integration pre-warning system with Degree of
Implementation (DoI) indicators.
Synergy-Management
Synergies and valuation are intertwined: The stand-alone value of the target company—
in most instances defined either by a Discounted Cash Flow (DCF) valuation or in case
of a stock listed company simply by its market capitalization—plus the net present value
of all synergies define the upper limit of the purchase price of the target for the potential
acquirer. For the owner of the target company, on the other side, the potential sale of
the company is only attractive if an additional premium on top of the fair value of the
target company is offered. According to the latest assessment of the strategy consulting
company McKinsey the average premium in acquisition processes is round about 33% of
the stand-alone value of the target company (Ferrer and West 2017, p. 4), not neglecting
that there is a significant spread between and within industries. Nevertheless, to assure a
value increase by an acquisition, the buyer has to realize a net present value of synergies
which overcompensates the paid premium. Many studies show that more than half of
the global M&A deals destroy value. This means in the end that typically the realized
synergies undershoot the paid premium in acquisition processes. To stress this impor-
tance of the synergies for the value creation of mergers and acquisitions the E2E M&A
Process Design uses as a supplementary process a tailored Synergy Management along
the three primary M&A modules, as described by Fig. 1.8:
Top-Down Synergy Synergy proof of concept & Synergy implementaon,

Mapping & Scaling Synergy-Valuaon Blending tracking and controlling
Synergy concept in line with strategic Validaon & proof of top-down synergy Final validaon and sign-off of
fit: Idea about qualita ve synergy concept and values within DD Synergy Master Program and Synergy
levers Scorecards
Detailed and reframed priories with o Goals and value targets
Defini on of underlying strategic and Synergy Matrix (porolio): Timing & value o Timing & milestones
financial assumpons
o Responsibili es (project owner)
Design of Synergy Master Program between
First rough financial top-down o Resources needed
signing & closing with detailed Synergy
esmate (quan ta ve) of synergy
Scorecards:
values (with benchmark) Synergy implementaon
o Using informa on from DD & Synergy-Matrix
First priorizaon of synergies: value o Synergy business case with valua on impact
contribu on, likelihood & ming Synergy tracking
o Implementa on plan and milestones ( ming)
o By DoI
o Defini on of teams, tasks and responsibili es
First dra of synergy cases and o Project repor ng and loops
framing of requirements o Necessary investments, resources &
capabili es
Synergy controlling and connuous
Combining synergy concept with o Dra of milestone and DOI repor ng
synergy update
valuaon
Update combined value with latest Synergy learning loop: Develop
Es mate integraon costs (dys- synergy esmates synergy database
synergies)
Fig. 1.8 Synergy Management: Modules and sub-processes
 A holistic Synergy Management starts within an early top-down assessment of

the most likely synergies as well as the definition of the time horizon to achieve them
and their volume, runs a proof-of-concept of the assumed synergies within the Due
Diligence and ensures a fast and focused realization of the intended synergies, includ-
ing real-time tracking and controlling of the synergy implementation.
Along with the Embedded M&A Strategy in a first step the likely synergies have to be
defined and roughly top-down quantified. This is mission-critical as from a valuation
point of view it has to be assessed if the value of likely synergies might justify the nec-
essary premium. Therefore, an early identification and quantification of the synergies are
mandatory. For a first estimate of the potential synergies, the financial statements and
information of the target company, benchmarks and, in case of an intra-industry acqui-
sition, the buyer’s in-house data might be used as an input for a first-hand synergy esti-
mate. Also, the likely time horizon of the synergies should be assessed. The combination
of the potential value of the synergies and their time horizon defines in an early stage the
priorities for the later synergy implementation and capture. For a net perspective, also
the present value of integration costs has to be taken into account.
Within the Transaction Management, especially within the Due Diligence, the syner-
gies have to be verified concerning their value contribution, their robustness, and their
timing. Based on this proof-of-concept the synergies could be classified in a synergy
portfolio in short-term versus long-term and low versus high value contributors. For the
most important synergies, detailed Synergy Scorecards with respect to the target values,
the milestones for their capture, the timing and the responsibilities have to be designed.
Transparent responsibilities and open communication are prerequisites for a successful
synergy realization.
For the long-term integration success, a permanent monitoring and controlling of
the synergies along the integration process is proposed. Based on early warning indica-
tors and digitalized Degree of Implementation (DoI) measures any deviation from the
Synergy Masterplan could be detected and countermeasures initiated.
M&A Project Management & Governance

M&A processes have in the end project characteristics. They possess defined starting
and endpoints. The specifics of M&A projects are their complexity and foremost inter-
national exposure. The complexity is partially driven by the fact that besides employees
of the acquirer and target company external advisers, like M&A consultants, investment
bankers, strategy consultants, and lawyers might have to be involved in the transaction.
An E2E M&A Project Management is, therefore, a must for a professional transition
process. At least for larger and transformational transactions an M&A or Integration
Project Houses (IPH) and M&A Playbook contribute to the success of an M&A project
by offering foremost standardized Project Management processes, capabilities, and tools
along the primary M&A steps.
 A canvas of the M&A Project Management & Governance is the backbone of an

M&A Playbook. Crucial parts are:
– The M&A Capability Map

– The M&A and Integration Project House (IPH)
– The digital M&A tool platform
– The M&A knowledge management
Especially for multiple acquirers and string-of-pearls M&A strategies with recur-
ring M&A projects the establishment of M&A core competencies already in the M&A
Strategy phase may make sense. The core competencies of the company, specifically for
M&A, are a complex bundle of often tacit capabilities like valuation and Due Diligence
competencies, project and intercultural management skills as well as a detailed knowl-
edge about the company’s strategies and Business Design. Another task of the M&A
core competencies is the design of a standardized tool platform for M&A projects
(Feix 2013). In the following sub-chapter will be analyzed how digitalization offers new
and powerful tools to improve the M&A Playbook (Feix 2018) and to support the pri-
mary M&A processes.
For the Transaction and Integration Management the knowledge of how to
handle complex projects is a mission-critical capability. Besides, the design of
tailor-made M&A tools and processes is another important task. Within the Due

Diligence, the M&A teams have to deliver under severe time pressure high-quality
results. The M&A Project House has to guide through the process of the Due Diligence,
orchestrate the necessary resources from within the company and the consulting side,
and coordinate the different sub-teams. Additionally, specialized Due Diligence tools,
like digital templates and scorecards, data room tools as well as Due Diligence interview
guidelines are nowadays used within transaction processes.
Successful M&A projects avoid the common pitfall of a breakup between the
Transaction Management, more specifically the closing of the deal, and the integra-
tion and synergy realization phase, which start officially at Day One. Typical tools are
Degree of Implementation (DoI) measures, Integration and Synergy Scorecards or cul-
ture pulse checks. Especially serial acquirers run a post-mortem project report after each
M&A deal to summarize the lessons learned of each transaction and improve their best
practice M&A database and knowledge within the company.
1.2.3 Interrelations between the M&A Modules: An End-to-End

View
The M&A Process Design underlines the importance of an E2E approach. Such a holis-
tic approach has the advantage that it takes care of the sensitive interrelations within and
between the different modules of an M&A process. Besides, also contents, tasks and
assignments within M&A projects are often intertwined:
Interrelations on Content Level

The interrelations on the content level start already within the inner workings of the
strategy phase: An Embedded M&A Strategy is derived from the targets and intent of the
corporate and business unit strategies. The early discussion of the transactional rational
may ensure a consistent transaction process by serving as the “northern star” throughout
the transaction. Such a rational may lever the engagement for the transaction through-
out the joint organization if it is understood as top-management priority. A holistic strat-
egy approach also has to view M&A as an important, but alternative option of a wider
corporate development tool-set. M&A strategies should always be evaluated and bench-
marked in comparison with internal growth options, like business model innovations,
and alternative external growth options, like strategic alliances, joint ventures, incubators
or accelerators. Also, the definition of the long- and shortlist of attractive M&A targets
must be framed by the boundary conditions of the M&A Strategy. Last not least, the
selection of the best fitting M&A targets is of utmost importance as it determines the
likelihood to capture intended synergies and the success rate of the follow-up M&A pro-
cesses, especially the Integration Management.
The importance of the interrelations within the Transaction Management, especially
between the valuation, the Due Diligence and the negotiation of the purchase agreement,
has been underlined already before. Another crucial link exists between the valuation
part and the synergy part. The maximum purchase price for the buyer is defined by the
fair stand-alone value plus the net present value of the synergies. Therefore, a permanent
update of the verified synergy estimates must be feed into the valuation during the Due
Diligence process.
Multiple linkages also exist between the Transaction and Integration Management.
To assure proper preparation of the integration the proof-of-concept of the Integration
Strategy, especially the Joint Business and Culture Design, should be based on the Due
Diligence assessment. In many transactions a time-delay between the end of the Due
Diligence phase and the Day One of the integration exists, due to mandatory, but out-
standing board approvals, antitrust approvals or final negotiation issues. This time frame
may be efficiently used for the set-up of a proper Integration Strategy and Masterplan.
Another important overlap between the Transaction and Integration Management is
driven by legal considerations and needs: The share purchase, asset purchase, merger or
Joint-Venture agreement is signed subject to certain closing conditions, like anti-trust
approvals, which have to be fulfilled before the integration could be kicked-off. The
contracts of the target company might additionally include certain liabilities and respon-
sibilities on the buy and sell side after closing and therefore have to be tracked and real-
ized within the integration phase. In case of volatile cash flows of the target company or
significant purchase prices, the parties might additionally agree an earnout-clause as an
incentive for the target management to contribute to a successful integration. A consist-
ent evaluation of the defined and audited financials8 within the time horizon, as defined
by the earn-out clause, is in such cases mandatory.
Final interrelations between the modules of the M&A Process Design exists on the
Synergy Management side: The top-down synergy estimates of the Embedded M&A
Strategy have to be verified within the Transaction Management, especially the Due
Diligence. This proof-of-concept of the synergies is further on the reference point for the
integration where the synergy capture has to be tracked, controlled and managed.
Interrelations on Task and Assignment Level

Within the M&A Process Design, the M&A Project Management & Governance takes
care of the interrelations on the tool, task and assignment level.
A highly capable M&A Management, especially for multiple acquirers, requests that
the tools used in the different phases of the M&A process are provided by one single
source, the M&A Project House, to assure quality and consistency. It is also the task of
the M&A Project House to redesign and optimize this M&A tool-set in the sense of a
continuous improvement process. A standardized tool-set is as well mandatory for the
8Inmost transactions earn-outs are based on the EBITDA or turnover performance of the target
company for 3–5 years post-closing.
governance of M&A projects. M&A tools which may be provided by the M&A Project
House are, for example:
– For the M&A Strategy: Strategy assessments, strategic fit assessments and top-down
valuation models. Newer tools, especially for disruptive and highly innovative mar-
kets, are Ecosystem-Scans, the Business Model Innovation (BMI)-Matrix and the
Fit Diamond assessment. All of the latter will be discussed in the second chapter.
– For the Transaction Management: Due Diligence (DD) tools like DD and virtual data
room request lists, DD questioners, DD interview guidelines, DD reporting guide-
lines, layouts for mandatory management summaries and risk assessment guidelines.
Besides, the typical valuation tools like Discounted Cash Flow based valuation
models and multiple assessments should be standardized tools.
– For the Integration Management: Integration and Synergy Scorecards, DoI assess-
ment and synergy tracking tools or pulse checks for the culture integration.
As M&A projects have highly complex and often international patterns, the linkages on
the task and assignment level have to be addressed by the top management level. The
M&A Process Design fosters top management engagement and proposes an empowered
M&A and Integration Project House which takes care of the E2E process handling from
the early start of an M&A project onwards up to the final closing of the integration by
the post-mortem integration report. Still, most companies use different and independent
teams or departments, especially for the Transaction Management and the Integration.
So, no wonder, that many M&A transactions fail exactly due to the missing handover of
crucial Due Diligence or valuation information onto the Integration Management.9
1.3 Digital Touch Points of the End-to-End M&A Process

Design
For a thorough view on the impact of digitalization and business model innovation on
M&A two perspectives have to be distinguished, the content perspective versus the pro-
cess and tool perspective:
– The process and tool perspective assess digital tools and approaches for the design
of high-quality M&A processes. The latter will be the main discussion point in this
subchapter. Digital tools and processes will offer manifold potentials for the improve-
ment of M&A processes in the 2020s as most M&A activities are still manually,
non-automatized. Additionally, the complexity of transactions and involved business
models continually increases.
9Detailsof a professional M&A Project and Integration House which takes care about the E2E
approach will be discussed in Chap. 6 on M&A Project Management & Governance.
1.3 Digital Touch Points of the End-to-End M&A Process Design 21
– The content perspective describes the impact of digital business models and innovations on
the M&A process. It also covers vice versa how M&A could be used as a strategic tool for
corporate development and business model innovations. This part will be discussed in more
detail in the later part of this subchapter and Chap. 2 on the Embedded M&A Strategy.
Based on the five M&A modules a digital version of the E2E M&A Process Design inte-
grates breakthrough digital tools and approaches to lever highest efficiency, speed, robustness
and quality within transaction processes.10 Therefore this sub-chapter will provide an over-
view on the impact of digitalization of M&A processes and the assessment of what kind of
design possibilities digitalization offers for the primary M&A modules, the Embedded M&A
Strategy, the Transaction and Integration Management, as well as for the support processes,
the Synergy Management and the M&A Project Management & Governance.
1.3.1 Digital M&A Processes and Tools
A digitalized E2E M&A Process Design is an approach which supports all three pri-
mary and both support M&A processes by scaling digital applications and processes, as
described by Fig. 1.9:

Ecosystem & Digital IP Scan Financial & Legal DD Virtual Dataroom Digital closing
by big data, analycs and AI automaon by e- condion monitor
discovery, big data Predicve M&A
Business Model Innovaon analycs, NLP, AI market assessment Digitalized DoI monitor
(BMI)-Matrix and Fit Diamond (machine learning) & Integraon Scorecards
Digital target search (engines) Tech & Cyber Due Diligence (incl. AI, VR) Integraon (mobile) app
#4
Synergy Management
Digital synergy library Synergy Scorecards Synergy priority matrix Synergy DoI tracking
Digitalized synergy verificaon, tracking and controlling
#5
Double sided Online M&A

consulng Cloud based Online M&A educaon
plaorm M&A project best pracce
map plaorm
Fig. 1.9 Digital process and tool canvas of the E2E M&A Process Design
10More information might be found from Spring 2020 onwards on the web-page www.tfX-advisory.de.
Embedded M&A Strategy and Digitalization

Many industries are in the midst of a technology and innovation driven shakeup mode,
which will be discussed in more detail in Chap. 2. Therefore, most acquirers have to
start their target search program within a much wider competitive setting than in for-
mer times. This setting must be derived from the forecasted ecosystem, especially the
technology and the market-based trends which have a lasting impact on the acquirer’s
Business Design.
The Intellectual Property (IP) Scan applies digital patent and IP datamining. It
assesses in how far targeted market segments and technology fields are untouched and
offer a market entrance and which target companies might have the most attractive value
propositions within those segments. Additionally, Digital Trend-Scouting by using the
combination of machine learning algorithms and big-data assessments could be used
to find new customer use cases and trends. An example of those new approaches are
partial-automatized predictions of the success of target companies in defined technology
fields by so-called hybrid intelligence approaches (Dellermann and Popp 2017).
Further potentials of the digitalization for the M&A Strategy are based on the
early-stage assessment of the strategic fit between the target company and the buyer
by applying a Fit Diamond assessment, as also discussed in detail in Chap. 2, and the
design of a shortlist of attractive target companies. Additionally, to the typical early-stage
assessments and information of financial reports and official presentations search engines
like, for example, Google MetaSearch or LinkedIn Sales Navigator could be used to get
sensitive employer and employment information of the target company. These additional
data might be especially interesting for the early-stage evaluation of high-tech or start-up
acquisitions, as the employees and intangible assets are often the decisive factors for
the competitive advantage of this kind of target companies. Based on those assessments
intelligent matching algorithms strolling databases might suggest first companies with a
potential strategic fit, based on predetermined strategic filters.
Transactions Management and Digitalization

Within the Transaction Management—which covers, as discussed, the valuation, the
Due Diligence, the negotiation, the acquisition financing, the Purchase Price Allocation
and the proof-of-concept of the Joint Business and Culture Design—especially the Due
Diligence is exposed to digital technology revolutions.
Within the Due Diligence an enormous amount of structured, e.g. ERP-System based
information, financial and tax accounts, as well as unstructured sets of data have to be
analyzed in a very short timeframe. The automatization of Due Diligence tasks by
using big data and NLP assessments, search engines (e-discovery) and machine learn-
ing approaches offers efficiency and time gains, especially within the Legal (LDD)
and Financial Due Diligence (FDD). Especially within competitive bidding scenarios,
this might offer a competitive advantage. E.g. in the LDD the digital extraction of con-
tract contents and their assessment might define a new M&A standard. Specified con-
tract clauses like reps & warranties, exclusivity agreements, change-of-control clauses,
IP-rights, and others could be scanned fully autonomous in a wide range of contracts.
Especially semantic assessments with the support of machine learning algorithms fit
well for the analysis of huge data sets. Given these assessments, the evaluation of the
legal risks of a transaction could be assessed with high precision. In a second step digital
proposals for optimized solutions could be developed. Besides, the digital data search
and assessment could be used for the digital support within Virtual Data Room (VDR)
assessments. This is, for example, applicable in case of forensic assessments within the
compliance Due Diligence and for the Financial Due Diligence.
A newer tool is the Technology Due Diligence, which was developed in the last
years as a separate field within the overall Due Diligence process. It involves a detailed
assessment of the technology platforms in use within the target company and its IT- and
ERP-Systems based on standardized digital assessment and checklists. Cornerstones
of such a Technology Due Diligence are the evaluation of the system architecture and
platforms, the functional user characteristics and the inbound and outbound interfaces
(APIs). As an addition, the compatibility assessment with the buyer’s technology archi-
tecture may be used to initiate an early-stage migration planning of the target’s technol-
ogy platforms.
This Frontloading of issues with respect to the matching technology platforms
between the buyer and the target company from the Integration Management into
the Due Diligence is another example of the multiple linkages between the differ-
ent parts of the M&A Process Design. It is also important for the success of an overall
M&A-Project, as many integration projects fail exactly due to a missing integration of
technology platforms and outdated technologies might drive significant legacy costs, as,
for example, in the banking industry.
As the assessment of the system architecture, platforms and application software
becomes more and more a standard procedure, the systematic assessment of the end-user
workplaces as well as mobile applications are still missing in most Due Diligence pro-
cesses. Without an analysis of the end-user related hard- and software, especially mid-
and large-sized transactions might be exposed to overshooting integration costs, to an
underperformance of the technology system post-acquisition and to compliance issues.
In the mean-time, established tools are Virtual Data Rooms (VDRs), which sub-
stituted physical data-rooms as they offer multiple advantages. On the buy side, they
allow more efficient and structured assessments of the documents within the data room.
Besides, they offer significant cost advantages, especially for international M&A pro-
jects. By using VDDs the seller could integrate multiple parties within the transaction
process and increase the competitive pressure of the bidding process. The seller has also
much better possibilities when and where to release sensitive and confidential informa-
tion. Additionally, digital assistance could be used for the autonomous detection of miss-
ing documents and data loopholes and for the support of the Due Diligence teams in
their daily routines. Last not least, risks could be digitally assessed and proposals for
their solutions developed. A newer development by leading data-room providers are pre-
dictive M&A market models based on big data assessments of M&A transactions.
Finally, digitalization could be used to intensify the interlocking between the Due
Diligence, evaluation and the verification of the synergies in the sense of a true E2E
approach.
Integration Management and Digitalization

An efficient and effective Integration Management is essential for solving the complex-
ities of integration projects. Using the M&A Process Design approach, the Integration
Management covers the definition of the Integration Strategy, the transition to the
Joint Business and Culture Design, as well as the implementation of the Integration
Masterplan.
After the closing, the buyer has access to a much wider set of data of the target com-
pany in comparison to the Due Diligence. Therefore, the digital tools, like e-discovery
approaches, used in the Due Diligence could be used and leveraged as well in the inte-
gration. Use cases within the integration are, for example, the assessment and tracking of
legal responsibilities which have to be addressed post-closing of the acquisition.
Digital M&A project management tools are of significant value for the Integration
Project House (IPH) as the IPH team has to orchestrate the overall integration project. To
safeguard the integration success, permanent monitoring and controlling of the integra-
tion is mandatory. Based on digitalized DoI assessments and Integration Scorecards
the management could track early deviations from the intended integration progress and
initiate countermeasures to avoid project delays and under-performance.
Synergy Management and Digitalization

The financial value of the transaction is defined by the difference between the paid pre-
mium and the realized synergies. The application of digitalized synergy tools for an E2E
tracking, controlling and management of the synergies offers the same potential as the
digital integration tools. Digital DoI measurements, milestone concepts, Synergy
Scorecards and Synergy Maps are just a couple of examples for a digitally empowered
Synergy Management.
The lessons learned of the synergy implementation might be used to establish, inde-
pendently from an individual transaction, a lasting lessons-learned database. This data-
base could be used to improve the synergy performance of M&A projects s tep-by-step
and might additionally provide benchmark synergy estimates in an early stage for
follow-on transactions.
M&A Project Management & Governance and Digitalization

The vision of a truly digital E2E M&A Process Design is to exploit the potential of dig-
italization in the M&A Project Management and Governance along with all primary and
secondary modules of the M&A process. From the viewpoint of partially or fully digital-
ized tasks the following tools seem to be especially promising:
– Cloud-based M&A project maps visualize the portfolio of M&A projects already
from the starting point of the M&A Strategy, including the fulfilled and next man-
datory governance and approval stages of each transaction. Besides, they enable
real-time project reports, linking project tasks, documents, responsibilities and access
rights of teams and team members to assure a consistent M&A project governance.
– Cloud-based documentations and assessments of M&A best practice approaches,
as well as digital learning programs and loops, are used to professionalize the
in-house M&A teams.11 Additionally, the information on past projects and best prac-
tices offers a rich data source for machine learning algorithms and guidance of spe-
cific transactions.
– Digitalized best practice templates and checklists, a digitalized project steer-
ing and a centralized data management are especially for the Due Diligence and the
Integration Management applicable. They offer a seamless and transparent Project
Management, even for projects exposed to time pressure, and include all stakeholders
throughout the M&A process.
– The digitalization of an E2E M&A Process Design fosters also the interrelations
between the Due Diligence and the Integration Management. Within the latter the dig-
italization offers further quality improvements:
– a digitalized and consistent mapping of the integration project structure, of the
individual integration workstreams, teams and the task assignments
– the mapping of cross-functional dependencies and interrelations
– a transparent and digital status tracking and reporting of integration projects and
modules with Integration Scorecards
– as well as an early stage, autonomous risk reporting and forecasting
A newer approach are B2B M&A consulting platforms. On the corporate side, they
should enable the selection of transaction or management consultancies for the needs of
a specific M&A project. On the consulting side, they offer investment banks, strategy
consultants and transaction advisors a platform on which they could present their M&A
competencies, service portfolios and reference projects in a digitalized, standardized and
transparent way. As with all platform strategies, the intend is a perfect matching for both
sides. The platform enables the selection of consultancies based on objective criteria like
real-world customer reference projects with respect to quality, cost and time performance
indicators.
11A 2020/2021 scientific research project will analyze if the insourcing of best practice M&A busi-
ness cases and data-sources could offer further improvements with respect to the M&A success
rate, by linking a specific inhouse M&A project to already realized M&A projects with the same
characteristics by applying algorithms and analytics.
In case of revolving M&A projects, an online competency management and learn-

ing platform with an integrated digital toolset may be tailored along the separate steps
of the M&A Process Design. In most of the M&A projects a high number of employees
on the buy and sell side. In such circumstances, digitalized lessons-learned and best-prac-
tice approaches allow a rapid scaling of the necessary internal M&A know-how.
1.3.2 The Impact of Digital Business Models on M&A and Vice Versa
As more or less any industry is nowadays exposed to disruptive technologies and busi-
ness model innovations a second, more content-driven perspective of digitalization
addresses how far M&A could be used to design breakthrough digital business models.
Vice versa, a second question is how to adjust the M&A Process Design for the needs
and characteristics of digital business models and platform strategies (Fig. 1.10).
It is the nature of digital and technology disruptions that they change rapidly
industries and markets. Therefore, in the Embedded M&A Strategy phase, the poten-
tial attractive target companies of digital-driven businesses could only be understood
by taking a wider view on the acquirer’s environment, as an Ecosystem Scan does.12
#1 Embedded M&A #2 Transacon #3 Integraon

Strategy Management Management
Ecosystem-Scan: Valuaon of digital Due Diligence of Detailed

Digital industry assets with dynamic, startup businesses definion of
assessment volale and risky integraon
cashflow paerns and Earn-outs and other model
BMI Matrix exponenal growth contract clauses for
potenal digital assets
Joint Culture and
Diamond Fit evaluaon Business Design
Valuaon of scenarios and Corporate culture
businesses (“blue oceans”) assessment
#4
M&A Synergy Management
Synergy esmates for digital Verificaon of synergy scaling approach Rapid synergy scaling and
& disrupve business models dominant design footprint
Dra of organisaonal alignment needs at
Synergy scaling blue print parent and target Parenng advantage leverage
#5
New capability modelling Target capability scan Mentorship program

Trend- & Ecosystem analycs Insourcing of missing capabilies Orga. Design and culture tools
Fig. 1.10 The impact of digital transactions and business models on the M&A Process Designs
12The Ecosystem-Scan will be discussed in detail in Chap. 2 and 6.

The Ecosystem-Scan assesses newest technology developments, use cases, trends,

shifts in the competitive environment and other industry specific drivers. For exam-
ple, applying this Ecosystem Scan for the developments within the global automo-
tive industry for the 2020s, it is not enough for automotive OEMs just to follow up
with an assessment of their core competitors. It is much more important to get a
thorough understanding of:
– new technologies, like battery technology, car-to-car communication, electric and

hybrid powertrains or autonomous drive approaches
– the wider set of new entrants in the industry, like a Tesla, Google and others
– the chances and risks of alternative business models, like ride-hailing services as
offered by Uber, Lyft, Ola or Didi and the likes or car sharing concepts
Only based on this in-depth understanding of an industry and the underlying technology
disruptions a tailor-made M&A Strategy and shortlist of attractive M&A targets, which
could shape the competitive advantage in the years to come, may be derived.
To analyze the full potential of M&A strategies and to compare those with alternative
strategic approaches the Business Model Innovation (BMI)-Matrix tool, was developed.
The BMI-Matrix embeds M&As in a context of alternative external growth options, like
Joint Ventures (JVs), inhouse Corporate Venture Capital (CVC) concepts, incubator and
accelerator models, strategic alliances as well as in-house business model innovations. The
BMI-Matrix concept will be explained in detail within Chap. 2. Below a canvas of selective
automotive strategies within such a BMI-Matrix are shown in Fig. 1.11:
Uber / Daimler /
New corporate Oo MyTaxi BMW iVentures
Uber / Careem Venturing (Inhouse VC)
“touch points” PE / Scout BMW startup
GM / Cruise: Daimler Startup
Garage
Autobahn (incubator)
(touch points with respect to value proposions,
GM / Ly ZF Ventures Business Incubaon

BMW & Daimler & Audi:
BMI-Distance from Core
Adjacent Acquision of Here BMW & Daimler Share Now

technologies and markets)
“touch (Car2go & DriveNow)

Intel / Mobileye
points” Alliances & Partnerships
ZF / TRW BMW & Great Wall Motors BMW &
M&A R&D JV + Electro Mini Vissmann JV
ZF / Wabco
Valeo / FTE BMW & Briliance JV Osram & Con
Lighning JV
Joint Ventures
PSA Group (Opel) &
Core
Fiat Chrysler Google / Tesla
Business Minority & Waymo
cross shareholdings BMW i-series
Renault/Nissan/ Geely / BMW Designworks
Mitsubishi Daimler
Short term Time Needs for Implementaon Long term
Fig. 1.11 The BMI-Matrix for the global automotive industry

These alternative strategy approaches have to be evaluated within a consistent frame-

work to choose the best fitting alternative and for fulfilling the ultimate strategic targets
of the corporate strategy. This could be achieved by a consistent evaluation of the alter-
native growth paths as will be discussed as well in more detail within Chap. 2.
For the Transaction Management multiple specifics of digital business models will be
highlighted here in brief, whereas details could be found within Chap. 3:
– Digital targets are typically based on complex, young and often unique Business
Designs. Their valuation might be therefore challenging. Target companies within a
digital disruptive framework have foremost on the one side dynamic and fast-growing,
but on the other side also highly volatile and risky cashflow patterns. As acquirers
nevertheless pay still significant purchase prices for attractive digital targets a sen-
sitive valuation is of paramount interest mirroring these cashflow patterns by using
scenario approaches and statistical financial tools like Monte-Carlo simulations or
option-pricing models, where applicable. In Chap. 3 also a new tool for the valuation
of digital and platform businesses, the Reversed DCF Model, will be introduced.
– Secondly, the Due Diligence of digital targets it is often demanding. As they have
typically start-up business characteristics their corporate history offers only a limited
amount of sound legal, financial or business data and also their business model might
not yet be proven to be successful. Accordingly, the Due Diligence of digital targets
is closer to a venture capital approach then to the typical in-depth assessments of
incumbent targets.
– To limit the risk exposure on the buy side concerning the target performance
post-closing, earn-outs or milestone payments and other contract clauses are now-
adays a crucial part of the purchase agreement of digital targets. The intent of such
clauses is to stabilize the cashflow pattern of the target company post-closing by
keeping the existing management of the target with their entrepreneurial approach
on-board and by sharing the upside potential and risks post-closing.
– Especially in the case of multiple-billion incumbent acquirers buying small, but
highly successful start-up businesses with disruptive technologies, often culture
clashes derail the later integration. Therefore, an early Culture Design Diagnostic is
recommended. The target of the Culture Diagnostics is to maintain the start-up char-
acteristics and culture of an acquired digital target post-closing. It has therefore to
addresses the sensitive trade-off between integration needs and organizational align-
ment to realize the intended synergies, but also to provide the necessary autonomy for
the target company. A crucial part plays here the Joint Culture Design independently
from the targeted Joint Business Design.
Like the cashflow pattern of digital targets, the synergies have specific characteristics
which have to be addressed within the Synergy Management. As the nature of innovative
business models implies that new markets are approached and traditional markets dis-
rupted, the major part of the synergies is typically revenue-based. Therefore, the buyer
References 29
has to run an early assessment of how successful and fast the business of the target com-
pany could be scaled within the acquirer’s context post-closing. An early, first draft of
this Synergy Scaling Approach is recommended. Also, in the Due Diligence, the verifi-
cation of the synergy scaling approach is a crucial topic. Besides, the buyer has to draft
the Business Design alignment needs on the parent and target side based on the Due
Diligence outcomes and intended synergies. A rapid scaling of the synergies post-closing
to create a dominant industry design and the leverage of the parenting advantages for the
target company are the priorities within the integration phase for digital targets.
The M&A Project Management for the acquisition of innovation-driven targets
might be challenged by missing capabilities on the acquirer’s side for a sensitive assess-
ment of the target’s Business Design. Additionally, new tools like trend assessments or
Ecosystem-Scans and analytics have to be defined to get a detailed understanding of the
target’s strengths and weaknesses. Benchmark acquirers in-source the missing capabil-
ities for the evaluation of digital targets latest in the Due Diligence. Within the integra-
tion, the focus of the Project House is on specific management and cultural integration
tools, like mentorship programs and organizational design tools.
In the follow on chapters the five modules of the E2E M&A Process Design will be
discussed in detail.
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Embedded M&A Strategy
2
Contents
2.1 Reframing of Corporate Portfolio and Strategic Business Unit Strategies. . . . . . . . . . . . . 34

2.2 M&A for Strategy Development on Corporate Portfolio and Strategic Business Unit
Level. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.2.1 M&A for Corporate Strategy and Portfolio Management. . . . . . . . . . . . . . . . . . . . 36
2.2.2 M&A for Business Unit Strategies and Competitive Advantage. . . . . . . . . . . . . . . 52
2.3 Purchase Price, Synergies and Shareholder Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
2.3.1 M&A Value Added Versus Dilution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
2.3.2 Synergies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
2.3.3 The Tao of Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
2.4 Embedded M&A Strategy Design. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
2.5 M&A Target Profiling and Pipeline. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
2.5.1 Criteria for Target Profiling and Target Scorecards. . . . . . . . . . . . . . . . . . . . . . . . . 65
2.5.2 Assessment of the Fit Diamond. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
2.5.3 The Process of Screening and Target Pipelining. . . . . . . . . . . . . . . . . . . . . . . . . . . 72
2.6 Frontloading of Integration Approach Blueprint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
2.6.1 Standalone Business Design Diagnostics and Joint Business Design Blueprint. . . 75
2.6.2 Standalone Culture Design Diagnostics and Joint Culture Design Blueprint. . . . . 83
2.7 Embedded M&A Strategy for Digital Targets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
2.8 Summary of Embedded M&A Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
2.8.1 Critical Cross-Checks and Questions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
2.8.2 Key Success Factors and Takeaways. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Abstract
Taking a holistic view, an Embedded M&A Strategy is an integral part of the corpo-
rate strategy and the business unit strategies of the acquiring company: On the level of
corporate strategy, M&A is a tool to innovate or restructure corporate portfolios and

32 2 Embedded M&A Strategy
to increase shareholder value. On the level of business unit strategies, M&A may be
used as a strategy tool to get access to new products, services, markets or capabil-
ities and to realize value potentials. Corporate and strategic business unit strategies
should frame the M&A approach, as M&A is an important but just one of a set of
alternative growth and value creation options for a company. Additionally, the corpo-
rate strategy is the reference point for the definition of the Transaction Rational of
a potential acquisition or merger and the intended M&A targets. Based on a compre-
hensive strategy review, an Embedded M&A Strategy defines the detailed strategic
targets to be achieved by transaction initiatives, frames the corporate finance part
of potential acquisitions, sketches value creation targets, including the intended
synergies, decides on the preferred external growth design, selects the assessment
criteria for the profiling of the ideal target company and the Fit Diamond assess-
ment. The E2E M&A Process Design also intends to Frontload two mission-crit-
ical integration issues into the M&A-Strategy: On the one side by Diagnostics of
the Standalone Business Designs of the target company and the acquirer and by
drafting of a Blue Print of the intended Joint Business Design, on the other side
by Diagnostics of the Standalone Culture Designs of the target company and the
acquirer and by drafting of a Blue Print of the intended Joint Culture Design. This
Frontloading of Business and Culture Design issues intends to increase the likeli-
hood of integration success. Once such a consistent and detailed M&A Strategy is
defined, potential target companies could be evaluated, selected and integrated into
a long-list of potentially attractive targets. Based on the Fit Diamond, meaning
a more detailed strategic, financial, synergistic, Business Design and Cultural Gap
assessment, the long-list of target companies will be boiled down to a short-list of
highly attractive potential transactions, which serve as a starting point for a dedi-
cated M&A initiative.
Chapter 2 will stress the importance of a holistic and consistent corporate and business
strategy framework for an Embedded M&A Strategy. A comprehensive strategy review
provides the strategic rationale for a transaction (Galpin and Herndon 2014, p. 31).
Especially within nowadays markets, which are characterized by technology disrup-
tions, innovative business models and dynamic ecosystems with blurred boundaries, this
alignment between M&A and corporate as well as business unit strategies is a necessary
ingredient for any successful transaction (Figs. 2.1 and 2.2).
This will be highlighted throughout the book by several case studies for a manifold of
global industries, like the automotive, the financial services, the media or the pharmaceu-
tical industry.
Besides, a set of new M&A tools will be discussed to cope with the strategic chal-
lenges of vibrant industries, like the Eco-System Scan, the Business Model Innovation
(BMI)-Matrix, the Fit Diamond assessment, the Standalone Business and Culture
Design Diagnostics and the Joint Business and Culture Design Blue Print.
2 Embedded M&A Strategy 33

• Embedded M&A Strategy • Dynamic Valuaon of Standalone Target (w/o • Integraon Strategy
• Pipelining: Long- & Short-List • Due Diligence − JBD Freeze
• Fit Diamond Assessment • Verificaon of Integraon Approach − JCD Freeze
• Integraon Approach Blue Print − JBD Blending and JBD Proof-of-Concept • Integraon Masterplan (IM)
− Standalone Business Design − Culture Blending and JCD Proof-of-Concept • Transional Change: Implement JBD
(SBD) Diagnoscs & Joint • Negoaon and Purchase Price Allocaon (PPA) • Culture Transion
Business Design (JBD) Blue Print • Acquisions Financing Concept • Integraon Tracking and Controlling
− Cultural Diagnoscs and Joint • Integraonal Learning & Best Pracce

M&A Capability Map Integraon Project House (IPH) and M&A Tool-Plaorm M&A Knowledge Management
M&A playbook
Fig. 2.1 The E2E M&A Process Design: Embedded M&A Strategy
Rethinking Corporate Design of Embedded Fit Assessment & M&A SBD & SCD Diagnoscs,
and SBU Strategies M&A Strategy Porolio JBD & JCD Blue Print
STRATEGIC RATIONAL
WHERE TO COMPETE REDESIGN CORPORATE FIT DIAMOND SBD DIAGNOSTICS &
(PORTFOLIO STRATEGY) PORTFOLIO ASSESSMENT JBD BLUE PRINT
Assess Corporate Porolio Build new Business Design Standalone
#1 CS
Aracveness
Compeve & Parent Growth in Adjacent Markets
Advantage Divestment Risk Financial CA CR
Profile Fit (Synergec) #6 CV #4
Market Aracveness Diamond
#8 #2
Fit C
LEVER SBU CP CC #3 CH
M
HOW TO COMPETE #7 #5
COMPETITIVE ADVANTAGE BD and CD Strategic
#9 CF
Fit Fit (Raonal)
(SBU STRATEGY)
New Region, Product, Service #10CO
Compeve Advantage - SBU New Capabilies
M&A PORTFOLIO & SCD DIAGNOSTICS &
Business Design, VP, Core Cost Advantages
PIPELINE JCD BLUE PRINT
Competencies and Culture ACQUISITION DESIGN 1 2 3
Corporate value Regional culture Management
footprint Embeddedness style
STRATEGIC HOW TO ACQUIRE Leadership atude
INITIATIVES
Centricity Power distance
Alternave Growth Opons 1 2 3 4 5 6 7
Spirit
1 2 3 4 5 6 7
Group
1 2 3 4 5 6 7
Decision making
Product/Service Strategy Intended Advantages and 1 2 3 4 5 6
Midset
1 2 3 4 5 6 7 1 2 3 4 5 6 7
Corporate Spirit
Uncertainty
Market strategy: Customers, Synergies 1 2 3 4 5 6 7
Diversity
1 2avoidance
3 4 5 6 7 1 2 3 4 5 6 7
Gender Working principle
Regional, Channel Strategies Valuaon & Financing 1 2 3 4 5 6
Group values
1 2 3 4 5 6 7
Orientaon
1 2 3 4 5 6 7
Risk tolerance
Technology Strategy Integraon Approach 1 2 3 4 5 6 7
Communicaon
1 2 3 4 5 6 7 1 2 3 4 5 6 7
Driver for decisions
Valuaon & Financial Targets JBD and JCD Blue Print 1 2 3 4 5 6 7 1 2 3 4 5 6 7
Fig. 2.2 Embedded M&A Strategy: Structure and flow of thoughts of Chap. 2
The strategy context also serves as a backbone for the assessment of the Transaction
Rational. Besides its strategic contribution, any M&A deal has also to assure that it cre-
ates value for the buyer and the seller. For the latter, it may be easier to create value
with a transaction, as the buyer has to offer a premium on top of the stand-alone value to
convince the owners of the target company to sell their assets. More challenging is the
position of the buy side. The latter value is only created in case that the intended syner-
gies overcompensate the paid premium. Therefore, a systematic Synergy Management
Value & Lever for

synergy strategic
creaon advantages
Fig. 2.3 Embedded M&A Strategy targets: Value creation and strategic advantage
is of utmost importance for the buyer for setting the price and to avoid to overpay
(Davis 2012, p. 9). This is one of the crucial reasons why the E2E M&A Process Design
includes the Synergy-Management as a detailed and separate E2E workstream which is
interwoven with the valuation.
This double-sided justification of a transaction’s strategic and financial advantage, as
expressed by Fig. 2.3, within the M&A Strategy makes the early-stage assessment of a
transaction so demanding.
The precise definition of the intended achievements of a merger or an acquisition, as
defined by the Transaction Rational, also serves as a yardstick for the post-acquisition
measurement of M&A success and as the “northern star” throughout the whole M&A
process. The latter argument is of high importance within the Integration Management
for not getting lost within the complexity of integration workstreams.
2.1 Reframing of Corporate Portfolio and Strategic Business

Unit Strategies
Corporate versus business strategies1

There are clear distinctions between corporate and business strategies, which may be summarized
as follows:
– Corporate strategy: Corporate strategy is the transformation of a corporation. It defines

where a company competes and therefore implicitly also the playground but as well the
boundaries of a company. The scope of activities spans three different dimensions:
1. the portfolio of products and services which mirrors the degree of diversification,
2. the inter- or multinational scope, meaning the geographical footprint, and
3. the vertical scope which is defined by the Business Design activities of the company and its
degree of vertical integration. The vertical scope is closely linked to the core competencies
and co-operative ecosystem. It decides how vertically specialized a company is.
1Compare, for example, Grant (2013), Müller-Stewens (2010).

2.1 Reframing of Corporate Portfolio and Strategic … 35
These boundaries of a company my shift during the cause of time due to technological innova-
tion or new management techniques. Since the turn of the millennium, the trend in corporate
strategy were more focused corporate portfolios. Besides, multinational companies expanded
their activities at a slower pace internationally. Corporate strategies have been driven foremost
on the one side by a refocusing on core competencies and limiting the vertical scope using
divestments and outsourcing strategies and on the other hand by a renewed focus on core activi-
ties limiting the product scope.
– Business strategy: Business strategy defines how a firm competes within a particular product
or service market and ecosystem. The core of business strategies is the quest for a competi-
tive advantage. The two main drivers for competitive advantage have been since the late 1980’s
cost advantage and differentiation advantage (Porter 1985). Cost advantage causes a company’s
unit costs to differ from those of its core competitors (“cost drivers”) and may rest on skills
like economies of scale or scope. Differentiation advantage is based on innovation, customer
insight, and the exploitation of uniqueness. Differentiation advantages tend to be longer last-
ing. They request that the demand pattern of customers’ preferences for product or service go
hand-in-hand with the differentiation capabilities of a company by creating unique attributes on
the supply side. Differentiation advantages are embedded in outpacing Business Designs, espe-
cially by exceptional core capabilities of a company.
Nowadays, competitive advantage is often based on strategic or business model innovations, mean-
ing new approaches in doing business, e.g. creating value for customers by introducing new prod-
ucts, services, use cases, or modes of product delivery (Hamel 2006; Kim and Mauborgne 1999;
Kim and Mauborgne 2004).
As Fig. 2.4 describes, M&A activities have the advantage that they could be used as a
corporate strategy initiative for the redesign of the company’s portfolio, but as well for
Investment Value creaon
high
Market a racveness
M&A-
strategy
Porolio strategy:
middle Where to compete
Business strategies:
How to compete
low
Divestment Cash Cow
= Equity value (MVA) of strategic business unit
weak middle strong
Relave compeve posioning
Fig. 2.4 M&A Strategy as a lever for corporate and business strategy
business unit initiatives to lever competitive advantage by acquiring new products or ser-
vices, getting access to new markets or customers, gaining new capabilities or realizing
economies of scale and efficiency gains.
2.2 M&A for Strategy Development on Corporate Portfolio

and Strategic Business Unit Level
Twenty-first century portfolio management applies at the same time divestment and
investment strategies. The strategic intent of such portfolio reconfigurations and renewals
is on the one side to adjust the corporate strategy exposed to new trends in the ecosystem
and on the other side to lever shareholder value by:
– Acquiring targets which offer access to highly attractive—meaning high-return,

fast-growing—new markets or customer segments where the buyer has a syner-
getic fit and may exploit and lever parenting advantages
– Selectively diversifying the portfolio by acquiring attractive businesses in adja-
cent markets or technologies. The latter are often driven by start-up activities which
may have just a loose touchpoint to the company’s existing business. Nevertheless,
they might impact the buyer’s core business due to technology disruptions or meg-
atrends on the consumer side mid- to long-term. Therefore, they might be mandatory
to build and protect the future competitive advantage of a company
– Divesting businesses in slow growth, mature and low profitable markets, or which are
only loosely knit businesses to the core activities and competencies of the company
– to shape shareholder return and competitive advantage in existing business seg-
ments and core capabilities by a string-of-pearl M&A strategy or consolidation
play
In so far, the capital market approach goes hand in hand with corporate strategy. The
first three strategies are corporate portfolio strategies, the latter is part of business
level strategies:
2.2.1 M&A for Corporate Strategy and Portfolio Management
As the shareholder value approach gained ground in the 1990s (Müller-Stewens 2010,
pp. 9, 10), the management of the corporate portfolio became a core task of corporate
boards, especially for listed corporations. The drivers for shareholder value are the Free
Cash Flows (FCFs) generated by the portfolio of the company’s businesses. The FCFs,
by themselves, depend on the two ultimate value drivers, growth and Return on Invested
Capital (RoIC) (Koller et al. 2015, pp. 29–33; Gaughan 2013, pp. 21–24). Both driv-
ers could be achieved by entering fast-growing, highly profitable markets with a strong
2.2 M&A for Strategy Development on Corporate Portfolio … 37
strategic fit and synergy potentials, by divesting mature, price-sensitive and low profita-
ble business units, or by building a dominant market position with economies of scale.
Therefore, the strategic rational of portfolio-based M&As is to permanently re-invent
the corporate portfolio and business model by orchestrated investment and divestment
strategies:
– Built the corporate portfolio by investments and growth strategies

– Acquiring new business models and core competencies with a strong strategic
and synergetic fit to the businesses of the existing portfolio
– Growing in attractive adjacent market segments, which have today just minor
touch-points to the existing core business, but might shape the future of those
existing businesses
– A very selective diversification by entering unrelated, but highly attractive
businesses where still parenting advantages might develop long term
– Streamlining and restructuring the corporate portfolio by targeted divestments
Portfolio Investment and Growth Strategies

Portfolio investment and growth strategies might apply M&As to acquire businesses or
core competencies which are very close to the existing business activities of the acquirer.
This tight knit, to be acquired businesses will have per definition a strong strategic fit to
the core business. Nevertheless, the acquirer has to prove that the strategic fit could be
captured by financial synergies and related FCFs beyond the standalone value of the tar-
get to justify any purchase premium.
The second portfolio investment approach is the acquisition of businesses in attrac-
tive, but more adjacent market segments, which are outside of the existing core busi-
ness, but might shape the future of those existing businesses. Examples might be a global
automotive company with a focus on the traditional combustion engine powertrain tech-
nology acquiring an electric-drive powertrain company or a media incumbent acquiring a
streaming technology company.
A further justification of portfolio investment strategies might be a very selective,
focused diversification approach. In such cases, a diversification is understood as the
acquisitions of targets which go far beyond the current line of businesses and markets
of the acquirer. Diversification approaches often go in line with the shift of the corporate
product-market mix into higher growth, megatrend segments, even if those segments are
unrelated today to the company’s current line of business activities. Therefore, by defi-
nition, operational cost synergies might not exist or be at least limited. The justification
of this approach could rest only on financial synergies2, long-term strategic parenting
advantages and megatrends. This is understood as focused diversification.
2Financial synergies will be defined and discussed in detail in the next sub-chapter and Chap. 6.
Examples might be the latest acquisitions by the global software giant Microsoft of
the professional social media network LinkedIn and the web-based communication net-
work Skype. Both acquisitions enabled Microsoft to shift its portfolio from its highly
profitable, but slower growing software business with its flagship Microsoft office pack-
age into newer, fast-growing web-based and social media businesses. The parenting
advantage of Microsoft are its management capabilities in scaling software and internet
businesses. These serve as a glue between the own core and the acquired, quite adjacent
businesses. In this sense, a focused diversification could also be described as a related
diversification (DePamphilis 2015, pp. 12, 13).
This approach has to be separated from the pure financial portfolio diversifica-
tion strategies of the late 1980s with their acquisition spree into unrelated businesses.
The latter has been the foundation of global conglomerates. Examples of such strategy
approaches might have been General Electric, Siemens or emerging economy conglom-
erates, like Tata in the late 1990s. Those conglomerate strategies proofed to be in the
majority of cases unsuccessful as synergies, strategic alignments of existing and acquired
businesses, as well as parenting advantages, were missing. Also, the governance and
management of multiple business companies proofed to be challenging (Hoechle et al.
2012). Furthermore, management teams of conglomerates bear the risk to underinvest in
attractive growth options of their strategic business units (Seru 2014).
No wonder that conglomerates often trade at a discount on the global equity mar-
kets in comparison with the sum-of-the-parts value of their strategic business units or
in comparison to more focused peers (pure plays). This markdown is called conglom-
erate discount. Besides these strategic reasons, a couple of capital market and investor
arguments try to explain the markdown of conglomerates. Conglomerates might be per-
ceived as higher risk investments, as management teams might be limited to understand
and run multiple unrelated businesses at the same time. On top of these management
limitations, investors might also be afraid that management teams of conglomerates are
more interested in diversification strategies to build their empires, rather than to improve
the performance of the stand-alone businesses (Andreau et al. 2010). Also, equity inves-
tors might find it difficult to evaluate the different business units of a conglomerate from
an outside-in perspective due to missing transparency and details with respect to the sep-
arate businesses in financial reports or due to missing peers with the same portfolio of
activities (Best and Hodges 2004).
All in all, there is a common understanding and significant evidence that truly diversi-
fied businesses underperform (Backer et al. 2019).3 In line with this finding, acquisitions
in unrelated, diversified businesses financially underperform more focused acquisitions
on announcement (Akbulut and Matsusaka 2010) and generate also lower financial
3E.g.Backer, Manley and Todd show in a latest study from McKinsey and Goldman & Sachs that
multiple-business segment companies underperform in comparison to pure-plays with respect to
P/E-ratios and E
V/EBITDA-multiples (Backer et al. 2019).
Investment Parent stars

high • Business model innovaon Built ownership in core
Value creaon potenal of market
• Acquisions “must haves” by

• Partnering • Business model
innovaon
• Acquisions
• Partnering
middle Porolio diagnoscs
Non-cores Cashflow opmizaon

low • Sell • Cashflow focus
• Equity carve out • Sensive redeployment in core
• Spin off
weak middle strong
Relave parenng advantage
Fig. 2.5 Portfolio Diagnostics: Value creation potential-relative parenting advantage matrix
returns (Megginson et al. 2003; Singh and Montgomery 2008). Therefore, proven finan-
cial synergies and strong parenting advantages are mandatory to justify acquisitions into
adjacent markets. The latter means that the acquirer has to make a “best owner”—inter-
nal view—assessment, besides the traditional market attractiveness analysis—external
view—for portfolio realignments (Backer et al. 2019).
A matrix for portfolio strategies might align the corporate finance with the strategy
perspective:
• the relative parenting advantage, as internal perspective

• and the value creation potential of the market, as external perspective
These two criteria4 could be used to design a value-parenting advantage matrix, as

The diagnostics for the corporate portfolio renewal could be tailored around four steps:
• Portfolio diagnostics: Evaluation of the as-is corporate portfolio in terms of the

short- as well as the long-term value creation potential of the company’s businesses
and markets and its relative parenting advantage in those specific market segments.
4The Backer, Manley, & Todd (McKinsey) approach uses the relative ability to extract value and
the value creation potential as the two decisive criteria for their portfolio approach (Backer et al.
2019).
• Design a recalibrated future corporate portfolio and “broad-brush” portfolio

strategy: Definition of future corporate portfolio design and balanced corporate port-
folio investment, divestment and development strategies.
• Tailored corporate portfolio strategies and map of strategic moves: The compar-
ison of the as-is with the intended corporate portfolio will implicitly define the rede-
sign moves: This might include on the one side alternative growth strategies, like
business model innovations and external growth approaches, like mergers and acqui-
sitions, joint ventures, alliances, Corporate Venture Capital (CVC) or incubator and
accelerator models. On the other side, divestment strategies might be scaled for non-
core activities within the as-is portfolio
• Prioritization of the different strategic portfolio moves as well as definition of their
timing and resource needs are part of step four.
Within this portfolio context, M&As are one of an alternative set of strategic tools for
portfolio renewal by targeted investment and divestment strategies. Therefore, transac-
tions have to be evaluated in comparison with alternative growth options. These options
have different characteristics and specific patterns of advantages and disadvantages:
 Definition
A brief description of the different growth options for corporate portfolio renewal:
– Acquisition: Acquisitions are transactions in which the acquirer, takes a con-

trolling interest in another, the target company or acquires the assets of the tar-
get company. Acquisitions always lead to a change of control, in the sense of a
transition of ownership rights concerning the acquired firm from the seller to the
acquirer. The target company might continue to exist as a legally owned subsidi-
ary of the acquirer but loses its economic and financial autonomy, even if its legal
structure is retained. The acquisition of the target company leads to an integration
into the acquirer’s Business Design.
– Merger: In a merger, two or more companies fully combine and integrate their
activities from a business and financial point of view. From a legal perspective, one
of the partners or both cease to exist. The latter case is a statutory consolidation
where both parties create a new corporation, a so-called NewCo. Shareholders of
the consolidated entity exchange their existing shares for shares in the new com-
pany. The two partners of a merger are often of similar size. Mergers are also often
described by the interrelationships of the markets and businesses of the merging
companies: Horizontal merger means that the two partners are in the same indus-
try, vertical merger that the partners come from up- or downstream markets and
are linked by their value chain (backward integration of suppliers or forward inte-
gration of distributors), or conglomerates, where the partners play in different
industries.
– Joint-Venture (JV): JV are selective business combinations formed by two or

more independent companies with a distinct intent, as defined in the JV contract.
A JV involves the establishment of a separate legal entity, the NewCo, whereby
the JV parties are the shareholders. None of the shareholders does cease to exist.
The shareholders integrate selected activities of their own company, assets or cash,
depending on their core competencies and the intended scope of the JV. The JV has
its independent management, as well as own reporting and compliance standards.
– Strategic alliances: Strategic alliances are loose-knit tie-ups without any owner-
ship transitions. They may or may not result in an independent legal entity with
joint management and organization. In the latter case, an alliance agreement might
frame the co-operation between the involved parties. Strategic alliances involve,
coordinate or integrate only selective parts of the alliance partners. The rational is
foremost the combination of complementary core capabilities, products, services
or technologies. Further arguments to foster alliances might be the leverage of
market access or the realization of economies of scale within the alliance. E.g. the
strategic alliances of global airlines integrate their route-offerings by code sharing
programs within the alliance and reduce costs by joint ground-handling operations,
despite being still independently operated companies. Alliances could involve new
businesses in defined ecosystems or align more mature businesses.
– Minority-investment and cross-shareholdings: In case of a minority invest-
ment one party acquires a non-controlling interest in another party, in case of a
cross-shareholding both companies acquire such a minority interest in the other
party. The intend of such minority investments is an alignment of strategic targets.
This alignment is achieved by board representations and veto rights with respect
to strategic initiatives, significant capital expenditures like M&As, equity and debt
capital raisings, or the amount of dividend payments and share repurchasing pro-
grams. The advantage of minority- and cross-shareholding is that they offer partial
access to the partners’ capabilities and align interests while limiting the necessary
financial and management investment as well as potential transaction and integra-
tion risks. The disadvantage is the limited control of the partner and the missing
participation on the partners’ FCFs and performance.
– Incubator: To get access to complementary or unique capabilities an early-stage
corporation with start-ups might be a more promising strategy than a straight for-
ward acquisition. Business incubation is more than a loose corporation as the parent
corporation might support the start-up business with a bundle of activities, like man-
agement capabilities, market access, research and development labs, office space or
access to professional networks. A financial investment of the parent corporation is
not mandatory, but a minority equity investment between 10–25% is likely.
– Accelerator: Acceleration, in contrast to incubation, does focus more on the early
ramp up process of a start-up’s business. In most instances, accelerators offer a
well-structured program for the scaling of the start-up business along a given busi-
ness plan and apply a tight schedule with detailed milestone reports. The support
of the parent cooperation might be in the form of skilled mentorship or coach-

ing, in providing access to the relevant community and networks for scaling the
business, in digital or technological capabilities, or simply providing office space.
Equity investments are in most instances very limited up to 10%. Due to their
more structured approach accelerator strategies might be faster to ramp up, in most
instances 3–6 months, but less tailor-made than incubator strategies.
– Corporate Venture Capital (CVC): CVC units are majority owned VC units by
large corporations. The units act as holding for all VC investments of a company.
In comparison to incubators and accelerators, the intent is more on an early-stage
investment, typically a minority-stake, in new and adjacent technologies. CVC
offers the possibility to get insights in more distant markets, technologies and eco-
systems without having to commit to a full investment already at the beginning.
After five to seven years the CVC might decide to sell off or fully acquire and inte-
grate the venture. CVC is applicable for seed as well as for late-stage investments.
– Internal growth options, like innovation and R&D strategies, market access or dis-
tribution strategies: The before mentioned external growth options and c o-operations
have always to be mirrored, back-tested and benchmarked against internal growth
options with respect to their applicability, advantages and likely value added.
Based on this brief definition of the different growth and value leverage strategies their
detailed patterns can be described and compared by Fig. 2.6.
Characteriscs of external growth opons

Criteria Acquision Merger JV Alliance Incubator Accelerator
Only for JV
Change of control Yes Parally No Yes (parally) Yes (parally)
assets
Investment need High No Limited No Limited Limited
Finance
Risk High High Middle Limited Limited Limited

Limited to
Synergy potenal High Middle Limited to JV Limited by size Limited by size
alliance
Ownership Ownership
NewCo NewCo Independence Shareholding Shareholding
(legal set up) transfer
Management style Leadership Joint Mgt. Partnership Partnership Mentoring Mentoring
Strategy
Access to partners Limited to JV

Fully Fully Selecve Fully Fully
capabilies & assets acvies
Defined by JV Defined by Decision aer 5- Decision aer 5-
Time horizon Long Long
agreement alliance 7 years 7 years
Set up me Short-Middle Short Middle Middle Middle Middle
Operaonal
Integraon needs Very high High Limited No Limited Limited

Joint Joint alliance
Core challenge Integraon Joint JV strategy Smart parenng Smart parenng
Management interest
Fig. 2.6 The patterns of external growth strategies

New corporate Corporate Venturing Capital (CVC)

(touch points with respect to value proposions, technologies
“touch points”
Business Incubaon
Accelerators
Adjacent
“touch points”
and markets)
Alliances & Partnerships

M&A
Joint Ventures
Core business
Minority & Cross
Shareholdings
Inhouse business model innovaon
Divestments
Short term Long term

Implementaon Time
Fig. 2.7 Business Model Innovation (BMI)-Matrix
The concept of the Business Model Innovation (BMI)-Matrix5 describes the corpo-
rate portfolio playground by integrating those corporate strategy options within one port-
folio. The different options are clustered by their pattern using two dimensions:
– The business model innovation distance of the business potentially entered by the
specific strategy approach to the existing core business of the company. The distance
from the core could be measured with respect to the intended value proposition, core
technologies and capabilities, the targeted markets and the intended customer use case
– The time horizon and need to implement the specific strategic option, from short-term
meaning half a year up to very long-term of 5–7 years (Fig. 2.7)
Mergers and acquisitions could be used for growth and value strategies close to the core
business of the acquirer, but also for adjacent markets or for riding blue oceans. M&As
offer a timing advantage, as the acquirer or merged company gets immediately after the
closing of the transaction access to the markets and capabilities of the target or partner.
5Roberts and Wenyun (Roberts and Wenyun 2001, p. 29) published one of the first articles on the
linkages between the technology-life-cycle, alliances and acquisition types. This idea is embedded
implicitly within the vertical axis of the BMI-Matrix on the “distance to the core”.
The negative side of M&As is, that they bear significant financial and business risks,
especially concerning integration needs. JVs are a suitable option if the combination of
the capabilities of the partners allows them to enter new or exploit existing market seg-
ments or to leverage economies of scale and scope. Especially in the first case, JVs have
a more distant touchpoint, by getting access via the partner to missing capabilities. In
most instances, JVs are more time-consuming than M&As, as they request, besides the
traditional M&A process, a strong alignment of the interests of the JV partners. Business
incubating and venturing approaches are foremost used to get access to totally new
capabilities, technologies and markets by acquiring or building start-up businesses. The
time horizon to implement those strategies is long-term, as the scaling of the acquired
business needs time and support by the parent company. All of those external growth
options have to be mirrored with the alternative of a pure internal growth strategy, e.g. an
inhouse business model innovation approach. The latter bears significantly less risk as it
is based purely on a company’s own resources and capabilities. But it may need a long
time horizon to build the new business and might bear the risk of not being capable to
enter in the end successfully the intended market.
To select the best fitting alternative, the different growth options have to be evaluated
and compared by a consistent set of criteria. Decisive criteria for the selection of the pre-
ferred portfolio strategy are:
– on the financial level the likely and targeted synergies, their pattern—meaning if they are
more cost or revenue-driven -, existing financing potentials by internal cashflows or equity
and debt capital market access on the acquirer’s side, as well as the acquirer’s risk tolerance
– on the strategic level the available resources, including management and capabilities
at the acquirer to integrate the targeted business, the intended time horizon to enter
new markets or technologies, the potential access of the acquirer to the core market
capabilities to enter these new markets or to build up the intended customer use cases
and last not least the technological and digital capabilities of the acquirer.
The pattern of a specific growth strategy along these financial and strategic criteria
indicates the best fitting strategic option. The best-fitting external growth option must
be finally compared with the alternative of a pure standalone internal growth path by
inhouse innovation or business model innovation approaches. In some circumstances,
there might exist not only one viable growth alternative (Fig. 2.8).
Growth opon: M&As JVs Incubators/Accelerators
Intended level of synergies?

Strong 7 6 5 4 3 2 1 Weak
Financial criteria
Synergy paerns?
Cost driven 7 6 5 4 3 2 1 Growth driven
Financing potenals (cashflow, equity and debt market access) ?
High 7 6 5 4 3 2 1 Low
Risk tolerance?
High 7 6 5 4 3 2 1 Low
Available resources and capabilies of acquirer for integraon?

High 7 6 5 4 3 2 1 Low
Strategic criteria
Time to market needs, constraints?

High 7 6 5 4 3 2 1 Low
Acquirers resources and capabi lies to enter new market?

Strong 7 6 5 4 3 2 1 Weak
Acquirers access to technologi cal and digital capabilies?
High 7 6 5 4 3 2 1 Low
Fig. 2.8 Financial and strategic evaluation of BMI and portfolio strategies
Combining BMI Approaches with Generic M&A Strategies

The matching of the transaction rational with the pattern of the different growth options
identifies suitable BMI-portfolio strategy pairings:
Portfolio transforming M&As are applied for bold M&A moves to enter white
spots or for riding blue oceans. An example might be if a biotech company enters com-
pletely new segments of healthcare treatments. Adjacent M&As might have their
strongest applicability in case of capability driven transactions or string-of-pearl strate-
gies. A global media champion entering the streaming market by acquiring a target com-
pany with streaming capabilities might be here a showcase. Core M&As are typically
used for consolidation plays or the scaling of a distinct competitive advantage within an
industry the acquirer is already in.
Alliances and JV strategies are foremost built upon capability or regulatory driven
partnering strategies or consolidation needs, whereas venturing and incubating strategies
are used to build the next unicorn, to enable early-stage investments in adjacent markets
and technologies or to get access to attractive distinct capabilities (Fig. 2.9).
Porolio transforming Venturing & incubang Venturing

New corporate
M&As • Build the unicorn (Inhouse VC)
“touch points”
• Bold M&A moves to enter • Early stage adjacent capability investment

white spots / riding blue
Business Incubaon
ocens
• Strategic foresight M&As
Adjacent M&As
Adjacent • Capability driven M&As
Alliances & partnerships
and markets)
“touch points” • String-of-pearl M&As Partnering strategies

M&A
• Capability driven partnering
• Regulatory driven partnering
• Alliance building
Core M&As
• Consolidaon plays
Joint Ventures
• Compeve
Minority,edge scaling
cross
Core business Value unlocking &
shareholdings
divestments
divestments
• IPOs Inhouse business model innovaon
• Spin-offs
• Carve-outs
Implementaon Time
Fig. 2.9 BMI and generic M&A Strategies
Case Study on the Application of the Business Model Innovation (BMI)-Matrix
“Strategic options to shape the future of the global automotive industry 2020+”
The new “technology alphabet” of the global automotive industry describes the mul-
tiple challenges and technology disruptions which unsettle the global automotive
OEMs and the mobility ecosystem. It is also a perfect example, how the focus in
M&A and business model innovation shifts step-by-step from a product and cost lead-
ership approach to technology, data and relationship enabling strategies:
– “A” like autonomous drive: Partial and even fully autonomous drive technology
is already in test mode of leading global automotive OEMs like BMW, Mercedes,
GM, Ford or Tesla. Also, technology companies like Alphabet, with its Waymo car
enter the market of driverless cars, side-passing 100 years of automotive develop-
ment. Autonomous drive solutions request the technology integration of camera,
radar and lidar based in car systems with real-time mapping and traffic informa-
tion, therefore, breaking traditional car industry boundaries and shaping a new
mobility ecosystem.
– “B” like new Business Designs: Multiple new Business Designs like ride-hail-
ing as offered by Uber, Lift, Didi-Chuxing, Grab, Ola and the likes shake up the
traditional car ownership model of the last decades. A couple of leading OEMs try
to establish also fully integrated multiple transportation mode solutions by offer-
ing, besides their classical sale, finance and leasing businesses and solutions, also
shared-mobility, raid-hailing or even rent-a-bike concepts. An example of an OEM
based shared mobility approach is the new Share Now JV of Daimler and BMW,
which integrates the former BMW DriveNow and Daimler car2go concept of those
fierce high-end car competitors.
– “C” like connectivity and car-to-car communication: Advanced driver assist and
infotainment solutions are built upon car-to-car communication and fleet learning
algorithms.
– “D” like digitalization: Digitalization and virtual reality concepts reinvent nearly
any part of the automotive Business Design, from R&D and manufacturing to mar-
keting, customer experience, sales, aftermarket services and repair. Additionally,
digitalized services will define new customer use cases like automated hotel search
or safety solutions.
– “E” like electric and hybrid powertrains: The revolution in the drivetrain started
with the first hybrid concept of the Toyota Prius, but really took off with the mar-
ket entree of Tesla and the latter’s pure electric powertrain solutions.
It is obvious that such a dynamic market, competitive, and technology ecosystem

requests highly flexible and dynamic strategy approaches. One-fits-all concepts like
the former consolidation play driven acquisitions of automotive incumbents to gain
size and a brand portfolio seem outdated.
The BMI Matrix may be applied to get a detailed picture of the different options
within the global automotive industry: Automotive OEM still run multibillion invest-
ments for their inhouse R&D and business model innovation programs. But at the
same time, they anticipate that in a couple of critical needs and capabilities for the
future automotive markets, like battery and electric powertrain technologies, navi-
gation systems, or platform-based raid-hailing concepts the inhouse capabilities are
missing or, at least, are limited.
JVs are used to get access to critical capabilities or to gain enough volume. For
the first argument, the JVs between automotive OEMs and battery suppliers might be
a good example. Batteries, based on lithium-ion solutions, are the most expensive
subsystem within hybrid and fully electric powertrains. Automotive OEMs, having
an engineering focus with mechanical and electromechanical capabilities, are tradi-
tionally missing the chemical capabilities for the development of advanced battery
solutions. A second problem is that the applied lithium-ion based battery technol-
ogies are used within multiple industries, like mobile phones, household appli-
ances and others. A pure automotive focus would limit economies of scope. As a
consequence, global automotive OEMs formed multiple JVs with leading battery
suppliers as the best-fit solution to gain access to those critical capabilities. Another
JV approach is the before mentioned new partnership between BMW and Daimler
for car-sharing and m obile-app solutions by merging their standalone platforms

car2go (Daimler) and drive now (BMW). Both companies intend to enlarge the
scope of this JV beyond raid-hailing and sharing by including also multimodal
services, on-demand mobility concepts, as well as parking and charging concepts.
The key reason for this JV is to gain enough volume and traction to be competi-
tive against global raid-hailing competitors like Uber, Lift or Didi. Besides, OEMs
established inhouse incubating and venturing concepts for co-operations with start-
ups in different kinds of advanced technology systems.
Nevertheless, M&A plays an even more important role than in the past for the
automotive industry: M&As are still applied for consolidation purposes, like the
acquisition of the Opel brand and business by the French PSA Group or the latest
merger between Fiat-Chrysler and PSA Group. Within the automotive supplier indus-
try, a core argument for M&As is nowadays the access to mission-critical capabili-
ties to become a leading tier-1 supplier for the future automotive market. Examples
might be here the USD 10 billion acquisition of the US-supplier TRW by the German
ZF-Group and the multibillion follow-on acquisition of Wabco or the Valeo acqui-
sition of FTE. A third rational for automotive M&As are more adjacent markets
entrees. The acquisition of the high-tech startup Mobileye by Intel allows the latter to
enter the market of advanced camera and software solutions for the automotive indus-
try, which will be mandatory systems for autonomous drive applications. Another
interesting example is the buy-out of the Nokia mapping technology by the leading
German automotive OEMs BMW, Daimler and Audi. At the same time, a couple of
automotive OEMs establish new business models besides their core business. E.g.
Daimler supplemented its raid-hailing business and acquired the necessary technology
capabilities with the purchase of Intelligent Apps, the parent company of the leading
European raid-hailing company mytaxi, and RideScout.
These external growth options, as pinpointed in Fig. 2.10, compete with pure
inhouse approaches, as the Waymo driverless-car concept of Alphabet or the electric
and autonomous drive concepts of Tesla show. ◄
Value Creating Divestment Strategies Mergers and acquisitions are a suitable instru-
ment for an active portfolio management as they can be used for investments as well
as for divestments. Divestments could be attractive strategies for unlocking value in
cases where the company is, in comparison to its core business, an owner of assets and
activities which are exposed to different eco-systems, meaning significantly diverging
trends in markets or use-cases, a different set of competitors, differences within their
investor patterns, or discrepancies in growth trajectories, RoIC performance and invest-
ment needs. Divestment strategies could be private market based, like a direct sale for
cash or stock either to another company or a private equity investor. An alternative are
public market exit strategies, as an equity carve-out by a public offering for the to be
Uber / Daimler /
New corporate MyTaxi BMW iVentures
Uber / Careem Venturing (Inhouse VC)
“touch points” PE / Scout BMW startup
GM / Cruise: Daimler Startup
Garage
Autobahn (incubator)
(touch points with respect to value proposions,
GM / Ly ZF Ventures Business Incubaon

BMW & Daimler & Audi:
Acquision of Here BMW & Daimler Share Now
BMI-Distance from Core
Adjacent
technologies and markets)
“touch (Car2go & DriveNow)

Intel / Mobileye
points” Alliances & Partnerships
ZF / TRW BMW & Great Wall Motors BMW &
M&A R&D JV + Electro Mini Vissmann JV
ZF / Wabco
Valeo / FTE BMW & Briliance JV Osram & Con
Lighning JV
Joint Ventures
PSA Group (Opel) &
Core
Fiat Chrysler Google / Tesla
Business Minority & Waymo
cross shareholdings BMW i-series
Renault/Nissan/ Geely / BMW Designworks
Mitsubishi Daimler
Short term Implementaon Time Long term
Fig. 2.10 The BMI-Matrix and the design of strategic options in the future global automotive ecosystem
separated business, a spin-off, a split-off or a combination of different divesture options

in a dual-track:
– Direct sale: A direct sale is the sale of a company, one of its strategic business units
(SBU) or substantial assets to another company, private equity player or investor. A
direct sale of a company or SBU incorporates a full transfer of ownership rights from
the seller’s shareholders to the acquirer, meaning a complete change of control for
the defined and carved out business. The means of payments on the buy side could be
cash or shares of the acquirer. In the former case the seller has the advantage of a cash
inflow, in the latter of becoming a shareholder of the buyer and therefore participating
on the intended synergies, but bearing the risk to be dependent on the buyer’s future
stock-market performance. Direct sales have the advantage to be foremost fast pro-
cesses with a clear-cut exit strategy and minor impacts on the day-to-day operations
of the remaining business.
– Equity carve-outs: An equity carve-out is a partial divestiture of an SBU. Within
an equity carve-out, the parent company issues and sells a part of the shares of the
carved-out subsidiary on the stock market. In contradiction to a direct sale, in an
equity carve-out a company does not sell all shares of the carved-out business, but just
a defined equity proportion, the parent retains a major, in many cases, at least at the
beginning, even a majority shareholding position. A company may prefer a carve-out
instead of a direct sale especially in cases where the SBU is deeply embedded in the
business model of the parent or where synergies might still exist on parent level.
– IPOs: In case of an IPO the parent company separates the assets and liabilities of the
to be listed strategic business unit and transfers them into a NewCo. The NewCo is
listed on the stock-exchange and shares are sold to “new” investors for cash. In differ-
ence to an equity carve-out, the IPO is a full divesture of the NewCo. The difference
of a direct sale and an IPO is, that in the first the NewCo is sold to one new owner,
either a strategic or private equity investor and therefore is a private market divest-
ment strategy, whereas in the latter the NewCo is sold on the public market. But in
both strategies cash is generated by the divestment for the parent company, which is
not the case in spin-offs and split-offs.
– Spin-offs: A spin-off is a form of divestiture, where the parent company inaugurates
a newly listed company, the NewCo, transfers the assets and liabilities of the to be
spun-off strategic business unit into this NewCo and then distributes the new shares
to the current shareholders via a stock dividend. The shares of the spun-off division
trade in the chosen stock market just like shares of the parent company. The spun-off
SBU must be therefore listed and set up for an IPO on the public market. The newly
created entity operates as a complete independently legal company with its own man-
agement team and Board of Directors. The original shareholders own post-listing
and post-stock transfer shares of the parent company and a proportional number of
shares of the new standalone company. The spin-off might be partial, meaning that
a reminder of the spin-off shares is retained by the parent, or a 100% spin-off, where
all shares are distributed to existing shareholders. A spin-off could also be combined
with an equity-carve out in case that NewCo shares are distributed partially to new
shareholders, but the remainder is kept by existing shareholders.
– Split-off: A Split-off involves the same first steps as a spin-off, creating a NewCo,
transferring and integrating the assets and liabilities of a defined SBU and to list the
new entity. The only difference is technically, that it involves an exchange of parent
stocks for the stock in the NewCo. But it does as well not generate any new cash for
the parent company (Fig. 2.11).
– Dual tracks: Dual tracks are a combination of different divestment strategies. In most
cases, a potential IPO is run as a separate and parallel process to a trade sale. In a later
stage, the company decides on the preferred exit strategy, depending on investor inter-
est and the attractiveness of the offers.
The different divestment approaches could be structured, using two dimensions, as

Fig. 2.12 shows:
– The most likely participation of existing shareholders with respect to the spin-off
activities
– The level of independence of the spun-off business from the former parent concerning
financial, organizational and legal matters
Inial structure Direct sale or IPO Spin off
public public new private or public

shareholders shareholders public owner shareholders
shares
cash Sub B
parent Shares or parent company

parent company
company Assets
of SBU B
SBU A SBU B SBU A SBU B SUB A SUB B
Fig. 2.11 Comparison of different divestment strategies
+ Parcipaon of exisng shareholders1) -

+ Public Investors: IPO
Full Spin-off/Split-off
Strategic investor2)
Direct sale
Full financial, Leveraged Buy Out: PE

organizaonal, Paral Spin-off/Split-off
and legal Leveraged Buy Out: MBO,
separaon MBI, BIMBO
Equity Carve Out

Tracking Stock
-
1) Minority vs. majority with “old shareholders” with respect to shares and vong rights / control
2) Means of payment: share vs. stock vs. mixed deal; with or without earn out
Fig. 2.12 Divestment strategies for portfolio restructurings
The preparatory, sequenced steps for the divestment strategies are similar:
– As a starting point, the alternative transaction structures have to be evaluated. This

includes also the assessment of a straight versus a multiple step divesture, where in
the latter case the remaining shareholding has to be defined. The intended transaction
structure must be detailed with respect to the carved out business.
– In a second step, the assets and liabilities of the to be divested business must be
transferred to a new legal entity, the NewCo, which must be inaugurated upfront.
Additionally, the timeline and milestones for the separation have to be defined and
targeted investors approached.
– The third step involves the communication of the divestment and the design of the
divestment or equity story. Additionally, the financial structure, meaning the capital
structure and allocation as well as the projections of the stand-alone performance

for the remaining business and the NewCo have to be defined and analysed. The
carved-out financials have to be audited. This might also include the assessment of
separation costs, stranded costs, or dis-synergies. Besides, the allocation of legacy lia-
bilities and service level agreements between the remaining and carved out business
are important tasks at this stage.
– In the last, the ultimate step the divestment has to be realized. This might include
tasks like the definition of the NewCo management team and governance principles,
the roadshow for the potential equity investors on the NewCo side, the fulfillment
of the listing requirements, roadshow presentations, rating review processes, secur-
ing debt financing instruments, the signature of the defined service level agreements
for the standalone NewCo business, the assessment of tax implications, and multiple
employee-related issues.
2.2.2 M&A for Business Unit Strategies and Competitive

Advantage
Numerous explanations and theories try to explain why M&As happen on strategic busi-
ness unit level. As a strategy-based transaction approach is recommended, the focus will
be on rational explanations of M&As, which also have a close tie to corporate valuation
and the financial justification of a transaction by its intended synergies, as will be dis-
cussed in detail in the next sub-chapter.
M&A strategies on strategic business unit (SBU) level intend to lever the existing
business model of the SBU to shape or gain a long-term, defendable and lucrative, in
the sense of a strong cash flow generating competitive advantage. Such competitive
advantage-based M&As could rest on two pillars (Galpin and Herndon 2014, p. 86;
Davis 2012, p. 5)
1. Differentiation and growth advantages by:

– Entering new markets (new geographies, customer segments or use cases)
– Getting access to new distribution channels (including direct sales, new outlets,
web-based sales)
– Acquiring new products, services or functionalities which complement the own
offerings or might create cross-selling opportunities
– Gaining access to new competencies, technologies or capabilities, like brands,
intellectual property, patents and others and which might leverage existing core
capabilities of the acquirer, like R&D, marketing or brand management
2. Cost advantages which improve operating efficiencies by
6Compare as well the 8 Cs concept as strategic deal rational from (Galpin and Herndon 2014, p. 8.
– Realising economies of scale or driving consolidation

– Scaling economies of scope
– Leveraging complementary capabilities and assets to achieve efficiency gains
Differentiation and cost advantage-based M&As will also be discussed in Sect. 2.3.1
financially wise under the header of operational synergies.
M&A Strategies Based on Differentiation Advantage and Growth Synergies

Differentiation is still one of the strongest competitive advantages. Differentiation based
advantages, like brand management, R&D capabilities or access to global distribution
channels, are also in most instances longer lasting than pure cost advantages (Koller
et al. 2015). Therefore, a transaction rational based on differentiation advantage might be
a sound justification for an acquisition. Target companies, which enforce even multiple
differentiation advantages in one stroke might be of special interest. One or any combi-
nation of differentiation-based transaction drivers might be therefore the trigger point for
a dedicated transaction (Galpin and Herndon 2014, p. 8).
– Entering new markets (new geographies, customer segments or use cases):

– Getting access to new regions and countries was one of the primary route-causes
of the fifth merger wave and is still a strong argument, especially in case of
cross-border deals. A latest example might be the acquisition of the French con-
glomerate Alstom by its US competitor General Electric. The acquisition levered
General Electric’s core strengths in multiple business units like transportation,
power generation and others in the European markets and offered vice versa for
Alstom’s products an excellent US market access. The same argumentation holds
for the intended merger within the global liquid-air market between the German
Linde Group and its US competitor Praxair. A quite extreme case is the merger
endgame within the global agrochemical market: The merger of the two US-listed
agrochemical giants Dow and DuPont, the acquisition of the Swiss Syngenta by
ChemChina, with USD 43 billion the largest outbound Chinese acquisition ever,
and the acquisition of US-based Monsanto by the German chemical giant Bayer
reduced the number of players within the global agrochemical market in two years
from six to three global players. The core transaction rational for these deals was
the creation of global champions which have access to all important agricultural
markets.
– A second argument for entering new markets is the acquisition of targets which
offer access to new customers or customer segments. The acquisition of new cus-
tomer groups could also create substantial value as competitors might gain from
the customer extension and therefore might not initiate retaliation strategies (Koller
et al. 2015, p. 122). Synergies between customer segments could occur in prin-
ciple in any market segmentation, e.g. between lower, middle and higher priced
market segments, between male and female applications, or between younger and
elder customer groups. Acquisitions based on serving different price-segments

are quite common in the consumer goods industry. An example of this approach
is the beauty group L’Oréal, which built its business through a succession of tar-
geted acquisitions of complementary brands. For example, with the acquisition of
Biotherm, L’Oréal leveraged a successful female skincare product portfolio also to
men.
– A third pattern of market acquisitions are new use-cases. Within this category fit
the acquisitions of aftermarket and service businesses by product centered compa-
nies, which is a common strategy of automotive suppliers or industrial goods man-
ufacturers. This may as well be a smart acquisition approach, as aftermarket and
service businesses are a natural extension of product centered businesses, might
establish a true system-approach and leverage the customer buy-in. Furthermore,
aftermarket and service businesses are in most industries even more profitable than
the traditional OEM business.
– Getting access to new distribution channels (Galpin and Herndon 2014, p. 8): The
access to new distribution channels as an M&A argument gained in importance due to
the exponential growth of web- and e-commerce-based sales and Business Designs.
In a first step “real world” companies tried to get a footstep in the e-commerce world.
But nowadays also vice versa holds true as the acquisition of Whole Foods by the
e-commerce leviathan Amazon for USD 13.7 billion shows. Amazon also established
a distribution pipeline in the pharma market by the acquisition of PillPack, which
focuses on customers that need to take multiple daily prescriptions.
– Acquisition of new products, services and functionalities: String-of-pearls M&A
strategies are an example of adding new products and services. They use bolt-on
acquisitions, which are characterized by a series of small- to mid-sized transactions
in existing business fields and extend subsequently the existing product portfo-
lio. IBM is a successful example of such a string-of-pearls approach. IBM acquired
small software companies and leveraged them through their global sales and mar-
keting network, realizing substantial sales synergies (Koller et al. 2015, p. 123).
Another European example is the string-of-pearls acquisition approach of the German
high-tech company Carl Zeiss (Rauss 2017). The most prominent case in recent times
might have been the bidding war in the media industry between Walt Disney and
Comcast for the acquisition of a majority shareholding of Twenty-First Century Fox.
The later will allow the successful acquirer Disney to build their library content of
attractive movies and gain scale to be able to compete against the streaming services
of Netflix, Amazon and Apple+.
– Acquisition of new or complementary core competencies and leverage of par-
ent core competencies on target business: M&A as a driver and as a complemen-
tary approach of inhouse innovation strategies is at the forefront of the newer M&A
literature and research (Bena and Li 2014; Cassiman and Veugelers 2006). As well
in the corporate world innovation and capability-based acquisitions play an increas-
ingly important role. The French multinational luxury goods and brands company
LVMH Moët Hennessy Louis Vuitton SE is a superb example. Already the origin of
the luxury goods conglomerate was a merger between Louis Vuitton with Moët et
Chandon and Hennessy, leading manufacturers of champagne and cognac. LVMH
used its highly reputed brand management competencies to lever acquired lux-
ury goods brands through their benchmark marketing and sales network on a global
level and is now the parent of additional brands from Christian Dior to Loewe,
Givenchy, Kenzo, Marc Jacobs, Tag Heuer, DKNY, Celine and others. Another case
of competency-based transactions are upstream and downstream M&As within the oil
and gas industry. Repsol’s acquisition of Talisman Energy and Encana’s acquisition of
Athlon Energy are examples of upstream oil companies expanding their production
base on downstream operations recently. A final example might be found in the acqui-
sition patterns of leading pharmaceutical companies. Roche, a leading Swiss pharma
company, extended its traditional drug pipeline business with digital capabilities by
the acquisition of Flatiron. The later gives Roche access to billions of data points
on millions of cancer patient treatments using real-world data to accelerate research
and generate evidence. A second bolt-on acquisition of Ignyta’s precision medicine
pipeline provides new tools for the treatment of molecularly defined cancers based on
DNA assessments.
M&A Strategies Based on Cost-Leadership and Cost-Based Synergies

Still, up to the Global Financial Crises cost synergies have been the predominant argu-
ment for mergers and acquisitions. Such cost advantages might rest on economies of
scale or scope as well as on complementary skills:
– The theory of economies of scale is built upon the empirical finding within multiple
industries that unit costs typically decrease if manufacturing scale increases. A more
precise formula of economies of scale defines how much the unit cost declines by each
doubling of the output volume. The original reasons for economies of scale are learning
curve effects which drive the reduction in variable costs. A recent example is the cost
development of lithium-ion batteries, one of the most critical components for electric and
hybrid cars, which have fallen by 75% over the last eight years as measured per kilowatt
hour of output. The battery manufacturers have been able, due to economies of scale, to
reduce 5–8% of unit costs every time the battery production volume doubled. Another
driver for the decrease in variable costs initiated by an increase in production volumes
are often reduced material costs by bundling of purchasing volumes and the realized
purchase price discounts of key suppliers.
A broader definition of economies of scale limits them not only to the reduction in
variable costs. A further reason for economies of scale might be fixed costs as for
sales, general and administration (SG&A) which are spread on a wider output vol-
ume (Galphin and Herndon 2014, p. 8). Also, a better exploitation of fixed assets, like
factories, machines or intangible assets, like brands or capitalized software, reduces
depreciation and amortization on a unit level and therefore costs on a unit level.
The acquisition of SAB Miller by Anheuser-Busch (AB) InBev, the world’s largest
brewer, for more than USD 100bn and the third largest acquisition ever serves as a
good example. AB expects USD 1.4 billion of annual savings, which equates to 13%
of SAB’s net sales. This is even at the lower end of a range of 12–21% that AB InBev
has achieved in previous transactions. The synergies are cost-based by reducing 3%
of the combined workforce due to efficiency gains, 30% of the cost savings should
come from shutting down overlapping regional offices, 25% from a volume bundling
in purchasing which will draw down raw material prices and packaging cost, and the
remainder from higher brewing and distribution efficiencies, as well as productivity
improvements.
– Economies of scope occur only in case of multiple-product firms. The total costs for
companies developing, producing and marketing multiple products might be lower
due to efficiency gains if compared with single product companies. Like econo-
mies of scale, economies of scope might refer to declining variable costs or a better
spread of fixed costs. An example might be appliance manufacturers, like Electrolux,
Bosch-Siemens Household Appliances or Whirlpool, which offer a broad variety of
household products and additionally by using multiple brands. Decreasing fixed cost
in sales and a volume discount on marketing costs lead to a significant overall cost
advantage in comparison to single product-brand companies. Another famous exam-
ple is the consumer goods giant P&G. P&G markets hundreds of well-known brands
under one roof, leveraging its sales and especially marketing capabilities.
Economies of scope also occur on the manufacturing side. An example might be
multiple-brand automotive companies like the Volkswagen Group, GM, Fiat-Chrysler
and others by using one factory for producing multiple brands on a single platform and
by using standardized modules between the brands to limit and bundle components
which have not a direct customer exposure and are irrelevant for the brand image.
– Leveraging complementary skills and capabilities are a third reason for cost syn-
ergies. Complementary effects might appear if the capability profile of one company
perfectly substitutes the missing capabilities of another and vice versa. A case are the
pharmaceutical merger and acquisition activities. Pharma companies are exposed to
high R&D expenditures and often missing critical patents. Using M&As, the patent
portfolios of the target company and the acquirer could be combined and one part-
ner’s patents might perfectly fit with the other partner’s missing patents allowing
blockbuster developments and a downsizing of overlapping R&D programs.
The Dark Side of Justifications for Transactions

Excessive optimism and hubris
The theory of the “winner’s curve” explains why acquirers often overpay for attractive tar-
gets. Excessive optimism and hubris on the buyer’s management team might let them overes-
timate potential synergies and therefore overpay for the target company (Billet and Qian 2008;
Malmendier and Tate 2008; DePamphilis 2015, p. 15). Especially management teams and CEOs
who have been successful in prior acquisitions are exposed to overconfidence driven by their past
track record. That is the reason why this phenomenon is sometimes called the winner’s curse.
Principle-agent theory
Agency problems are typically described as a misfit of interest between shareholders and
employed management teams. Within an M&A context, managers on the buy side might use acqui-
sitions for their own interests to build their empire, to increase their prestige or simply to leverage
their compensation. Nowadays majority and activist shareholders, as well as hedge funds might
limit the power of management teams to strive for self-preservation and thereby neglecting share-
holder value. Also, valuation and governance tools, like fairness opinions of the target company
on the appropriateness of the bidder’s offer price, could counterbalance the problems of agency
conflicts. The same might be true for special M&A committees understood as subgroups of the
board composed of independent directors being not part of the management team and evaluating
the appropriateness of the purchase offer.
Temporary undervaluation of the target

Following the augmentation of behavioral economics, capital markets and their investors might, from
time to time, over- or undervalue a company in comparison to its long-term fair value. Buyers might
lever two potential arguments: Either acquiring undervalued targets or, in case they believe that their
own shares are overvalued, using own shares as means of payment. This argumentation line should
be taken very cautiously, as it assumes that the acquirer’s shareholders or management team have
more insights and better information than the capital market on average. Additionally, mis-valuations
should be very short lived, as latest within the integration shareholders will perceive the underper-
formance with respect to their underlining estimates and the realization of synergies (Akbulut 2013).
Tax inversion deals

Taxes have a double-sided impact on valuation: On the one side, higher taxes reduce FCFs and
have therefore a negative impact on equity value. On the other side, higher taxes, lower due to
their tax-shield, the after-tax cost of debt and, as a consequence, the weighted average cost of cap-
ital of a company. The latter has a positive impact on valuation as the discount factor is reduced.
Therefore, no wonder, tax regimes and especially tax system changes played traditionally a major
role for merger and acquisition activity.
The first tax argument driving transactions are case where the acquirer might use accumulated
tax losses carried forward or tax credits of the target post-closing by offsetting future profits of the
joint company. A second, in the last years even more paramount argument, have been so-called
tax inversion deals: If multinational firms in high tax countries realize a significant share of their
profits and FCFs in foreign affiliates, they might relocate their corporate headquarters to lower tax
countries by acquiring a firm in this country and using a reverse merger structure. This was a very
common M&A argument within the pharmaceutical and high-tech industry between 2008–2016,
were US multinationals relocated by tax inversion deals their headquarters to lower tax environ-
ments, like Ireland. New regulations and a lower corporate tax structure of the US administration
reduced the attractiveness of this argument (DePamphilis 2015, p. 16).
A pure tax driven argumentation bears the risk that the true drivers of a transaction rational, the
intended strategic advantages and the potential synergies out an acquisition or merger, might be too
less relevant.
Companies and strategic business units might be exposed to radical changes in their eco-
system. Those changes might be a consequence of significant regulatory changes, like
in the financial industry after the global financial crisis, for utilities after the Fukushima
disaster, or technology changes and business model innovations, like in the pharmaceu-
tical, the media or the tech industries. These tectonic shifts challenge existing industries
and enforce a radical restructuring of corporate portfolios and strategic business units.
Before kicking off M&A initiatives within such highly dynamic market settings or in
case of designing own digital business model innovations, it does make sense to apply
an Ecosystem-Scan of different potential future environments and scenarios of the com-
pany. Given this scan, the contribution of potential target companies concerning the cho-
sen strategy and financial targets could be defined much more precisely.
2.3 Purchase Price, Synergies and Shareholder Value
Mergers and acquisitions are intertwined with corporate valuation. An in-depth value add
proof is the second litmus test, besides a proof-of-concept of the Transaction Rational,
to be run before any transaction decision is taken. The Sect. 1.3 will stress the princi-
ples of corporate valuation and value added as well as the role of purchase prices and
synergies. In a second step, the “tao” of corporate finance and valuation will be intro-
duced by a first set of equations. This framework will be extended in Chap. 3 on valua-
tion methodologies:
2.3.1 M&A Value Added Versus Dilution
In the end, the net present value of realized synergies determines, if a transaction is value
creating or value destructive. A more detailed assessment differentiates between the sell-
er’s and the buyer’s perspective:
– From the seller’s perspective, a divestment seems only to be attractive, if they receive,
additionally to the stand-alone value of the company—in case of a stock-listed com-
pany the market capitalization if efficient market theory holds -, an additional pre-
mium. The average premium paid in M&A transaction is, as a broad average and
independently from a country or industry perspective, round about 30% of the stand-
alone value of the target pre-acquisition announcement.7
– From a buyer’s perspective, the starting point is as well the stand-alone value of the
target. Besides, the potential improvement of the stand-alone performance of the tar-
get and the net present value of the synergies, which could be realized by the acquirer,
might justify paying a premium and still to realize a shareholder value increase due to
the transaction on the buy side. For a sensitive valuation, the buyer has also to define
7Kengelbach et al. (2015, p. 4). Gaughan (2013, p. 298); Gaughan’s assessment of paid purchase
price premia within the timeframe 1980–2011 based on Mergerstat Review and Econstats.com data
show slightly higher values. The analysis also describes how that acquisition premia grew in line
with the recent extension in market capitalization on global equity markets.
2.3 Purchase Price, Synergies and Shareholder Value 59
-10
NPV of 25
Win-Win
Integraon
Playground
costs
Transaconal
NPV of
value
Synergies 50
acquirer
Premium Standalone
90 value
(Transaconal
value for seller) improvement
50 25
Standalone Purchase Max. potenal Standalone

value target price price value target
Seller’s perspecve Acquirer’s perspecve
Fig. 2.13 Net-synergies, purchase price premium and value added
potential integration costs. As Fig. 2.13 explains, the maximum, in the sense of value
neutral purchase price is defined as the stand-alone value of the target plus the net
present value of likely synergies and improvements in the targets stand-alone perfor-
mance (Müller-Stewens 2010, p. 9). In case, that the acquirer is not a better parent in
managing the company than the seller, meaning that the acquirer cannot improve the
stand-alone performance of the target, the potential premium is only justified by the
net-synergies of the transaction. This underlines the important role of synergies for
the value added of a transaction:
The Case of a Value Additive Transaction (on the Buy-Side)

The value neutral purchase price as the sum of stand-alone value and net synergies does
provide a simple decision criteria on the buy side (Koller et al. 2015, p. 566; Gaughan
2013, p. 548; Sirower 1997, p. 20): A M&A transaction is only, from a shareholder value
perspective, financially justified, if the net synergies overcompensate the paid premium,
as described in Fig. 2.13.
8Gaughan comes in the end to the same conclusion, despite using a slightly different walk of
thoughts: He calculates the net value increase of an acquisition out of the combine stand-alone
values of buyer and target post-closing and deducts the stand-alone value of buyer and target prior
to closing, as well as the additional paid premium (including other transaction costs). This net
amount is exactly equal to the overshooting of synergies in comparison with the purchase price
premium.
Underlying Assumptions of Synergy and Valuation Concept

It is assumed, that the stand-alone value of an intrinsic corporate valuation, which is typically
based on Discounted Cash Flows (DCFs), is in line with the market capitalization of a listed com-
pany. This is only true, if the hypothesis of rational and efficient capital markets holds, which is the
underlying assumption of the traditional corporate finance theory.9
Additional it is assumed that the pure stand-alone value of the target company is identi-
cal for the buyer and the seller. This assumption would not hold, if the buyer could identify
and realize value improvements post-closing by specific strategic programs, like restructurings,
des-investments or aggressive growth strategies, which are not possible for the seller within a stan-
dalone scenario.10 Implicitly this assumption means, that the buyer might manage the target better
than the seller, which is described in the corporate strategy literature as a part of parenting advan-
tages.11 In reality, a crosscheck is requested, if it is indeed possible for the new owner of the busi-
ness to launch on a stand-alone basis value increasing strategies, which have not been possible for
the seller.
An additional problem is a timewise dis-connectivity: the purchase price including the premium
has to be fully paid by the acquirer at closing, but the assumed synergies, which might justify
the premium, are realized post-closing within the Integration Management. This is phrased by the
well-known formulation “prices is what you pay, value is what you get”. Therefore, the risk of
the transaction is always on the buy side and depends on how the buyer could realize the targeted
synergies.
The Case of a Value Dilutive Transaction (on the Buy-Side)

In case, that the buyer underdelivers on the synergy side the acquisition may intend
for the buyer’s shareholders a value dilution. This underperformance in synergy cap-
ture might only be perceived a couple of years post-closing along with the integration.
Figure 2.14 shows this case of a value dilutive acquisition, in which the net synergies
undershoot the paid premium:
2.3.2 Synergies
Synergies are the net present value of the incremental cash flows realized by combining
two or more businesses, independently from the transaction design as an acquisition or
merger. Synergies might be realized on the target’s side, on the acquirer’s side or on both.
9In case of a private company with a market value of equity could only be calculated by the intrin-
sic valuation of the stand-alone value. Normally this is done by calculating first in the enterprise
value, based on forecasted discounted cash flows of the target company, and then deducting the net
debt. Details could be found in Chap. 3. Harding and Rovit (2004, pp. 81–83), analyze the poten-
tial difficulties which could arise already in this calculation of the equity value.
10This is equal to the “unreal” synergies of the German accounting and valuation IDW-standards
(2014, p. 27).
11Competitive advantage on corporate level should be monetarized on equity capital markets by a
corporate premium.
2.3 Purchase Price, Synergies and Shareholder Value 61
Win-Win
Playground
Transacon Integraon Synergies

loss costs
Premium Standalone
acquirer
(transacon value
value for seller) improvement
Standalone Purchase Max. potenal Standalone

value target price price value
valuetarget
target
Seller’s perspecve Acquirer’s perspecve
Fig. 2.14 Net-synergies, purchase price premium and value dilution
 Synergy Patterns
The two basic patterns of synergies are operating and financial synergies (DePamphilis
2015, pp. 9, 10):
Operating synergies might be based on cost advantage driven synergies, like econo-
mies of scale, economies of scope or other efficiency gains as well as on differentiation
and growth advantages by the joint leverage of new markets, products, services, distribu-
tion channels and complementary capabilities or assets.
Financial synergies intend to reduce the tax burden or the cost of capital of the post
transaction merged acquirer and target business. The later arguments for financial syner-
gies rest foremost on the assumption of imperfect capital markets. E.g. the target com-
pany might be limited in its access to global equity and debt markets or might realize at
least cost savings from lower securities’ issuances and transaction costs, like underwrit-
ing or brokerage fees, post transaction. Additionally, nowadays many global corporations
have massive undeployed cash holdings on their balance sheet. This excess cash might
be used to internally finance attractive investment opportunities of the target company,
which might have been limited prior to the acquisition by the reduced funding possibil-
ities of the target. A final reason might be uncorrelated cash flows of the target and the
acquirer.
The validity of these different synergy patterns and their details will be discussed in
Chap. 5.
2.3.3 The Tao of Value
The tao of M&A value creation rests on the following corporate finance and valuation
framework, applying an Enterprise Discounted Cash Flow (DCF) model: The standalone
Operating Value (OV) of a company for all its security holders, like shareholders and
debt holders, is generated by the sum of DCFs:

∞
Operating Value (OV ) = DCFt (2.1)
t=1
With t = year
By adding non-operating, excess cash and cash-like items, the Enterprise Value (EV)
is achieved. By deducting debt and debt-like items, the Equity Value (EqV), as the mar-
ket value of equity for the company’s shareholders, is derived:

∞
Equity Value (EqV ) = OV − Net Debt = DCFt − Net Debt (2.2)
t=1
The purchase price paid could be now decomposed on the seller’s side in the target’s
standalone equity value EqVT and the paid premium and the value on the buyer’s side in
the target’s standalone equity value and the present value of net synergies:

∞
PP = EqVT + Premium �=� EqVT + DCF of Synergiest (2.3)
t=1
Therefore, the evaluation of value accreditation or dilution simply rests on the compari-
son of the paid transaction premium with the net present value of realized synergies:

∞
Value added (dilution) = Premium < (>) DCF of Synergiest (2.4)
t=1
2.4 Embedded M&A Strategy Design
Based on an in-depth understanding of the underlying corporate and business strategies,

as well as on the principles of the M&A driven value added, a tailored M&A Strategy
can be derived. Such an Embedded M&A Strategy describes the cornerstones of
merger and acquisition initiatives, like:
1. The detailed definition of the intended Transaction Rational which should be

achieved by a specific transaction: Given the above described general portfolio of the
reason why of a transaction, any specific acquisition or merger has to be based on one
2.4 Embedded M&A Strategy Design 63
or multiple, but in-depth assessed rational, like providing market access for untouched
regional or customer segments, acquiring innovative products or services, gaining
new core capabilities and skills, to create cost advantages by economies of scale or to
renew the corporate portfolio.
Case Study: Strategic Rational of Big Pharma M&A

The global pharma industry is a showcase for mergers and acquisitions based on multiple, often
interconnected strategic reasons why:
Renew the patent portfolio and build a blockbuster drug pipeline: In the last couple of years,
the most prominent argument of M&A activity within the global pharma industry was to over-
come the threat of the patent cliff. It is a characteristic of the pharma market, that as soon as a pat-
ent expires, the prices of drugs, especially for blockbusters, deteriorate due to the market entrance
of competitors with competing over-the-counter (OTC) drugs. As a consequence, the profitability
of patent protected drugs is typically significantly higher than for OTC ones. The core challenge
for the global pharma companies is, therefore, to renew their drug patent portfolio in time before
their own flagship patents expire. Additionally, the development and go-to-market process of drugs
is a long-term endeavor. They have to pass three clinical trials before regulatory approval as well
as the market test. Given the long lead time in the drug development process, global pharma cham-
pions use a “double blend” approach by in-house R&D and M&A-strategies. An interesting exam-
ple is the Swiss pharma champion Novartis: The new incoming CEO overhauled in 2018/2019
the corporate portfolio by selling Novartis’ 36.5% stake in the consumer health JV to its partner
GSK for USD 13 billion seeking to focus on its core innovative medicine business. Just a couple
of weeks later Novartis pushed further forward with its corporate portfolio re-structuring in buying
the US pharmaceutical company Avexis for USD 8.7 billion and strengthening its genetic therapy
business, before a couple of Novartis’ high selling prescription drug patents will expire.
Become a dominant player in specific client use cases and treatments: A second competitive advan-
tage often intended by pharma champions is a substantial footprint and market share in specific, well
defined client use cases. Therefore, pharma companies try to establish a multiple product platform and
a complete patent portfolio around defined treatments. A holistic treatment of complex diseases needs
in most instances multiple and differentiated drugs and a detailed understanding of the complex inter-
relationships between different treatments as well as their side effects. A showcase is here the newer
approach in the treatment of cancer by the development of individualized immono-therapy solutions,
including high sophisticated approaches like DNA sequencing and big data strategies.
Renew the business model by getting access to new capabilities and digital businesses model
innovations: The pharma business model was for decades build upon the development and market
testing of new drugs, efficient manufacturing processes, and global sales and marketing capabilities.
As digitalization with the potential of big data assessments—e.g. allowing DNA sequencing with
billions of data points—or analytics applications challenge this traditional pharma business model
pattern, the incumbents have to acquire missing capabilities to renew their own Business Design.
An example is here the latest acquisition of the Swiss pharma company Roche. Roche bought the
New York startup Flatiron Health for USD 1.9 billion. With the access to Flatiron’s billions of data
points on millions of cancer patients, Roche might become a game changer in the way life science
companies are using real-world data to accelerate research and generate evidence. A further example
of acquisitions focusing on the renewal of the pharma business model are acquisitions of upstream
and downstream capabilities, like clinical studies, trials and client data, or individualized treatments.
Increasing cost competitiveness by reduced R&D and marketing costs: Horizontal integration
and consolidation plays allow pharma companies to realize substantial economies of scale and
scope, thereby improving their strategic cost competitiveness in comparison to their peer group.
Such cost advantages are one the one side based on a reduction of R&D costs. As the development
of a single blockbuster costs nowadays between USD 0.8–1.0 billion, the R&D synergies in case
of a pharma acquisition by the integration of R&D platforms could be substantial. Another pool of
synergies might be realized in case of an acquisition of a start-up by an incumbent by leveraging
the start-up drug pipeline within the global sales and marketing network of the incumbent.
2. The corporate financing framework defines how potential M&A projects might be
financed and the limits with respect to financial leverage and risk: In a first step, the
excess cash, as well as equity and debt funding volumes and short-term bridge financ-
ing capabilities have to be assessed. As part of the debt financing strategy, multiple
levers have to be specified, like the preferred kind of debt—bonds versus loans -, the
maturity, the preferred interest rate structure—floating versus fixed rates -, the under-
lying currency, and, in case of interest and currency exposures, potential hedging
strategies. Even more lead time is necessary on the equity side, as stock markets and
shareholders dislike short term communication on necessary capital increases.
3. The top-down value creation and contribution targets, including the synergy deliv-
erables of the M&A project: As the M&A Strategy is a rough draft, a bandwidth of
value and synergy targets seems to be more applicable at this stage than precise tar-
gets. Besides, the likely impact of the intended transaction on corporate performance
and the consolidated financial statements of the acquirer has to be forecasted: Best-
and worst-case scenarios may be used to define robust and reasonable bandwidths of
potential impacts on group level.
4. The preferred external growth design: As described in Sect. 1.2.1, especially in
dynamic and technology disrupted markets, besides the traditional mergers and acqui-
sitions multiple growth opportunities, like JVs, CVC, incubating or accelerators have
to be compared with any specific M&A case setting. Finally, those options have to be
evaluated and a preferred option selected.
5. The criteria for the description of the target profiles as well as for the selection of the
ideal target company, the Fit Diamond assessment: Selecting targets along a long-,
and later, short-list requests on the one side a defined and standardized set of strategic,
business and financial data for the company profiling, so-called Target Scorecards.
On the other side, the selection criteria must be objective and measurable to avoid
management bias or power plays. The detailed Diamond Fit assessment of a specific
target must be rationalized by defined strategic, business, financial and further criteria.
Besides, the likelihood that the target shareholders, in the end, will sell their busi-
ness or that a deal materializes has to be assessed. The latter point also involves first
thoughts on likely antitrust approvals or restrictions.
6. The targeted integration vison and a Blueprint of the Joint Business Design and
Culture Design: Most acquirers still define integration specific topics earliest after
signing or closing, meaning at the intersection between the Transaction and the
Integration Management. A Frontloading of these activities into the M&A Strategy
process serves an E2E view. It also enables that the overall targets concerning the
integration and intended synergies are not changed during the typical vibes within the
integration process (Fig. 2.15).
2.5 M&A Target Profiling and Pipeline 65
Fig. 2.15 A corporate and business strategy Embedded M&A Strategy and its cornerstones
As the strategic, financial and value targets, as well as the different kind of external
growth options, have been discussed already, the focus is in the following on the tar-
get profiling and selection, the Fit Diamond evaluation and on the Blue Print of the
Integration Approach with the Joint Business and Culture Design as core elements. The
M&A Strategy will be summarized in an consistent M&A Playbook.
2.5 M&A Target Profiling and Pipeline
Summarizing the assessment so far, M&As are an important tool of corporate develop-
ment, but bear also a significant risk, especially within the integration of the Joint Business
and Culture Design. Based on the Embedded M&A Strategy framework a first assessment
of potential target companies in the sense of a long-list could be defined (Fig. 2.16).
In a second step, the long-list of target companies has to be boiled down by prede-
fined criteria, which are summarized by the Fit Diamond, to a short-list of highly attrac-
tive targets. This short-list is the starting point of a specific transaction.
2.5.1 Criteria for Target Profiling and Target Scorecards
In the first step, the hemisphere of potential targets has to be analyzed, each of those
potential targets roughly described and the most attractive of them—with a strong fit
to the acquirer’s core competencies and intended strategic rational—selected for a first
long-list. The identification of attractive target companies with a high fit to the acquir-
er’s intended competitive advantages is an important success factor for a transaction
(Lahovnik 2011).
Target company profiling

and Company Scorecards First rough strategic and
financial (synergy) fit
assessment
Detailed Fit Diamond

assessment
M&A project
target 1
target 3
target 2
Sales Strategic Products Focus Region Strategic
Value Add
fit
Long
… … F
Short
…
M&A top
l
e
e
target 5
t
Target 1 P P P /
Top 5-7
9
T
target 4
2 5
r
%
list targets
0 a
list
5
target 6
i
l
m P P e
9 P
Target 2 r
3 9 /
3 % B
2 u
s
Target 3 m P P P
1
1 0
target 7
6 0
5 %
*
m
1 P
Target 4 2 0 *
*
9 0 *
%
m
P P P
target 8
Target 5 2
5 0
1 %
5
*
…
*
m
Willingness to sell
Standalone aracveness
assessment
Fig. 2.16 Cascading the competitive universe to a shortlist of highly attractive targets
The initial broad set of potential targets might include not only the direct competitors
of the acquirer but also companies with complementary capabilities of the wider ecosys-
tem, which might be especially interesting for the future development of the strategic
key success factors of an industry. According to a study of the Boston Consulting Group
(2015) within the assessment process 60% of the potential targets are immediately turned
down and only 5% of the original targets get to the closing of the deal. Therefore, an ini-
tial broad scope is mandatory. For the profiling of an individual target, a set of screening
criteria is to be determined. The selection criteria have to be tailored around the strategy,
the Business and the Culture Design of the acquirer. Nevertheless, a basic set of screen-
ing criteria could be determined, which might be applicable for more or less any indus-
try and could be used for a first-hand description of the potential targets (Galpin and
Herndon 2014, p. 32):
– Market-product footprint, value proposition and target strategy

The overall market, the regional footprint and the customer focus groups of the target
company are mandatory parts of any target profiling. In a more detailed step, the core
products and services, as well as the according customer use cases and value prep-
ositions may be described. On the market side a detailed breakdown of the target’s
overall market in its segments and customer use cases, e.g. business-to-consumer ver-
sus business-to-business applications or price segments, is requested to get a detailed
understanding of the market attractiveness of the target’s business. This could be
mirrored with the target’s market competitiveness in those dedicated segments meas-
ured by its market share and other indicators. Especially for M&A strategies were
consolidation plays or the acquisition of complementary products and services are

intended, a very granular understanding of the product and market portfolio of the
target is of essence.
Given this market-product footprint, the strategy and the core competitive advantages
of the target have to be assessed and briefly described. The competitive advantage of
the target has to fit with the strategic reason why argumentation of the acquirer and
the intended potential synergies.
– Financial profile
The key financial metrics on a corporate level, and, in case of a conglomerate, also for
the different SBUs, have to be analyzed. Typical indicators, independently of specific
industries, might be:
– Revenues and their development (growth rates based on CAGR)
– Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA), as this
high-level indicator of the profitability of the target company, might be the most
independent from accounting standards and is a close relative to Free Cash Flows
– Earnings before Interest and Taxes (EBIT), as it takes also necessary investments
by the deduction of depreciation and amortization into account
– Invested Capital, which mirrors the capital intensity of the target’s Business Design
by summarizing fixed assets and net working capital items, like accounts receiva-
bles, accounts payables and inventory
– Return on Invested Capital (ROIC)12, as it is the most important indicator for
assessing the operating performance of the target company
– Free Cash Flows as the ultimate value drivers
Besides, a couple of industry specific financial indicators, which mirror the value drivers
of the underlying industry and the target’s Business Design might be as well relevant.
– Business and Culture Design
The Business Design is a brief description of the target’s operating model and
includes the financial value drivers, the customer value proposition offered by the
company’s products and services, the distribution channels used for the delivery pro-
cess by the target, a detailed assessment of the value chain, the organizational struc-
ture and core capabilities, the key partners and suppliers of the target and it’s most
important competitors.13 Selective parts of the Business and Culture Design might
have the highest priority for a first glance of the target profile:
– The core competencies and the aligned value proposition of the target company
– The served markets, their attractiveness and the target’s competitiveness within
those markets as described above. For additional, already more granular insights
and to get a first idea about potential cross-selling opportunities the share of wal-
let of the target business at the most important customers might be of interest.
12With and without goodwill.

13The Business Design concept will be discussed more detailed within the next sub-chapter.
Additionally, the applied channel strategy of the target should be assessed, and,
especially for tech businesses, the web-channel presence and competence.
– The overall regional, corporate and management Standalone Culture Design
– Synergy levers:
A first top-down strategic and financial assessment of the potential synergies should
also be included in the first high-level assessment. A separation between operational
and financial synergies is recommended. As the synergies are the crucial driver of the
overall valuation they have to be assessed, at least broadly, in an early stage.
– Target availability:
Also, for a couple of targets, there might exist limitations for a potential acquisition,
like a missing willingness to sell by the target’s shareholders or due to anti-trust rea-
sons. Like the synergy levers, the likelihood to sell and antitrust hindrances have to be
detected early, to avoid worthless investments in target assessments (Fig. 2.17).
The details of this target company assessment might be integrated into a Company
Scorecard for each target. This Company Scorecard provides a brief overview of a sin-
gle target, and, due to their standardized assessment criteria, also a starting point for the
comparison and the selection of the most attractive targets:
2.5.2 Assessment of the Fit Diamond
The assessment of the attractiveness of a company as a potential merger partner or

acquisition target must be based on an in-depth strategic, financial, Business Design
M&A target profiling criteria for long list

Screening Criteria Indicators Scaling Methodology
Core markets Meet corporate requirements and Sources of informa on

Industry / market Core products & use cases having enough touch points with buyer Branch-organisaons
footprint & strategy Strategy & comp. advantage Company databases
Core financials like revenue, Within certain defined range Reports
Financial profile growth, EBITDA, EBIT, RoIC Investment Banking analysis
Business specific drivers External researchers
Web researches
Market volume and growth Meet at least certain lower limit Annual reports
Market profile & Market segmentaon

compe veness First contacts

Market share
Business & Culture Revenue & cost drivers Fit high / med / low Methodology
Customer value proposion Install project/screen team
Design Distribuon channels Use external support (e.g.
Core capabilies consultants)
Core partners & suppliers Conduct 80/20 esmates
Culture Map wherever appropriate
Synergy levers Strategic & financial assessment: High / med / low
Operaonal synergies
Financial synergies
Availability Willingness to sell (shareholder) Likely / Unlikely

Antrust assessment
Standalone arac ve- Financial Quanficaon & Specific’s for detail screen
Strategic & Business design qualitave assessment Use external research
ness & synergy value Culture Deign Only top-down-analysis
Fig. 2.17 Target screening criteria for company profiling (long list)
Standalone
Aracveness
Fit
Culture Strategic Fit
Diamond
Design Fit (Transacon
Raonal)
M&A Risk Assessment
Business Financial
Design Fit (Synergec) Fit
Fig. 2.18 Fit Diamond
and Culture Design fit assessment.14 Besides, the standalone attractiveness of the tar-
get’s business has to be evaluated. The unique pattern of companies which make them
outstanding as a target for the potential buyer is here summarized under the term “Fit
Diamond” and is based on five selected criteria, the stand-alone attractiveness of the
potential target, the value upside the target does potentially possess due to the syn-
ergies in case of an acquisition or merger, the strategic fit of the target and the poten-
tial acquirer, including the definition which competitive advantage the target company
could deliver for the prospective buyer (strategic rational), the fit between the target’s
and the acquirer’s Business Design, and, last not least, the Culture Design fit between
the acquirer and the target. Only the first criterium is independent of a potential buyer,
and therefore called the standalone attractiveness of the target. The criteria two to five,
on the other side, are based on a specific acquirer-target match. The strategic, financial,
Business or Culture Design fit assessment of different acquirers could lead to substantial
differences in the evaluation of the Fit Diamond of the same potential target (Fig. 2.18):
14Galpin & Herndon underline two component, the strategic fit and the organizational fit, which
should be assessed (Galpin and Herndon 2014, p. 33).

Standalone Attractiveness of the Target

The first assessment criterium for the selection of attractive target companies is the eval-
uation of their stand-alone attractiveness. This assessment has to answer two important
questions:
1. Does the company address an important value proposition of its customers by its
products or services?
2. Does the company have a unique, attractive and long-term competitive advantage and
outstanding capabilities?
The first question has to assess how far the products and services offered by the target
company solve an important customer problem. The second question is even more com-
plex. The assessment of uniqueness as the core of a target’s competitive advantage asks,
if the target has a stand-alone position, which is based, for example, on outstanding capa-
bilities or patents, and could be hardly copied by a competitor. Attractiveness means, that
the competitive advantage is highly valued by its customers and therefore could realize
substantial Cash Flows. Long-term finally requests that those advantages and aligned
FCFs are lasting and are not a short term phenomenon.
Financial Fit: Value Upside By Potential Synergies (Volume and Likelihood)

The financial fit assessment evaluates how far the target business could be improved in
its stand-alone performance and how far synergies could be realized by the combination
of the acquirer’s and the seller’s Business Design. The first lever of improvements in the
standalone performance is independent of the potential acquirer. In contrast, true syner-
gies depend always on the potential acquirer as they only could be realized by the com-
bination of the specific target with the acquirer. Therefore, a specific target might deliver
not the same value contributions for different acquirers due to differences in likely syner-
gies for potential parent companies. The value of the synergies is calculated by their net
present value. This implies, that also the timing of the synergies is of relevance for their
value contribution. Besides, the likelihood of the synergies has an impact and should be
as well evaluated by a focused risk assessment.
Strategic Fit: Lever to Shape Competitive Advantage for the Buyer

The strategic fit evaluation is one of the core elements of the Fit Diamond. Due to the
importance of the transaction rational, it has to be assessed if and how a potential target
pays in on a defined competitive advantage on corporate or strategic business unit level,
as discussed in prior subchapters. A specific target might also offer not just one, but mul-
tiple competitive advantages for the buyer and therefore being highly attractive. The stra-
tegic fit and the underlying competitive advantages of the target which might be of value
for the acquirer are, like the synergy fit evaluation, dependent on the specific parent.
Joint Business Design Fit

For the sounding of the transaction rational and the later integration process the fit
between the Business Designs of the acquirer and the target, meaning if and how a win-
ning Joint Business Design could be achieved, is of utmost importance. Especially in
industries where the reason why of the transaction is based upon the specific capabilities
of a target, as it is nowadays in industries like automotive, media, pharma or technol-
ogy the case, the complementarity of the Business Designs of the acquirer and target
is decisive. For the risk assessment, the comparison of the two Business Designs might
additionally provide insights where the companies might fit, where they might misfit
and where therefore potential conflicts might arise. The latter could be used as an early
warning signal and provide insights for the Due Diligence assessment, the final design
of the Joint Business Design and integration needs. Details on the assessment of the
Stand-alone Business Designs as well as on the first draft of a potential Joint Business
Design and the underlining theoretical model are addressed in the next subchapter.
Joint Culture Design Fit

Significant differences in the culture of the target’s and the acquirer’s organization,
meaning in their values, believes or management attitudes, might end in a culture clash
and derail a transaction. The relatedness and fit of the Culture Design are directly corre-
lated with transaction performance. Therefore, an early Culture Diagnostic assessment is
a crucial part of the Fit Diamond.
The Two Sides of the Coin: Fit vs Risk Profile of a Potential Transaction
Mergers and acquisitions offer on the one side a potentially fast way forward to create
value, accelerated growth and establish new competitive advantages. On the other side,
they bear also multiple risks. The Diamond Fit assessment analyses only the most critical
areas and a negative fit means implicitly a high risk.
The first important risk to be addressed is a potential underperformance on the syn-
ergy realization, which is in line with the synergy fit assessment. Closely linked to the
synergy realization risk is the assessment if a potential acquisition of the target could
endanger financially wise the acquirer. This financial risk could be assessed by inte-
grating the target financials into the forecasted consolidated financial statements of the
acquirer. Based on this set of integrated financial statements multiple scenarios could be
analyzed. To address the financial risk the worst-case scenario might be of special inter-
est. Based on this scenario the buyer could analyze if the balance sheet and finance struc-
ture could bear a substantial underperformance of the target or a market downturn.
Last not least the Culture and Business Design integration risks have to be evaluated.
This includes in-depth Business Design and Culture Diagnostics of the target and the
acquirer. The latter may provide insights and early warning signals of potential culture
clashes, which could arise out of regional, corporate or management culture differ-
ences. Closely related is the question, if the acquirer’s management team might be over-
stretched by the potential integration.
2.5.3 The Process of Screening and Target Pipelining
Based on the detailed scorecards for each potential target and given a sensitive assessment
of the five criteria of the Fit Diamond—the stand-alone attractiveness, the potential syn-
ergies, the strategic fit, the Business and Culture Design fit and a transparent view of the
most important risks of an intended acquisition -, a priority list of attractive targets could
be deducted. In case of a wider defined and vibrant ecosystem of the acquirer or in situa-
tions of a non-consolidated global competitive environment a two-step approach might be
recommended for the selection of attractive targets. For the latter, in a first step, a long-list
of potentially attractive targets might be defined, based on a less detailed assessment. In
the second step the long list is reduced to a shortlist of highly attractive targets by evalu-
ating the first-round front-runners in much more detail along the Fit Diamond (Fig. 2.19)
Beside the profiling with the Target Scorecards and the Fit Diamond assessment, the
likelihood of the availability of the targets has to be assessed. This availability assess-
ment has to address two questions:
– Might the target management be open-minded to an M&A approach, or, in case of a

hostile takeover attempt, could the target’s shareholders most likely be convinced to
sell at least a majority stake and at which price bandwidth.
– Are there any anti-trust limitations on a national or international level in case of an
acquisition or merger to be expected. If yes, could those anti-trust issues be solved by
targeted divestments and spin-offs. In the latter case, is the remaining acquired target
business still attractive post divestments. The failed merger talks in the US mobile com-
munication market or the massive anti-trust driven divestments in case of the acquisition
of SABMiller by AB InBev might be warning signals concerning antitrust issues.
LONG-LIST SHORT-LIST M&A project

Standalone
Criteria Target Scorecard:
aracveness
Industry & market footprint
Strategy
Market profile Fit
Business design Culture Diamond Strategic
Core competencies fit fit
Standalone aracveness M&A risk

assessment
Rough strategic fit Financial
Rough synergy fit Business
(synergec)
Design fit
fit
Availability?
Output Long list of potenal targets Shortlist of aracve targets
Example Selecon of 20 global Database with 5-7 targets with

competors with detailed detailed Fit Diamond assessment
Company Scorecard and
rough fit assessment
Fig. 2.19 Two-step fit assessment: Long- and short-list of attractive targets
2.6 Frontloading of Integration Approach Blueprint 73
Only if solutions for both questions could be found for a highly attractive target with
a strong fit to the buyer’s business, the substantial investment in the next phase, the
Transaction Management—and here especially for the Due Diligence—might be justified.
2.6 Frontloading of Integration Approach Blueprint
To kick-of integration planning already within the Embedded M&A Strategy phase and
to involve the integration team already at this stage increases the likelihood of a potential
transaction success. Providing a first road map for the potential integration approach at
an early stage is a tectonic shift if compared with the traditional M&A pattern to start
integration planning at or even after closing (Chatterjee 2009; PWC 2017; Galpin and
Herndon 2014). Such a Frontloading of integration questions enables both compa-
nies, the target and the acquirer, to jumpstart on integration questions. The design of a
Blueprint of the potential Integration Approach as a sketch of the Integration Masterplan
is, therefore, a mandatory ingredient for a holistic M&A Strategy. Such an early set-up
of the potential integration design has the advantage, that the draft of the Integration
Masterplan could be back-tested with respect to the likely achievement of the transaction
rationale and synergies as well as to its robustness within the Due Diligence. Besides,
based on the stress-tested Integration Masterplan during the Due Diligence process, the
latter’s implementation could be scaled from Day One of the integration onwards, offer-
ing an integration head start.
A sensible Integration Approach must be transaction specific by mirroring the tar-
geted strategic rational of the transaction, the specific ecosystem, the risks and the com-
plexity of the potential integration and intended synergies. Integration Approaches
exists thereby along a continuum (Galpin and Herndon 2014a, p. 10; Napier 1989,
p. 277), from a venturing like collaboration approach with very limited integration
efforts to an alignment approach which fosters a partial integration at defined touch-
points, to a full integration in the sense of a “one company” approach. The chosen
Integration Approach frames the structure and intensity of the Integration Masterplan
(IM), the integration work streams and the detailed integration activities.
Collaboration Integration Approach

A Collaboration Integration Approach is characterized by a loose knit integration at
very selected, precisely defined touchpoints between the potential parent company and
the target. The advantage of the Collaboration Approach of integration is, that the target’s
Business and Culture Design are preserved, culture clashes avoided, and critical talent is
retained. The Collaboration Approach intends to provide on the one side the needed flex-
ibility and stand-alone characteristics to develop the target’s business strategically and
in day-to-day matters, and, on the other side, to realize on the buy side the mandatory
touchpoint in often adjacent markets (Puranam et al. 2009).
Nevertheless, the Collaboration Integration Approach is not to be understood as a full

stand-alone approach, as the target business has to be overseen in its financial, Business
Design and strategic development process. Therefore, compliance principles, defined
reporting lines, aligned budgeting and investment processes, dedicated resources and
capabilities from the potential parent to scale the target’s Business Design, and also top
management attention especially at critical milestones are mandatory for a successful
alignment and soft touch integration of the target. To create a value-add in comparison
to the stand-alone target development, the acquirer has to define the expected parent-
ing advantage and the necessary integration resources, if it is in financing, or provid-
ing the necessary management capabilities for the growth phase and scaling of a start-up
business or by simply providing customer and client contacts. Based on the defined
parenting advantages the buyer has to plan how to manage the transfer of these neces-
sary resources and capabilities. If these pre-conditions are fulfilled, the Collaboration
Integration Approach might be, for example, an ideal hybrid model for combining corpo-
rate research process excellence with start-up entrepreneurship.
Alignment Integration Approach

The Alignment Integration Approach goes beyond the Collaboration Integration
Approach by integrating a defined, selected set of elements of the post-closing Joint
Business Design. But it is still not a full-sized integration approach, as other elements,
especially those which are decisive for the necessary autonomy of a successful devel-
opment of the target business, will be kept independently. A success factor for this inte-
gration approach is a tailored selection and definition which modules and processes
of the post-closing Joint Business Design will be coordinated or merged. As in the
Collaboration Integration Approach strategic planning, budgeting and monitoring of the
target’s business model will be centralized at the parent. Additionally, parts for the devel-
opment of core capabilities at the target which might lever the value of its business might
be integrated or combined with the acquirer’s organization, whereas more day-to-day
operations will remain often autonomous.
An example might be the successful acquisition and integration strategies of lux-
ury goods companies, like LVMH. With their “string-of-pearl” approach they acquire
regional high-end brands and scale them with their best-in-class marketing and
brand-management capabilities globally. On the other side, they keep, for example, the
manufacturing footprint or R&D focus foremost independent.
One Company Integration Approach

The One Company Integration Approach is not a small change program, it is a tec-
tonic shift in the Business Designs of both companies. Foremost are significant
cost-synergies intended by slimming structures and scaling best-of-both standardized
processes. All modules and processes of the former independent two Business Designs
will be mapped, merged and consolidated. As well all management processes will be
integrated by selecting best-practices between acquirer, target and maybe third-party
benchmarks. This means implicitly, no preservation of the target’s Business and Culture
Design is intended. This significant change, especially at the target organization, bears
the risk of culture clashes and integration hurdles. From a conceptual point of view the
One Company Approach could be fulfilled by two alternative strategies:
– The full transition of the target’s Business and Culture Design onto the acquirer’s
Business and Culture Design footprint. In this approach, all parts of the Business
Design like assets, employees and capabilities of the target are transferred. This was
the dominating integration model of most global champions like GE, Shell, Daimler
or Siemens in the 1990s and early 2000s, as they had the belief that their global busi-
ness model could only improve the target’s performance.
– In the best-of-both approach, the target and the acquirer would evaluate and benchmark
each module and process of the two Standalone Business Designs (SBD) and would
choose the better performing one as the new joint standard. Integration must here be
understood as a fundamental paradigm shift for both companies, not just the target.15
The problematic point of the One-Company Integration Approach might be employee

resistance and anxieties, risking a culture clash or “not-invented-here syndrome”, if
the cultural origins of both companies are not addressed within the new Joint Culture
Design. The departure of key talent and a decreasing employee moral might, in the end,
endanger integration success.
Figure 2.20 describes the pattern of the different Integration Approaches along impor-
tant criteria like the overall Integration Strategy, their impact on the Business and Culture
Design as well as for the synergy capture and financial targets.
2.6.1 Standalone Business Design Diagnostics and Joint Business

Design Blueprint
The Frontloading of the Joint Business Design Blueprint from the Integration Management
into the Embedded M&A Strategy phase fosters the E2E idea. It enables the cross-
check of the Integration Approach and intended Business Design along the Transaction
Management with respect to plausibility and robustness, as shown in Fig. 2.21. This proof-
of-concept of the Joint Business Design will highlight where the most crucial integration
risks are to be expected, how those could be addressed by integration countermeasures and
how the overall Integration Approach should be adjusted. Based on this assessment, the
detailed interfaces and needs of integration between the acquirer’s and the target’s Business
Designs could be assessed, as they are crucial for the leverage of synergies (Fig. 2.21).
15Davis describes this best-of-both approach as cherry picking the best from each company (Davis
2012, p. 22).
Integraon Collaboraon Alignment One Company Approach

Approach Approach Approach Target transion “best-of-both
& to buyer BD approach”
Paern
Integraon 1 2 3 4 5 6 7
depth
Integraon
resource need
1 2 3 4 5 6 7
Integraon
Strategy
Integraon
7 6 5 4 3 2 1
speed
Governance
1 2 3 4 5 6 7
allignment
Top Mgt.
involvement 1 2 3 4 5 6 7
Target 1 2 3 4 5 6 7
Change
BD
Buyer 1 2 3 4 5 6 7
Target 1 2 3 4 5 6 7
Change
CD
Buyer 1 2 3 4 5 6 7
Synergy
1 2 3 4 5 6 7
Financial
impact
capture
Investment
need 7 6 5 4 3 2 1
Fig. 2.20 Integration Approach Blueprint and mapping of integration patterns
#1 #2 #3
Standalone (pre-transacon) Joint Business Joint Business Joint Business

Business Design Design Design Design freeze and
Diagnoscs Blue Print verificaon implementaon
Acquirer‘s SBD
CS
CA CR
Integraon Approach
CV CS
CP CC CH CM
Definion of CS Proof-of-
CF JBD CA CR Concept
CO CV
CP CC CH CM of JBD
CS
CF
CA CR CO
CV
CP CC CH CM Masterplan
CF
• Idenfying integraon risks within the Due Diligence
CO
Target‘s SBD • Test of plausibility and robustness of JBD in Due Diligence
• Definion of integraon tasks, projects, workstreams and
Integraon Scorecards
• Definion of meline and milestones
• Addressing and management of integraon risks
Fig. 2.21 Standalone Business Design Diagnostics and Joint Business Design Blueprint
The definition of the Joint Business Design Blueprint at this early stage involves the
following sub-steps:
– The Diagnostics, meaning the detailed assessment and evaluation of the Standalone
Business Design (SBD) of the target and the potential acquirer
– The blending and potential fit assessment between those two Standalone Business Designs
– The assessment of alternative Joint Business Designs (JBDs) and Integration
Approaches and a first selection of the most likely preferred Joint Business Design.
The evaluation of the most promising Integration Approaches indicates the neces-
sary depth, speed and complexity of the potential integration process. The Integration
Approach and JBD have to be mirrored with the intended synergies as well as with
the acquirer’s management capabilities.
– A Blueprint of the modules of the intended Joint Business Design: For the description
of the Business Designs the 10C model might be applied, which will be described
in detail within the background information. The ten elements of the 10C Business
Design provide a clear picture of the intended post-closing organizational and cus-
tomer approach as well as the jointly addressed value proposition.
10C Business Design (BD) for Standalone Business Design Diagnostics and Joint Business
Design Blueprint
For the description of the target’s and the acquirer’s Standalone Business Designs, and the blending,
as well as fit assessment of those two Business Designs, a sound definition what is understood as a
Business Design, is a precondition. The latest research within the corporate strategy and innovation
management theory provides here insights under the framework of business model innovation.
Nevertheless, still, today exists no universal definition of what a business model or Business
Design—whereby both terms should be used in the following interchangeable—is or is not. In a
common understanding, a Business Design addresses the holistic architecture of a business and
covers the working principles of an underlying business. Therefore, a Business Design could be
understood as a simplistic description of how a company fulfills with a specific service or product
offering a core value proposition for a dedicated customer use-case, and how the company delivers
this value proposition with its organization and ecosystem (Teece 2010). A Business Design must
answer questions, like:
– “who are the targeted customers and markets”,

– “what are the most critical use cases and trends?”,
– “what is the unique offer of the company for its customers and which value proposition is there-
fore fulfilled?”,
– “what are the necessary organizational ingredients, processes and capabilities to deliver on the
promised value proposition?”
– “what makes the company unique, what is its competitive advantage and core capability if com-
pared with best-in-class competitors”,
– and finally “how does the company generate Cash Flows and value with this Business Design?”
Most business model definitions consist of several core parts, describing an organizational footprint
and the relationships between those parts. Magretta included in his business model concept cus-
tomers and their values, the ways of delivering the promised value proposition to the customers, the
M&A Strategy: 10C Business Design (definion)

Compeve Strategy: Strategy, Purpose and Transacon Raonal
CS describes the compeve advantage and purpose of the SBDs and JBD, defining the way of compeng and the relaonship with
key competors for the parent, the target and the potenal joint company as well as the strategic raonal of the intended transacon
Core Core Value Customer

Co- Assets (Propo- Relaon Customer
CAs as important tangible, CRs are the glue between
operave- intangible assets and HR
sion) the company to their CM
& Markets
Ecosystem Core Ca- CV is the product /
service / digital offering
CHannels
CEs are important
ingredients and should
pabilies by the new JBD for a
defined customer use- CH describe how CV are
CM describes the
market segments and
CCs as unique sources of
pay in in the design of compeve advantage are case & sasfies specific communicated, customer (clusters)
the JBD and in creang mission crical capabilies customer (B2B or B2C) delivered and sold to targeted by the new
the joint CV. and skills of the JBD needs CM joint CV Prposion of
Nevertheless, they are the JBD
not an integral part of
the BD
Cash Flow Model: Valuaon & Synergies
The CF Model as financial architecture assures value creaon (standalone value
and synergy capture) decomposed in the tailored value drivers of a specific JBD
Corporate Organizaon
CO mirrors regional, SBU and shared service structures, reporng & governance
principles, funconal roles and responsibilies, as well as the management layers
Fig. 2.22 The 10C Business Design Model
revenue streams and the cost levers. Business models are in his understanding “stories that explain
how enterprises work” (Magretta 2002). Osterwalder and Pigneur have a similar understanding: “A
business model describes the rationale of how an organization creates, delivers and captures value”
(Osterwalder and Pigneur 2010, p. 14). The 10C Business Design extends and tailors existing
business model concepts of Christiansen, Magretta, Teece, Osterwalder & Pigneur and others with
respect to the specific needs of the M&A context. The 10C Business Design is built upon ten ele-
ments mirroring the logic of how a company fulfills target customer needs, cooperates therefore
with its ecosystem, competes with alternative offerings of its best-in-class competitors, realizes Cash
Flows and value for its shareholders, captures synergies and designs its organization (Fig. 2.22).
Given these major building blocks, the detailed elements of the 10C Business Design are:
1. Competitive Strategy (CS) describes where—in the sense on which markets and with which
products and services—and how—based on which competitive advantage—the company
competes. The core of the competitive strategy is the company’s unique, attractive—meaning
strong Cash Flow generating—and differentiating competitive advantage. The CS is, on the
one side, closely linked to the Core Value Proposition (CV) and, on the other side, with the
company’s competitors as a competitive advantage has always to be defined from a “relative
view”. CS is also the origin of a strong Cash Flow (CF) generating model. For M&A purpose
the CS is decisive for the JBD as it defines the transaction rational.
2. Customers and Markets (CM) are, besides the customer relationships (CRs) and channels
(CHs), one of the three closely related customer parts of a Business Design. They describe
around which customer groups, characterized by their specific pattern of needs and behav-
iours, a Business Design is built. Customer segments are intertwined with the company’s core
value proposition (CV) and its specific product and service offerings, which fulfill a specific
use-case for the targeted customer segment. Customer segments also mirror the willingness to
pay for a defined value proposition and have therefore an impact on the revenue driver of the
Cash Flow model (CF). Typical patterns are mass-market offerings which do not distinguish
between different segments, diversified customer segments with specific needs, multi-sided
markets with several customer groups dependent on one another, or niche market segment
applications (Osterwalder and Pigneur 2010, pp. 20–21; Schallmo 2014). Within an M&A
context, the attractiveness of the target’s key customers and markets serves often as the true
transaction rational.
3. Core Value Proposition (CV) addresses an important customer need or use-case. The CV
is the “northern star” of a Business Design, as it has an impact on all other elements of the
Business Design. The CV summarizes all for the targeted customer segment valuable prod-
ucts, services or digital offerings, which contribute to solving a specific customer problem.
CVs could be built around innovative solutions to deliver on so far unfulfilled customer needs,
like streaming solutions in the media industry or the first social media networks. Other CV
approaches are built upon product or service performance improvements, tailored products
and services for specific customer segment needs, CVs addressing status, prestige or image,
or customer co-creation to customize offerings (Osterwalder and Pigneur 2010, pp. 22–25;
Schallmo 2014). In case of transactions the joint CV integrates the offerings of the acquirer
and the target and create in a best case a more valuable customer experience than the two stan-
dalone offerings in the sense “1 + 1 > 2”. Especially string-of-pearl M&A approaches typically
supplement product offerings with additional product and service solutions building system
offers.
4. Customer Relationships (CR) are the bridge between the CV offered by the company
and the needs of specific CM. CRs should foster a deep customer understanding, including
their real needs, as this understanding is mandatory for any customer acquisition. Besides,
CRs should initiate customer feedback loops between the company and its customers, as this
enables customer retention, loyalty and the exploitation of a share-of-wallet optimization by
cross-selling opportunities. Traditional CRs are built by sales personal and assistants on the
shop floor or by technically enabled support through call centres or online chats. The trade-off
within the CR strategies is between the higher cost competitiveness of online solutions and the
potentially deeper customer insights by personal interaction. But the newest artificial intelli-
gence solutions and big data approaches might combine the best of both approaches. A sensi-
tive integration of the CR is a mission-critical task for M&As to assure customer retention.
5. Channels (CH) transfer the CP to the customer. Channels are used as an umbrella term for
all communication, distribution and as well sales channels which are levered by a specific
Business Design to get in contact with targeted CMs, to inform them about the company’s
specific service and product offerings (CVs), to enable customers to evaluate those and last
not least to physically or virtually deliver products and services, which includes after-sales
services and support. A company might scale its own channels like branches, internet pages,
online shops or deliver own offerings through partner networks and distribution channels.
Especially web-based channels and customer access are nowadays strong arguments for
acquisitions, especially in markets with strong platforms.
6. Core Assets (CA) describe all mission-critical tangible and intangible assets as well as human
resources which enable a specific CV. By exploiting CAs, the company develops, manufac-
tures, offers, and sells its products and services. CA could be described along the value stream
of a company. They are often not only characteristic for a defined Business Design but as
well for an overall industry, especially if a dominating Business Design exists. In case these
assets are owned by the company they are CAs. Alternatively, the company might source or
acquire those assets from their co-operation partners and ecosystem (CE). Nowadays intangi-
ble assets, like brands, patents, licenses or know-how are in multiple industries the true source
of competitive advantage and therefore the crucial CAs. In a transaction context, the stream-
lining and coordination of the CAs on the acquirer’s and target’s side are important mid- to
long-term deliverables of the Integration Management.
7. Core Capabilities (CC) are a further source for competitive advantage, as Prahalad and
Hamel described in their landmark paper on “the Core Competence of the Corporation”
(Prahalad and Hamel 1990). A CC could be e.g. manufacturing excellence in the automo-
tive industry, best in class research skills in the pharmaceutical industry, outstanding brand
management in the fashion or luxury goods industries, benchmark problem-solving skills
in consulting or other service businesses, as well as global platform and network capabili-
ties in social media, e-commerce or online search. It is a characteristic of CCs that they are
deeply embedded with the Business Design and are decisive for the uniqueness of the compa-
ny’s competitive advantage (CS) and its offerings (CV). Like CMs are CC nowadays impor-
tant arguments to acquire a target, as M&As are a much faster way forward to get access to
mission-critical core capabilities.
8. Co-operation Partners (CP) frame the key suppliers and ecosystem partners which contrib-
ute to the inner workings of a Business Design and are important for a holistic CV fulfill-
ment. Co-operations must be mutually beneficial and could be of various types like simple
buyer-supplier relationship, alliances, as in the Japanese Keiretsu systems, or even JVs.
Co-operations often intend to realize economies of scale or getting access to complementary
resources and capabilities (Osterwalder and Pigneur 2010, p. 39; Feix 2017).
9. Cash Flow Model (CF) is the financial architecture of the Business Design which assures
value creation by delivering through CR and CH, based on the company’s CA and CC, a
defined CV to a specific CM. The value drivers of the CF could be decomposed in revenue,
cost, balance sheet and financial drivers. This extends the view of traditional business model
approaches, which focus foremost on revenue streams and cost structures (Gassmann et al.
2017). A more value-based view is essential within an M&A and synergy context. Revenue
drivers are foremost based on delivering an attractive CV to customer segments. They may
be built upon one-time payment transactions like single product sales or recurring revenues
like in the case of membership fees of Netflix, Amazon Prime or the likes. Alternative revenue
designs might be licensing models, brokerage fees, usage fees like telecommunication compa-
nies charging fees per call minute, or leasing and rental payments which depend on the length
of a product or service usage. Cost drivers are closely linked to the CAs, CCs and CPs. Their
relative importance is Business Design specific. Typical drivers are development costs, the
purchase or acquisition of CAs or from co-operation partners, the manufacturing of products
and services, and the delivery process through CH and CR activities. According to Porter’s
traditional competitive strategy approach, cost leadership may serve for some companies and
business models as an own source of competitive advantage, especially in case of economies
of scale or scope, while other companies might compete on value creation and differentiation
(Schallmo 2014) and therefore on revenue stream optimization. As the CAs are an important
part of the Business Design their financial implication, meaning the balance sheet—at least
for tangible assets -, is the third important part of the FCF drivers. As described in the CA
section, a shift from tangible to intangible, foremost off-balance assets is typical for many
Business Designs. The fourth and ultimate part are financial drivers with an impact on the cost
of capital or with tax implications. All four drivers are the key inputs for any valuation and the
synergies within an M&A framework.
10. Corporate Organization (CO) describes the regional, Strategic Business Unit (SBU),
headquarters and shared service structure of a company, its defined reporting & governance
principles, functional roles and responsibilities, as well as the management layers and respon-
sibilities. The blending, benchmarking and design of a joint organizational architecture, as
well as the definition of management responsibilities, might be one of the toughest parts of
integration processes.
The 10C Business Design is applicable for the Diagnostics of the Standalone Business
Design of the target company and the acquirer, as well as for the Blue-Print of a potential
Joint Business Design:
(Pre-transaction) Standalone Business Design Diagnostics

The first assessment of the target’s and the acquirer’s Business Design is achieved by a
brief description of the 10C Business Design elements and by evaluating each of them
with respect to their strength and weaknesses. This will provide the ingredients for the
blending of the two Business Designs to achieve a comprehensive overview of the to be
expected chances and risks of a potential transaction and integration.
Example
The rough principles of the Standalone Business Design Diagnostics are applied
in Fig. 2.23 on the USD 65 billion acquisition of US corporation Monsanto by its
German competitor Bayer. The starting point was a merger-endgame within the agro-
chemical industry. The merger of the US players Dow Chemical and DuPont and the
acquisition of the Swiss Syngenta Group by the Chines market-leader ChemCina built
up significant pressure on Bayer to assess a potential acquisition of Monsanto within
this global agrochemical M&A endgame.
Three mergers driving global

Compeve Strategy agrochemical merger-endgame:
+ Monsanto offers potenal for staying compeve in „global

agro-endgame“ due to economies of scale and cross-selling
• Dow & DuPont
• ChemCina & Syngenta
• Bayer & Monsanto
Coopera- Core Core Value Customer Customer

o-Partners Assets (Propo- Relaon & Markets
+
Consolidaon of
manufacturing Sion)
- + + +
footprint
Monsanto Monsanto Long term far- Access to US
brand reputaon product porolio mer relaonships farmers
+ Global
partnering with
Core
Capabilies
CHannels
+ Monsanto‘s
global reach
+ -
research
instuons and Strong sales Missing integra-
leading capabilies on of lobbying
universies
Cash Flow
+ Healthy opera-
ng margins + Efficient working
capital manag. - Pending legal
disputes
Corporate Organizaon
Fig. 2.23 Business Design Diagnostics based on the 10C Business Design: Bayer-Monsanto transaction
The Standalone Business Design profile of Monsanto provides a first idea about its
standalone strength and weaknesses within the global agrochemical market and as an
acquisition target.
The 10C Business Design profile highlights as well the potential strategic rational
of acquiring Monsanto’s capabilities in the global agrochemical endgame. Besides,
it makes it transparent that the number of potentially gained strengths of a Monsanto
acquisition is at first glance significantly higher than the number of weaknesses. But,
if even the degree of strengths and weaknesses would be evaluated, the potential sig-
nificant loss of the combination of pending legal disputes and potential customer dis-
trust by a negative impact on Monsanto’s brand reputation might outstrip the strengths
(Buck 2019). ◄
Joint Business Design Blueprint and Targeted Integration Approach

The detailed description of a target’s Standalone Business Design and the blending
with the acquirer’s pre-transaction Business Design provides a framework to identify
the potential fit of the two Standalone Business Designs and likely integration risks.
Furthermore, this assessment is an ideal starting point for the Blue-Print of a winning
Joint Business Design as shown in Fig. 2.24:
This Blueprint of the Joint Business Design could be stress-tested within the
Transaction Management, especially the Due Diligence, concerning applicability, robust-
ness and implementation hurdles. For the Integration Management, this JBD Blueprint
Standalone Business Design Joint Business Design (JBD)

Diagnoscs & Fit Assessment Blue Print
Acquirer‘s SBD
Buyer‘s
CS SBD
CA CR
Integraon Approach
CV CS
CP CC CH CM
Definion of CS Proof-of-
CF JBD CA CR Concept
CO CV
CP CC CH CM of JBD
CS
CF
CA CR CO
CV
CP CC CH CM Masterplan
CF
• Idenfying integraon risks within the Due Diligence
CO
Target‘s SBD • Test of plausibility and robustness of JBD in Due Diligence
• Definion of integraon tasks, projects, workstreams and
Integraon Scorecards
• Definion of meline and milestones
• Addressing and management of integraon risks
Fig. 2.24 Business Design fit and integration risks

serves as a first sketch and reference point for the final design. Based on the JBD all the
integration details, like the definition of integration tasks, projects, work-streams, score-
cards, timelines and milestones could be defined. Last not least, expected integration
risks could be addressed as well.
The transition of a Business Design is even more powerful if it goes hand-in-hand
with a structured Standalone Culture Design Diagnostics and Joint Culture Design
Blueprint:
2.6.2 Standalone Culture Design Diagnostics and Joint Culture

Design Blueprint
Many studies highlight, that culture differences or simply top-management negligence

of culture gaps within M&A processes are core hindrances of integration and M&A suc-
cess. For example, 95% of executives in a latest study of the management consulting
firm McKinsey described culture fit as critical element for integration success, but sur-
prisingly 25% see as well still missing culture alignment even as primary reason of inte-
gration failures (Engert et al. 2019, p. 2; compare as well PWC 2017; Lau et al. 2012).
The cultural differences between two organizations, its management teams and its
employees have to be addressed from the very beginning of an M&A project onwards in
order to capture the value of the deal, to retain talent, and to avoid culture clashes during
the integration which might endanger M&A success. A Culture Design that supports the
necessary culture transition and change while capturing the companies’ intended syner-
gies and deal rational is for any transaction a mission-critical ingredient. The manage-
ment of a detailed cultural integration process might be of paramount concern especially
in case of cross-border transactions, where besides gaps in corporate culture values addi-
tionally regional culture differences have to be addressed. Nowadays, the acquisition of
start-up businesses with their entrepreneurial spirit by multibillion incumbents with a
more mature, traditional and often process minded culture is another showcase, where
cultural integration issues might decide on a successful transaction or failure.
A systematic assessment of culture differences and a smooth transition to the
intended joint culture within the integration process is, therefore, an integral part of the
E2E M&A Process Design. Nevertheless, cultural integration might be even more chal-
lenging than building a Joint Business Design or deliver on synergy capture, as culture
and cultural context have a highly tacit touchpoint. This makes cultural change hard to
measure, but this is nevertheless mandatory for navigating the transition to a joint value
architecture.
Multiple definitions of the term culture and specifically corporate culture exist for
decades (Krober et al. 1952).16 Therefore, as a starting point, a consistent understanding
of the term “culture” has to be framed. In a first, very general definition culture might be
understood as a set of values, norms, traditions, mind-sets, and patterns which influence
our thoughts and behavior, as well as the way how we interact with other humans and
our social environment. Culture is important due to multiple reasons. It reduces uncer-
tainty, provides guidance on how to decide and act in untested situations, it creates iden-
tity and has as well a substantial impact on how groups interact to deliver on given tasks.
Based on this broad definition of the term culture, corporate culture describes the inter-
action of humans within an organization and with the latter’s ecosystem. It is closely
related to the norms, the corporate values, the management style, the broadly accepted
behavioural patterns and the symbols within an organization. A healthy culture enables a
company to deliver on its overarching strategy. Corporate culture should be understood
in the following as a bread of regional, corporate and management style specific val-
ues, norms, believes and attributes that guide management and employee decisions as
well as behaviors within a given organization. Besides, it frames and navigates the com-
pany’s interactions with its ecosystem.
One of the very first definitions described corporate culture as “the pattern of basic
assumptions that a given group has invented, discovered, or developed in learning to
cope with problems of external adoptions and internal integration, and that have worked
well enough to be considered valid, therefore, to be taught to new members as the cor-
rect way to perceive, think, and feel in relation to those problems (Schein 1984, p. 3).
“Corporate culture is a collective phenomenon as its members have a set of common
values and share joint beliefs and patterns of orientation. It influences the organiza-
tion’s employee and management thinking, perceptions and emotions. Therefore, corpo-
rate culture acts as a filter which interprets information and categorises them in good
or bad. Furthermore, corporate culture is based on experience and therefore is learned.
It is developed and shaped by routines within the company which have been success-
fully applied to achieve corporate targets. Especially these latter characteristics of culture
could be used for the culture transition within integration processes.
Also, corporate cultures are created by the interaction of the company, meaning its
management team and its employees with the company’s internal environment and exter-
nal ecosystem. Corporate culture is internalized by the employees and the management
16Kroeber et al. developed a very distinguished understanding of culture in their early landmark
paper from 1952 as in their understanding “culture consists of patterns, explicit and implicit, of
and for behavior acquired and transmitted by symbols, constituting the distinctive achievements of
human groups, including their embodiments and artefacts; the essential core of culture consists of
traditional (i.e. historically derived and selected) ideas and especially their attached values; culture
systems may, on the one hand, be considered as products of action, and on the other as condition-
ing elements of further action (Kroeber et al. 1952).”
Strategy
Corporate
values, believes, Business
Society norms Design
CORPORATE
CULTURE
Management
Compeve Regional culture
style: tone-of-
& co-ope- embeddedness Management
the top
rave eco- & employees
system
Capabilies
Fig. 2.25 Corporate Culture core and context
in a process of socialization. In so far, corporate cultures are embedded and could only
be understood as well as defined within a broader, holistic framework (Fig 2.25).
Corporate culture was defined by the company’s specific values, norms, mindsets,
practices and behaviours of its management team and employees. A specific company
culture is always intertwined with its vision, mission, strategy, Business Design and
organizational structure. Besides, if corporate culture is the malaria, the company’s man-
agement team, its employees, especially their actions as well as their backgrounds and
capabilities, are the mosquito carrier. Therefore, management teams, employees and their
values and behave-ours are not only the architects but as well the visible outcomes of any
culture change.
But not just those internal factors are closely linked to the corporate culture, also
external factors like the competitive environment, the wider ecosystem of the com-
pany and even the society in which the company is embedded have a significant culture
impact.
To get a grip around culture complexity, most culture definitions start with the dif-
ferent layers of culture. The so-called iceberg definition separates between the artifacts,
which are the visible culture components, like the design of corporate headquarters,
applied technologies or the way how management meetings are run, and the two more
invisible levels of norms and values, like the definitions of success or the risk appetite,
and of basic beliefs, which define the core of the company culture (Schein 1984; Schein
and Schein 2018).17 Artifacts could easily be perceived, but could only be interpreted by
17Compare also the onion model of Hofstede (Hofstede 2011).

an assessment of the deeper routed levels of corporate cultures. Artifacts are the tangi-
ble symbols of culture, like mission statements on posters, or the statues associated with
top management offices, company cars or corporate headquarters. Besides, they cover
intangible forms, like management attitudes within board-meetings or simply the mas-
sages implicitly included in the walk-and-talk, whereby those intangible forms might be
even more powerful in influencing and forming the corporate culture than tangible ones
(Kennedy and Moore 2003; DePamphilis 2015, p. 227).
Corporate values, as a bridge between the materialized elements of organizational cul-
tures as well as the basic beliefs, are only partially visible. Values are created over time
and guide individual behaviours. Basic beliefs are created by routines and learning loops
of successful solutions (Schein and Schein 2018). The pattern of solution is thereby par-
tially based on intentional and unintentional values. A continuous confirmation of values
transforms them into beliefs, which are long-term and deeply organizational ingrained
opinions of the environment, the company and employee behaviours.
Another important separation is between strong and weak corporate cultures, whereby
strong and weak have no normative meaning, as a strong culture could impact a com-
pany positively or negatively. Strong cultures are characterized by clear and dominant
attitudes and values, which are accepted and followed by the management team and
most employees. Strong cultures provide organizations with stability and orientation.
This might reduce uncertainty and misinterpretations due to the homogeneous pref-
erence system in decision-making processes. Further, a strong culture might support a
consistent execution of the corporate strategy and foster the motivation of the employ-
ees due to a joint pattern of behaviours, consistent values and a broad acceptance of
joint beliefs. Nevertheless, a strong culture could also lead, especially during times of
change like in integration processes, to hindrances or delays in necessary adjustments
and re-organisations. This is especially the case if the new Culture Design is inconsistent
with the so far established and accepted norms and values of the company. On the other
side, weaker cultures, like in the case of many start-up companies, might have the advan-
tage to foresee changes in their ecosystem at an early stage and by being more open-
minded to rapidly adjust the own Business and Culture Design.
Given this complexity and interdependencies of corporate cultures, three interde-
pendent layers might be defined which summarize together a consistent corporate cul-
ture, as shown in Fig. 2.26. The three layers are defined as:18
– the corporate value footprint

– the management style described as tone-on-the-top and
– the regional culture embeddedness
18Carleton and Lineberry (2004, 20–22) as well as Rootig et al. (Rottig et al. 2017) sperate the
national from organizational culture footprints.

Corporate value footprint

1 • Ecosystem (customer) oriented vs. inward centric
• Entrepreneurial, innovaon spirit vs. process
excellence
• Agile vs long-term orientaon
• Diversity vs “one company” spirit
• Team oriented vs. individualisc
• Indirect, diplomac vs. direct communicaon
Corporate
Culture
3 2
Regional culture embeddedness Management style t-o-t-t

• Delegaon vs. control leadership style
• Low vs. high power distance
• Team vs. top-down decision making
• Individualism vs. collecvism
• Fostering creavity vs. structured thinking
• Masculinity vs. Femininity
• Fast soluon vs. excellence driven
• High vs. low uncertainty avoidance
• Risk taking vs. risk avoidance
• Long term vs. short term orientaon
• Target vs. operaonal driven
Fig. 2.26 Corporate Culture: Corporate values, management style and regional culture embeddedness
The management style is an integral part of the corporate culture and values, but as the
“tone-on-the-top” has a decisive impact on values and behaviors, the management style is
seen here as a separate layer. Each of those culture layers could be described and specified
by a characteristic set of drivers. To get on the one side a detailed pattern of a specific cor-
porate culture, and on the other side to be able to identify culture gaps between two com-
panies, each of those drivers should be supplemented by antipodes, meaning contradicting
extremes, and a suitable scaling. For example, for the layer “management style” the criteria
“leadership attitude” could be characterized by the antipodes of “full delegation versus con-
trol attitude”. Which kind of drivers are counted as characteristic for a culture pattern is still
an open debate and it is not the intent of the following to find an ultimate culture framework.
Therefore, the following suggested structure shows one possible approach, but obviously not
the only sensible one. The target of this framework is to make culture transition from two
independent Standalone Cultures to on joint high-performance culture a seamless journey:
The corporate value footprint might be described by the following set of character-
istic drivers and their pairing of antipodes:19
– Centricity: Ecosystem (e.g. customer) oriented versus inward (e.g. efficiency) centric
– Spirit: Entrepreneurial, innovation spirit versus process excellence
19Compare with the criteria in the models of Hofstede (2011); Cartwright and Cooper (2014).
– Mindset: Agility driven versus long-term, strategy driven

– Diversity: highly diverse versus “one company” (paternalistic) spirit
– Group values: Team oriented (sharing culture) versus individualistic (competitive)
– Communication: Indirect, diplomatic, non-hierarchical versus direct and hierarchical
The supplementing management style (tone-of-the-top) could be described by a further

set of specific drivers and antipodes:20
– Leadership attitude: Delegation, decentralized versus control, centralized

– Decision making and accountability: Team/collectively versus top-down/individually
– Corporate spirit: Fostering creativity versus structured thinking
– Working principle: Fast solution versus excellence driven
– Risk tolerance: Risk-taking versus risk avoidance
– Achievement drivers: Target versus operational driven
Last not least, the regional culture embeddedness might culminate in the following cri-
teria, which are based on Hofstede’s breakthrough work on regional and national culture
differences (Hofstede 2011):
– Power distance: Low versus high. Power distance describes on the one side in how
far members of a society accept inequalities. Low power distance means that hierar-
chies are not important and members of a society will interact on the same level. High
power distance societies accept authoritarian behaviors, even if those limit their own
development possibilities.
– Social “contract”: Individualism, loosely-knit versus collectivism, tightly-knit. The
social contract describes the relationship of humans to their environment and soci-
ety. Collectivism means that the core value of a society is to be part of a group in the
sense of a large family and group interests are perceived as more important than indi-
vidual interests and vice versa for individualistic societies.
– Co-opetition: Masculinity, competitive versus femininity, cooperative. A masculine
society is performance oriented and gender is strictly separated, whereas in feminine
cultures social behaviors dominate and tolerance and cooperation play a much more
important role than gender and competitive behavior.
– Uncertainty avoidance: High versus low. Uncertainty avoidance describes how far
members of a society try to avoid risky and unknown situations. In societies with high
uncertainty avoidance rules and regulations will dominate to limit uncertainties of
day-to-day situations, whereas low uncertainty avoidance societies accept uncertain-
ties. The latter might use time in a relative sense, meaning punctuality might not be an
important criterium.
20For the impact of managerial behavior in integration projects compare also Creasy et al. (2010).
1 Corporate value 2 Regional culture 3 Management

footprint embeddedness Style t-o-t-t
Centricity Power distance Leadership atude

Ecosystem Inward Low High Delegaon 1 2 3 4 5 6 7 Control
1 2 3 4 5 6 7 1 2 3 4 5 6 7
centric centric
Spirit Group Decision making

Entre- Process Indivi- Top-
1 2 3 4 5 6 7 Collecvism 1 2 3 4 5 6 7 Team 1 2 3 4 5 6 7
preneurial excellence dualism down
Midset Uncertainty avoidance Corporate Spirit

Agility Structure
1 2 3 4 5 6 7 Long-term High 1 2 3 4 5 6 7 Low Creavity 1 2 3 4 5 6 7
focus focus thinking
Diversity Gender Working principle

Highly One Mascu- Fast
1 2 3 4 5 6 7 Femininity 1 2 3 4 5 6 7 1 2 3 4 5 6 7 Excellence
diverse company linity soluon
Group values Orientaon Risk tolerance

Individu- Risk Risk
Team 1 2 3 4 5 6 7 Longterm 1 2 3 4 5 6 7 Shorerm 1 2 3 4 5 6 7
alisc taking avoidance
Communicaon Driver for decisions

Target Opera-
Diplomac 1 2 3 4 5 6 7 Direct 1 2 3 4 5 6 7 onal
driven
Fig. 2.27 Culture Design Map: Drivers and measures for Corporate Culture Diagnostics
– Normative orientation: Long term versus short term orientation: The normative orienta-
tion assesses the role of the future, the present and the past for culture. Long term orien-
tation in this understanding is an orientation towards the future and values like austerity
or persistence might dominate. In a short-term normative pattern, the past and present
play a more important role and traditions are of major importance (Fig. 2.27).
For a more detailed view of culture patterns, each antipode of the corporate culture lay-
ers is measured by a standardized grading system. The granularity of the culture assess-
ment could be even increased by defining a second layer of sub-criteria for each of the
top-criteria.21 E.g., the first pairing of the management style “delegation vs control ori-
entation of the leadership style” might be assessed with measurable sub-criteria like how
centralized or decentralized an organization is designed or how decision processes are
structured.
Corporate Culture Diagnostics at Work: A Digital Start-up Culture Pattern

Each culture pattern of a digital start-up business is somehow unique. Nevertheless, a
couple of common grounds exist, as most of them are empowered by developing and
scaling technical capabilities within an entrepreneurial ecosystem, having a more infor-
mal working environment and loosely defined job-profiles and career paths. A digital
21This deep-grained corporate Culture Design approach with a 2 level structure will be assessed in
an international benchmark and research project in 2020.

culture reputation is also a driver for the acquisition and retention of critical, especially
digital talent due to its promise of a collaborative and creative working environment.
The management style and decision-making process are foremost highly informal, and
compensation most likely based on performance-based measures, like, for example,
stock options or even intangible values. Status symbols, like large individual offices or
company cars, are on the other side untypical (DePamphilis 2015, p. 227).
The following might just be a short-cut of criteria of a typical digital start-up
Culture Design:22
– Centricity: Typically, digital native cultures are more outward, ecosystem centric,
meaning that they take customers and ecosystem-partners to the center position for
the development, manufacturing and delivery of customer solutions.
– Group values: Start-up value system put collaboration and team efforts in most
instances on top and not individual stardom. Digital cultures are strongly team
based and interactive.
– Spirit: Digital cultures encourage boldness and entrepreneurship over perfection-
ism. A trial and error attitude combined with a fast learning and scaling approach
applying sprint-based processes is foremost the preferred innovation attitude.
Taking a risk to achieve the intended goal is accepted, status-quo and old habits
neglectable.
– Leadership attitude: Digital native management teams use in most instances a
more on
delegation based mindset then control, fostering participation and identification.
– Working principle: Fast action and scaling is more important than detailed plan-
ning, as digital cultures promote speed, multiple track trials, scrum approaches and
continuous iterations with feedback loops.
– Decision drivers: Digital teams intend to achieve results and are committed to
their work and the company’s purpose and strategy. Insofar, they are clearly target
driven.
Applying the multiple criteria Culture Design footprint based on the three culture lay-
ers might provide a typical, but not tailored Culture Design Map (CDM) for digital
start-up businesses (Fig. 2.28) ◄
22Compare Ahern et al. (2019) and the manifesto for agile software development.


1 2 3 4 5 6 7 1 2 3 4 5 6 7
centric centric

1 2 3 4 5 6 7 Collecvism 1 2 3 4 5 6 7 Team 1 2 3 4 5 6 7

Agility Structure


Individu- Risk Risk

Target Opera-
driven
Fig. 2.28 Typical pattern of a start-up Standalone Culture Design Map (CDM)
SCD Diagnoscs
Blending of the Standalone
Cultures Designs (SCDs) and
culture gap assessment
JCD scaling JCD Blueprint

Joint Definion of the intended
Measure JCD transion and
implementaon success and
Culture Joint Culture Design (JCD) as
foster winning culture values Design new value architecture
JCD transion
Transion of Standalone
Cultures Designs (SCDs) to
new intended Joint Culture
Design (JCD)
Fig. 2.29 Standalone Culture Design (SCD) Diagnostics, Joint Culture Design (JCD) Blueprint and
Transition
Given this corporate culture understanding, the four milestones for the transition to an
intended Joint Culture Design could be defined (Fig. 2.29):
The starting point in designing a new corporate culture is a detailed Culture Design
Diagnostic, being defined as an assessment of the pre-transaction Standalone Culture
Designs (SCD) of the target and the buyer, by evaluating the three layers of the corpo-
rate culture in detail. For the assessment of the SCDs a set of advanced diagnostic tools
like management and employee interviews, one-on-one deep dives, surveys, question-
naires, focus groups or management style observations, and external data, like bench-
marks, reports or web-based information23, might be used. A broad set of tools should
be applied to get a broad culture understanding, as social-media-based assessments or
surveys might offer a broad, but therefore not so detailed culture understanding, whereas
in-depth or one-by-one interviews might offer deep, but maybe not fully representative
culture insights. Especially the deeper grounded cultural criteria like values and basic
beliefs could only be fully understood by in-depth interviews of the management or
focus groups. Therefore, Culture Diagnostics is an iterative process along which a more
and more detailed culture understanding should be gathered. Based on this in-depth
culture understanding of the SCDs their similarities and differences can be analyzed
by a structured Culture Gap assessment (Siegenthaler 2009, pp. 147–149; Carleton and
Lineberry 2004, pp. 53–60).
In a second step, and in close alignment with the SCD Diagnostics and the Culture
Gap assessment the targeted new Joint Culture Design (JCD), framing and codifying the
intended values, principles, believes and norms for the new joint company is derived.
Comparing the intended JCD with the given SCDs highlights the necessary culture tran-
sition and the most likely culture assimilation challenges. Implicitly, this also defines the
degree of the culture transition of the target’s and the acquirer’s culture footprint (accul-
turation process). The chosen degree of culture transition has to balance the necessary
partial preservation of the target’s and acquirer’s culture with the necessary need for
alignment in the sense of a joint value mindset.
If those culture footprints are combined with existing culture typologies and theories,
an even more powerful culture understanding and crafting of a Joint Culture Design is
possible. An older culture typology from Deal and Kennedy (Deal and Kennedy 1989)
is a two-dimensional approach, using on the one side the risk attitude of the company’s
market and on the other side the speed between corporate action and market response.
This approach could be smoothly linked to a couple of the discussed cultural assess-
ment criteria. The bet-your-company culture is characterized by high-risk attitude, but
slow response time of the market. Decisions are well-thought, the investment focus is
long-term, and the product focuses on high-quality, innovative solutions. The process
culture describes a combination of low risk and slow response time, which might be
characteristic for a couple of traditional industries and incumbent’s Business and Culture
Designs. Formalities and process standards are common. The tough-guy culture and the
work hard/play hard culture are based on a fast market response and short-term success,
where the first is exposed to higher risk and is driven by individualism, whereas the latter
being exposed to lower risk attitude and a belief that persistence and endurance are the
success formula.
23For SCD Diagnostics websites as LinkedIn.com, Xing.com or Glassdoor.com might provide, at
least a partial, insider perspectives on a company’s corporate culture.

Culture Integration Approaches: The model of Nahavandi and Malekzadeh

One of the first culture integration concepts was the acculturation matrix of Nahavandi
and Malekzadeh (Nahavandi and Melekzadeh 1988), which applies two dimensions, the
relationship between the acquirer and the target and the degree of culture preservation of
the target, thereby defining four typical acculturation patterns (Fig. 2.30)
The integration and assimilation approach are characterized in the Nahavandi and
Malekzadeh model by a positive relationship between the acquirer and the target, which
might be the case in a merger or friendly takeover situation. The difference is that in
case of an integration approach the acquirer’s and the target’s Culture Designs will
have a more or less balanced impact on the Joint Culture Design and the target’s culture
will be partially preserved, whereas in the assimilation approach the target will accept
and implement most of the culture elements of the buyer, thereby giving up its own
pre-transaction specific culture identity. Not surprisingly, the integration approach is in
case of a merger the more suitable Joint Culture Design approach.
Segregation and deculturation are on the other side exposed to a deteriorated relation-
ship between the acquirer and the target, e.g. due to an unfriendly takeover attempt of the
acquirer. In case of segregation, additionally, the integration of the stand-alone cultures
is not realized, therefore leading also in the post-transaction phase to a m ulti-culture
footprint. The degree of integration might be limited here to a pure financial integra-
tion. Within the deculturation, neither an intense implementation of the acquirer’s
good
Buyer-target relaonship
Integraon Assimilaon
Segregaon Deculturaon
bad
high low
Degree of culture preservaon
Fig. 2.30 Culture integration model of Nahavandi and Melekzadeh (1988)
culture mindset is achieved, nor the target’s employees perceive their own culture as
well-performing, which leads to a deculturation. But due to the missing culture under-
standing, these two latter approaches are exposed to a significant failure rate with respect
to the culture integration within a transaction.
Culture Integration Approaches: The model of Olie

Olie’s model of cultural integration is based on the approach of Nahavandi &
Malekzadeh, but separates between a merger or an acquisition environment and inte-
grates three layers by adding a regional culture perspective (Olie 1990). The three layers
used by Olie are:
• the integration intensity,

• the way or power distance within the cultural integration, and
• the attractiveness of the own and the foreign culture.
If the integration intensity is low, the focus of integration will be more or less limited on
financial systems, and high, if an overall integration of the Business Design is intended
and therefore significant cultural changes for the employees on the acquirer and the tar-
get side are to be expected. According to Olie, with the intensity of integration also the
resistance to change might increase. The way of cultural integration and change distin-
guishing between co-operation, which is a balanced approach, and dominance, where
there might be a significant power distance between the acquirer and the target. The
attractiveness of their own and the partners’ regional culture is seen from the perspective
of the acquirer and the target.
Based on the intensity and the power distance of integration Olie described four typi-
cal integration patterns, which he called initial configurations (Olie 1990; Fig. 2.31):
– Portfolio acquisitions are described by a low integration intensity and a balanced

power of the acquirer and target. Culture disruptions are minimal, as the acquirer’s
integration efforts are low and are based on a co-operative style.
– Redesign acquisitions have as well a low integration intensity but a strong power dis-
tance. The acquirer as the dominating party has a significant influence on the target, in an
extreme case exchanging the target’s management team before the integration even starts.
– In case of absorption acquisition, the intensity of integration as well as the power dis-
tance is high and the driver is most likely significant intended synergies. This might
be often the case in horizontal acquisitions.
– Last not least, the merger case is characterized by a high integration intensity with
low power distance by combining two strong companies. The potential of culture
clashes is high as two strong culture patterns are merged. The solution might be the
design of a third, “one company” culture, but demands adjustments on both strong
SCDs and an acceptance of change.
Buyer External impacts Target

• Moves • Industry structure • Moves
• Expectaons • Market condions • Expectaons
• Bargaining power • Legal restricons • Bargaining power
• Aracvity of partner • Polics • Aracvity of partner
• Keeping own identy • Socio-polical framework • Keeping own identy
Co-operaon
Porolio acquision
Powerdistance
Merger
Redesign acquision Absorpon acquision
Dominang
low high
Degree of integraon
Fig. 2.31 Culture integration models (initial configurations) of Olie (1990)
A more detailed, tailored, and transaction specific culture integration approach for the
transition to the intended Joint Culture Design is feasible by applying the three culture
layers, the corporate culture value system, the management style and the regional culture
embeddedness. The first advantage is, that this culture understanding and definition are
based on multiple criteria. Second, it enables a detailed and consistent comparison of the
acquirer’s and the target’s culture pattern. By mapping the two SCDs, the detection of
potential culture gaps is possible and could be addressed at an early stage. Additionally,
it makes it more transparent that in today’s highly dynamic ecosystems also on the
acquirer’s side there might be certain needs to adjust the own SCD for achieving a win-
ning JCD. Last not least, the most suitable JCD pattern could be applied to design a
tailor-made culture integration approach and transition. Such a tailored, transaction spe-
cific approach has to answer questions like:
– In line with the JBD approach, should there be a cultural alignment between the tar-
get and the acquirer or should the stand-alone cultures more or less be retained?
– Should the target’s SCD be adjusted to the buyer’s SCD or should there be a blending
of the two SCDs in the sense of a best-of-both, new “one” company approach?
– Which parts of the culture footprint should be aligned, and which ones not, meaning
keeping culture value independence?
– What could be a suitable joint value and culture footprint in the sense of a truly Joint
Culture Design? (Fig. 2.32)
Culture Integraon Approaches
Keep Standalone Culture Designs Tailored Culture Design Transion Transion to Joint Culture Design
1 2 3 1 2 3 1 2 3
Corporate value Regional culture Management Corporate value Regional culture Management Corporate value Regional culture Management
footprint Embeddedness style footprint Embeddedness style footprint Embeddedness style
Leadership Leadership Leadership

Centricity Power distance atude Centricity Power distance atude Centricity Power distance atude
1 2 3 4 5 6 7 1 2 3 4 5 6 7 1 2 3 4 5 6 7 1 2 3 4 5 6 7 1 2 3 4 5 6 7 1 2 3 4 5 6 7 1 2 3 4 5 6 7 1 2 3 4 5 6 7 1 2 3 4 5 6 7
Spirit Group Decision making Spirit Group Decision making Spirit Group Decision making
1 2 3 4 5 6 1 2 3 4 5 6 7 1 2 3 4 5 6 7 1 2 3 4 5 6 1 2 3 4 5 6 7 1 2 3 4 5 6 7 1 2 3 4 5 6 1 2 3 4 5 6 7 1 2 3 4 5 6 7
Midset Midset Uncertainty Corporate Spirit Midset Uncertainty Corporate Spirit

Uncertainty Corporate Spirit
1 2 3 4 5 6 7 1 2 3 4 5 6 7 1 2 3 4 5 6 7 1 avoidance
2 3 4 5 6 7 1 2 3 4 5 6 7 1 2 3 4 5 6 7 1 avoidance
2 3 4 5 6 7 1 2 3 4 5 6 7
1 avoidance
2 3 4 5 6 7
Diversity Working principle Diversity Gender Working principle Diversity Gender Working principle
Gender
1 2 3 4 5 6 1 2 3 4 5 6 7 1 2 3 4 5 6 7 1 2 3 4 5 6 1 2 3 4 5 6 7 1 2 3 4 5 6 7 1 2 3 4 5 6 1 2 3 4 5 6 7 1 2 3 4 5 6 7
Risk tolerance Group values Orientaon Risk tolerance Group values Orientaon Risk tolerance
Group values Orientaon
1 2 3 4 5 6 7 1 2 3 4 5 6 7 1 2 3 4 5 6 7 1 2 3 4 5 6 7 1 2 3 4 5 6 7 1 2 3 4 5 6 7 1 2 3 4 5 6 7 1 2 3 4 5 6 7
1 2 3 4 5 6 7
Driver for Driver for Driver for
Communicaon decisions Communicaon decisions Communicaon decisions
1 2 3 4 5 6 7 1 2 3 4 5 6 7 1 2 3 4 5 6 7 1 2 3 4 5 6 7 1 2 3 4 5 6 7
1 2 3 4 5 6 7
Target SCD Best-of-Both JCD

Transion to (one new
Buyer’s SCD company)
Culture Diagnoscs during Due Diligence
Test of intended Joint Culture Design (JCD) with

respect to feasibility, applicability and robustness
Fig. 2.32 Culture integration decision tree and Joint Culture Design (JCD) approaches
Technically, the Joint Business Design is developed in three steps: The first step is to
map the two SCDs in one graph, in a second step the culture gaps between those SCDs
are assessed and in the last, the third step, the JCD Map is defined along the questions of
the culture integration decision tree and the Culture Design criteria. This involves deci-
sions which characteristics of the acquirer’s and the target’s cultural pattern to integrate
and which ones to leave untouched, to avoid or limit culture clash. By comparing the
SCDs with the intended JCD the necessary culture transition for both companies could
be derived and initiated.
Assessing Culture Gaps and Defining the Joint Culture Design (JCD) Blueprint
Not only the differences in size, complexity and regional origin of the acquirer and
target, but as well the maturity of the two companies might have a decisive influence
on cultural patterns. For example, in case of a start-up acquisition by an incumbent,
as a starting point for the SCD Diagnostics, the before described pattern of a typical
start-up Culture Design Map could be used, where the incumbent culture pattern is
added. The latter might be characterized briefly by a more structured organization,
clearly defined top-down decision-making processes and job profiles, traditional com-
pensation benefits and a process excellence mindset throughout the organization.
In the below SCD Map the grey line in Fig. 2.33 might indicate the culture pat-
tern of a start-up business. Additionally, the pattern of the acquirer, which should
be the incumbent within a traditional industry in another country, is depicted in

1 2 3 4 5 6 7 1 2 3 4 5 6 7
centric centric

1 2 3 4 5 6 7 Collecvism 1 2 3 4 5 6 7 Team 1 2 3 4 5 6 7

Agility Structure


Individu- Risk Risk

Target Opera-
driven
Start-up Culture Map Incumbent Culture Map JCD Map
Fig. 2.33 Standalone Culture Design (SCD) Map of start-up and incumbent and JCD Map
black. The comparison of the two SCD lines provides a detailed culture gap assess-
ment and shows significant culture differences. Based on this understanding of the
pre-transaction SCD footprints and the culture gap, the intended JCD and culture
integration strategy is defined by the dotted line. A set of common values and goals
combined with the jointly defined vision might be highly supportive of the transition
to the new JCD and the overall integration process. The gaps between the SCD and
the JCD patterns describe the necessary culture transition, which has to be addressed
within the Integration Management in the culture transition program:
The comparison of the different Culture Maps provides multiple insights: The stand-
alone cultures of the two companies seem to be quite contradictory, which might be
not astonishing given a start-up and an incumbent position. A One Culture integration
strategy could be indicated by the dotted line. This JCD footprint might be the out-
come where the incumbent tries to innovate also his corporate culture by the transaction
and to become more agile and innovation-driven. The challenging side of the strategy
would be the necessary, quite significant culture change which is indicated by the dis-
tance between the SCDs and the JCD Maps. This highlights that also the acquirer has to
adjust significantly the own culture footprint. If the cultural differences are perceived as
to be too significant to form one unified JCD an alternative approach would be to focus
the culture alignment on a very selective joint cultural value set, but keeping foremost
the SCDs at the target and incumbent. This approach has to be aligned with the over-
all Integration and the Synergy Management, as in this case, a loosely-knit integration
might be the most suitable match. ◄
These so far discussed steps for the definition of a JCD could be Frontloaded already
into the Embedded M&A Strategy module. The first SCD Diagnostics, based on CD sur-
veys, selected interviews and focus groups, and the Blueprint for the intended JCD could
then be back-tested on plausibility, applicability, and potential implementation risks
within the Due Diligence.
The transition to the new JCD should be based on a detailed culture-transition program
which reinforces the intended values, norms and behaviors, besides fostering engagement
and momentum. A successful culture transition depends on a smooth execution of the
culture transition, an open communication on the new joint values, a structured approach
to bridge existing culture gaps, as well as on the consistent measurement of the culture
change by applying e.g. pulse checks and interviews. In the last, fourth step, the imple-
mented JCD might be reassessed and leveraged for the post integration period.
A more granular culture transition process, which covers as well the individual work-
flows, is described in Fig. 2.34, whereas sub-processes three and four will be discussed
in much more detail within Chap. 4:
For a successful culture transition, a sensitive change program which balances the
“new” values of the joint company with the preservation of potentially desirable cul-
tural differences is a challenging task. This can be seen in the before discussed case
of a multibillion incumbent which tries to innovate its business model by acquiring a
start-up business, but failing to keep the entrepreneurial spirit and momentum once the
SCD Diagnoscs & Gap Joint Culture Design Transion to “New” Scaling of
Assessment (JCD) Blueprint JCD JCD
Mapping of SCDs of buyer Definion of consistent Transion to JCD by

Leverage JCD beyond
and target on 3 levels: set of core values and culture transion program integraon process by
• Regional value norms for JCD • Balancing joint value • Measuring culture
embeddedness architecture with… change
Blending culture context,
• Corporate value system • preservaon of desirable • Reassessing JCD
• Management style
especially with integraon
culture differences • Adjusng JCD for the
during M&A Strategy phase vision, mission, approach
long-run
and intended synergies Definion of culture
Assessing values, norms, transion program: change Fostering core values on
Test JCD Blue Print within
believes and their roots champions, test runs, and all organizaonal levels
DD on applicability, sequenced rollouts and
Mapping the culture gap: plausibility, robustness workshops
similaries vs. differences
Idenficaon of necessary Top-management
between the SCD Maps
culture change program iniaves to fosters JCD
Culture Due Diligence with and potenal culture
Measuring culture change
• external view on target clashes and mirror with
• Internal assessment
(pulse checks, interviews)
integraon approach
Intent
Create holisc, consistent, powerful Joint Culture Design with clear set of joint core values
Align new JCD with reason why of acquision and core synergies
Avoid culture clash and keep core capabilies and talent ”on-board”
Fig. 2.34 Process model and milestones for the transition to the Joint Culture Design
2.7 Embedded M&A Strategy for Digital Targets 99
integration of the startup within the incumbent’s complex organizational layers starts.
For the transition to the new JCD Chap. 4 will provide more details.
Last no least, the most important targets for the overall culture integration are
summarized:
– To create a holistic, consistent and powerful new Joint Culture Design with a focused
set of joint core values
– To address the necessary culture transition by identifying the SCD Maps and the
pre-transaction culture gap
– To align and blend the new JCD with the transaction rational and the targeted
synergies
– To avoid culture clashes and to keep core capabilities and talent on-board
2.7 Embedded M&A Strategy for Digital Targets
The strategic rational of transactions involving digital targets is foremost based on get-
ting access to mission-critical digital capabilities, to innovate the own Business Design
or to ride blue oceans by creating new markets due to the identification and exploitation
of white spots by the target’s and the acquirer’s joint capability mix.
This unique pattern demands a tailor-made E2E M&A Process Design for digital tar-
gets. It starts in the M&A Strategy phase with the assessment of the future ecosystem,
especially market and technology trends, and the identification of attractive white spots.
Digital targets and Business Designs lack in most cases historical evidence and their
likelihood of success is hard to predict. Additionally, their true competitive advantage is
foremost built on intangible assets like IP rights, patents, know-how, platforms or brands,
which are much harder to evaluate than tangible assets. Therefore, the precise definition
of the intended digital competitive advantage and capabilities is of paramount impor-
tance before kicking-off digital M&As. Especially for digital targets the discussion of the
appropriate growth strategy within the BMI-Matrix is another important task, as incubat-
ing and accelerators offer attractive alternatives. The latter, combined with a loose-knit
Integration Approach, might find the right balance for the JBD and JCD between align-
ment needs and necessary target autonomy to maintain the entrepreneurial start-up spirit
and to keep critical digital talent on board (Fig. 2.35).
Especially in case of an acquisition of a digital target by an industrial incumbent, the
sketch of the JBD and JCD between a successful, but maybe out-aged acquirer driven
by process excellence and an entrepreneurial driven, but not jet fully established start-up
have to be addressed early on.
The synergies of such transactions are in most cases revenue and capability driven
and demand the scaling of the new Business Designs. This is in stark contrast to the
traditional cost synergy driven consolidation plays and traditional M&A literature.
An in-depth assessment, verification—by a detailed Due Diligence, as addressed in
The End-to-End M&A Process Design for Digital Business Designs

• Ecosystem Scan with focus on: • Valuaon and (F)DD addressing the unique FCF • Tailored Integraon with balance of
− Digital disrupve technologies paern of digital BDs: − Leveraging defined parenng
(IP scan and VC investment flow) − High growth rates, but risky and volale FCFs advantage to scale targets SBD
− Use-cases: White spots detecon − Foremost B/S light BDs, therefore focus on P&L − Sustaining targets standalone
• Embedded M&A Strategy: Idenficaon − JBD & synergy model based on revenue scaling momentum and BD success factors
and assessment of future digital compe- • Applying advanced DCF methods • Retain and develop crical talent
teve advantage and capability needs − DCF scenarios and simulaons (Monte Carlo) • Implement necessary compliance
• BMI-Matrix for tailored growth strategy − Reverse DCF and VC valuaon for back-tesng • Scale targeted culture transion
• Integra on Approach JBD & JCD Blue Print • Verificaon of Integraon Approach • Back-Track integraon progress
• Fit Diamond focus on digital targets and − SBD Blending and JBD Proof-of-Concept
capabilies − SCD Blending and JCD Proof-of-Concept
• Iden fica on of digital synergy levers • Back-tes ng Synergy Scaling Approach • Rapid scaling of target’s SBD
• Paren ng advantages to scale target SBD • Back-tes ng paren ng model • Focused implementa on of
• Revitalize buyer’s SBD by target capabili es • Synergy-valua on Blending (revenue) Synergy Scaling Approach
• Tailored Synergy Scaling Approach defini on
Digital M&A playbook
Fig. 2.35 Tailored E2E M&A Process Design for digital transactions: Embedded M&A Strategy
Chap. 3—and thorough implementation and tracking of capability- and revenue-based

synergies—as addressed in Chap. 4—is therefore mandatory. This might be especially
true for:
– Cases, where the re-innovation of the buyer’s own SBD is the core intent of the trans-
action. Examples are cases where the use of digital sales channels and direct customer
access of the target might be deployed on the acquirer’s core business
– Cases where the definition of totally new markets and use-cases—blue oceans, e.g. by
deploying Big Data, AI or VR approaches, like in the pharma industry or B2B busi-
ness models—are the reason why for the transaction
Furthermore, in these kinds of transaction patterns, the buyer clearly has to address
its parenting advantage, meaning how the target’s business could be scaled within the
acquirer’s Business Design framework and which touchpoints are the most important for
the full value leverage of the target’s business.
The latter defines instantaneously as well in which parts of its Business Design the
target’s business should be kept autonomous. The integration of a digital target is a del-
icate balance between standalone necessities to further develop the digital business and
soft integration where it is mandatory to realize the joint vision. This is especially true
for culture issues and the question of how to preserve the digital target’s capabilities, tal-
ents and entrepreneurial spirit.
2.7 Embedded M&A Strategy for Digital Targets 101
Due to the importance of digital targets and business model innovations for most
industries, the specifics of transactions focusing on digital targets will be discussed at the
end of each chapter. Therefore, a closer and more in-depth view on the Embedded M&A
Strategy for the acquisition of digital targets and Business Designs is taken here:
Embedded M&A Strategy Applied for Digital Targets

The Eco-System Scan for digital targets might focus on the assessment of technology
trends and the impact of new digital capabilities as well as on new customer use cases
driven by innovative products, services or digital solutions. For the Eco-System Scan
new digital technologies like big data approaches, artificial intelligence and analytics
could be used for the identification, analysis and evaluation of white spots. Here, espe-
cially the likelihood to create new, untested markets and breakthrough use cases, as well
as the analysis of the connectivity, embeddedness and touch points with other parts of the
ecosystem, might be of dominating interest.
Based on this in-depth technology and market understanding the future competitive
advantage to explore attractive white spots and the therefore necessary set of unique
capabilities to create these new, protected blue oceans could be defined. By comparing
the existing set of capabilities with the mission-critical capabilities of the future eco-
system the crucial capability gaps may be identified which have to be either closed by
in-house business model innovation or by acquiring dedicated target companies having
access to those skill sets. The latter might be especially interesting were talent short-
ages limit in-house developments. The application of the Business Model Innovation
(BMI)-Matrix to compare alternative growth options like inhouse business model inno-
vation, incubating, accelerators, JVs or acquisitions might provide a holistic view and the
selection of the best fitting approach.
For the identification of target companies within those attractive white spots, a dig-
ital target scan may be applied. Core ingredients of such a digital target search are a
detailed IP assessment and tracking by big data mining approaches, semantic text cita-
tion and application analytics. Further insights might be gained by verifying the identi-
fied investment themes with research institutes, leading universities and industry expert
networks. Additionally, by analyzing venture capital and early-stage investment flows
within the defined digital search fields, potential technology investment priorities might
be identified.
For the evaluation and Fit Diamond assessment of digital targets, the typical financial
data might be very limited due to the newness of the business. Additional market indica-
tors, like customer win rates, number and size of new customer use cases, social media
feedback or technology indicators, like patent filings or co-operations, might be applied
to get a broader understanding of the growth potential and attractiveness of the target
company.
Besides the assessment of the attractiveness of the target’s Standalone Business
Design, the draft of the potential Joint Business Design with the dedicated touchpoint
between the acquirer and the digital target is sensitive. By applying the 10C Business
Model Design those parts of the Business Design where the parent might offer advan-
tages for the target to scale its business model could be identified. Additionally, where
the parent expects a re-innovation of its own Business Design by the digital capability of
the target, the integration or touchpoints of the JBD have to be defined in detail. On the
other side and to preserve the maximum amount of autonomy of the target, other parts
of the target’s Business Design might be kept independent. The same holds true for the
Joint Culture Design.
2.8 Summary of Embedded M&A Strategy
Finally, critical cross-checks and questions should serve as a platform to challenge

Embedded M&A Strategies, before a summary, with key success factors and takeaways,
will close the chapter.
The critical cross-checks and question section, which will be applied also for the fol-
lowing modules of the E2E M&A Process Design, defines a brief set of questions which
address the cornerstones of an Embedded M&A Strategy and highlight thereby the com-
mon route-causes of M&A Strategy failures.
Crucial Questions to Challenge Corporate, Strategic Business Unit and

M&A Strategies
Review corporate and strategic business unit strategies
– What will be the drivers of the future eco-system of the company and its strategic
business units? What will be likely technology disruption and which technologi-
cal capabilities will drive those? What will be the most attractive markets (or, with
higher granularity, market segments and use-cases)?
– How could the corporate and strategic business unit strategies be described in
three sentences to achieve the intended competitive advantage? What are the
mission-critical core-capabilities to achieve those competitive advantages?
– Given this strategy and eco-system assessment, how should the future corporate
portfolio be designed in comparison with today’s one? For this transition, what are
the crucial portfolio investment and divestment needs to be addressed by M&A?
– What are the most important strategic programs and projects to deliver on the
intended strategy? Does the company possess all core competencies, talent and
resources to execute those strategies or do they have to be acquired by external
growth strategies?
– What is the targeted and winning Business and Culture Design?
2.8 Summary of Embedded M&A Strategy 103
Design an Embedded M&A Strategy
– What should be the contribution of M&A for the corporate strategy and the busi-
ness unit strategies? How does the M&A approach compare with other external
growth and co-operation models and internal growth options as alternatives (appli-
cation of Business Model Innovation (BMI)-Matrix)?
– What are the specific strategic targets, intended value contributions and most likely
synergy levers of the acquisition strategy?
– How to define a first broad, ecosystem specific target list and a suitable set of
selection criteria (definition of tailor-made Fit Diamond)?
– How could acquisitions be potentially financed by plowed back Free Cash Flows,
equity and debt?
– How does the M&A pipeline of attractive targets (from long- to shortlist) look
like?
– How to challenge and check with respect to robustness the strategic, Business
Design, synergetic and Cultural Design fit (the Fit Diamond)?
– What would be the potential crucial risks of an acquisition, especially for the inte-
gration? How to address and mitigate those?
– How could the Joint Business and Culture Design look like? What might be the
most suitable Integration Approach?
2.8.2 Key Success Factors and Takeaways
The key success factors and takeaway subchapter summarizes24 the most crucial lessons
learned of the Embedded M&A Strategy chapter:
TAKE AWAY
– Embedded M&A Strategy: M&A Strategies should be in-depth embedded in the corporate
and business unit strategies. Therefore, the review of the corporate portfolio and business
strategies might be a good starting point. An Eco-System Scan may provide insights of the
mission-critical IP, technology and market developments.
– M&A is one of a distinct set of strategic tools for leveraging shareholder value and growth.
The Business Model Innovation (BMI)-Matrix compares M&As with alternative value and
growth strategies, like Corporate Venture Capital (CVC), incubation, acceleration, JV, alliances
and inhouse business model innovation approaches.
– Transactions and Embedded M&A Strategies are a double-sided challenge as they must ensure
the realization of the intended transaction rational as well as value and synergy capture.
24The key success factors of the five modules of the E2E M&A Process Design will be found at the
end of each chapter.

The strategic rational could be based on portfolio level or strategic business unit level
advantages:
– M&As might play an important role in renewing the corporate portfolio by the acquisi-
tion of new business models and core competencies with a strong strategic and synergetic
fit to the existing portfolio, by growing in attractive adjacent market segments which might
shape the future of the existing core businesses, a very selective diversification by enter-
ing unrelated, but highly attractive businesses where still parenting advantages could be
exploited, or last not least by streamlining and restructuring the corporate portfolio by tar-
geted divestments.
– M&As on business unit level may rest on differentiation or cost advantages or by acquir-
ing core capabilities. These might be achieved by acquiring target companies offering sup-
plementary products or services (“string-of-pearl” and system-offering M&A Strategies) or
allow to enter new markets. On the cost side economies of scale or scope might be a suitable
trigger for M&As.
– The Tao of Value: A transaction is only value accreditive if the net present value of the syner-
gies is higher than the paid transaction premium.
– A holistic view is also recommended for the screening of attractive targets. The Fit Diamond
evaluates, besides the standalone attractiveness of the target, the potential strategic, the
financially-synergetic, as well as the Business and the Culture Design fit.
– The Blue Print of the Integration Approach (Collaboration, Alignment or One Company
Approach) should be tailored with the strategic needs and the ecosystem of the acquirer and
should be Frontloaded into the Embedded M&A Strategy Phase. Especially the Frontloading
of Standalone Business Design and Standalone Culture Design Diagnostics, as well as
the drafting of the Joint Business Design and Culture Design Blue Print, offers a true
End-to-End (E2E) view.
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Transaction Management
3
Contents
3.1 Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

3.1.1 M&A Valuation Framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
3.1.2 M&A Valuation Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
3.1.3 Valuation Methods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
3.1.4 Valuation Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
3.2 Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
3.2.1 Due Diligence Targets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
3.2.2 Due Diligence Management and Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
3.2.3 Due Diligence Tools. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
3.2.4 Core Parts of the Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
3.3 Blending of SCDs and SBDs and Redrafting of JCD and JBD. . . . . . . . . . . . . . . . . . . . . . 159
3.3.1 Business Design Due Diligence: Blending of SBDs and
Redrafting of JBD Blue Print. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
3.3.2 Culture Design Due Diligence: Blending of SCDs and
Redrafting of JCD Blue Print. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
3.3.3 Due Diligence and Verification of Integration Approach. . . . . . . . . . . . . . . . . . . . . 162
3.4 Valuation and Due Diligence of Digital Business Designs. . . . . . . . . . . . . . . . . . . . . . . . . 163
3.5 Summary of Transaction Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168
3.5.1 Critical Cross-Checks and Questions of Transaction Management. . . . . . . . . . . . . 168
3.5.2 Key Success Factors of Transaction Management. . . . . . . . . . . . . . . . . . . . . . . . . . 169
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170

110 3 Transaction Management
Abstract
In the first step of the E2E M&A Process Design, the Embedded M&A Strategy
aligned with the overarching corporate and SBU strategies was defined. Based on
this framework of the Embedded M&A Strategy a distinguished shortlist of suita-
ble M&A targets with a strong financial, strategic, Business and Culture Design fit
have been distilled. The Transaction Management, as the follow-on module of the
E2E M&A Process Design, is focused on a specific transaction with a selected tar-
get company or merger partner. Core parts of the Transaction Management are the
valuation of the target company (Standalone Value) and the potential synergies
(Integrated Value), the Due Diligence of the target company which should iden-
tify the risks and upsides of the potential transaction, as well as the blending of the
Standalone Business and Culture Designs and the Redrafting of the Joint Culture
and Business Designs according to the Due Diligence outcomes. Supplementary parts
of the Transaction Management as the negotiation of a share or asset purchase agree-
ment, the acquisition financing, and the Purchase Price Allocation (PPA), will be not
discussed in detail. (These parts will be incorporated in the second edition).
The Transaction Management, as the second module of the E2E M&A Process Design,
consists of the following parts (Fig. 3.1):
– Valuation of the target company (Standalone Value) and synergies (Integrated

Value)
– Due Diligence
– Blending of SBDs and SCDs as well as the redrafting of the JCD and JBD Blue
Print
– Negotiation of (share or asset) purchase or merger agreement
– Acquisition financing
– Purchase Price Allocation (PPA)
An E2E M&A Process Design as a holistic approach stresses the importance of the close
ties between the different modules and also within each of the modules themselves, as
discussed in the introductory chapter. Within the Transaction Management, the indica-
tive valuation of the target company and likely synergies could be defined as the starting
point. But this first valuation of the target company and potential synergies determines
3 Transaction Management 111
#1 #2 #3
• Embedded M&A Strategy: BMI Matrix • Dynamic Valuaon of Standalone Target (w/o • Integraon Strategy
• Fit Diamond Assessment • Verificaon of Integraon Approach − JCD Freeze
• Integraon Approach Blue Print − SBD Blending and JBD Proof-of-Concept • Integraon Masterplan (IM)
− Standalone Business Design (SBD) − SCD Blending and JCD Proof-of-Concept • Transional Change: Implement JBD
Diagnoscs & Joint Business Design • Negoaon and Purchase Price Allocaon (PPA) • Culture Transion
(JBD) Blue Print • Acquisions Financing Concept • Integraon Tracking & Controlling

M&A Capability Map Integraon Project House (IPH) and digital M&A Tool Plaorm M&A Knowledge Management
M&A Playbook
Fig. 3.1 The E2E M&A Process Design: Transaction Management
already the priorities for the forthcoming Due Diligence assessment. The future value
add is based on the mission-critical value drivers, the Return on Invested Capital (RoIC),
the growth momentum and the sustainability period of the competitive advantage, as
these are the lever for the ultimate source of value, the future Free Cash Flows (Koller
et al. 2015a, pp. 22–23, 137). The likelihood of the assumed performance of those value
drivers has to be verified during the Due Diligence. Vice versa, the results of the Due
Diligence have to be feed-back into the update of the final valuation and the draft of the
purchase agreement. Based on a final valuation a preliminary Purchase Price Allocation
(PPA) and the upper limit of the purchase price could be defined (Fig. 3.2).
The Transaction Management ends with the fullfillment of the contractual closing
conditions of the transaction. The length of the Transaction Management might be two
months for small deals but could last more than a year for significant transactions with
multiple bidding rounds and significant antitrust hurdles.
First, an overview of the different core elements of the Transaction Management will
be provided. Based on this overview, the Due Diligence and valuation, as core parts
of the Transaction Management, will be discussed in depth. At the end of this chapter
the specific challenges of the Transaction Management, especially the valuation and
Due Diligence, of digital Business Designs will be highlighted. Last not least, core les-
sons learned as well as mission-critical top-management questions for the Transaction
Management will be summarized:

informaon for
further valuaon
• Searching for
Negoaons „hidden“ risks Deal Closure
• Synergy proof
• First contacts • Aer detailed negoaons
• Gaining insights • Based on final valuaon & DD
• Outside-in perspecve for integraon &
negoaons
Fig. 3.2 Core parts of the Transaction Management and their interdependencies
Valuation (Sect. 3.1)

Valuation is a substantial part of the Transaction Management. Within an M&A context,
the valuation has to fulfill two needs. On the one side, a fair value or valuation band-
width of the standalone value of the target company has to be derived, on the other side
the likely synergies on the buyer’s and target’s side evaluated. The sum of those two
values, the so-called Integrated Value, will define the upper financial boundary for the
purchase price, and therefore the maximum premium the acquirer could afford to pay
without risking value destruction.
Within Sect. 3.1 alternative valuation methodologies and a process model for the
valuation of the target company as well as for the potential synergies will be described.
From a conceptional point of view two valuation approaches, the Income Approach
and the Market Approach are the most applied corporate valuation methods for
M&As. But, only the Income Approach is a true, intrinsic valuation approach, as it eval-
uates a company on its forecasted and discounted Free Cash Flows. The transaction or
trading multiple concept is, in essence, a pricing methodology, as it evaluates the tar-
get company based on prices paid in recent transactions (Transaction Multiples) or on a
peer-group of comparable listed companies (Trading Multiples):
– The Income Approach derives the Enterprise Value, as the market value of the (target-)
company for all its investors like equity and debt holders, based on the forecasted
Free Cash Flows (FCFs) of the company. The most used methodology within the
Income Approach is the Enterprise Discounted Cash Flow (Enterprise DCF)1
1As an alternative to the Enterprise DCF method the Discounted Economic Profit model will also
be briefly discussed. Discounted Economic Profit models have in comparison to the Enterprise
DCF model the advantage to highlight the yearly value creation, the Economic Profit, by compar-
ing the RoIC with the Cost of Capital in any specific year.
method (Koller et al. 2015a, pp. 137–142; Damodaran 2006; Fernandes 2012). The
Enterprise DCF method discounts future FCFs at the Weighted Average Cost of Capital
(WACC). The WACC addresses the time value of money as well as the underlying risk
of the target’s Business Design. The latter is embedded in the beta factor of the cost
of equity by applying the Capital Asset Pricing Model (CAPM) for the calculation of
the equity risk (DePamphilis 2015). As the Enterprise DCF model evaluates the FCFs
as available to all investors, like equity holders, debt holders, and any other non-equity
investors—e.g. mezzanine investors—and discounts those consistently by using the
WACC, it evaluates in the first step the Enterprise Value, meaning the value of the tar-
get company for all investors. To define the Equity Value, defined as the market value
of equity for the shareholders of the target company, debt and other non-equity claims
have to be subtracted from the Enterprise Value. The advantage of the Enterprise DCF
model is that it separates operating performance from capital structure impacts and
non-operating items. Additionally, it offers the possibility for portfolio companies with
multiple strategic business units to use the same valuation framework for the valuation
of the company as well as for the valuation of each of its strategic business units (SBUs)
due to the value additivity characteristic of the underlying Net Present Value (NPV) con-
cept (Brealey et al. 2020). This value additivity is typically used in sum of the parts val-
uations of conglomerates with multiple strategic business units.
Discounting future FCFs at the WACC is especially straightforward in situations
where the company’s financial structure, measured by its debt-to-value ratio, does not
or only marginally change. Periodic specific WACCs could also be determined but
would imply a yearly recalculation of the Cost of Capital, what might be demand-
ing. Therefore, in situations of more volatile financing structures at the target com-
pany, like in restructuring cases or levered Private Equity deals, the Adjusted Present
Value (APV) and the Capital Cash Flow (CCF) model (Ruback 2000) might be
more suitable models. The APV model is a two-step approach, which is also some-
times referred to as sum-of-the parts assessment. In a first step, the value from the
pure operating performance without any financial benefits is calculated by discount-
ing the same FCFs as in the Enterprise DCF model by the unlevered cost of equity
instead of the WACC. In a second step, the FCFs of any financial side effects, like tax
benefits of leverage (value of the tax shield), or costs of distress are evaluated. The
sum of those two components leads to the same Enterprise Value as by applying the
Enterprise DCF method if a consistent set of assumptions is used (Koller et al. 2015a,
p. 137)
The common ground of the Enterprise DCF, the APV and the Capital Cash Flow
models is that all of them evaluate in the first step the value of the company for all
its investors and then deduct all non-equity claims, like debt and debt-like items, to
derive the Equity Value as the market value of equity of the enterprise. Equity val-
uation methods on the other side evaluate in one step the equity value of the com-
pany. This might sound straight forward but mixes up operating performance with
non-operating performance and capital structure impacts on FCFs. Therefore, the
FCF to equity method is foremost used for and limited to the valuation of compa-
nies where the capital structure is an integral part of their Business Design, like in the
banking and insurance industry.
– The market (pricing) method applies the law-of-one-price: Companies within the
same industry and with comparable risk pattern should trade or be sold at similar
valuation multiples, meaning having roughly the same relative valuation. Typically
applied valuation multiples are Enterprise Value-to-EBITDA, Enterprise Value-to-
EBIT or Enterprise-Value-to-revenue ratios. Multiple assessments could also be used
to value non-traded companies by comparison with listed companies within their
peer group. In case of Trading Multiples, the unknown price of the target company
is derived by the median or mean multiple of stock-listed companies within the peer
group. In case of Transaction Multiples, recent acquisitions in the same indus-
try are used for the definition of the multiple and the determination of the target’s
price. The key limitation of this method is, that it only takes the actual market prices
of listed companies for the valuation into account and not the pattern and variance
of forecasted FCFs. It also neglects the specific strategy and Business Design of the
target company in the valuation process by applying a simplistic peer-group assess-
ment. Therefore, the Multiple Approach might be used for the framing of a DCF val-
uation but not as a standalone approach or even as a substitute for the DCF method.
Section 3.1 discusses in-depth the pros and cons of the different valuation and pricing
techniques.
Due Diligence (Sect. 3.2)

In the very end, the Due Diligence is the proof-of-concept of the investment thesis,
meaning the stand-alone valuation of the target company and the intended synergies
as well as the underlying strategic rational of the transaction. Additionally, the Due
Diligence has to identify the chances and risks of a potential transaction. The challenge
of the Due Diligence is the information asymmetry between the buyer and the seller.
Therefore, another subject of the Due Diligence is to increase the level of information on
the buy side by a focused and tailored Due Diligence process as close as possible to the
seller’s knowledge about the target company.
The Due Diligence was in former times understood as a simple summary of the
potential risks of a transaction. Today, the Due Diligence is a focused, but also well
enough detailed process with standardized modules and tools. An efficient and profes-
sional project management is therefore mandatory for this essential subprocess of the
Transaction Management.
Besides, a professional M&A team is obligatory for the orchestration of the overarch-
ing Due Diligence process and the management of the individual Due Diligence modules
as well as for the integration and coordination of the different modules. The M&A Team
has to identify and address the most severe risks and potential upsides. Also, the input
of the Due Diligence outcome for the final valuation and synergy estimate have to be
assured. Using consistently the 10C Business Design model of the M&A Strategy, the
Due Diligence could be tailored around 5 core parts, the strategic Due Diligence (CS
module), the financial DD (CF module), the legal Due Diligence, the Due Diligence of
the operational Business Design covering all other processes and capabilities (CA, CC,
CE), as well as customer-oriented modules (CV, CR, CH, CM), and last not least the
organizational and culture assessment (CO):
– Strategic Due Diligence (SDD): The SDD has to assess the market attractiveness
of the target’s businesses and the competitive positioning and advantages of the tar-
get company within those distinct markets. As competitive advantage is a “relative
concept” a deep-dive of competitor profiling and benchmarking is also a mandatory
part of the SDD. Another implicit task is the identification of the true core competen-
cies of the target firm. Last not least, the confirmation of the transaction rational is as
well part of the SDD.
– Financial Due Diligence (FDD): The FDD has to analyze on the one side the audited
financial statements of the target company of the last couple of years to assess the past
performance, on the other side the actual financial performance has to be analysed.
The assessment of the audited financial statements, especially of the balance sheets
and the income statements, might provide a first overview of the past performance
and an understanding of the likelihood of the forecasted financial performance of the
target company. But an advanced FDD has to go beyond a simple headline analysis
by identifying and assessing the most important value drivers of the target’s Business
Design. Besides, the transparency, accuracy and completeness of the financial report-
ing system have to be assessed. An aligned field of the FDD is the Tax Due Diligence.
The Tax Due Diligence does not only address the potential tax liabilities and risks.
It might also have a significant impact on the design of the transaction as an asset
or share deal. This could lead to complicated and prolonged discussions as the tax
impacts of different transaction designs might be inversely related to the interests of
the acquirer and the seller.
– Legal Due Diligence: Intent of the Legal Due Diligence is the assessment of the
most important contracts and to identify the underlying legal risks which have to
be addressed either in the purchasing agreement or the Integration Management.
Potential fields of interest of the Legal Due Diligence are corporate charters, employ-
ment contracts, supplier contracts, JV contracts, IP rights and further mission-critical
legal documents. A newer subpart of the Legal Due Diligence is the Compliance Due
Diligence, especially in case of large-sized, international transactions. Compliance
problems might have a significant negative impact on the value and reputation of the
target company and might involve in a worst-case scenario significant liability risks
on the acquirer’s side.
Due to the importance of the Business Design and the Culture Design, these two Due
Diligence modules will be discussed in detail within a separate subchapter:
Blending of SCDs and SBDs and Redrafting of JCD and JBD Blue Print (Sect. 3.3)
After the closing date, the Integration Management starts immediately. An early iden-
tification of potential integration hurdles and risks and the design of the Integration
Approach which addresses those risks is therefore mandatory. Within a benchmark
M&A process the first draft of the Integration Approach should be Frontloaded into the
Embedded M&A Strategy, as discussed in Chap. 2, and back-tested concerning applica-
bility and robustness during the Transaction Management. This enables the buyer and the
target company to define a tailored Integration Approach, including the ideal depth and
speed of the integration.
The same holds true specifically for the JBD and JCD, as essential parts of the
Integration Approach. Based on the detailed Blending of the two SCDs and SBDs within
the Due Diligence and the assessment of their gaps and similarities the Blue Print of the
JCD and JBD, as defined in the M&A Strategy, could be redrafted, detailed and tailored.
This process provides a skeleton of the intended joint value proposition, organization,
operational processes and culture. The Frontloading ensures that both companies work
on the integration execution along the to be defined Integration Masterplan already from
Day One of the integration onwards. The Business Design Blending includes, besides
others, the traditional commercial, operational, management and HR Due Diligence.
The priority of the Management Due Diligence is foremost to identify and select the top
management and the talents for the joint operations post-closing and plays, therefore, an
important role in nowadays Due Diligence processes. The HR Due Diligence focuses on
best practice HR processes and the assessment of necessary capabilities as well as the
traditional employee management.
The assessment of the two Standalone Culture Designs, which could be described as
Cultural Due Diligence, analyzes the potential fit or misfit of the SCDs by Blending the
two companies’ organizational value systems, believes, management attitudes and behav-
iors. Based on this culture understanding a sound targeted Joint Culture Design could be
drafted.
Within this book not in detail discussed parts of the Transaction Management are the
Purchase Price Allocation (PPA) and the acquisition financing: Within the PPA the trans-
action price has to be allocated on the to be identified assets and liabilities of the target
3.1 Valuation 117
company. As the competitive advantages are in most industries more and more based on
brands, intellectual property rights, or customer access, intangible assets play often a
more prominent role than tangible assets like manufacturing sites or land and buildings
nowadays. This development increased the importance of the PPA. The PPA has to iden-
tify the tangible and intangible assets as well as the liabilities of the target company,
assess in how far the identified assets and liabilities could be recorded on the balance
sheet and to determine their appropriate value. This involves the detailed analysis of the
purchase price and the Business Design of the target company, the identification and val-
uation of the tangible assets, intangible assets and liabilities, the allocation of the pur-
chase price on those identified assets and liabilities as well as the final calculation of the
goodwill. The goodwill has to be stress-tested yearly with respect to a potential impair-
ment under US-GAPP and IFRS accounting principles.
The second, not in detail discussed part of the Transaction Management is the acquisi-
tion financing. Questions concerning the financing structure of the transaction start with
the assessment of how to pay for the transaction. This determines the structure of the
transaction as a cash or share deal or a mix of both, as it was the case in most of the
recent transactions within the technology industry. The strategic structuring of the acqui-
sition currency, that means to use either cash or own shares, does also have a significant
impact on the financing structure: In case of a cash deal the purchase-price has to be
either funded by cash reserves or must be financed by additional equity, debt, like bonds
or loans, or hybrids, like convertibles. In case of a share deal, the acquirer pays with own
shares. This could be existing shares or the issuance of new shares.
PPAs and financial matters will be integrated into the second edition of this book.
3.1 Valuation
The overarching idea of value creation is as well the foundation of the valuation prin-
ciples within an M&A context. An investor expects, by acquiring a financial asset, that
the value of this financial asset will grow sufficiently to compensate her for the underly-
ing risk of that specific asset, meaning financially above the asset’s risk-adjusted oppor-
tunity costs of capital. This guiding principle of value creation could be transferred to
the corporate world: Companies raise capital on equity and debt markets to finance their
investments. They invest this capital in projects which are forecasted to generate future
Free Cash Flows (FCFs) at rates of return, more specifically Returns of Invested Capital
(RoICs), that exceed their specific cost of capital. The latter is the blended rate of return
of investors on equity and debt markets and other forms of funds which they require to
be paid for the use of their provided capital (Koller et al. 2015a).2
2Theprinciples of value creation, or at least the basic idea, could be dated back to Alfred Marshall
who already addressed in 1890 the trade-off between the return on capital and the cost of capital.
ROIC
Free Cash
Growth
Flows
Value
Added
(acquirer’s side)
Compeve
advantage
Risk adjusted
period
Cost of
Capital
Fig. 3.3 The Tao of Value Creation
The bedrock of value creation is the underlying Free Cash Flow stream which should
generate a Return on Invested Capital (RoIC) which is larger than the cost of capital. The
cash flows by themselves could be decomposed in the core value drivers of Return on
Invested Capital (in comparison to the cost of capital), the growth rate and the com-
petitive advantage time period at which the RoICs could be sustained above the cost
of capital. These value drivers are intertwined with the pattern of competitive advantage.
This breakdown of value creation in its fundamental drivers is the Tao of Value and is
These principles have to be addressed by any valuation method. Besides, the general
M&A valuation framework (Sect. 3.1.1) and a dedicated valuation process (Sect. 3.1.2)
could serve as a guideline:
3.1.1 M&A Valuation Framework
As M&A projects are in the end also investment decisions, they have as well to pay in on
the principle of value creation, as Fig. 3.4 shows.
The characteristic of M&A transactions is that they involve two parties, the acquirer
and the seller, which have contradicting interests with respect to the target’s standalone
valuation and the value of potential synergies of a transaction:
– The sell side perspective: The value of the target company for its shareholders is
the sum of its stand-alone, discounted future FCFs. The target’s shareholders are
3.1 Valuation 119
Standalone Value NPV of joint synergies Integrated Value Purchase Price Transacon
target company (target + acquirer) (incl. synergies) (incl. premium) SHV added
(= purchase price on buy side
upper boundary)
Premium
(Transacon SHV added on sell side)
Fig. 3.4 M&A valuation framework (buy versus sell side perspective)
therefore only interested to sell their company if, and only if, they are paid a pre-
mium, meaning a transaction price that exceeds this stand-alone value. The seller’s
shareholders participate, at least partially, in so far on the acquirer’s synergy capture.
– The buy side perspective: The gross value of the potential transaction to the acquirer
starts once more with the target’s stand-alone value defined by its discounted FCFs,
but takes additionally into account the NPV of the synergies that the acquirer may
capture by the specific underlying transaction. This means, that the combined FCFs
of the two companies are increased beyond the two standalone values. Synergies are
realized therefore if, and only if, the sum of discounted FCFs of the joint company—
Integrated Value including synergies—is greater than the sum of the acquirer’s and
target’s standalone discounted FCFs (Clark and Mills 2013, pp. 92–95).
The targeted synergies might be captured on the acquirer’s side, the target’s side or
on both. The allocation of the total synergy value of a transaction on the buy or sell
side might depend on the uniqueness of the synergy capture, meaning if the syner-
gies could only be realized by the combination of the specific acquirer’s and the tar-
get’s Business Design or by more or less any acquirer. To identify the shareholder
value added on the acquirer’s side, from the Integrated Value the purchase price,
which includes the acquisition premium, has to be deducted. Therefore, the acquir-
er’s value add of a transaction is, in the end, the difference between the NPV of all
synergies and the premium paid. Another interpretation of this equation means, that
if the acquirer pays the full value of the net synergies to the seller in the form of a
significant takeover premium, then the deal offers no value added on the buy side
(Coates 2017, pp. 16–17). Thus a rational acquirer seeks a price somewhere between
the target’s standalone value and this stand-alone value plus the NPV of the synergies,
meaning the Integrated Value. By sharing the synergies with the seller, the acquirer
may pay a premium that induces the seller to conduct the transaction while still ena-
bling both, acquirer’s shareholders and seller’s shareholders, to realize a value added
by the transaction. More or less all empirically M&A studies show thereby, that the
distribution of the total value added of a transaction as defined by the sum of synergy
based discounted FCFs, tends to be lopsided: The lion’s share of a transaction’s value
added flows typically into the target shareholder’s pocket, leaving just a small fraction
for the acquirer (Sirower and Sahni 2006, p. 85).
In the following a detailed M&A valuation process will be developed which addresses
these principles of the valuation framework:
3.1.2 M&A Valuation Process
Following the above argumentation that the value of the transaction on the acquirer’s
side is defined by the Standalone Value of the target and the NPV of the synergies two
separate, but parallel valuation workstreams are proposed:
1. The Standalone Valuation of the target company

2. The calculation of the NPV of the forecasted synergies
By deducting from the sum of the Standalone Value and the NPV of the synergies, the
Integrated Value, the purchase price including the premium, the Transaction Value Added
(TVA) of for the acquirer is defined. As an alternative, the two Standalone Values of the
target company and the acquirer could be evaluated first without (Standalone), and sec-
ond with synergies (Integrated Value). By subtracting the first from the latter the NPV of
the synergies is reverse calculated. The difference between the NPV of the synergies and
the premium mirrors again the value added of the transaction for the acquirer. The valu-
ation process, following the decomposition into the twofold valuation of the Standalone
Value and the NPV of synergies along six work streams, is described in Fig. 3.5:
For the valuation of the TVA the following workstream model with six steps might be
applied:
Workstream 1: Past performance diagnostics For a sensitive valuation of a target

company and likely synergies a detailed assessment of the target’s past performance,
especially if it created or destroyed value in the last years, and the identification of its
Business Design specific value drivers is mandatory. Business specific value drivers
demand a higher granularity than the first decomposition of the FCFs in the top-level
value drivers of RoIC performance, growth and competitive advantage time period.
The value drivers could then be benchmarked with the peer-group to get an even deeper
understanding of the relative target performance, standalone value upsides and potential
synergies.
3.1 Valuation 121
1 2 3 4 5 6
STANDALONE VALUATION
Past performance Forecasng FCFs Operang Value Framing the

& value driver & performance: to valuaon &
assessment Operang Value Enterprise Value robustness check
to
P&L BP CV Mulples
Equity Value
B/S Scenarios
period conversion
Free Cash Flow Simulaons
IV
(conversion) CoC TVA
Integrated
Value Transacon
Future performance _ Value
Past performance Added
PP (acquirer’s
Synergy paern Valuaon of NPV of synergies Synergy proof- Purchase
SYNERGY VALUATION
perspecve)
& benchmark synergy levers of-concept Price
volume
Past M&As (serving as a ming
Peer group blue print for likelihood
Benchmarks Synergy Score-
cards)
Fig. 3.5 M&A valuation process model and its 6 workstreams
The past performance diagnostics is derived from the audited financial statements of
the last three to five years prior to the transaction and the latest management reports.
The second purpose of this past performance analysis is to reorganize the financial state-
ments to carve out a clean operating performance of the target company by separating
non-operating items and capital structure impacts of the operating performance.
Workstream 2: Forecasting Free Cash Flows Workstream 2 is timewise flip-sided to

workstream 1 by moving from past performance diagnostics to future performance fore-
casting. The valuation of a target company is based on its forecasted Discounted FCFs
(DCFs). This involves three sub-processes:
– The projection of the FCFs over the short and medium-term often called forecast-
ing or business plan (BP) period: The FCFs mirror the company’s operating per-
formance, less any necessary reinvestments, like capital expenditure or working
capital increases. As FCF is the CF available to all investors—equity holders, debt
holders, and any non-equity investors—they are independent of capital structure.
As well non-operating impacts are carved-out. The FCFs are typically built up by
short-to-medium term forecasts of the detailed value drivers, decomposing the fore-
casted P&L statements and Balance Sheet.
– The calculation of the long-term value—as soon as the target has achieved its
assumed steady state growth—is described by the Continuing Value (CV). CV mod-
els are typically applications of perpetuity approaches. Here we follow the Goedhart
et al. (2016) approach by applying the value driver formula for the calculation of the
CV as it is closely linked to the true value drivers of the target company, like RoIC
and growth, and therefore avoids simplified, but misleading short cuts.
– The projected FCFs and the CV have to be discounted by the appropriate cost of
capital. In the following, at first, an Enterprise DCF valuation approach is applied.
Here, consistently with the framework, the FCFs must be discounted applying the
Weighted Average Cost of Capital (WACC) of the target company. The WACC blends
the expected rates of returns of all investors, like the company’s debt, equity and—if
applicable—mezzanine holders, and represents the company’s opportunity cost of its
financing sources. Later alternative approaches, like the Adjusted Present Value which
applies the unlevered cost of equity, will be discussed.
The Value of Operations is achieved by summing up the discounted future FCFs realized
in the forecasting period and the discounted CV.
Workstream 3: Conversion from Operating to Enterprise to Equity Value For a detailed

flow from the Value of Operations to Enterprise and in a final step to Equity Value two
sub-steps are necessary:
– Flow from the Value of Operations (OV) to Enterprise Value (EV): For the tran-
sition from the OV to Enterprise Value non-operating cash and other non-operating
equity-like items have to be added.
– Flow from Enterprise Value (EV) to Equity Value (EqV): For the final calculation of
the Equity Value, meaning the market value of the target company for all its equity
holders, all debt, like loans and bonds, and debt-like items have to be subtracted. The
latter includes all nonequity claims against the EV, like the underfunding proportion
of pension liabilities in case of defined benefit schedules, capitalized operating leases,
restructuring provisions, employee options, or preferred stocks.
Workstream 4: Framing the valuation To get a sound understanding of the “fair” market
value of the target the plausibility of the Enterprise Valuation by the DCF based model
should be framed by alternative valuation approaches. Typically, Transaction and Trading
Multiples and alternative scenarios of the DCF model are applied to get a more robust
understanding of a reasonable Equity Value bandwidth of the target.
Workstream 5: Integrated Value, NPV of synergies and Purchase Price The Integrated
Value IV of the intended transaction is the sum of the target’s Equity Value and the NPV
of the forecasted joint synergies. The synergies should be transaction specific and should
not be achievable within a standalone environment, to avoid double-counting. Synergies
could be captured on the acquirer’s side, the target’s side or on both sides.
3.1 Valuation 123
Workstream 6: Transaction Value Added In the final step, the TVA is defined by sub-
tracting the purchase price, which includes the premium paid, for the target from the
Integrated Value of the target. The purchase price should include all components and
means of payments, like cash, shares, and further price components.
This valuation process and workstreams could be applied for more or less any trans-
action. Nevertheless, a couple of limitations exist. In case of start-up and venture capital
investments the first workstream to understand the past performance of the target com-
pany might be substituted by a thorough analysis of the intended Business Design—
based on the proposed 10C framework, the revenue scaling possibilities and the quality
and capabilities of the management of the start-up company. Specifics of start-up and
new approaches for platform valuations will be discussed at the end of this chapter.
Private Equity (PE) investors might not have the advantage of a corporate acquirer
to lever synergies, therefore focusing on potential improvements of the stand-alone per-
formance of the target company. For such PE investment environments within the first
phase, the synergy evaluation might be skipped. But at the same time, the analysis of
value improvements by changing the strategy, the Business Design or management
team of the target company on a standalone basis might be intensified.3 In the case of
a merger, both companies have to be evaluated for the calculation of the coresponding
shareholding in the NewCo of the former independent shareholders. For the NewCo
value post-closing the value of the jointly captured net synergies have to be added. Given
this overall valuation workstreams the valuation methods for the calculation of the tar-
get’s standalone value will be discussed:
3.1.3 Valuation Methods
Multiple M&A valuation methods exist to calculate the market value of a company’s
equity. The Income Approach derives a company’s value by its forecasted FCFs, which
are driven by the operating performance (ROIC), the growth rate and the length of the
period where the target company could sustain its competitive advantage by earning a
ROIC above its Cost of Capital (Fig. 3.6).
Within the Income Approach, a set of specific valuation methods might be applied,
whereby the pattern of calculating the Enterprise and Equity Value separates two streams
of valuation approaches.
3Most PE investors use the Internal Rate of Return (IRR) calculation instead of the DCF model.
The investment rule of the IRR to invest in any investment project where the IRR of the project is
higher than the risk-adjusted cost of capital—PEs use foremost hurdle rates—will deliver in most
instances the same outcome as the DCF models, with its decision rule to invest in any project with
a positive NPV, or in the M&A context in any project where the value of the net synergies is higher
than the transaction premium paid (Brealey et al. 2020).
Valuaon techniques
Market Approach Income Approach Cost Approach
Transac on Trading- Enterprise Equity Reproduc on Liquida on

mul ples mul ples Valua on Valua on value value
Enterprise DCF Equity CF /

Enterprise value / turnover
Income Approach
Discounted Economic Dividend discount
Enterprise value / EBITDA
Profit
APV: Adjusted
Enterprise value / EBIT
Present Value
Equity value / EAT (1/EPS) Capital Cash Flow CCF
• Real Opon Approaches

• Simulaons (Monte Carlo)
• Scenarios
Fig. 3.6 M&A valuation approaches and methods
On the one side, Enterprise Valuation based approaches calculate the value of the
FCF for all investors as generated by the company’s operating assets and liabilities. To
this Enterprise Value, the non-operating assets have to be added and debt, as well as
debt-like items, have to be subtracted to calculate the Equity Value. The Equity Valuation
approaches, on the other side, value each financial claim separately, i.e. calculate the
Equity Value directly.4 As equity cash flows mix up operating, non-operating and finan-
cial cash flows, the Enterprise Valuation method is the preferred valuation technique in
most applications. The most important exception is the valuation of financial institutions,
where the financing structure is an integral part of the company’s Business Design and
performance.
A second valuation, or more precisely pricing approach is the application of Trading
or Transaction Multiples. Multiples derive the unknown Equity Value of the target
company by multiplying a performance indicator of the target company with the corre-
sponding multiple of a peer group of comparable, listed companies or based on recent
transactions within the target’s industry. Comparability means thereby, that the compa-
nies of the peer-group have to be in the same industry, must have the same risk profile,
and—in the best case—even the same performance characteristics as the target company.
4Enterprise and Equity Valuation approaches provide—according the “Lücke Theorem”—the same
results, if the same underlying assumptions and the corresponding costs of capital are applied. The
Enterprise DCF techniques use the WACC to address risk and discount the FCFs, and by adding
non-operating items and deducting the value of debt the Equity Value is calculated. The Equity
Valuation techniques evaluate the Equity Value directly by discounting cash flows to equity by the
levered cost of equity.
3.1 Valuation 125
Market Approach Income Approach Cost Approach

More PRICING than valuaon True intrinsic VALUATION Foremost ACCOUNTING view
and advantages
Earnings or sales mulples based Based on FCFs and closely linked to

Principles

Based on book value of assets and
upon prices of recent comparable the value drivers of the BD liabilies
transacons or on capital market Integrated financials: FCF, P&L, B/S Only useful when exing the
Close to resent market prices Shows full value of target business business is an opon / liquidaon
within acquirer’s context (synergies) processes
Dynamics: Simulaons & scenarios
Internaonally accepted
Comparable transacons or listed Requires forecast BP Does not analyse value of company’s
Disadvantages
peers might be difficult to find Detailed analysis (me and going concern
Transacon mulples include pre- efforts) needed, otherwise No linkage to future FCFs, therefore
mia of recent transacons, depen- “garbage in, garbage out!” not addressing valuaon view
ding on individual acquirer context No value driver perspecve
See-saw with market valuaons
Pricing, no true intrinsic valuaon
No forward looking view
Applicability
First rough valuaon Detailed and thorough valuaon Asset and past performance
From outside-in, before DD based on in- and external financials oriented
Framing intrinsic valuaon Applicable throughout an E2E M&A Only applicable in case of exing a
Process business
Fig. 3.7 Comparison of valuation approaches
The backbone of the multiple concept is the “law of one price”, meaning assets in
the same risk class should be evaluated on efficient capital markets at similar prices.
Typically applied multiples are Enterprise-Value-to-EBITDA or EBITA or EBIT, and
Enterprise-Value-to-revenue, whereby the latter has no direct linkage to the target’s
underlying earnings or FCFs.
The Cost Approach, last not least, derives a company’s value based on the book value
of its net-assets, either by taking the liquidation or reproduction value of those assets into
account. As book values do not mirror market values and the goinc concern principle is
not addressed the applicability of the Cost Approach for M&A valuations might be very
limited and will be here not further discussed. The advantage-disadvantage profile of the
valuation and pricing techniques is summarized in Fig. 3.7:
Income Approach Valuations based on the Income Approach apply forecasted FCFs for
the evaluation of the target company. A couple of valuation advantages of the Income
Approach are unique: From an application point of view, the Income Approach, espe-
cially the Enterprise DCF model, has the advantage to be the internationally most
accepted valuation technique. Additionally, the Income Approach is broadly applicable,
e.g. for the valuation of conglomerates, with a multi-business portfolio, one consistent
valuation method for the company as a whole, as well as for its different strategic busi-
ness units could be applied. The Enterprise Value of a conglomerate is equal to the sum
of its parts, meaning the value of its individual strategic business units less the NPV of
headquarter costs, plus the value of any non-operating assets. This is an outcome of the
value additivity principle of NPVs. Also, other strategic growth options and strategy
approaches can be evaluated by using NPVs based upon DCFs and are therefore compa-
rable concerning their financial valuation.
From a conceptual point of view, the Income Approach is advantageous as it is based
on one integrated set of financials: The FCFs are built upon P&L and balance sheet data,
mirroring the intertwined characteristics from financial statements. A second conceptual
advantage is, that DCF based valuation scenarios and simulations5 might provide a more
robust valuation by indicating a reasonable valuation bandwidth. This might increase the
awareness of the top-management of the potential spread in valuation outcomes and the
impact of worst-case scenarios. The Income Approach could also be used to model the
full value of the target’s Business Design within the acquirer’s context by integrating the
likely synergies. But, the most important advantage of the Income Approach is its going
concern characteristic as the valuation is built upon future DCFs. Multiples are based
simply on the actual capital market and target performance and the Cost Approach has,
due to its accounting view, a pure backward-looking pattern.
One of the disadvantages of the Income Approach is based on the need for a robust set
of forecasted financials to model the FCFs. Only if such a business plan projection with
the necessarily detailed financials is available, a sensible Income Approach-based valua-
tion is possible. This is the backbone of the well-known phrase in the corporate finance
literature “garbage in-garbage out”. Therefore, a demanding and time-consuming prepa-
ration is mandatory for a detailed valuation.
Typically, the DCF models are applied within an M&A context for the detailed and
thorough valuation of the target company based on in- and external financial data, start-
ing with the indicative offer, as well as for valuation updates during the Due Diligence
and the final valuation.
Multiple Approach The Multiple Approach could be applied using earnings multiples,
like Enterprise Value-to-EBITDA or EBIT, or sales multiples and could be based on an
Enterprise or Equity Value perspective, in the latter case e.g. by using price-earnings
multiples.
One advantage of multiples is, that they could be applied to value also non-traded
companies or strategic business units within a conglomerate by comparing the tar-
get or specific strategic business unit with listed peers, which are pure plays—Trading
Multiples—or recently published transactions—Transaction Multiples -. Companies in
the same industry and with a similar financial performance and risk profile should trade
in efficient capital markets at the same multiple. As multiples are based upon prices of
recent comparable transactions or stock market valuations they are therefore as well
close to actual equity or transactional market prices.
One of the limitations of the application of the Multiple Approach is that compa-
rable transactions or listed peers might be difficult to identify for a dedicated industry
5Most simulations for corporate valuations are based upon Monte Carlo simulations.
3.1 Valuation 127
or Business Design. From a theoretical point, one criticism is, that at least Transaction
Multiples include the premiums paid in past transactions and depend therefore on the
individual acquirer-target situation. But, the most serious disadvantage is the very sim-
plistic approach to derive the target value by comparing recent market prices with earn-
ings or revenues of peers. This has the serious downside that multiples and the valuations
built upon them see-saw like the underlying capital or M&A markets. Accordingly, the
Multiple Approach could be interpreted more as a pricing than an intrinsic valuation
approach.
Most valuations based on multiples are used for a rough initial valuation, like in the
case of simplified indicative offers. In those circumstances, an outside-in perspective
with limited financials and—so far—missing Due Diligence insights might have to be
applied. Besides, multiples are suitable for the framing and robustness check of Income
Approach-based valuations.
Cost Approach The cost approach is an accounting-based model, as it builds the val-
uation upon the book value of the target’s underlying assets and liabilities. The cost
approach is substantially limited for a valuation purpose as it does not address the value
of a company’s going concern. Besides, due to its asset and past performance orientation
it has no linkage to the future FCFs and value drivers of the underlying business.
Therefore, it is only applicable for valuation purposes when exiting the business is a
viable option to be assessed.
3.1.3.1 Income Approach
The Income Approach values the company by its FCFs, that is solely on the cash flowing
in and out of the company. These cash flows have the advantage, in contradiction to earn-
ings, to be independent of any accounting standards.
In the following, the focus will be first on the Enterprise Discounted Cash Flow
(Enterprise DCF) model. The FCFs in the Enterprise DCF model mirror the Free Cash
Flows (FCFs) as generated by its operating Business Design, less any necessary reinvest-
ments in the business, like capital expenditure or working capital. These FCFs are also
the pool of funds attributable to all investors. Consistently the Enterprise DCF model
uses as the opportunity costs and discount factor for the FCFs the Weighted Average
Cost of Capital (WACC). The WACC blends the cost of equity and debt with its relative
contribution to the financing mix. By using the WACC approach financing effects on the
value of the company, like tax shields, are embedded in the cost of capital, rather than in
its FCFs. The Enterprise DCF approach is useful in times where the company maintains
a relatively stable financing mix, meaning debt-to-equity ratio.
If a company’s financing ratio is volatile or changing, like it might be the case
in restructuring situations, in the years after a financial-crises, in the aftermath of the
Covid-19 crises or for the early years of a start-up company, this could be in principle
modeled as well by yearly adjusted WACCs. But, as this might become fuzzy, in such
circumstances the Adjusted Present Value method (APV) might be better suited. The
APV model separates the pure operating value of the company without any financing
impact from the value impact attributable to the company’s capital structure. The APV
model uses the same FCFs as the Enterprise DCF model, but discounts those FCF at the
unlevered cost of equity, instead of the WACC.6
Enterprise Discounted Cash Flow (DCF) Model The Enterprise DCF model values
a company by its FCFs which are defined by the Net Operating Profit Less Adjusted
Tax (NOPLAT) and the corresponding necessary investment in Invested Capital
to realize the NOPLAT performance. The FCFs are calculated after tax, as taxes are
cash-outflows. Besides, the FCFs are defined to be attributable to all investors7, there-
fore being independent of any financing structure or non-operating items8. Consequently,
NOPLAT is defined prior to interest expenses:
FCF = NOPLAT + depreciation − Investment in Invested Capital
= NOPLAT − Net Increase in Invested Capital.
A more precise definition of NOPLAT is revenues minus operational costs, less any
taxes. Tax expenses are calculated as if the firm held only core assets and would be
financed only with equity. The advantage of debt that interests are tax-deductible (tax
shield) is addressed in the WACC instead of the FCFs.
Invested Capital covers the necessary, meaning operating assets and liabilities as
required for the company’s core business. It includes typically items like capital invest-
ments (PP&E) and working capital, like inventories or accounts payable, less any financ-
ing provided by suppliers—accounts payables—customers, or employees. The definition
of Invested Capital is equal to the source of funds for its operational business, but is
independent of and does not incorporate the financing structure.
FCFs are closely linked to the value drivers of the company, as described in Fig. 3.3,
like the growth rate, RoIC and the sustainability of the competitive advantage of the
target company. The ROIC is defined as the company’s after-tax operating profit
(NOPLAT) divided by the average Invested Capital as contributed by all investors.
Whereas the NOPLAT is derived from the income statement the Invested Capital is
derived from the balance sheet.
6Cash Flow to Equity models will be not in detail discussed in this book as they mix operating
performance with non-operating items and capital structure. These valuation models are foremost
used, as described, for the valuation of financial institutions, where capital structure is an important
ingredient of the company’s Business Design.
7The investors might mirror the variety of capital markets, like financial institutions providing
loans, bond holders, convertible debt holders, mezzanine holders, preferred and common equity
holders.
8Therefore, the FCFs as defined for the Enterprise DCF differ significantly from the Cash Flow
from operations as defined by the financial statements.

3.1 Valuation 129
NOPLATti
RoICti =
InvestedCapitalti
The competitive advantage period, as the third driver with a lasting value impact, is the
period along which the ROIC consistently outperforms the WACC.
Workstream 1: Past Performance & Value Driver Assessment By a deep-dive assessment

of the target company’s past performance and value creation a better understanding of
its strategy and Business Design could be achieved and true value drivers, like RoIC and
growth, identified.
To calculate FCFs and the corresponding ROICs, the balance sheet has to be
re-organized to capture the Invested Capital and likewise the income statement to cal-
culate NOPLAT. As NOPLAT and Invested Capital mirror the pure operational perfor-
mance of a company, the audited financial statements have to be reorganized (Koller
et al. 2015a) to separate:
– operating performance
– non-operating performance, and
– capital structure.
After this restructuring of the financial statements and the carve-out of the operating
items Invested Capital and NOPLAT and thereafter FCF and RoIC could be determined
for the last years. Based on those financials the target’s past performance may be ana-
lyzed in detail. This involves assessments if and how the target company created value,
if and how its competitive advantage converts into high RoICs, if the target grows more
significantly than industry peers and if its competitive advantage seems to be sustainable.
A good grasp of the target’s value creation and value driver performance in the past
might foster a more robust and reliable forecast of its future performance. Additionally,
the performance diagnostics could go even beyond the first layer of value drivers by
increasing the granularity of assessment of the income statement and balance sheet on a
line item level.
Workstream 2: Forecasting FCFs & Performance: Operating Value The forecasted

future operating performance determines the NOPLAT, the Invested Capital and, in the
end, the FCF forecasts. The FCFs within the business plan period are forecasted explic-
itly, whereas the Continuing Value (CV) covers the long-term value, understood as the
value generated by the company beyond the business planning horizon. CV performance
and formulas should be in line with the assumptions about the steady-state performance
of the target’s value drivers, like RoIC or growth. For the calculation of the Operating
Value, the FCFs and CV have to be discounted by the specific cost of capital, which
means in the Enterprise DCF model, by the WACC.
t
CVt
OV = ∑DCFt +
1 (1+WACC )t
FCFt NOPLATt+1 ⋅(1−

g
)
DCFt = RONIC
(1+ WACC )t CVt =
(WACC − g) t
BP Period
Valuaon Period
Fig. 3.8 Operating value, DCF, FCF and planning period
Planning Period
Rather than forecasting the future FCF within the planning period directly, the FCFs
computation should be based on their underlying drivers like NOPLAT, depreciation and
investments in Invested Capital. For consistency, these value drivers should feedback to
the detailed line items of the income statement and balance sheet. They should also mir-
ror the most recent management forecast, e.g. the top-management approved strategic
business plan. Given the projections of the balance sheet and income statement line items
and by computing revenue, growth, EBITDA margin, and Invested Capital the FCF fore-
casts could be determined. Fig. 3.8 shows explicitly such a FCF and DCF projection:
Continuing Value
Short- to mid-term each line item of the financial statements as well as value drivers and
FCFs are explicitly calculated. But beyond a certain time-horizon, in most cases beyond
5–7 years, yearly forecasts on such a level of granularity might be difficult. Therefore,
the projection of FCFs beyond this business plan horizon point does not make sense and
might be substituted by applying a Continuing Value (CV) formula. The CV formula
timing should be in line with a steady-state, long-term performance of the company’s
value drivers like RoIC and growth.
3.1 Valuation 131
A couple of Continuing Value formula exist, but here the Key Value Driver for-
mula, as proposed by Koller et al. (2015a) is applied. The Key Value Driver formula
links long-run FCFs to their growth and ROIC performance of new investments but
also addresses reinvestment needs. A CV calculation requires as inputs a forecast of
the steady-state NOPLAT performance in the year following the end of the explicit fore-
cast period, the long run forecast for the Return on Newly Invested Capital RONIC, an
estimate of the WACC, and the long run growth (g):
g

NOPLATt + 1 1 − RONIC
CVt =
WACC − g
The CV is computed at the end of the planning period, therefore it has finally to be dis-
counted back to today’s present value.
WACC
For the final computation of the Operating Value the forecasted FCFs within the planning
horizon, as well as the CV, have to be discounted by—in terms of risk and methodology
-appropriate cost of capital. As the Enterprise DCF uses the FCFs available to all inves-
tors, the discount factor for FCF must represent the blended cost of capital. This is repre-
sented by calculating the Weighted Average Cost of Capital (WACC) as the investor’s
required rates of return for debt kd and equity ke weighted by the market value of Debt D
and Equity E based on their relative weights within the company’s financing mix. As
interest expenses are tax deductible and this advantage is addressed within the cost of
capital in the Enterprise DCF model, the cost of debt is reduced by the marginal tax rate
t. This mirrors the interest tax shield (ITS) as the tax advantage of debt funding.9
D D
WACC = kd (1 − t) + ke , with V = E + D
V V
whereby the cost of equity is determined by the Capital Asset Pricing Model (CAPM):

ke = rf +β rm − rf , with rf = risk free rate, rm = market return
Applying a constant WACC throughout the forecasting period, it is implicitly
assumed that the company maintains a fixed financing mix—debt-to-equity ratio -. The
9The impact of the company’s financial structure, foremost its interest tax shield (ITS), must be
addressed by the valuation. Enterprise addresses this impact in the cost of capital, as the tax shield
reduces the WACC and increases DCFs. By moving ITS from FCFs to the WACC, FCFs are com-
puted as if the company is entirely equity financed. Therefore, by benchmarking FCFs, the operat-
ing performance across peers without being biased by capital structure and financing side effects,
could be evaluated.
WACC can be adjusted to accommodate a changing capital structure. However, as the

process is complicated, in such circumstances the APV model, as an alternative, will be
recommended.
Operating Value
The Value of Operations is simply the sum of the DCFs within the planning period plus
the present value of the CV, whereby the latter presents the value of the company’s
expected FCF beyond the explicit forecast period of the business plan horizon:

∞
∞
Operating Value = (DCFt ) = (FCFt )/(1 + WACC)t
t=1 t=1
Workstream 3: From Operating Value to Enterprise Value to Equity Value The flow
from Operating Value, which mirrors the pure operating performance of the company, to
Enterprise Value and finally to Equity Value involves two steps (Fig. 3.9):
From Operating to Enterprise Value: Identifying Non-operating Cash and Equity

like Items
Many target companies own assets that have value but whose Free Cash Flows are
not part of the target’s Business Design and are addressed neither by NOPLAT nor
Invested Capital, as both have a pure operational view. Therefore, excess cash and other
non-operating assets are not covered by FCF and must be valued separately. Examples
for other non-operating assets might be excess cash, equity investments, nonconsolidated
subsidiaries or tradable securities.
Operang Non-Operang Enterprise Value Debt & Equity Value

Value Assets Debt like
items
Tradional definion of Debt: Interest bearing liabilies like

bonds and loans
Debt like items:

Pensions (underfunding)?
Tax liabilies?
Off balance financing (Leasing, Factoring,…)?
Fig. 3.9 Walk from Operating Value to Enterprise Value to Equity Value
3.1 Valuation 133
From Enterprise to Equity Value: Identifying Debt and Debt-like Items

The Enterprise DCF derives the market value of equity, the Equity Value, by deducting
debt and debt-like items from Enterprise Value. Equity is according to the absolute pri-
ority rule a residual claimant, receiving FCFs only after the company has fulfilled all its
other contractual claims, like:
– Debt: Any kind of interest-bearing liabilities, like bonds or loans, fixed versus floating
rate debt or foreign currency debt at their market value.
– Underfunding of pension liabilities: Companies with defined benefit pension plans
and promised retiree medical benefits may have underfunded their obligations. The
underfunding proportion should be treated as debt.
– Operating leases: Operating leases are in multiple industries like logistics, automotive
or industrial goods common forms of off-balance-sheet financing. Under certain con-
ditions, companies can avoid capitalizing leases as debt on their balance sheets. As
those assets are still necessary parts of their Business Design their off-balance sheet
pattern has to be undone and in parallel mirrored as a debt-like item on the funding
side of the Balance Sheet.
– (Off-balances-sheet) Contingent liabilities: E.g. IP disputes and lawsuits in the tech
industry or customer claims in the automotive industry.
– Minority interests of other investors in an affiliate, where the target is majority share-
holder have to be treated as debt.
– Preferred stock: The pattern of preferred stock is often closer to unsecured debt than
equity as dividend policies of incumbents in mature industries are often sluggish and
mimic therefore more interests.
For the Enterprise Value to Equity Value conversion, those debt and debt-like items have
to be deducted from Enterprise Value.
Workstream 4–6 The workstream 4–6 would be identical for all Income Approaches.
Within workstream 4 the indicated Equity Value should be stress tested by a set of
selected scenarios and framed by a suitable Multiple assessment. The Transaction Value
Add for the acquirer is then simply the difference between the indicative Standalone
Value of the target plus the NPV of all synergies minus the purchase price of the target
company, including all means of payment.
Adjusted Present Value (APV) Model Within an APV context, just workstream 2 with
the calculation of the Operating Value would be different in comparison to the Enterprise
DCF approach: Although the Enterprise DCF model is widely applied and is straight for-
ward in its calculation, it has also a couple of limitations and drawbacks. By discount-
ing the forecasted FCFs with a constant WACC an implicit assumption is taken, that the
company does not change its financing structure or that it keeps is debt-to-equity ratio
at a given target ratio. This might be a valid approximation for mature companies with
steady FCFs. In other cases, it would be a naïve assumption. E.g. in cases of VC or PE

transactions, where the acquisition might be funded and fueled by a significant propor-
tion of debt, thereby increasing the target’s debt-to-equity ratio, the current standalone
WACC of the target would understate the to be expected tax shield.10
Also, during a financial-crises like in 2007/2008 or in case of a company specific
restructuring the debt-to-equity ratio might in the first years increase and after a turna-
round or restructuring decrease. By applying a periodic-specific WACC, which adjusts
the blended cost of capital year-by-year to accommodate a changing capital structure, the
volatility of the tax shield could be addressed. However, these yearly adjustments of the
WACC are quite time demanding. The alternative approach of the Adjusted Present Value
(APV) method might be a relief:
The APV is a simple valuation framework to model more complex financial struc-
tures. In cases where the financing mix is expected to change significantly the explicit
modeling of the valuation impact of the capital structure might reduce the complexity of
EV valuation. The APV model applies this basic idea by separating the value of opera-
tions into two components:
1. The value of operations under the assumption of an all-equity financial structure and
2. The valuation impact of the financial structure, whereby the APV model does focus
on the first order effect of the tax shields arising from debt financing.11
The APV method calculates the Enterprise Value of an indebted company (APV) simply
as the sum of a debt-free company plus the net valuation advantage of a higher indebted-
ness by explicitly evaluating the interest tax shield (ITS) year-by-year.
APV = PV of debtfree enterprise + PV of ITS
The debt proportion is thereby assumed as given and dependent on the forecasted financ-
ing and debt retirement plan. The APV valuation uses the same FCFs as the Enterprise
DCF model, but discounts these FCFs at the unlevered cost of equity instead of the
WACC as in a first step the value of a theoretically purely equity financed target is
calculated:

∞
PV of debtfree enterprise = (FCFt )/(1 + kue )t ,
t=1
10According the Modigliani & Miller theory the second order effect of increased leverage would
counterbalance this primary ITS value advantage of increasing debt: Increased leverage will
increase a company’s financial risk, drop its debt rating and therefore increase its cost of debt &
equity.
11The traditional APV neglects the second order effect of increasing costs of financial distress
driven by a higher debt burden.

3.1 Valuation 135
with kue as unlevered cost of equity.

To this value of a pure equity funded enterprise the NPV contribution of debt financ-
ing benefits, like the Interest Tax Shields (ITS), is added. Interest tax shields could be in
principle discounted at either the unlevered cost of equity or the cost of debt, depending
on the assumed risk of being able to exploit the tax shield.
To evaluate the ITS in a first step the expected interest payments are calculated by
multiplying the prior year’s net debt by the expected yield on the company’s debt pay-
ments. The ITS for each year is then equal to the resulting interest payment multiplied
with the marginal tax rate of the company in any specific year. For calculation of the
NPV of the total tax shield the discounted tax shields of each year in the planning period
have to be added to the continuing value of interest tax shield beyond the planning hori-
zon. The latter is calculated by applying again a perpetuity model for the ITSs, using
unlevered cost of capital and growth in NOPLAT.

∞
PV of ITS = (ITSt )/(1 + kue )t
t=1
The APV, mirroring the value of operations, is simply the sum of the NPV of the
FCFs and the NPV of ITSs, by applying the cost of unlevered equity kue for both NPV
calculations.
3.1.3.2 Multiple Approach
A careful analysis of Transaction Multiples, based upon in recent transactions paid
prices for peers, and Trading Multiples, based upon actual stock market prices of peers,
are adequate cross-checks for the plausibility and robustness of Income Approach based
intrinsic valuations but are no substitute.12
Also, in case of subjective decision values or for a first indicative offer for a target
company a multiple comparison could serve as a first rough indication for the likely pric-
ing of a transaction. Furthermore, multiples might be applied for the identification of the
value drivers of a company, for benchmarking a company’s performance with peers or
for assessing—form a stock market perspective—which companies are believed to pos-
sess a competitive advantage which converts into a value outperformance on the stock
market. Last not least, Multiples might assist for sum-of-the-parts valuations of a corpo-
rate portfolio by providing an overview of the value contribution of the different SBUs.
The concept of the Market Approach intends to derive the likely, but unknown price
of a target company out of a comparison with a peer group. It applies the basic idea
that similar companies—the peer group—should sell for similar prices in efficient cap-
ital markets. The indicative Enterprise and Equity Value of a dedicated target company
12E.g. German accounting setter standard IDW S1: If stock market prices of comparable enter-
prises are available they have to be used as a cross check for the valuation.
are based on actual market values or, more precisely, prices. The Market Approach
wants to price an enterprise under the principle of a “apples-by-apples” comparison. The
unknown price of the target company is derived out of the prices of:
– Comparable listed companies (peer group): Trading Multiples or

– Recent comparable transactions: Transaction Multiples
Multiples like the Enterprise-Value-to-EBITDA or -EBITA ratio compare the relative

valuations of companies. The Multiples normalize the Enterprise or Equity Value as
given by the capital market by revenues or profits before or after interests.
For the assessment of the indicative market price of the target company the mean or
median value of the specific Multiple of the peer group is multiplied with the target’s
performance indicator which fits to the specific Multiple, e.g. in case of an Enterprise
Value-to-EBITDA Multiple with the actual or forecasted EBITDA performance of the
target company (Fig. 3.10):
The Multiples of the Market Approach could be based on:
– Comparable transactions or stock market prices of comparable companies and

– Either on an Enterprise Value—indirect way to deduct the Equity Value as in the
Enterprise DCF Approach—or Equity Value perspective
The design options of the Multiple Approach are pinpointed in Fig. 3.11:
Trading versus Transaction Multiples The Trading Multiple concept is based upon
the assumption, that share prices mirror the fair value of comparable listed compa-
nies. Therefore, share prices are also believed to be best approximations for the pricing
of the target company. Recent share prices represent the valuation at a given point of
time, thereby incorporating all latest market and industry trends, as assessed by the cap-
ital market participants. Trading Multiples incorporate no control premia. The target of
the analysis of comparable stock listed companies is the calculation of industry specific
Multiples for a rough indicative valuation of the target company.
The idea of the Transaction Multiples is, that prices, which were paid in past, com-
parable transactions, are a fair approximation of the actual value of a target company.
Equity- / enty Performance Mulple

price indicator
= *
(value) Peer Group
of Target Co. as reference point
of Target Co.
Fig. 3.10 Multiple approach—the concept

3.1 Valuation 137
Comparable Comparable
Companies Transacons
Mulple Trading Transacon
concept mulples mulples
Valuaon Approach
Market Equity Enty

approach mulples mulples
Income Equity Enterprise

approach Valuaon Valuaon
Naonal / Banks Internaonal

Concept Applicaon
Fig. 3.11 The multiple matrix
In contrast to the Trading Multiple concept the Transaction Multiples mirror prices paid
for the majority ownership within past transactions and therefore incorporate strate-
gic control premia. The ultimate target of Transaction Multiples is identical to Trading
Multiples. By assessing industry specific Multiples, here including premia, the indicative
value of a target is derived.
Enterprise Value versus Equity Value Multiples A second pairing is Enterprise Value
based Multiples versus Equity Value based Multiples. The first uses as a denominator an
earning’s indicator before interest, as the Enterprise Value covers all investors of a com-
pany, whereas the latter takes earnings after interest into account, as just the equity hold-
ers are addressed by Equity Value based Multiples. Typical multiples applied in practice
are described by Fig. 3.12, whereby the selection of the best fitting multiple will be cov-
ered later in the Multiple Design description. Besides, to derive the Equity Value of the
target company by Enterprise Value based Multiples, the net-debt of the target company
has to be deducted, whereas Equity Multiples provide, per definition, straight the Equity
Value.
The Design of a Suitable Multiple Assessment A couple of design principles might sup-
port a sensitive Multiple based indicative pricing or framing of a valuation (Koller et al.
2015a):
Peer Group P&L
Turnover Enterprise
mulples
EBITDA
to
Enterprise Value
EBIT
Equity Value
NOPLAT Target Co.
Equity
mulples
EbT
to
Equity Value
EaT / net income
Fig. 3.12 Multiples based on Enterprise versus Equity Values
1. Forward looking Multiples

To be consistent with the principles of valuation, forward-looking estimates of earn-
ings before interest, like EBITDA or EBITA in case of Enterprise Value Multiples, or
after interest, like Earnings before Tax or Net Income in case of Equity Value Multiples,
are more applicable than Multiples based on actual or last year’s performance. As
forward-looking Multiples indicate, at least partially, expectations about a company’s
future performance, they are more in line with the principles of corporate valuation than
the latter. Also, forward-looking financials should be normalized and therefore avoid
misinterpretations due to one-time effects, like restructurings or patent litigation costs.
Finally, Multiples based on performance forecasts have typically a lower spread across a
defined peer group, narrowing thereby the valuation bandwidth.
How far forward-looking Multiples should be designed depends on context and
is in line with the Continuing Value discussions within the Enterprise DCF model.
For start-up companies, digital businesses, platform strategies or patent valuations the
Multiple should be based on a longer-term perspective, taking a forecast of earnings in a
steady state ROIC and growth scenario into account. On the other side, for more mature
businesses already the next year’s EBITDA or EBITA forecast might be suitable.
2. Most applicable Multiples

Multiples have to be designed consistently, meaning that the value (numerator) and earn-
ings (denominator) must be based on the same underlying assets. For instance, if an
Enterprise Value Multiple is used only an Earnings before interest denominator is accept-
able or if excess cash is excluded from value, also interest income has to be excluded.
3.1 Valuation 139
Corp. X Corp. Y
EBITDA 15 15
Interest Expenses 2,5
EbT 15 12,5
Taxes (30% tax rate) 4,5 3,75
EaT 10,5 8,75
Bond at 5% interest rate 50

Equity 100 50
Enteprise Value 100 100
P/E Rao 9,5 5,7

EV to EBITDA Mulple 6,7 6,7
Fig. 3.13 EV-to-EBITDA Multiple versus P/E ratio
The Price-to-Earnings (P/E) ration, defined as market capitalization divided by prior

year’s or the actual year’s forecast of earnings after tax is the most widely applied rel-
ative valuation metric on capital markets. Nevertheless, P/E-ratios mix up operat-
ing performance with capital structure impacts and non-operating items. Enterprise
Value-to-EBITDA ratios, for example, are much better suited for peer group compar-
isons and Multiple assessments as they are not dependent on non-operating or capital
structure impacts.
The following example in Fig. 3.13 highlights how differences in capital structure dis-
tort the P/E-Multiples whereas Enterprise Value-to-EBITDA multiples are independent
of the financing side-impacts. Therefore, the latter might be more reliable and robust for
a peer-group assessment:
Two corporations X and Y should be comparable with respect to their operating per-
formance with an EBITDA of $15 m and an Enterprise Value of $100 m, therefore both
trading at an EV-to-EBITDA Multiple of 6.7 times. The only difference is that corpo-
ration X is fully equity funded whereas corporation Y is by 50% levered. Since both
companies trade at a low EV-to-EBITA Multiples in comparison to Interest-to-Debt
Multiples, the P/E Ratio decrease for the company which uses more leverage, here cor-
poration Y. The P/E Ratio decreases in this case due to leverage, despite both companies
have the same operating performance.
3. Multiples and value drivers

Koller et al. (2015a) also stress the close tie between Enterprise Value-to-EBITDA
or -EBITA Ratios to the core value drivers of FCF and a company’s operational per-
formance, like NOPLAT, ROIC, and growth: The EBIT(D)A Multiples increase with
a lower tax rate or cost of capital, but these two factors are more exogenous given by
the national tax regime or the specific industry risk pattern. Therefore, these two fac-
tors should not differ in case of peer group comparisons. The company’s specific busi-
ness performance indicators are its ROIC performance and growth momentum. The
EBITDA-Multiple will increase in line with a higher ROIC, whereas growth will only
be value contributing, if the company’s competitive advantage translates into a positive
spread, meaning that ROIC outperforms the WACC.
4. Tailored peer group.

The peer group is decisive for the Multiple Design. A first round selection of peers might
apply Standard Industry Classification (SIC) codes, or Global Industry Classification
(GIC) codes to identify companies from the same industry. Peers from the same industry
should typically trade at roughly similar Multiples. Nevertheless, due to differences in
their operating performance concerning growth and ROIC, they should show some var-
iance. For a sensible Multiple assessment, therefore, the peer group should be addition-
ally narrowed down to competitors with roughly comparable performance metrics.
Comparison of Multiples Approach with Income Approach An Enterprise DCF model

might be the most detailed and accurate method for valuing a company. Nevertheless, a
sensitive Multiples analysis might be useful for the framing and stress-test of Enterprise
DCF-based valuations. Both approaches have their specific advantages and disadvan-
tages and might, therefore, be used more as complements than as substitutes:
The most fundamental advantage of the Income Approach models is, that they are
based on the future performance of the to be evaluated company, and are therefore in line
with the core principles of corporate valuation. Additionally, by using FCFs, they incor-
porate, besides the operating earnings performance of a company, also its investment
needs like capital expenditure and working capital. Additionally, by applying sensitivity
analysis, scenario-based valuations and simulations, a robust valuation bandwidth of a
company could be defined and linked to the underlying value drivers of the company’s
strategy and its industry. Besides, the valuation could be run on a standalone basis or
including synergies. Last not least, the Enterprise DCF model is the internationally most
accepted valuation method.
Nevertheless, the Income Approach has also certain limitations. First, it is only as
accurate as the forecasts of its underlying FCFs it relies on, being fully dependent on the
quality of those forecasts. Additionally, these valuation models are very sensitive to the
applicable cost of capital as denominator of the FCFs and to the Continuing Value which
covers the value contribution after the explicit planning period. A sensitive analysis of
3.1 Valuation 141
those two factors are “mission-critical” elements for a high-quality Income Approach
based valuation.
The advantages and disadvantages of the Multiple Approach are more or less
flip-sided to the Income Approach. One plus of the Multiple Approach is, that the
derived prices are based on very recent market prices in perspective to a specific, ded-
icated peer group. As the Multiple Approach is based on two selected, but necessarily
consistent financials, only a limited set of data and efforts are necessary. Additionally,
Transaction Multiples might indicate strategic premia paid in recent transactions.
The simplicity of the Multiple Approach comes with a set of disadvantages. The most
severe criticism of Multiples is, that they are in the end no true intrinsic valuation, but
mirror “just” recent prices of the stock-market or transactions. Additionally, the compa-
rability of transactions or peer groups of comparable companies might be limited. The
Multiples are also limited for valuation purposes, as they do not address a company’s
specific strategy, value drivers and performance level.
3.1.4 Valuation Summary
For the definition of a reasonable valuation bandwidth the final valuations of the Income
Approach, based on an Enterprise DCF or Adjusted Present Value methodology, and
the different Multiple Approaches could be summarized in one chart, like in Fig. 3.14.
This valuation canvas might get even more powerful if it might include as well different
Valuaon bandwidth
(Income Approach)
in m $
ENTERPRISE DCF
VALUATION
“worst” “realis c” “best”

DCF w/o synergies case case case
“worst” “realis c” “best”

DCF with synergies case case case
EBITDA-Mulple
(Market Approach)
(2019 – 2020)
VALUATION
MULTIPLE
EBIT-Mulple
(2019– 2020)
Normalized EBIT-Mulple
(adjusted 2019 – 2020)
Fig. 3.14 Valuation Canvas

valuation scenarios (best, worst, most likely cases) and valuations with and without the
NPV of synergies:
Such a valuation canvas might also be used for the board discussions with respect to
final purchase price discussions and decisions.
3.2 Due Diligence
The Due Diligence is, in essence, the process whereby the potential acquirer back-tests,
meaning verifies or falsifies, the investment thesis. The indicative stand-alone value and
the assumed synergies, as well as the target’s competitive advantage, might be of spe-
cial interest. Nevertheless, the Due Diligence has to dig deep in legal, financial, strategic
and business matters of the target company to detect potential risks and upsides of an
acquisition.
 Definition
The Due Diligence intends a consistent, robust and stress-tested proof-of-concept of the
investment thesis concerning the target company. High-level questions might be: How
sound is the standalone valuation based on forecasted FCFs? How likely are assumed
synergies and how realistic are their estimated volumes and timeframes to capture them?
How have the Business Designs of the acquirer and target to be adjusted to realize
those synergies and how could the Joint Business Design lever all upsides of the trans-
action? How could a sensible Joint Culture Design realize talent retention and avoid
culture clashes? What are the crucial legal, financial and business risks of a potential
transaction?
Such a Due Diligence process is highly complex and consists of multiple activities
like site visits of the most important factories, sales outlets and R&D centers, the assess-
ment of the most critical documents in a virtual or physical data room, as well as man-
agement presentations and discussions. Therefore, the management of the Due Diligence
is of paramount interest for a successful transaction.
The following subchapter will first highlight the Due Diligence targets, before assess-
ing the overall management, the organization, the processes and the tools of a Due
Diligence. After this overview, the specifics of the Strategic and the Financial Due
Diligence, as two decisive traditional parts of the overall Due Diligence, will be ana-
lyzed. The last part does focus on the Proof-of-Concept of the Standalone Business and
Culture Designs as well as the Redrafting of the Joint Business and the Joint Culture
Design within the Due Diligence framework.
3.2 Due Diligence 143
3.2.1 Due Diligence Targets
The Due Diligence is from an E2E process flow view perspective the follow on step after
the indicative valuation of the target company. This assumes, that the potential seller is
satisfied with the indicative offer and agrees to “open his books”. In benchmark M&A
processes the valuation and the Due Diligence are strongly intertwined: The indic-
ative valuation of the target company and synergies is the starting point and could be
interpreted as an investment thesis. This investment thesis has to be proven in the Due
Diligence. The outcomes of the Due Diligence have to be feed-back into the update of
the valuation and synergy estimates.
The origin of the Due Diligence lies in the information asymmetry between the buy
and sell side. The entrepreneur and the management team of the target company might
know the company inside-out. The potential acquirer, on the other side, has in most
cases a very limited information level concerning the target company prior to the Due
Diligence (Gole and Hilger 2009, pp. 7–9). This information deficit has to be bridged by
a focused and intense Due Diligence in a very limited timeframe, typically of three to six
weeks. Before providing sensitive and confidential data the seller will request the signing
of a nondisclosure agreement, which protects data leakages and allows the use of the
accessed data of the target by the acquirer only for Due Diligence purpose.
The reliability of the Due Diligence data is for the quality and robustness of the Due
Diligence outcomes essential. Acquirers use therefore a wide set of sources, as pin-
pointed in Fig. 3.15 and run multiple cross-checks. The latter are levered by newest digi-
tal Due Diligence tools, especially within the Legal and Financial Due Diligence.
Strategic Business Plan

Target internal sources:
Strategy Projects Site visits
Interviews with management Interviews
Workshops with selected Management presentaons
employees VDD documents of the target
Internal data of the company…
IB reports
Web reports
Target external sources: Customer surveys
Interviews of people outside the
Expert interviews
target company, reports…
Competor & supplier inquiry
Benchmark studies
Secondary stascs
Consultant analysis
Reliability of the informaon

independent qualified robust clear
Fig. 3.15 Information sources of a reliable Due Diligence assessment

Acquirers use the Due Diligence typically for multiple targets, like:
– The verification of the investment thesis, especially of the stand-alone value and the
synergies as estimated prior to the Due Diligence
– To stress-test assumptions and to get a sound understanding of the business model, the
strategy, the sources of the target’s competitive advantage and the value drivers of the
target company
– The benchmarking of high-level financial indicators and operational indicators with
the best in class competitors
– The assessment of the financial, strategic, Business Design and Culture Design fit
between the acquirer and target
– The identification of the essential strategic, legal, financial, operational, and cultural
risks of the specific transaction as well as its potential upsides
– A proof-of-concept of the Integration Approach, especially the intended JBD and
JCD, as well as a first draft of essential integration topics and the integration design
which have to be detailed within the Integration Masterplan
The outcomes of the Due Diligence will be feed-back in the update of the valuation and
therefore in the final purchase price discussions. Besides, in the Due Diligence identi-
fied risks will determine the structure of the purchase agreement and potential integration
needs.
3.2.2 Due Diligence Management and Process
In today’s world of business model variety and tectonic shifts in ecosystem boundaries,
a tailored Due Diligence is mandatory. The Due Diligence has to be adjusted concern-
ing the size and complexity of the intended transaction, the Business Design, as well as
the cultural and international footprint of the target company. A holistic Due Diligence
management framework incorporates not only the design of the Due Diligence pro-
cess but also the selection of a highly-capable Due Diligence team, the design of the
Due Diligence modules, and the development of suitable tools for efficient Due
Diligence assessments.
3.2.2.1 Due Diligence: Overall Process Management

The timeframe of Due Diligence processes is in most instances limited to 3 to 6 weeks
to avoid information leakages. On the buy side, the necessary information for an in-depth
assessment of the likely chances and risks of the potential transaction has to be gained
within this very limited timeframe. Therefore, a highly efficient process design, which
keeps the balance between the necessary depth but gets not lost into too many details, is
mandatory.
3rd Round
2nd Round
1st Round
Generic Data Room More detailed informaon Further on site DD may be conducted
Crical strategic and is presented Mission crical informaon is
financial informaon Management presentaons, disclosed shortly before signing
foremost excluded discussions and on site DD (e.g. license agreement with competors,
might be conducted IP, terms and condions of key customer
Possibly large
Selected Interviews contracts)
Foremost 1:1 situaon
number of bidders
(20-30) Limited number
of bidders
Exclusive
(5-8)
for final bidder
Fig. 3.16 Multi-round Due Diligence process
To manage the trade-off between the confidentiality interests of the sell side and the
information needs on the buy side, multistep Due Diligences are nowadays standard
practice, especially within M&A auction processes (Fig. 3.16):
The potentially interested parties on the buy side will get in a first-round access to
generic information, like audited financial statements or the general business plan of the
target company. This first-hand information is for ease of use and scalability frequently
bundled within a so-called information memorandum. Such an orchestrated process
allows the target company on the one side to approach many potential buyers without
having to be afraid of the leakage of confidential information, on the other side to ini-
tiate a bidding contest. Besides, due to a professional preparation of the separate steps,
a higher quality of data in comparison to physical data rooms is frequently realized.
Especially in international M&A projects are Virtual Data Rooms (VDRs) state-of-the-
art where the data are structured and stored within a password protected cloud. This ena-
bles a cost-efficient, web-based, secure process design, where multiple interested parties
around the world might access at the same time the VDR.
For the preparation of the second round, the seller selects the most attractive bidders
by requesting an update of their indicative valuation. The selected bidders of the second
round will be then provided a much wider database, multiple assessment possibilities,
on-site visits and management discussions.
In the last, third round, final purchase price discussions and contract negotiations
will be initiated with a hand-picked number of final bidders. In this round very sensi-
tive information on customers, IP rights, or financials might be released shortly before
closing.
The seller should be the orchestrator of such a multi-round Due Diligence process,
as this offers the chance to avoid any surprises on the buy side. To tackle the multiple
critical topics of the Due Diligence and the massive amount of information, the acquirer
has to use an interdisciplinary and highly qualified Due Diligence team, which has all the
necessary capabilities to assess the target company:
3.2.2.2 Due Diligence: Project House, Modules and Teams

The selection of the Due-Diligence team (Herndon 2014, p. 66) is by itself a challenging
task, as it involves not only the selection of internal team members but also the targeted
insourcing of consulting services for specific Due Diligence subjects where the internal
capabilities might be missing or limited.
The project lead of the Due Diligence has to safeguard a proper steering and coordi-
nation of the different Due Diligence modules. Besides, the orchestration of the exter-
nal resources like consultants and investment banks has to be assured. Detailed tasks of
the Due Diligence projects house are the timing, the steering and the monitoring of the
different Due Diligence modules, as well as the integrated processes with the dedicated
focus to answer the core questions of the Due Diligence. The key challenge of the DD
project house lies in the integration of the different Due Diligence tasks to an overall
picture of the true risks and upsides of the potential transaction. In addition, the project
lead has to coordinate the information needs from their own Due Diligence teams at the
interface to the target company and has to ensure a transparent and permanent communi-
cation of the interim results between the modules and the top management.
Therefore, general management and communication capabilities might be as impor-
tant as specialist M&A know-how for the Due Diligence leadership team. In most
instances where the potential acquirer has an in-house M&A team, one of the members
of this team might be the most suitable project leader for the Due Diligence (Gole and
Hilger 2009, pp. 93–97) (Fig. 3.17).
Due Diligence Steering Commiee
Due Diligence project lead and project house

Module
Strategy & Financial Legal Business Design Due Diligence Culture Design,
Due Diligence Due Diligence Core Assets & Market, Compeon … Management &
Capabilies and Sales Organizaon
Strategy documents Customer contracts Quality standards Business Definion Standalone Culture
Business plan Employment contracts Trademarks, IP (incl. boundaries) Diagnoscs and JCD
Enterprise valuaon Company contracts Factory layout & Market and customer proof-of-concept
FCF and value drivers Warranes process use case analysis o Regional
P&L and drivers, incl. Liabilies Product concept and Competor analysis o Corp. values
fix vs. variable cost Claims overview Sales development & o Management
Balance sheet (equity, IP Rights, patents Technical posioning planning
debt, assets, liabilies) Property rights (incl. real Technologic chances High runner and Return Wages and benefits
Audits estate) and risks; assessment Core competencies
Key issues
Exchange-rate risks Shareholders Distribuon & logisc Customer analysis and qualificaons
IC-relaons Antrust issues concept Order planning and Organizaon Chart
Tax effects Change of control clauses R&D competencies structure Employee structure
Accounng policies IT architecture Order backlog Employee contracts
Non-recurring revenues Product quality … Working hours
& expenses Exisng product Working Pensions et al
Sales & EBIT per product porolio Management team
…
Valuaon & scenarios, Clear picture of legal risks

Detailed understanding of Business Design Transparency of
Value drivers and FCF management risks
Likelihood of synergies
Strategic raonal
Fig. 3.17 Due Diligence project structure and project house

3.2.2.3 Due Diligence: Workstreams and Stage Gates

An efficient and effective Due Diligence addresses the core questions within dedicated
workstreams. The later might be decomposed in working packages and subprocesses:
Due Diligence Stage-gates and Workstreams overall Due Diligence processes could be
structured along the following five work streams and stage gates (Fig. 3.18):
Workstream and Stage Gate 1: Definition of Due Diligence Strategy

As a starting point, the Due Diligence strategy has to tailor the common targets of the
Due Diligence for the specific target company, like:
– What kind of competitive advantages should be assessed?

– What are the most important value drivers and synergy potentials which should be
analysed?
– Which potential core risks should be screened?
Besides the specification of these targets, the rough timetable for the Due Diligence
has to be defined and agreed upon with the top management of the sell side. Last not
least the project house has to select the specific Due Diligence modules for the target
assessment.
Due Diligence Process: Work streams

informaon for
further valuaon
• Searching for
„hidden“ risks
• Synergy proof
Negoaons Deal Closure
• Gaining insights
• First contacts • Aer detailed
for integraon & negoaons
• Outside-in perspecve
negoaons • Based on final
valuaon and DD
DD-Strategy Define DD DD preparaon Execuon of detailed DD DD summary

and set up of Team and preliminary and wrap up
key foci invesgaon
Data- Management Onsite
room interviews visits
Fig. 3.18 Due Diligence workstream and stage-gate model

Workstream and Stage Gate 2: Design of Due Diligence Teams and Capabilities
After the definition of the Due Diligence strategy, targets and rough timeline, the man-
agement team on the buy side has to select the project leader for the Due Diligence
endeavour. The latter has to define the necessary resources and capabilities for the spe-
cific target assessment. Based on this first screen, an appropriate organizational Due
Diligence structure with according core modules, like strategic, financial, legal, Business
Design and Cultural Design Due Diligence, has to be defined. By mirroring the internal
capabilities with the mandatory competencies to assess the target risks and upsides com-
petency gaps and therefore necessary external resources, which might have to be hired
from consultants, Big4 companies or investment banks, could be identified.
In case of more complex and international Due Diligences, the establishment of a
project house which supports the project leader is common use. The tasks of this pro-
ject house are the coordination of the different modules, the enhancement of the smooth
communication between the three layers management team, Due diligence project lead
and project managers, the definition of work packages and timelines, the development of
suitable Due Diligence tools as well as the definition of consistent reporting standards.
The project house has as well to coordinate all activities and timelines with the sell side.
Workstream and Stage Gate 3: Preparation of the Due Diligence

In the third workstream, all Due Diligence team members should be brought onto the
same information level. The project management can achieve this by providing a first set
of information on the target company based on an outside-in assessment and the intended
timeline of the Due Diligence. Besides, the mission-critical outcomes of the Due
Diligence assessment and potential deal breakers, like hidden facts, financials, potential
liabilities or significant management issues, are addressed. Also, the tasks, responsibil-
ities and competencies for each module and team member have to be clarified at this
stage.
Workstream and Stage Gate 4: Execution of Due Diligence

Workstream four, the operational execution of the Due Diligence, is the most intense and
complex sub-stream. It covers virtual or physical data room assessments of legal, com-
mercial, financial and other important documents or contracts, management interviews
and presentations as well as site visits. These three layers should assure a high quali-
tative assessment for the strategic, financial, operational, legal, management, Business
and Culture Design Due Diligence. The operational part of the Due Diligence might be
supported by tailored Due Diligence tools which will be discussed in the next subsection.
Workstream and Stage Gate 5: Due Diligence Summary

In the final workstream five, the core outcomes of the Due Diligence are described
and summarized. This might be even more challenging than stream four, as a signifi-
cant amount of documents and findings has to be consolidated and the most crucial ones
selected. For the top management summary the following questions might be used as a
guideline:
– Based on the Due Diligence information and findings: Should the intended transac-
tion still be realized or are there crucial deal breakers?
– In line with the Financial and Strategic Due Diligence: What are realistic estimates
for the synergies and the stand-alone value of the target company? Are synergies
likely? What is, therefore, the upper limit for the purchase price? Are the competitive
advantage of the target and the transaction rational verified?
– Based on the Due Diligence risk assessments: Which kind of risks have to be
addressed in the purchase agreement, for example by using representations and war-
ranty clauses, and what might be the ideal deal structure (asset versus share deal)?
– Along with the overall Due Diligence findings: what should be the priorities for the
Integration Management?
– Is the intended JBD robust and does it address the transactional rational?
– Could culture clashes and talent drain avoided by a sensitive culture transition?
3.2.3 Due Diligence Tools
An efficient management of the workstreams requests a standardized and digitalized

Due Diligence toolset. This toolset has to assure that even under time pressure the most
important risks will be identified and the fair value of the target company, as well as
the synergies, assessed. The Due Diligence tools will be discussed along the five defined
workstreams (Fig. 3.19):
Due Diligence Tools for Workstream 1

Before setting up the Due Diligence, a Non-Disclosure Agreement (NDA) is signed by
the potential acquirer and the seller. Standardized NDAs intend, as described, the pro-
tection of sensitive target company data, but should as well enable a smooth execution of
the Due Diligence. A second tool prior to the ramp up of Due Diligence efforts are Letter
of Intents (LoIs). Those LoIs cover, besides the indicative, non-binding offer, the crucial
assumptions on which the offer is based, necessary board approvals prior to a final trans-
action and proposed next steps of the Due Diligence process.
A one pager, which describes the most important targets within the core fields of the
Due Diligence assessment, summarizes briefly the Due Diligence strategy. The summary
might be used as a guideline throughout the overall Transaction Management to avoid
getting overcrowded during the later execution of the Due Diligence.
Due Diligence Process (con’t): Deliverables

DD-Strategy Define DD preparaon Execuon of DD summary
and set up DD Team & preliminary detailed DD and wrap up
responsibility
Kick-Off invesgaon
Meeng Data- Management Onsite
room interviews visits
DD Project Manager DD Project Manager DD Project manager DD Project manager DD Project manager
Regional MD Regional MD Sub Teams Sub Teams Sub Teams
Business MD Business MD DD-team members DD-team members MD´s
DD strategy & Deal Definion of teams, Informaon memo Site visit Mgt. report
architecture (share vs sub teams and team Time and resource planning Management interviews Mgt. presentaon
asset deal, earn out,…) members Contact details Analysis of documents in the Mgt. discussion
acons
Definion of DD Definion tasks & Preparaon packages (DD data room

framework & key / focus responsibilies quesonnaire & request list, Idenficaon deal breakers
areas Define guideline for templates…) and risks
Precise definion of communicaon Data room preparaon Verificaon success factors,
value, synergy and First design of work value and synergy thesis
investment thesis streams based on focus In depth analysis acc. work
points Short streams Management
Team Cross checks Summary
info-package
NDA for details

NDA about target
DD- guidelines,
results
team Management
Leer of members Handbook +
Intent Definion of DD framework / Presentaon
DD-quesonair +
work streams DD-request list
Fig. 3.19 Due Diligence responsibilities, tasks and tools

The tools of the second workstream focus on the organizational preparation of the Due
Diligence, the insourcing of necessary capabilities and the setup of the project structure.
The starting point are NDAs for the individual team members to avoid within the acquir-
er’s organization a leakage of information. The organizational setup of the project team
might be supported by standardized and digitalized templates and reporting standards, as
well as by Due Diligence module concepts. These standards have to be adjusted accord-
ing to the needs of a specific transaction design, the transaction rational and the Business
Design of the specific target company.
With the support of an info-memo the most important information about the target
company, based on outside-in assessments, will be summarized. This info-memo serves
as a first-hand information for the full-fledged Due Diligence team.

Within workstream three the project leadership team might initiate a kick-off session
with an intense briefing about the target company as well as the timing, the process flow
and the intended outcomes of the Due Diligence efforts. This meeting must also frame
the responsibilities and deliverables of the different modules and team members as well
as mandatory reporting standards.
The project house might also provide a short-hand training of the Due Diligence tools
to be applied in workstream four and might prepare a cloud-based platform, where the
tools could be downloaded.

Workstream four covers the execution of the Due Diligence. A broad variety of tools
focus on this workstream, like data room request lists, data room assessment tools, and
tools which support the site visits and the management discussions:13
– A module specific, digitalized Due Diligence question-list frames the core questions
which have to be tackled by the individual modules and which have to be assessed
and answered during the course of the Due Diligence execution phase.
– A Due Diligence data room request-list serves as a preparation of the Due Diligence
efforts and VDR content as it describes the crucial legal, financial and further docu-
ments requested by the buy side from the sell side to gain a sound understanding of
the target company. Additionally, the Due Diligence data room request-list is used to
have a permanent transparency in which documents have been provided by the target
company, which have been assessed by the Due Diligence teams and which ones are
still missing. The last point is in so for important, as information loopholes have to be
early detected and addressed by the buy side.
– A site visit guideline assures that a maximum of information is achieved by the
in-person visits of the factories, sales outlets or R&D centre of the target company.
The site visits are of special interest to gain further insights for the valuation of
assets and processes of the target company and serve as a blending for the informa-
tion achieved by the screening of the documents in the virtual or physical data room.
Together with the later a holistic view of the target company should be achieved.
– Last not least, a management interview-guideline is used for the design of the man-
agement interviews. It ensures a maximum outcome of those interviews, fosters a
cross-check between Due Diligence findings and enables a valuation of management
capabilities and qualities within the target company.

The challenge of workstream five is to summarize the massive amount of data and out-
comes of the Due Diligence and to crystallize the most crucial risks and upsides of the
potential acquisition of the target company. Tools which might support within this work-
stream are standardized management reports and presentation templates which keep the
balance between a detailed discussion of the Due Diligence findings and a focus on the
most crucial transaction topics.
13Detailed Due Diligence checklists are provided, for example, by Gole and Hilger (2009, p. 108).
3.2.4 Core Parts of the Due Diligence
As Due Diligence processes are complex and heavily content-driven, they are structured
in modules. A couple of overall modules, like the Financial or the Legal Due Diligence,
have to be addressed in more or less any Due Diligence, but the detailed structure within
those modules has to be tailored for the specific transaction. Other modules, like the
Business Design Due Diligence and Diagnostics, are from the very beginning dependent
on the target company, its ecosystem and its strategy. Besides, new developments, like
platform and digital Due Diligence questions renewed classical Due Diligence matters.
The latter are addressed in the following within the design of the Due Diligence.
Typical Due Diligence modules are:
– Strategic Due Diligence (SDD)

– Financial and Tax Due Diligence (FDD)
– Legal and Compliance Due Diligence (LDD)
– Business Design Due Diligence (BDD), which covers the traditional commercial, the
management and HR, the organizational, the digital and platform and other opera-
tional Due Diligence fields
– Culture Design Due Diligence (CDD)
The later gained in the last couple of years in importance as more and more transactions
are cross-border deals or involve different corporate value systems, like in cases where a
large corporate buyer acquires an agile start-up company (Fig. 3.20).
Strategic Due Diligence

• Target porolio diagnoscs
SDD FDD Financial Due Diligence
• P&L Diagnoscs: ROIC and growth
• SBU strategies and compeve assessment, decomposion of top-line in
advantage value drivers
• Ecosystem trends and boundaries, SWOT • B/S diagnoscs: Debt & debt like items;
• Core competencies PP&E, CapEx and working capital
CDD
• White Spots • FCF diagnoscs: Cash conversion, …
• Competor Profiling • Synergies: Likelihood, volume, ming,
• Strategy & innovaon projects robustness
Legal Due Diligence • Regional culture embeddedness Business Design

• Corporate value architecture
• Corporate charters • Tone-of-the-top
• IP and patents • CO: SBUs, value chain, HR & management
• Employment contracts and terms • CV: Core products, services, web-offerings
• Claims • CM: Core markets, use cases, segments
• Change of control • CR: Relaonship model
• … • CH: Distribuon channels and logiscs
• CA: Factory footprint, IP,…
LDD BDD • CC: Core capabilies, e.g. reserach,..
DD Modules
Fig. 3.20 Due Diligence modules
In the next subchapters the mission-critical Due Diligence modules will be discussed,
whereby the focus will be on the Strategic (SDD), the Financial (FDD), the Business
Design (BDD) and Culture Design Due Diligence (CDD):14
3.2.4.1 Strategic Due Diligence

The ultimate target of the Strategic Due Diligence (SDD) is the identification and verifi-
cation of the competitive advantage and standalone attractiveness of the target company
as well as of the transaction rational. The following five questions and building blocks of
an SDD might foster this understanding:
– How are the corporate portfolio and the SBUs with their unique ecosystem designed?
How would the target company’s portfolio fit with the acquirer’s one? What are the
strategic synergy levers between the acquirer’s and the target’s portfolio?
– What are the outstanding and unique advantages of the target company on a corporate
level, its parenting advantages, and on strategic business unit levels, its competitive
advantages? How strong are the competitive advantages in comparison to the most
capable competitors of its peer group?
– How might the attractiveness of and the trends within the different ecosystems of the
target company, which include the competitive environment, the customers, use cases
and core technologies, evolve?
– What are the unique capabilities within the target’s Business Design and how might
they be renewed or endangered by business model innovations?
– Do the corporate and the business unit strategies of the target company address
the crucial developments in the ecosystems and create unique, defendable and
long-lasting competitive advantages? (Fig. 3.21)
Corporate and business unit strategies, as defined in Chap. 2, address different topics:
The corporate strategy answers the question “where to compete”, while business unit
strategies address the question “how to compete”. Therefore, both strategy levels have to
be assessed separately within the SDD.
Within the corporate strategy, the priority is to achieve an understanding of the tar-
get’s portfolio of business activities (SBUs), of the core portfolio strategies, how the tar-
get portfolio fits with the acquirer’s and if the acquirer offers parenting advantages for
synergy leverage on portfolio level. The evaluation of portfolio strategies involves also
the discussed Business Model Innovation strategies, like internal business innovation
strategies, accelerator and incubator models, M&A activities, or JV and partnering strat-
egies of the target.
14Herndon applies a higher granularity of Due Diligence fields to be investigated (Herndon 2014,
pp. 59–61).
Strategic Due Diligence Submodules
Corporate Porolio SBU Strategies & Ecosystem Core Strategic

Diagnoscs Compeve Advantage Aracveness Competencies Programs
• Corporate porolio • Segmentaon of SBUs • Evaluaon of (future) • Assessment of each SBUs • Strategic Programs
architecture according products, ecosystem aracveness core competencies: mirrored against
markets, regions, o Uniqueness compeve posion
• Overview of SBUs within customers, competors • Assessment of mega o Lasng and SWOT
the corporate porolio trends: o Defendability
• SBU strategy and o Technology o Value impact • … link to valuaon and
• Porolio strategies compeve advantage o Markets & white spots financial DD
o Use cases • Complementarity with and
• Strategic Fit with • SBU compeve posion renewal of acquirer’s
acquirer’s porolio (best-in-class benchmark) capabilies
(synergies) and parenng
advantages • Strategic Fit with • Matching with parenng
acquirer’s SBUs advantages (synergies)
(synergies)
Fig. 3.21 Strategic Due Diligence (SDD)
SBU strategy assessments start with the segmentation of the SBUs products, ser-
vices, served markets, customers and use-cases. Each SBU has its own specific ecosys-
tem, which describes not only the specific environment of an industry but as well the
needs of the customers, underlying technologies and trends. Based on this understand-
ing of the specific ecosystem the SDD can assess the strategic position and competi-
tive strength of the target company in each of its SBUs. This involves the assessment of
the regional footprint, the unique selling proposition of its products, and a benchmark
with best-in-class competitors with respect to its relative competitive positioning. By
combining the assessment of the future attractiveness of the ecosystem and the strate-
gic positioning of the target company within its ecosystem a sound strategy evaluation
is possible. Within this step, also the analysis of how the SBUs fulfill the characteristics
of Michael Porter’s competitive strategies, like cost leadership, differentiation or niche
strategies, might be valuable. Besides, the SDD has to assess the SBD concerning its
differentiating, unique and lasting core capabilities. These capabilities could be bench-
marked with best-in-class competitors.
To get a final, holistic view of the strategies of the target company the strategic pro-
grams on the corporate and the SBU levels are assessed. This offers the possibility to
analyse if and how the acquirer might improve the standalone positioning of the target
company.
The SDD serves also as a back-drop for a sound judgment of the valuation and
investment thesis by assessing how the competitive advantages of the target com-
pany fit the acquirer’s portfolio, capabilities and strategies and how they enable value
levers? Secondly, it supports a detailed judgment on the “fair”, in the sense of realistic,
stand-alone value of the target company and its strategic levers to improve the standalone
value. Last not least, it prepares the assessment which synergy potentials on the corpo-
rate as well as on the strategic business unit levels might exist between the acquirer and
seller.
3.2.4.2 Financial Due Diligence

The quality of the Financial Due Diligence (FDD), and in the end as well the valuation,
could be improved by an intertwined FDD and SDD, as both serve different time hori-
zons. The FDD is more backward and the SDD is more forward oriented, as described by
Fig. 3.22:
The traditional understanding of the FDD is based on the verification and assessment
of the audited financial statements of the target company for the last 3–5 years. This
should provide an in-depth understanding of the value, reliability and robustness of the
target’s financial reporting system. Besides, the target’s assets, liabilities, its historical
earnings and cash performance is evaluated. But, as the valuation of the target company
is based on the future FCFs and not its past performance, the year-to-date development
of the target company, as well as the plausibility check of the forecasted future earnings
and FCFs, must be as well analysed. Tseng (2013, p. 1) describes the target of the FDD:
“It considers the reasonableness of financial forecasts to the current business model and
detects risks and opportunities prior to closing the deal. It obtains necessary information
to investigate trends and fluctuations in the operating performance of the target and assist
clients in their investment and financing decisions.”
From strategic to financial DD
Value &
Cash Flow
Strategic Due Diligence
Financial Due Diligence
Past Performance: YTD performance and FC Future Performance:

planning assumpons:
CF & ROIC performance Cash flow & ROIC Focus: CF, ROIC, IC
Earnings performance development Scenarios
Turnover performance Earnings development Simulaons
Cost, investment and Turnover development Value drivers
working capital Fit with strategic iniaves
development
ROIC, Turnover
(growth)
Fig. 3.22 Link between Strategic and Financial Due Diligence

The ultimate targets of the FDD might be therefore described by:
– Gain a deeper understanding of the competitive advantage and Business Design of the
target company, its profitability and CF drivers, including the probability of synergies
– Assess the quality of earnings, profitability and FCFs by normalizing past
performance
– Determine the investment, working capital and financing requirements of the business
– Assess net debt and identify further net debt like items
– Defined price limits, deal breakers and integration priorities
The FDD is the module with the most standardized toolset. The reason might be, that
transaction services, as well as Big4 companies with their standardized reports, are fre-
quently involved in FDDs. Nowadays a Financial Due Diligence report frames the fol-
lowing parts:15
– The first part of an FDD report is the judgement on the quality of the financial state-
ments, the management accounts and the reporting system, the so-called quality of
earnings assessment. This includes as well the analysis of the applied accounting prin-
ciples and a detailed description of the financial reporting processes. The judgement
about the quality of financial reports might be based on criteria like functionality, reli-
ability, speed, suitability, robustness and compliance.
– In the next section the historical and actual asset values, earnings performance and
financial performance are analysed and interpreted. This is one of the core parts of
FDD and includes a detailed analysis of the balance sheet, income statement and cash
flow statement as well as of the most important line items. Within the balance sheet
assessment, the financing structure of the company will be decomposed in equity,
debt and hybrid capital. Besides, debt-like items, like a pension underfunding or
potential liability claims, must be identified as they must be subtracted as well in the
walk from the Enterprise to the Equity Value. On the assets side, capital expenditures
and investments as well as working capital items like accounts receivables, inventory
and accounts payables—and in case of project businesses prepayments—might be on
the top priority list. Within the income statement analysis, the performance develop-
ment will be broken down into the detailed assessment of the most important reve-
nue and cost drivers. Also, their impact on cash flows will be analysed, the so-called
earnings-to-cash flow conversion. In the final part, tax impacts will be described.
– The normalization of earnings for the past years is a separate step. It distinguishes
operating performance from one-time effects like periodic specific costs (e.g. restruc-
turings) which have to be stripped out and any non-operating items. This section
15A more detailed overview of the Financial Due Diligence content is provided by Tseng (2013).
intends to generate a consistent long-term view on the earnings potential and FCF
development of the target company.
– In the section on the year-to-date performance, sometimes also called actual perfor-
mance, deviations from the long-term trend in earnings and FCFs are of interest. This
will be framed by an assessment in how far the actual performance deviates from the
intended plan performance. The latter is described in most instances by budget targets
and might be the underlining benchmark for the management incentive system. In the
YTD assessment, the granularity is typically increased from a yearly perspective to a
quarterly or even monthly perspective.
– In a further part of the FDD, the equity and debt structure will be analyzed. This is as
well a very substantial part, as the bridge from the Enterprise to the Equity Value is
built by the net-debt position. The sensitive assessment of the net-debt position incor-
porates not only excess cash and interest-bearing liabilities, like bonds and loans, as
net-debt but as well debt-like items, as described.
– The conversion rate from earnings (NOPLAT) to FCFs is as well a crucial input for
the valuation of the target company as it assesses how much of the realized NOPLAT
flows into the cash performance of the company and how much is plowed back
(retained earnings) into the target’s business.
– In most cases the Tax Due Diligence is as well incorporated in the FDD.
– The management summary of the FDD report will frame the most important findings
and risks of a potential transaction. A high-quality report will select and address the
crucial findings always from an investor or the acquirer’s top management point of
view (Fig. 3.23).
The corporate valuation, as well as the valuation of the synergies, is not an integral part
of the FDD. This is a separate task which has to be performed by the M&A department
Quality of financial informaon

Accuracy and robustness of financial
Historical & current trading reporng, accounng and planning.
Detailed break-down on line items and assess-
ment of P&L statement, B/S and financing
PAST PERFORMANCE
Quality of earnings & normalizaon
Normalizaon of historical ROICs, NOPLATs and
FCFs. Idenficaon of sources of one-offs.
YTD
PERFORMANCE
Budget & forecast
Assessment of budget and YTD performance.
Comparison of YTD with management plan.
FUTURE
PERFORMANCE Net Debt, Working Capital & FCF conversion
Idenfy debt, debt-like items (off-balance) and leverage.
Valuaon Assessment of invested capital items and development.
FCF performance, decomposion
and conversion
Fig. 3.23 Financial Due Diligence (FDD)

of the acquirer, as described in the valuation subchapter. Nevertheless, the FDD has still
important implications for the identification of the true value drivers of the target com-
pany as well as the definition of the purchase price limits, potential deal breakers, closing
requirements and integration needs.
3.2.4.3 Legal Due Diligence

The core targets of the Legal Due Diligence (LDD) are the transparency on the target’s
most crucial contracts as well as the identification of key legal transaction risks. The
mission-critical contracts might include shareholder rights, patent and IP rights, employ-
ment contracts or legal disputes. The challenge of the LDD is to avoid getting lost in the
massive amount of the target’s legal documents. The guiding principle is the materiality
of the contracts. Therefore, priorities have to be set, for example by using thresholds like
revenue hurdle rates in customer contracts. The LDD by itself frames multiple subjects.
A first part of the LDD is the clarification of shareholder rights and assessment of
corporate charters and contracts. This might include important change of control clauses,
minority shareholder rights, potential restrictions of dividend policies or liabilities on
corporate level. The target of this part is to clarify potential risks on the corporate group
level of the target company. A second subject of the LDD, which has to go hand-in-hand
with the FDD, is the analysis of the contracts with respect to important assets and lia-
bilities as those might have an immediate impact on the value of the target company.
Examples might be factoring or leasing agreements for important assets. The outcome of
the legal assessment of balance sheet items might also impact the design of the potential
purchase agreement as a share or asset deal.
In case of customer contracts, the financial parts, like volumes, prices and price
adjustments in case of delivery delays or for certain purchasing volumes, as well as the
pure legal parts, like non-competes, guarantees or change of control clauses, have to be
reviewed. The customer contracts are typically prioritized by an ABC analysis concern-
ing their size.
A further high priority LDD topic is the assessment of management and employment
contracts. These have to be reviewed with respect to working hours, compensation and
benefits, pensions and healthcare costs, leave agreements and further topics. Already
the analysis if the pension scheme is based on a defined benefit or contribution sched-
ule shows the financial importance of these assessments. In case of a defined benefit
structure, the potential underfunding of pensions has to be mirrored in the valuation as a
debt-like item.
Digital Business Designs and platform companies in industries like media, automo-
tive, telecommunication, high-tech as well as pharmaceuticals and healthcare shifted the
competitive advantage from tangible to intangible assets, like brands, patents, IP rights
or network effects. Therefore, the analysis of the according rights, patents or trademarks
became more and more important within the LDD. An aligned subject are legal disputes.
Here, the LDD has to assess potential worst-case scenarios in case of lost disputes and
the likelihood of such scenarios to materialize.
3.3 Blending of SCDs and SBDs and Redrafting of JCD and JBD 159
Besides, there might be a bunch of special LDD issues and investigation needs spe-
cific to the target company and industry.
3.3 Blending of SCDs and SBDs and Redrafting of JCD and JBD
The SDD, FDD and LDD are supplemented by Due Diligence efforts concerning the
Standalone Business Design. The Business Design Due Diligence analyzes the operating
mode vivendi of the target company. Besides, a thorough understanding of the target’s
Business Design is mandatory to understand the viability, time needs, volume and likeli-
hood of potential synergies.
The Business Design view, as discussed in Chap. 2, offers a holistic assessment of
the operational target business. It integrates thereby the traditional commercial, business,
operations, technical, management and HR Due Diligence tasks, besides newer subjects
like digital and platform or cyber-security Due Diligence by applying one consist frame-
work throughout the E2E M&A Process. The Corporate Strategy and Corporate Finance
part of the Due Diligence have been already frontloaded due to their importance for the
overall Due Diligence outcome. The Business Design Due Diligence intends, in the end,
a proof-of-concept of the SBD Blue Print of the M&A Strategy phase:
3.3.1 Business Design Due Diligence: Blending of SBDs

and Redrafting of JBD Blue Print
The Business Design Due Diligence (BDD) is highly target specific as it depends on the
market footprint and value chain of the target company. Obviously, the BDD of a service
company is substantially different than one of a pharmaceutical, media or manufacturing
company. Accordingly, the BDD has to be adjusted and tailor-made for the specific target
Business Design. Therefore, only the framework and a broad overview of the substan-
tial parts of the BDD will be provided here. The BDD will be structured along the 10C
model and covers the so far not discusses Due Diligence parts, as described in Fig. 3.24:
The Business Design Due Diligence includes the Due Diligence of the target’s core
products & services (CV), its addressed markets and use cases (CM), the distribution,
sales and communication (including marketing) channels (CH), the critical customer
relationships including sales and aftermarket approaches (CR), the core assets like man-
ufacturing footprint or technology platforms (CA), the target’s unique core capabilities
(CA), the key relationships with its ecosystem (CE) and last not least the organizational,
management and HR Due Diligence (CO):
The products, services and web-offerings are often the true transaction rational
of an acquisition. The BDD has to address this within the CV part by identifying the
core products and services of the target company, assessing their core advantages and
USPs including a benchmark with the key competitors. For the latter product and service
CS
Separately discussed and carved out in Strategic Due Diligence (SDD)
CP CA CV CR CM
• Global manufacturing • Core products & • Direct sales
• Core suppliers and • Served markets &
footprint benchmark services • Web-sales
relaonships boundaries
• Investment levels • Product advantages • Aermarket
• Purchasing ABC • Market segmenta-
• Technology plaorm and characteriscs relaonship
assessment on & use cases
• R&D plaorm (incl. benchmark)
• University network • Market trends
• IPs, patents, … • Success factors
• VC network • Regional footprint
• Product volumes
• Partnering network… • Market share (incl.
CC (ABC) & profitability
CH competors)
• R&D pipeline & • Distribuon channels: • Customer analysis
capabilies volumes, profitability and profitability
• Digital capabilies • Logiscs: costs • Value and cost
• Brand management • Sales orga & costs drivers (ABC)
• HR management • Markeng mix • Core customers &
share of wallet
CF
Separately discussed and carved out in
Financial Due Diligence (FDD)
CO• Organisaonal structure (SBUs), layers, (de-)centralizaon

• Management team, key talent and retenon, employee structure
• Compensaon, benefit policies, leave rates, employment contract
Fig. 3.24 Business Design Due Diligence (BDD)
characteristics like pricing, quality and reliability, revenues and profitability on product
and service level (ABC analysis) might be assessed. Besides, the market and customer
trends impacting the product and service attractiveness of the target’s offerings are of
interest.
Hand-in-hand with the Value Proposition goes the market and customer Due
Diligence (CM). The starting point is a detailed description of the served markets, mar-
ket segments and use cases by indicators like market size, market growth, segment and
customer margins or share of wallet. But, as the valuation is forward looking, also the
trends in the target’s markets and the threats from substituting technologies have to be
evaluated. The assessment of core customers, their purchasing volumes, profitability and
the target’s share of wallet increases the granularity of the CM Due Diligence.
The customer relationships (CR), play a central role for the Due Diligence, but also
the later integration. Due to their direct customer exposure, they are very sensitive to
changes and have a direct top-line impact. The analysis of the primary sales approach,
the use of mass versus individualized offerings, the degree of digital technologies for
sales as well as one term vs long term client services are of essence here.
The channel assessment (CH), also described under the term supply chain Due
Diligence, frames distribution channels, logistics, sales channels and the marketing mix.
This might be one of the broadest, but also most Business Design specific parts of the
3.3 Blending of SCDs and SBDs and Redrafting of JCD and JBD 161
BDD. The analysis of channels references typically to profitability, cost, efficiency, qual-
ity (e.g. order fulfillment), flexibility and time indicators.
The core assets (CA) depend on the competitive advantage of the target company.
As the necessary investments directly impact the Free Cash Flows their analysis it
top-priority for the BDD and the FDD:
– For manufacturing companies, the Due Diligence of the global manufacturing foot-
print including utilization levels and optimization potentials, the overlaps with the
acquirer’s operations, the capital expenditure and investment programs, as well as
the flexibility of the manufacturing setup have to be assessed. The analysis of man-
ufacturing processes is typically based on indicators like efficiency, costs, time and
quality. It might even become more insightful, if this manufacturing Due Diligence
is supplemented by the benchmark of best in class competitors and the proof of
applied quality improvement techniques, like TQM, Kanban or Lean Manufacturing
principles.
– For a pharma or biotech incumbent, the detailed CA analysis of the R&D pipeline,
R&D investments and intended product launches might be more important
– Whereas for a technology company the applied digital platform, IPs and patents might
be of paramount interest in the CA Due Diligence
Closely aligned with the core assets is the Due Diligence of core capabilities (CC). Like
the products and services (CV) they are nowadays one of the most important reasons
why of a transaction and are deeply ingrained in the Business Design of the target. For
start-ups, it might be the innovation, digital and platform design capabilities or for luxury
good companies brand management excellence.
The Due Diligence of the target’s ecosystem (CE) involves the assessment of its core
suppliers and relationships, its university network or, as a start-up, its VC and partnering
network. Traditionally, the analysis of the sourcing strategy and key suppliers plays a
dominant role in the assessment of the bill of material (ABC). Besides, low-cost country
sourcing approaches or cost efficiency and saving potentials in purchasing due to econo-
mies of scale and scope might provide further insights.
The CO part of the BDD analysis the organizational structure of the target company
from three perspectives, the corporate, the regional and the business unit view, which
involves the definition of the degree of (de-) centralization. Besides, the assessment of
the target’s management team, key talent and retention as well as the overall employee
structure, compensation and benefit policies, leave rates and employment contract play
centre role.
As nowadays the acquisition of capabilities and talent are core advantages of most
transactions the management & HR Due Diligence will be discussed in more detail.
The later has an impact on mission-critical transaction questions, like how key employ-
ees and talent may be kept onboard or how core competencies could be retained.
Management appraisals provide an overview of leadership skills and gaps, which are of
special interest for the later integration of the target. Concerning employment-related
issues, indicators like working hours, leaf rates, and others have to be assessed. Based on
this overview the employment structure, the compensation and benefit system, as well as
more soft issues, like employee development and learning programs, might be analysed.
Benchmarks with best-in-class competitors offer, once more, even more insights.
The HR and Management Due Diligence is in most instances a mix of desk research,
interviews, but also newer digital tools, like LinkedIn or Glassdoor.com assessment.
Within the desk research, the contracts of the most important employees are analysed
with respect to details like compensation and benefits, exit clauses, incentive systems, or
noncompete clauses.
3.3.2 Culture Design Due Diligence: Blending of SCDs

and Redrafting of JCD Blue Print
In the past Culture Due Diligence (CDD) questions have been not or at least underrep-
resented within Due Diligence matters as management teams focused more on strate-
gic fit evaluations and synergy capture (Schweiger and Goulet 2000). Nevertheless, this
changed in the last couple of years. The assessment of the cultural perspective and poten-
tial gaps between the potential acquirer and target has three dimensions, a regional, a
corporate value architecture and a top-management perspective.
The first Standalone Culture Design (SCD) Diagnostics of the M&A Strategy have
to be verified by a tailored proof-of-concept approach within the CDD. This might be
achieved by a detail culture profiling of the two companies. A set of tools, like top man-
agement interviews, employee surveys, the observation of management behaviors and
LinkedIn or Google-Search web-research based culture profiling offer such a deep-dive
and cross-checks of the SCDs. This will provide a much higher granularity for the cul-
ture assessment. Based on this detailed understanding of the individual SCD culture
similarities and differences, the Blueprint of the JCD could be tested concerning its
robustness and refined.
3.3.3 Due Diligence and Verification of Integration Approach
Due Diligence findings are highly valuable sources for the validation of the Integration
Approach, especially the targeted Joint Business and Culture Design, and the verification
of synergy estimates. Furthermore, a smooth transition of the information and insights
gained in the Due Diligence from the transaction team to the integration team assures
that valuable information, as well as the transaction rational, are retained. Besides, the
integration could be head-started and scaled from Day-One onwards.
This holds true especially for the Due Diligence as it includes mission-critical insights
for the integration, like the proof and refinement of the Joint Business and Culture
3.4 Valuation and Due Diligence of Digital Business Designs 163
Design, the identification of the business-specific value drivers, the verification of the
assumed synergies, and the identification and investigation of the transaction risks. The
latter might be especially valuable, as the early involvement of the lead integration man-
agement, meaning those integration team leads which will focus on the realization of the
core value drivers of the transaction, levers the sensitivity to potential integration hurdles.
Furthermore, the Integration Project House (IPH) may be pre-structured already along
with the Transaction Management. The early blueprint of the post-closing governance
structure and workstreams, of the reporting and tracking processes, of the escalation res-
olution mechanisms, as well as of Integration Scorecards and key performance indicators
ensure Day-One readiness and smooth integration processes. Also, a first prioritization of
integration tasks along with criteria like value impact, risk impact, feasibility, and time
span could be derived. This keeps the focus on value-add activities throughout the inte-
gration journey.
3.4 Valuation and Due Diligence of Digital Business Designs
The valuation and Due Diligence of digital targets and Business Designs is even more
demanding than transactions within traditional industries. The challenges start already
with the evaluation of the target’s stand-alone attractiveness, especially the target’s
Business Design and capabilities. The valuations of incumbents are typically built around
a worst-best-realistic-case based Enterprise DCF model and the evaluation of cost syner-
gies. This traditional valuation view does not address the specific pattern of digital acqui-
sitions with their focus on revenue scaling and digital capabilities (Fig. 3.25).
For the valuation of digital start-ups and targets their unique Business Design must
be taken into consideration: They are built on fast growing, but foremost unproven BDs,
lacking historical evidence. The strategic intent of digital innovations is to create new
markets and user experiences, which are described by the strategy literature as riding
Blue Oceans (Fig. 3.26).
On top of the valuation challenges in such untested waters, the competitive advantage
of digital BDs is built on intangible assets like IPs, patents, know-how, platforms, digital
brands or digital customer access and data. These intangible assets are much harder to
predict and evaluate as industrial businesses built around tangible assets.
The financial pattern of such Business Design is most likely characterized by high,
but volatile revenue growth rates, early start-up losses and, at least initial, high cash burn
rates. Additionally, due to the focus of intangible assets, they have typically a Balance
Sheet-light business model, like in the case of digital platforms or social media networks.
The End-to-End M&A Process Design for Digital Business Designs

• Ecosystem Scan with focus on: • Valuaon and (F)DD addressing the unique CF • Tailored Integraon with balance of
teve advantage and capability needs − DCF scenarios and simulaons (Monte Carlo) • Implement necessary compliance
• JBD and Integraon Approach Blue Print • Verificaon of Integraon Approach • Back-track integraon progress
• Idenficaon of digital synergy levers • Back-tesng Synergy Scaling model • Rapid scaling of target’s SBD
• Parenng advantages to scale target SBD • Back-tesng parenng advantage • Focused implementaon of Synergy
• Revitalize buyer’s SBD by target capabilies • Synergy-valuaon blending (revenue) Scaling Model
• Tailored Synergy Scaling Model
Fig. 3.25 Tailored E2E M&A Process Design for digital transactions: Transaction Management
Paern of digital Business Designs … and their FCF & valuaon impact
• Most successful innovaons and plaorms • Unproven Business Design with high risk
built in “winners takes all markets” on white paern:
spots (riding building oceans) − High volality of Cash Flows
− Addressed by simulaons and cost of
• Digital Start Ups and Business Designs with
capital approach
foremost unproven performance and − Business Design specific investments
therefore hardly to predict FCFs
• Due to riding Blue Oceans true peers most
• True compeve advantage built on
likely not available
intangible assets, like IP, patents, know how, − Mulple Aproach not applicable
plaorms or brands − VC method (pricing) limited applicable
−
Oen B/S light model and plaorms
• Digital Business Design most likely with:
− High revenue growth rates (scalability!) • Synergies: Scaling of Business Model and
− Early start up losses revenues (e.g. by building a plaorm) more
−
High cash burn rate (pre-investment in important than cost synergies
plaorm and digital Business Design)
− Oen B/S light model and plaorms • Financing structure and therefore cost of
capital might change significantly through
out the digital business life cycle
Fig. 3.26 Pattern of digital Business Designs: Cash flow and valuation impact
The combination of these financial patterns with an unproven, risky Business Design
has lasting valuation and FCF impacts:
– FCFc might be significantly negative in early years as in any start-up or seed stage
– By establishing new, untested markets revenues and Free Cash Flows are expected to
grow exponentially in early years, but also bear a high volatility and therefore risk
– The start-up characteristics also impact the cost of capital, as the financing architec-
ture might change significantly along the digital target’s life cycle
– Investments needs are sensitive to the specific digital Business Design and it’s
intended competitive advantage
– For the synergies, the scaling of the Business Design, e.g. building a platform, and
therefore revenue synergies are typically much more important than any cost syner-
gies. The latter point will be specifically addressed in Chap. 5.
Therefore, a couple of traditional valuation techniques are not or very limited applicable
in digital Business Design environments. By riding Blue Oceans true peers are hardly
available. The Multiple Approach is, as a consequence, only limited applicable. Typically
applied VC-methods with their simplistic view on exit multiples and long run earnings
are as well too short-cut. Also, the traditional DCF approach, beginning with the assess-
ment of the companies past performance, then designing in detail future FCFs and add-
ing last not least a Continuing Value once the company achieves the steady state growth,
will not address digital business needs.
Digital Business Design specific valuation approaches have to mirror the volatility of
their FCFs. As well they should mirror and quantify the implicit uncertainties. The target
must be the valuation of the true sources of digital competitive advantage, the value driv-
ers and synergies, including the parenting advantage to scale the digital Business Design
by the parent company (Fig. 3.27).
Suitable Valuation Approaches in such a digital start up environment could be:
– DCF models based on scenarios as “pictures of the future”

– DCF simulations built on Monte Carlo approaches
– Real option models, especially for multiple stage investments and decision points
within the built up of the BD, like in case of bio-pharma or technology start-ups
– Using VC-methods and multiples as price-earnings ratios, Enterprise
Value-to-revenue, or Enterprise Value-to-EBITDA only as a rough cross-check for the
valuation, but not as standalone valuation approach for digital Business Designs
– Reversed DCF approach by starting the valuation by defining the endpoint in the
sense of a scenario of an established digital Business Design, based on a 10C model,
and then modeling FCFs backward from this endpoint to the current performance
(Fig. 3.28).
Valuaon Approaches for digital Business Designs
• Applicaon of tailored porolio of Valuaon Approaches for a sensive

valuaon of Digital Business Designs
• DCF applicaon mirroring volality of digital Business Designs

− DCF scenarios “pictures-of-the-future”
− DCF simulaons (Monte Carlo)
− APV (carve out and separate valuaon of financing impact)
• Reversed DCF combined with 10C Business Design for FCF backward
modelling
• VC-method as cross-check
• Idenficaon of true value drivers of compeve advantage and likely
revenue and capability synergies (on parent and target side) mandatory
• Digital Valuaon Tool
Fig. 3.27 Valuation approaches for digital targets and Business Designs
Reverse DCF
Reverse DCF
Scenario 1
10C Business Design Model

Scenario 2
#1 CS
CA CR
#8 #6 CV #4 #2
CP CC #3 CH CM
#7 #5
#9 CF Scenario 3
CO
#10
E V = ∑ t=1 (1+r )tt

∞ DCF
Boom-out period
Fig. 3.28 Reversed DCF and 10C Business Design approach for the valuation of digital targets
Reversed DCF and 10C Business Design Approach for the Valuation of Digital
Targets The starting point of the Reverse DCF Valuation Approach is flip-sided to the
traditional approach: Beginning with the modeling of the future steady state performance
and FCFs based on a multiple, detailed scenario setting and a description of the targeted
future 10C Business Design, the FCFs will then be modelled backward.
Starting point for building the future scenarios should be a detailed assessment of the
future Business Design and ecosystem, meaning how the future markets, customer needs
and competitors could look like, as well as how digital technologies and platforms might
develop. Only by such a detailed understanding of the future Business Design, how the
company fulfills customer needs (CVs) and monetizes those (CF) a sensible valuation of
digital targets is possible. Digital Business Designs bear the additional complexity, that
they are often built on double- or multi-sided platforms, like the Google search engine or
the Spotify and Netflix streaming Business Designs.
For the long-term scenarios a bandwidth of key financial metrics, like the potential
size of the future market, likely user and use cases, penetration and saturation rates, the
company’s realistic and sustainable market share, share of wallet and pricing power per
user or application are estimated. Besides, the potential technology driven costs to build
the digital business and ROIC performance within the expected future competitive arena
will be modelled for each of a set of highly likely scenarios.
In a second step the transition from early-stage high-growth rates in revenues into
the more moderate growth, steady state scenario world is modelled by interpolating
the scenario’s picture of the future backwards to its current performance. For building
this bridge between today and the future end-point also the time period of hypergrowth
and the tipping point where growth might be petering out to a stable and sustainable
long-term rate has to be assessed. This transition period might be substantially longer
than the typical 5 up to 7 years horizon of traditional DCF models before entering into
the Terminal Value period. This means that the FCF pattern and CAGRs might have to be
modelled up to 12–15 years out.
But even more demanding than modelling this growth tipping point might be the
analysis of how the start-up business might convert high growth rates into high FCFs,
as only the latter are in the end decisive for the valuation. Therefore, the understanding
and modelling of the disruptive 10C Business Design are paramount. This might involve
in the case of double-sided platforms to model the conversion from free to paid services
or new ownership models, the customer lock-in of the digital platform by economies of
scope or user advantages, and forecasts of revenue per user or client or business in B2B
markets. Combining conversion-driven paid services with forecasts on price per service
leads to revenue estimates.
Given a sound revenue forecast the ROIC and Free Cash Flows can be modelled by
analyzing the necessary core assets and capabilities in the 10C Business Design and
according to likely technology-based unit costs. Additionally, investment needs in plat-
forms have to be assessed, but might have less impact as most digital models are based
on a pay-at-order model with low capital intensity, meaning capital expenditure and
investment needs.
Benchmarks and companies with somehow comparable Business Design, if available,
might provide just an indication to frame performance forecasts as they might look sub-
stantially different within a today’s high growth rate environment.
For the backward design of FCFs to current performance, given these steady state
estimates of long-term market size and use cases, investment intensities, ROICs and mar-
gins the speed of transition from current performance levels to those long-term scenario
performance levels has to be modelled. This must be in line with the development of the
digital Business Design and its ecosystem.
The scenarios will then be probability-weighted, depending on a consistent view of
how the market, competition, customer use-cases and, most crucial, digital technologies
might evolve and how fast and successful the targets SBD could be scaled within the
assumed ecosystem scenarios.
The sum of equity valuations of each scenario weighted by their probabilities of
appearance might provide a rough indicator of the likely value bandwidth of the digital
target based on today’s best knowledge. Additionally, this valuation approach might pre-
pare an open mindset of uncertain and multiple likely outcomes by designing different
scenarios. But, a detailed understanding of the target’s value drivers—like market and
use case developments, technological tipping points or conversion rates and revenue per
user — and potential synergies might be even more valuable than the indicative valuation
band-with by itself.
3.5 Summary of Transaction Management
3.5.1 Critical Cross-Checks and Questions of Transaction

Management
Questions
Valuation
Once the valuation is finalized it should be back-tested if the model is robust and
consistent. Besides, it must be questioned if it is built upon reasonable assumptions,
especially with respect to assumed value drivers and if the valuation bandwidth is
plausible:
– Valuation technique questions, like: Does the B/S indeed balance every year or are
Net Incomes correctly split into dividends and retained earnings?
– For the comparison of the Equity with the Enterprise Valuation Approach: Are
EBIT and NOPLAT identical when calculated top-line from revenues or are
bottom-line built up from Net Income?
3.5 Summary of Transaction Management 169
– Does the valuation mirror Standalone and Joint Business Design realities? Are the
assumed synergy patterns robust concerning likelihood and timing and reasonable
with respect to their volume?
Due Diligence
The Due Diligence target was broadly defined as a proof-of-concept of the investment
thesis. Crucial cross-checks for the Due Diligence are:
– How are the primary E2E M&A processes as well as the core Transaction
Management modules, the Due Diligence, the valuation and the negotiations, inter-
twined? Do Due Diligence outcomes flow back to valuation and is a smooth flow
into the integration assured?
– Are the transaction rational, the valuation and the synergy potentials verified?
Have the key strategic and financial risks been identified? What would be the con-
sequences of the acquisition?
– Are the Business Design and critical capabilities clearly understood?
– Are culture issues and gaps identified to avoid culture clashes within the integra-
tion and strategies to retain talent defined?
3.5.2 Key Success Factors of Transaction Management
The Due Diligence is intertwined with the valuation of the target company and the pur-
chase agreement: The indicative valuation is based on the assumed value drivers of the
target company and therefore might help to prioritize Due Diligence tasks and delivera-
bles. The Due Diligence outcomes, vice versa, are feed-back into the update of the val-
uation. The most important risks identified within the Due Diligence have to be either
addressed in the purchase price or the purchasing contract, especially the deal structure,
or in the integration priorities.
Core tasks of the Due Diligence are:
– The verification of the investment thesis which is described in the indicative offer and
of the potential synergies, as those two components together define the transaction
rational and purchase price limits.
– Gaining an in-depth understanding of the strategy, the Business Design, the Culture
Design, the competitive advantages, and the value drivers of the target company.
– Besides, the evaluation and verification of the strategic fit between the target company
and the acquirer, especially with respect to the SCDs and SBDs, is of essence.
– The identification of essential strategic, legal, financial, operational, management and
cultural risks of a potential transaction. These have to be addressed either within the
purchasing agreement or within the integration concept to avoid integration hurdles.
– Additionally, potential upsides and additional value drivers should be identified.
To fulfill these multiple tasks the Due Diligence is built upon a couple of intertwined
modules, like the Financial, the Strategic, the Legal, the Business Design and the
Culture Design Due Diligence. Due Diligence quality is dependent on a qualified Due
Diligence team with clear tasks, responsibilities and communication, as well as struc-
tured sub-process.
A couple of Due Diligence success factors could be identified:
– An early prioritization of questions and topics which should be addressed within

the Due Diligence might support to sustain the focus along the execution of the Due
Diligence on the crucial value drivers of the target’s business, the transaction rational
and on the most important risks. This also might avoid getting lost within highly com-
plex and time demanding Due Diligence processes.
– The Due Diligence project leadership or project house should establish clear roles and
responsibilities for the Due Diligence teams. Besides, communication principles, on
the one side between the DD leadership team and the different Due Diligence mod-
ules, and on the other side between the IPH DD leadership team and the top manage-
ment, should be established. The latter might be essential, as within Due Diligence
processes often fast management decisions are requested.
– In an E2E view, the Transaction Management has also to safeguard that the
Due Diligence outcomes are feed into the update of the valuation and Synergy
Management. The latter is especially important for the proof of the likelihood and
volume of synergies.
– The identified risks in the Due Diligence have to be addressed in the purchase agree-
ment, the transaction structure and in the draft for the Integration Management.
– Especially for serial acquirers the step-by-step build-up of Due Diligence capabilities
and tools to foster learning effects and quality improvements for future M&A pro-
cesses is recommended.
References
Brealey, R., Myers, S., & Allen, F. (2020). Principles of corporate finance (13th ed., pp. 863–885).
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analysis. London: Kogan Page.
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University. Cambridge: Harvard Business.
Oxford: Elsevier.
Fernandes, Nuno. (2012). Note on company valuation by Discounted Cash Flows (DCF).
Lausanne: IMD note.
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our-insights/valuing-high-tech-companies.
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Wiley.
Herndon, G. (2014). The complete guide to mergers & acquisitions – Process tools to support
M&A integration at every level. San Francisco: Jossey-Bass.
Koller, T., Goedhart, M., & Wessels, D. (2015a). Valuation – Measuring and managing the value
Koller, T., Dobbs, R., & Huyett, B. (2015b). The four cornerstones of corporate finance. New
Jersey: Wiley.
Ruback, R. S. (2000). Capital cash flows: A simple approach to valuing risky cash flows. Boston:
Harvard University Graduate School of Business Administration.
Schweiger, D. M., & Goulet, P. K. (2000). Integrating mergers and acquisitions: An international
research review. In S. Finkelstein & C. Cooper (Eds.), Advances in mergers & acquisitions (pp.
61–91). New York: JAI.
Sirower, M., & Sahni, S. (2006). Avoiding the “Synergy Trap”: Practical guidance on M&A deci-
sions for CEOs and boards. Journal of Applied Corporate Finance, 18(3), 83–95.
Tseng, A. J. (2013). M&A transactions: Financial due diligence from zero to professional. New
Jersey: GreateSpace.
4
Contents
4.1 Integration Strategy and Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

4.1.1 Integration Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
4.1.2 Integration Approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
4.2 Integration Masterplan: Planning the Transition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197
4.2.1 Integration Framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198
4.2.2 Integration Masterplan Modules: Planning the Transition to the JBD . . . . . . . . . . 203
4.2.3 Culture Transition Program: Planning the Transition to the JCD . . . . . . . . . . . . . . 222
4.3 Transition Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225
4.3.1 Integration Principles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225
4.3.2 Implementing the Integration Masterplan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228
4.4 Integration Monitoring, Controlling and Learning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232
4.4.1 Integration Tracking and Scorecards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233
4.4.2 Integration Controlling. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
4.4.3 Integrational Learning: Post Mortem Report and Learning Platform. . . . . . . . . . . 236
4.5 Integration Management for Digital Targets and Business Designs . . . . . . . . . . . . . . . . . . 237
4.6 Summary of Integration Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238
4.6.2 Key Success Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242

174 4 Integration Management
Abstract
The history of M&A is littered with transactions which collapsed under the weight
of integration issues and culture clashes. The Integration Management has to
address these challenges as the third primary E2E M&A Process Design module
which complements the M&A Strategy and the Transaction Management. The term
“Integration Management” instead of Post-Merger Integration is used by purpose,
as the E2E approach demands that integration issues are thought about from the
very beginning of a transaction to avoid typical M&A pitfalls at a later stage. The
Integration Management consists of four submodules: The Integration Strategy,
based on the originally intended transaction rational and targeted synergies, provides
a sketch of how the integration should be tackled. It includes as well the targeted Joint
Business Design (JBD) and the intended transition to the Joint Culture Design (JCD).
The Integration Masterplan (IM) builds upon the Integration Strategy and breaks
it down into specific integration-modules, -initiatives and workstreams. Besides, the
IM defines the dedicated culture transition program, defines the Integration-Project
House (IPH), assesses the integration capabilities and establishes a suitable integra-
tion toolkit, including Integration Scorecards. The Integration Masterplan has to
be mirrored and integrated with the Synergy Management and supplemented by a
transparent and continuous communication flow. The JBD and JCD are the guiding
principles for the Transition Management which takes care of the short-, mid- and
long-term implementation of the Integration Masterplan. The IPH and change agents
make this transition happen, but also top-management guidance and commitment are
mandatory for a successful integration. Last not least, the Integration Monitoring
and Controlling intends an early identification of potential gaps between actual and
projected integration performance, and defines suitable counter-measures, if neces-
sary. It closes with a summary of the lessons learned to professionalize the inhouse
M&A capabilities and redefines integration levers to scale the full value potential of
the JBD and JCD even beyond the integration horizon.
A transaction is only successful, if the forecasted synergies and the intended transaction
rational are realized, and if the former two independent organizations of the acquirer and
the target achieved the transition to the intended Joint Business Design (JBD) and a new
winning Joint Culture Design (JCD). This is still nowadays a challenging task, as mul-
tiple studies show (Mercer Bing and Wingrove 2012) and integration hurdles are one of
the primary reasons for M&A failures. One explanation might be, that most transaction
processes focus on Due Diligence and valuation matters and therefore not addressing
integration issues from the very beginning (Davis 2012, p. xi) (Fig. 4.1).
Besides, a significant number of M&A showcases highlight where integration efforts
ended in disaster, under-delivering on synergies, frustrating shareholders, neither
retaining talent nor core-capabilities and deteriorating employee morale. Well-known
4 Integration Management 175
examples of M&A failures, based on poor integration efforts, are Daimler’s acquisition
of Chrysler (Edmondson et al. 2005), where the latter was at the end sold off to Fiat, the
merger between Time Warner and AOL (Joyce 2013), the merger between Citicorp and
Travelers, or Kraft’s acquisition of Cadbury (Lucas and Rappeport 2011).
Galpin & Herndon assessed that more than 50% of interviewed companies from a
cross-industry sample had only average, pure or even very pure capabilities with respect
to critical integration skills like M&A communication, effective decision-making, inte-
gration planning, Day One Readiness preparation, employee onboarding, integration
tracking, successful integration leadership, or culture integration (Galpin and Herndon
2014b). These skills are even more demanded nowadays, as transformational and
cross-border deals increase the complexity and risks of the integration process. A latest
tri-annual M&A integration survey of PWC at least indicates that companies might get
step-by-step more mature concerning their integration skills and achieve greater finan-
cial and operational success by applying best-practices for M&A integration. But, there
seems to be a disconnect, as many companies still struggle with respect to their strategic
and transformational integration targets, especially in go-to-market goals (PWC 2017a).
A couple of core question must be addressed, to assure integration success within an
E2E framework, like:
– What are the key targets of the Integration Strategy? How to balance strategic, finan-
cial and operational targets?

• Embedded M&A Strategy • Dynamic Valuaon of Standalone Target (w/o • Integraon strategy
• Fit Diamond & Assessment • Verificaon of Integraon Approach − JCD Freeze
• Integraon Approach Blue Print − JBD blending and JBD Proof-of-Concept • Integraon Masterplan
− Standalone Business Design − Culture blending and JCD Proof-of-Concept • Transional Change: Implement JBD
Business Design (JBD) Blue Print • Acquisions Financing Concept • Integraon tracking and controlling

M&A Capability Map Integraon Project House (IPH) and M&A Toolkit M&A Knowledge Management
M&A playbook
Fig. 4.1 The E2E M&A Process Design: Integration Management

– How to freeze and implement the targeted JBD? What are different suitable
Integration Approaches to achieve this JBD? How to seamlessly combine the two
SBDs to one JBD at the defined touchpoints?
– How “deep”, how broad, how intense and how fast should the target be integrated into
or merged with the acquirer’s Business Design?
– How to assess, blend and integrate—maybe vastly diverse—cultures? How to initiate
and foster cultural and organizational change?
– What are the crucial submodules of a holistic Integration Approach and Masterplan?
Which tools could be applied? How to design a powerful project organization with
strong integration capabilities and robust integration processes?
– How to use lessons learned of integration projects to improve integration capabilities
and to avoid pitfalls?
The goals and understanding of the Integration Management within an M&A process
underwent several changes and developments. One of the very first, broad definitions
was created by Lindgren: “The concept of integration refers to the process through which
changes in various systems in the acquired subsidiary are undertaken (Lindgren 1982)”.
This view dominated most M&A integration processes in the 1990s. Nevertheless, it
was too shortcut. It neither addressed that besides the integration of systems and pro-
cesses quantitative synergies have to be achieved as well as sensitive cultural integration
issues have to be solved. Nor it mirrored that not only the target has to be integrated into
the acquirer’s organization, but also the new parent might have to adjust and foster the
integration of the target, or as Lajoux described “the term M&A integration refers pri-
marily to the art of combining two or more companies (not just in paper, but in reality)
after they have come under common ownership (Lajoux 2006, p. 4)”. A further pitfall of
multiple integration processes was a pure inside orientation within the integration pro-
cess. A holistic integration process has to avoid such a narrow focus by also integrating
the needs of all external stakeholders, like customers, suppliers, shareholders, analysts or
regulatory entities.
An integration strategy has to be tailor-made to address the specific integration needs
on the acquirer and target side. A one-fits-all approach for integration does not exist
(Galpin and Herndon 2014a, p. 10). Nevertheless, a structured Integration Approach
with defined milestones and which addresses the transaction rational (Siegenthaler 2009,
p. 27) and synergy targets of a transaction is mandatory for a successful E2E M&A
Process Design:
4 Integration Management 177
 Definition
The Integration Management complements the Embedded M&A Strategy and the
Transaction Management as an integral primary E2E M&A Process Design module.
The Frontloading of important integration matters, like the design of a Blue Print
of the Joint Business and Culture Design, into the prior parts of the M&A Process
Design should ease and speed up the integration initiatives. The core subprocesses of
the Integration Management are:
– The Integration Strategy: Applying an E2E view, the Integration Strategy builds
upon the Due Diligence outcomes and the assessment of the value and syn-
ergy drivers of the underlying acquisition as well as on its transaction rational.
The Integration Strategy starts with the definition of the overall integration
vision and mission as the “northern star” of the integration process. It describes
the transaction-specific Integration Approach, thereby defining integration speed
and depth. Last not least, the Blue Print of the Joint Business Design (JBD) and
the intended Joint Culture Design (JCD) are finally frozen for kicking off the
integration.
– The Integration Masterplan (IM): The IM defines the integration modules and
workstreams for the transition to the targeted Joint Business and Culture Design.
Detailed Integration Scorecards (ISC) specify the dedicated integration projects
and workstreams per module. They frame the targets, timelines, milestones as well
as responsibilities and resource needs for each integration project and enable a
standardized reporting. The IM also designs the culture change program to achieve
the targeted culture transition and the implementation of the new principles and
values for the joint company. Last not least, the organizational integration princi-
ples and enablers, like the Integration Project House(IPH) and team, the responsi-
bilities and the necessary Integration Toolkit (ITK) are important pillars of the IM.1
– The Transition Management: The Transition Management makes the integration
happen. It specifies the responsibilities and fosters transparency and communica-
tion along the integration process. The true implementation relies on an intense
culture change management and the implementation of the IM along the underly-
ing timeline of Day One Readiness, short and mid-term integration as well as the
long-term scaling of the full potential leverage of the JBD.
– The Integration Monitoring, Controlling and Learning: The integration has
to be tracked and controlled to safeguard that the transition to the JBD and the
1The need of careful integration planning is also underlined by DePamphilis (2015, pp. 212 and
215).
Integraon Integraon- Transion Integraon Moni-

Strategy Masterplan Management toring, Controlling
(JBD & JCD freeze) (IM) & Learning
Integraon needs and Design of IM, modules , Integraon guidelines Integraon tracking
priories defined on workstreams & -scorecards Definion of
Valuaon & synergies High degree of Gap assessment
Due Diligence blending CA CR transparency
#8 #6 CV #4 #2 Definion of counter
Integraon risk analysis Focused, aligned acons
CP CC #3 CH CM
#7 #5 communicaon
#9 CF
Integraon-Strategy Design #10 CO Integraonal learning
Integraon vision & Culture Transion
Culture Change Program Management Lessons learned and
mission
Post Mortem Report
Integraon Approach
Design of Integraon- Integraonal Learning
Integraon targets Implementaon of
Project House (IPH) and & Best-Pracce
Integraon intensity Integraon-Masterplan
built up of necessary Plaorm (IL&BPP)
Alignment with Day one readiness
integraon capabilies
Synergy Management 100 days plan
Speed and ming Design of and training on Mid term plan Redefine core areas of
integraon toolkit Full potenal Integraon & Synergy
JBD & JCD refinement and
freeze leverage plan Management for long-
Coordinaon with Synergy term full-potenal value
Management leverage
Fig. 4.2 Structure and flow of thoughts of Chap. 4 on Integration Management—sub-processes
JCD will be achieved and the transaction rational finally realized. Therefore, an
in-time identification of deviations and the launch of counter-initiatives, if neces-
sary, is mandatory. Especially for multiple acquirers, integrational learning loops
offer substantial potentials for the improvement of their integration capabilities.
This could be achieved by implementing standardized post-mortem reports and by
creating an Integration Learning & Best Practice (Il&BP)-Platform, which includes
external benchmarks besides the closed inhouse M&A projects (Fig. 4.2).
Each integration project has its own challenges. A tailor-made Integration Strategy is
therefore mandatory.
Figure 4.3 adds a timeline to the Integration Management and the overall E2E M&A
Process-Design.2 It also shows how the Frontloading of crucial integration tasks, like
the Diagnostics of the SBD and SCD as well as the definition of the Blue Print for the
JBD and JCD, enables an integration head start at Day One and increases transparency.
Further, an intense coordination and alignment of the Integration Management and the
Synergy Management might also improve M&A performance.
2Compare the timeline as defined by Davis (2012, p. 11), who uses different process steps and
milestones, but addresses the same idea of an early start of integration planning.
4.1 Integration Strategy and Approach 179
#1 M&A #2 Transacon #3 Integraon

M&A Due Signing Closing 100 Day Full flagged Sign off
Strategy Diligence Program integraon integraon
Assure Day One Manage 100 day Deliver on mid-term Scale

Strategic raonal Integraon vision Readiness IM IM
Joint Business
Design (JBD)
SBD Diagnoscs JBD

SCD Blending & JBD
& Implementaon Tracking Controlling
JBD Stress Test Freeze
JBD Blue Print
Joint Culture
Design (JCD)
SCD Diagnoscs JCD

& SCD Blending & JCD
Implementaon Tracking Controlling
JCD Blue Print JCD Robustness Freeze
Synergy
Synergies
Synergy Synergy proof- Synergy Implementaon Tracking Controlling

idenficaon of-concept Model
#4
M&A Synergy Management
Fig. 4.3 E2E design for the Integration Management
4.1 Integration Strategy and Approach
The Integration Strategy defines the ultimate targets of the integration and the guiding
principles for this transition process. As the Transaction Management, especially the Due
Diligence, fosters a detailed understanding of the risks and upsides of the potential trans-
action, the Integration Strategy should build upon, in the sense of a true E2E approach,
on those findings and outcomes. But as well the valuation and Synergy Management,
by identifying the value and synergy drivers of the intended transaction, provide multi-
ple inputs for the definition of integration targets and priorities. The Integration Strategy
allows the acquirer to refine and tailor its own original assumptions and estimates about
the valuation (DePamphilis 2015, p. 215), the intended FCFs, the synergies and the best
fitting Business and Culture Designs before freezing them for the draft of the IM.
4.1.1 Integration Strategy
The pillars of the Integration Strategy are the definition of the integration vision and mis-
sion, the specification of the integration targets, as well as the final adjustments on the
Integration Approach. The latter involves final decisions on and freezing of the intended
JBD and JCD.
4.1.1.1 Integration Vision and Mission

One crucial cornerstone of the integration strategy is the definition of the integration
vision and mission of the joint company. Companies, which have to adopt permanently
their corporate and business strategies, as being exposed to an ever-shifting ecosystem,
may use their vision and mission, understood as a brief description of their core values
and purpose, as navigation system (Collins and Porras 1996, p. 65). As integration pro-
cesses are times of significant change, not only for the external but as well for the inter-
nal stakeholders, the leverage of a joint vision and mission as integration tool seems even
more applicable.
Within a transaction context the vision and the mission have to address and clarify a
set of high-level questions for their stakeholders:
– What will be the ultimate value proposition of the joint company?

– What are the “mission-critical” elements of the targeted Joint Business Design?
– What will be the lasting, differentiating and unique competitive advantage of the joint
company?
– What are the future value drivers of the targeted Joint Business Design and what are
the core synergy levers for the integration?
– What will be core capabilities and how to address culture and employee issues?
– How to initiate a change program that assures a seamless JBD and JCD transition?
Starting with this set of reference questions the targets of an integration vision could be
derived, as described by Fig. 4.4:
The purpose of the integration vision is to provide a lasting orientation in times of
transformational change and therefore act as a “northern star” along the integration pro-
cess. The integration vision should be a focused, consistent, and reliable massage which
motivates employees to become part of this integration journey and to build the new
company.
A consistent vision building process uses the advantages of the E2E characteristics of
the M&A Process Design as it builds upon the strategic rationale of the M&A Strategy
and takes care that the latter not get lost during the ups and downs of an integration pro-
cess. This implies, that the integration of a luxury goods conglomerate acquiring another
brand and leveraging global sales will have a significantly different integration vision
than an automotive acquisition built on scale, like in the Peugeot and Fiat-Chrysler
merger, or a pharma deal, which is built on capabilities and avoiding the patent cliff.
The integration vision should also address soft issues as it could leverage the creation
of a new joint winning culture and may support to overcome potential culture clashes
Purpose: Integraon Vision as the “northern star” for the

integraon process: Builds upon the transacon raonal and
keeps it alive along the integraon process
Fosters the creaon of one joint winning culture and

overcomes culture clashes. Provides employees and
other stakeholders orientaon during mes of change.
Integraon
Has a touch point to the Joint Business Design
Vision approach
Enables a consistent communicaon including the

top-management and external stakeholders
Fig. 4.4 Targets of the integration vision
between the acquirer’s and the target’s employees. Additionally, the vision might pro-
vide, especially for the employees, orientation during those times of change.
Besides, the integration vision enables consistent communication not only on all
levels of the organization but also with external stakeholders, like customers, suppliers
or shareholders. The vision supports the communication strategy of the top manage-
ment by providing a consistent and focused view on the ultimate goal of the integration.
As both top-management teams work together on a joint vision, this might improve a
shared understanding of the origins of the transaction partner and where both compa-
nies would like to go together. One-voice-from-the-top is essential for guiding a suc-
cessful integration process. The top-management could use the vision as a sketch of the
end-point of the joint integration journey by walk the talk throughout the organization.
Such a co-operative vision building approach would also foster a supportive culture and
on-boarding of both companies’ employees.
For the creation of the Integration Vision, the 4A-principle might be used: The vision
should be on the one side ambitious, meaning setting ambitious targets which might be
only achieved by out-of-the-box thinking, but must be on the other side attainable, which
separates the vision from utopia. Furthermore, the vision should be appealing for all
employees—on the target’s as well as on the acquirer’s side—as well as for stakeholders
and should be well articulated (Fig. 4.5).
The integration mission, as a more detailed supplement of the integration vision,
describes the mid-term strategy and architecture of the joint company for all stakehold-
ers. It describes the intended strategic position of the combined company, the value
creation model and the most important synergy levers, the cornerstones of the targeted

Create a joint inte- Top-down communi- Communicaon Review of Vision & mission scaling
graon vision & mission caon strategy on all levels vision & mission beyond integraon
INTEGRATION VISION INTEGRATION MISSION

Purpose: “Northern star”; providing Describes the mid-term strategy and architecture of the joint
orientaon and movaon along the company for all stakeholders (external and internal):
integraon process • Intended strategic posion of the combined company
• Value creaon model and synergy levers
Close link to the strategic raonal of the
• Corner stones of the targeted JBD
transacon
• Core values of the JCD
Describes the midterm intended joint

Addresses especially the value added levered by the transacon for
value proposion, as well as the unique
the different stakeholders, like shareholders, customers, and
and differenang compeve
employees
advantage in a very brief way
Fig. 4.5 Process and content of integration vision and mission
Joint Business Design, like the decisive capabilities of the new joint company and the
value proposition for the customer, and, last not least, the core values of the Joint Culture
Design. In each of those parts, the focus must be on the value-added levered by the trans-
action for the different stakeholders, like shareholders, customers, and employees.
The process for the built-up of a consistent vision and mission is a top-management
responsibility. The ultimate target is the creation of an appealing and demanding vision
and mission. Important is thereby, that already at this definition stage a joint process
should be established which integrates besides the acquirer’s management and employ-
ees as well the acquired company’s management and employees. Only then the vision
and mission will be accepted also by the target’s employees. As the vision and the mis-
sion should give orientation along the integration process, a detailed communication
strategy has to be defined in the second step. This communication strategy has to address
what will when to whom communicated. The rollout of the communication strategy has
to be run consistently and on all levels of the joint organization. At a later stage of the
integration process, most likely between the finalization of the mid-term plan and before
the leverage of the full potential plan, a review of the integration vision and mission on
top management level might be sensible. The updated vision and mission could then be
used for scaling the JBD, the JCD and the strategy beyond the integration process.
4.1.1.2 Integration Targets and Priorities

The integration vision and mission provide long-term orientation for the integration pro-
cess. They serve as well as a framework for the more specific midterm integration targets
and priorities. Where vision and mission should be even valid for the past-integration
horizon, integration targets and priorities explicitly focus on the integration period of the
post-closing 18–24 months. Besides, the integration targets address also the core inte-
gration risks, as pre-assessed within the Due Diligence. The integration targets could be
split on the one side into overall or transaction-specific targets and, with respect to the
stakeholder, into inward or outward—ecosystem—oriented targets.
Overall integration targets Overall integration targets are those which are valid for more
or less any transaction and are therefore less specific. Inward oriented targets intend fore-
most an efficient transition to the defined JBD on all organizational layers. Typical exam-
ples are:
– Leverage on the joint value creation and deliver on synergies

– A smooth and efficient transition to the target JBD by executing the chosen
Integration Approach as later detailed by the IM
– The transition of the two standalone cultures to a new JCD with a consistent value
architecture, which is accepted on the acquirer’s and the target’s side
– Retaining and developing key talent and capabilities
On the external side, a minimal disruption of the day-to-day business and the
on-boarding of ecosystem partners concerning the transition is intended. This includes:
– to retain key customers and to leverage the acquirer’s and the target’s joint share-of-wallet
– to strengthen core supplier ties and double down on research and other important eco-
system partners
– to gain shareholder support and alignment on the transaction rational and synergy
leverage
As these general integration targets are, per definition, vague, they have to be supple-
mented by the transaction specific targets:
Transaction specific integration targets The transaction-specific integration targets are

closely linked to the integration vision and mission by making them more touchable.
They have to address questions like:
– what will be the core products and services of the joint company to fulfill the strategic
rationale and intended customer value proposition
– what will be the mission-critical parts and drivers of the JBD
– what are the core synergies which have to be realized along with the milestones of the
integration for achieving the promised value accreditation of the transaction
Integration priority identification and matrix Especially cross-border, high-tech or mega

deals bear the risk to get lost in complex integration goals and processes. Therefore,
the mission-critical targets of the integration have to be identified and prioritized. The
Short Term
“Day-one” plan 180-day IM
HR
Cross
Time for implementaon of integraon
integraon
selling Joint
Customer
Base
Joint
module
R&D
plaorm
Midterm IM
Joint
manufacturing
footprint
low high
Long Term
Lever of integraon modul on overall integraon success
Fig. 4.6 Integration priorities and integration matrix
identification of the AAA-integration issues enables the buyer’s and target’s management
team to decide on which integration efforts to focus on (Fig. 4.6):
For this identification of high priority integration tasks an integration matrix could be
used, which is based on the two criteria “time pressure to implement the specific integra-
tion module” and “importance of the specific integration module for the overall integra-
tion success and synergy capture”. Three specific integration patterns allow a detailed
structuring of the overall integration process and the IM. Each integration project has to
fulfil short-term a couple of integration needs, which might not have a high-level impact
on the overall success, but are nevertheless important for the day-to-day operations. This
might include the integration of HR and payroll systems, financial reporting integration,
IT system integration or customer communication and billing processes.
The second cluster of integration tasks might evolve by combining high importance
with time criticality. These should be the integration priorities for the 180-day IM. The
leverage of cross-selling opportunities might be a good example, as they will have most
likely a strong impact on the top line revenue development, especially for technology, IP
or start-up acquisitions, and are exposed to competitive retaliation, therefore being under
time pressure to be captured.
A third, last pattern might be a combination of high impact integration issues, but
which might be not as exposed to time pressure. Examples might be the transition to a
joint manufacturing footprint. These are typically the mid-term integration priorities.
Project
Risks
Unclear objecves or communicaon

Lack of leadership / top mgt. involvement
CULTURE RISKS Lack of integraon capabilies or resources
SCD Cultural Gaps: regional, Too less coordinaon between
values, management style target & acquirer
PEOPLE RISKS different hirarchies Negave impacts on day-to-
JCD Loss of key employees project and top management day business
Risk Demovaon / uncertainty IT-plaorm incompability JBD
Employee resistance Drain of core customers Risk
Decreasing loyalty / commitment Too large gap between
Limited know how transfer acquirer’s and target’s SBD
Talent risk & loss of intellectual
INTEGRATION architecture
capital RISKS Differences in organizaonal
Unclear Target / Mgt. structure principles (SBUs, profit centres)
Legal / Environmental Risks
Missing focus on key value drivers of JBD

Undershoong synergies
Inadequate capture
Insufficient ming
…
Synergy
Risks
Fig. 4.7 Integration risk assessment
This categorization of integration tasks in Day One, 180-days and mid-term priorities
will also be later used for the development of the IM.
4.1.1.3 Addressing Integration Risks

Besides this integration target setting, the most important risks, as identified in the Due
Diligence, have to be addressed. The analysis of the integration risk portfolio and the
prioritization of the most crucial risk might use a clustering of risks into a project, JBD,
JCD or synergy risks, as pinpointed in Fig. 4.7:
4.1.2 Integration Approach
As the integration vision, mission and targets describe what should be achieved by the
integration, the Integration Approach describes how these targets should be achieved.
The Integration Approach has to answer thereby two questions: which activities of
the target company and the acquirer—meaning which parts of the JBD—should be
integrated and how they should be integrated. Two organizational layers have to be
separated:
– On the corporate level, the JBD has to define the joint business activities of the new
corporate portfolio. This involves as well decisions on potential divestments of busi-
nesses which might have only a limited fit with the targeted portfolio or might not
offer a high attractiveness of the future ecosystem due to competitive moves, technol-
ogy trends or shifts in customer use cases
– On strategic business unit level, the approach of integration describes which parts of
the SBD of the buyer and the target should be merged and which ones should be run
on a stand-alone basis post-closing. Besides, the Integration Approach also defines the
intensity and speed of integration.
The transaction rationale (Davis 2012, p. 5), the necessary autonomy of the targets
Business Design for its successful development, the strategic interdependencies and
intended synergies between the target and the acquirer, and the targeted JBD have a
substantial impact on the selection of the best-fitting Integration Approach. A specific
Integration Approach mirrors the necessary intensity, depth and speed of integration.
4.1.2.1 Freezing the Integration Approach
Integration approach: Degree of integration The level, also described as the degree
of integration, determines how far the acquirer and the target company integrate their
pre-transaction SBDs into one JBD post-transaction.3 A one-fits-all approach does not
exist. Within the integration literature and research especially the trade-off between
absorbing a target company to maximize synergy and value capture versus leaving the
target company preserved to prevent its autonomy for maximum standalone value deliv-
ery is widely discussed (Haspeslagh and Jemison 1991; Puranam et al. 2006). If the
acquirer, based on his assessment of the trade-off between coordination and autonomy,
concludes that the benefits of coordination are prevailing, the acquirer would choose
an integration by structural absorption, in which activities of both sides would be inte-
grated into one JBD allowing the acquirer to realize synergies by economies of scale or
scope as well as by the sharing of resources and capabilities between the two companies
(Zaheer 2013).
But, the debate on the best-fitting, transaction-specific Integration Approach in the 20s
will be based on a multitude of factors, like on the chosen growth pattern, the specific
transaction rational and the intended synergies of the transaction (Galpin and Herndon
2014a, p. 40), the gaps between the SBDs, the necessary independence of the tar-
get to preserve its competitive advantage as well as the given boundaries of the wider
eco-system of the new, joint company.
The close relationship between the chosen growth strategy based on the distance to
the core and the specific Integration Strategy is shown in Fig. 4.8. Transactions close
to the core of the acquirer’s SBD most likely demand a One-Company Approach,
whereas transactions in adjacent markets might demand a more collaborative, loose knit
Integration Approach:
3The concept of the degree and different levels of integration in M&As was originally developed
by Thompson (1967) and later underlined by multiple authors (Shrivastava 1986; Napier 1989,
p. 277).
New corporate Venturing (Inhouse VC)

“touch points”
COLLABORATION
Business Incubaon
INTEGRATION
APPROACH
Adjacent
“touch points”
and markets)
Alliances & partnerships

M&A
ALLIGNMENT INTEGRATION APPROACH
Joint Ventures
Core business
Minority & cross
shareholdings,
ONE COMPANY INTEGRATION APPROACH
divestments
Inhouse business model innovaon

Time needs for Implementaon
Fig. 4.8 Growth strategy and Integration Approaches
The definition of the degree of integration is more of a gradual decision. As described

in the Embedded M&A-Strategy chapter, three principal Integration Approaches, which
define the intensity of integration, could be distinguished:
– Collaborative Integration Approach: Within this approach, the two companies

retain more or less the autonomy of their pre-transaction SBDs. Minimal, but tailored
changes in these two SBDs are requested for synergy capture and value creation of
the transaction. Despite a loose-knit Integration Approach, the acquirer will align the
financial reporting and accounting principles, as well as the business model and strat-
egy development process. This could be achieved by introducing common guidelines
and compliance principles, management reporting and approval standards. Besides,
the expected parenting advantage will define the necessary resources on the acquirer’s
side to scale the target’s SBD and to create the intended value-add (Puranam et al.
2009).
– Alignment Integration Approach: This approach integrates clearly defined, specific
parts of the SBDs of the acquirer and target within the JBD. The intent is to lever-
age dedicated synergies, whereas other parts of the two SBDs are kept autonomous
post-transaction.
Need of Autonomy Degree of Integraon
Collaboraon Alignment One-Company Approach

Approach Approach Target transion Best-of Both
Limitedsynergies and Selecve synergies and Significant SBD interdependencies
Strategic Interdependencies
interdependencies interdependencies,
Mulple and deep pool of synergies
idenficaon and
Limited parenng
and Synergies
realizaon of synergies Full JBD and JCD integraon for leveraging

advantages have to be
key synergies and realizing strategic raonal
clearly defined (incl.
governance) Selecve parenng Especially in case of horizontal M&As
advantages and
Focus foremost on
capability transfer
early-stage investment
Target keeps it’s SBD Target with defined One-company

approach: Full flagged integraon
autonomy
Integraon Approach
Integraon focused on of SBDs and SCDs

Characteriscs
governance: Acquirer Idenficaon and Joint reporng & governance guidelines

implements investment, footprint of JBD
reporng & governance interfaces TargetSBD transion Best-of-Both
JBD by
guidelines on acquirer’s SBD blending SBDs
Tailored integraon:
Limited management & Integraon of defined Target autonomy lost Both SBD blended
capability transfer modules of the SBDs and transion on new
into JBD JBD and JCD
Fig. 4.9 Comparison of patterns of Integration Approaches
– One Company Integration Approach: The two SBDs of the acquirer and the target
will be fully integrated. This approach involves the highest complexity for the inte-
gration process, but as well the highest synergy potentials. This approach is typically
used for horizontal M&As, where the acquirer and the target company compete in
the same industry and have therefore strong similarities in their pre-transaction SBDs.
Cost synergies might be primarily the value driver of such transactions.
Applying the two contradicting criteria of needs concerning the organizational autonomy
of the SBDs and the strategic interdependences between the SBDs, the tailored pattern of
the Integration Approach is described in Fig. 4.9:
As the sensitive selection of the best fitting Integration Approach is a core success
factor of for the overall transaction a couple of further details will be highlighted in the
backup information before the freezing and implementation of the Integration Approach
will be described.
An Integration Approach which also mirrors the needs and characteristics of a specific transac-
tion depends foremost on two criteria, the needs of the SBDs of the acquirer and the target with
respect to their “organizational autonomy” for a successful business development and the “strate-
gic interdependencies” between the acquirer and the target to lever business models and synergies.
Based on the peculiarities of both criteria four different patterns of Integration Approaches could
be specified.
Strategic Interdependencies The leveraging of strategic interdependencies, in the sense of a trans-

fer of strategic capabilities between the acquirer and the target, is a precondition to realize intended
synergies (Haspeslagh and Jemison 1991). As the value add is the ultimate target of any transac-
tion, the question of the “ideal” transaction specific degree of integration depends on the pattern
and intensity of those strategic interdependencies, which are fundamental for the synergy poten-
tials, between the buyer and the target.
Especially horizontal and vertical M&As close to the acquirer’s core business are based on
intense strategic interdependencies, as the acquirer and the target either come from the same indus-
try or are linked to each other through the vertical value chain in upstream and downstream mar-
kets. For example, in case of inner-industry consolidation plays, economies of scale in purchasing
and manufacturing as well as the merging of manufacturing footprints or other tangible assets,
might be the true value drivers of a transaction. In such cases, a very tight alignment or even a full
merger of the two SBDs might be recommended. Former business boundaries between the compa-
nies might be fully wiped out post-transaction.
In case of knowledge-based acquisitions or more adjacent market-driven M&As, the transfer
of capability depends on the question if the underlining knowledge is codifiable or not. In the pri-
mary case, for example, IP rights in technology-based industries or patents in the pharma industry,
knowledge as an intangible asset might be transferred between companies like a tangible asset. In
the latter case, when knowledge is embedded in personal capabilities, the transfer of capabilities
might be more demanding and request personal interaction and communication. This might request
to overcome, maybe even non-visible, organizational boundaries (Nonaka 1994) to realize strategic
interdependencies.
Less strategic interdependencies might exist in case of the transfer of general management
capabilities. The transfer of management and controlling systems, budgeting or compliance pro-
cesses from the acquirer to the target could also be realized by softer integration strategies based
on selected and limited interdependencies. This kind of integration strategies are often applied in
financial holding or private equity acquisitions. In the latter case, the strategic interdependencies
between the private equity and the target company might be extremely limited.
All in all, the intensity of strategic interdependencies is strongly correlated with the need for a
high degree of integration and the breakdown of organizational boundaries between acquirer and
target.
Business Design and Organizational Autonomy That the leverage of synergies demands the
transfer of strategic capabilities is clear-cut, as organizational boundaries have to be overcome.
Nevertheless, to sustain the competitive advantage and capabilities of the target company, a cer-
tain degree of autonomy of the latter might be necessary. This is typically the cases where a huge
conglomerate acquires a start-up company. A too tight Integration Approach would be at risk to
destroy the unique characteristics and advantages, like speed and entrepreneurship, of the target
company and might endanger the retention of key talent.
The need to maintain the autonomy of the target might be the more necessary, the more the
strategic capabilities and competitive advantage of the target are ingrained in its culture and
Business Design, especially its organizational structure and processes. Therefore, the necessity of
organizational autonomy of the target is the second important selection criteria for the degree of
integration and a tailored Integration Approach.
The trade-off between the necessity of the transfer of strategic capabilities to realize intended
synergies on the one side and the need for autonomy of the target company to capture its unique
Targeted synergies
low high
high low
Necessity of organiza onal autonomy of target
Stand-alone approach Paral integraon – symbiosis

(Financial holding, PE) (Management holding)
Degree of integra on
Preservaon Absorption
(“One company concept”)
low high
low high
Strategic interdependencies
Fig. 4.10 Integration approach: Organizational autonomy versus strategic interdependencies
competitive advantage on the other side have to be addressed by the specific Integration Approach.
Figure 4.10 describes this trade-off. A matrix using a low vs. high scale for these two criteria of the
necessity to realize strategic interdependencies and the necessity of organizational autonomy of
the target company defines 4 specific Integration Approaches and was developed by the landmark
book of Haspeslage (Haspeslage and Jemison 1991).
Standalone A standalone “integration” concept is suitable for transactions where the target’s
Business Design and competitive advantage might demand a high degree of organizational auton-
omy to keep its unique core also post-transaction and where limited strategic interdependencies
and synergies between the two organizations might exist. This is typically the case, where finan-
cial investors acquire a successful independent target company, where the strategies and Business
Designs of the target and the buyer are highly diverse, or where an early-stage investment in a
startup with a high-risk profile should be kept legally separated from the new parent company.
The advantage of this integration concept is the limited organizational change and risk of culture
clashes, the disadvantage of the very limited amount of potential synergies and parenting advan-
tage spillovers, as well as the missing Joint Business Design and Culture Design. A pure stan-
dalone approach—from a corporation point of view—was therefore not addressed in the above
Integration Approaches of the E2E M&A Process Design.
Preservation Transactions with a limited need of the target to stay independently post-transaction
combined with only minor strategic interdependencies would fit best with a holding concept.
Within this holding concept integration efforts are again not of major concern and may focus on
the transfer of general management capabilities, like financing, budgeting or reporting guidelines,
or HR policies from the acquirer to the target. But, as in the case of the standalone approach, the
missing strategic rational of a transaction due to missing strategic interdependencies might limit
the applicability for the E2E M&A Process Design.
Partial Integration (symbiosis) A partial Integration Approach is characterized by significant stra-

tegic interdependencies and high organizational autonomy needs. Strategic interdependencies and
synergies have to be scaled, but tailored around dedicated parts of the JBD, not to destroy the SBD
of the target company. The detailed identification of synergies, parenting advantages and therefore
the to be integrated parts versus the independently kept parts of the Business Design are the suc-
cess factor of this integration concept. The symbiosis concept is comparable with the Alignment
Integration Approach of the E2E M&A Process Design.
Full Integration (absorption) A full integration concept, comparable with the “One-Company”
Integration Approach of the E2E M&A Process Design, fits best for a target company that does
not need to stay necessarily independent, and where significant strategic interdependencies and
synergies exist. This integration concept intents a full integration of the two independent SBDs
into one JBD. Limitations of this approach might be the time need for merging two maybe highly
complex organizations and potential cultural hindrances. The upsides might be high synergies
potentials. For a successful new JCD the before discussed integration vision and mission might
become for this Integration Approach a paramount concern.
4.1.2.2 Freezing the Joint Business Design (JBD)

Applying the E2E M&A Process Design, the final decision on the intended JBD builds
upon the detailed SBD Diagnostics and Blending as well as on the Blue Print of the
intended JBD as part of the Embedded M&A Strategy. The Proof-of-Concept of this
Blue Print of the JBD along the Due Diligence process of the Transaction Management
is a final preparatory step for the Integration Management, as detailed in Fig. 4.11.
Within the Integration Strategy, the intended JBD has to be finally decided upon and
frozen. The latter is important for having a reference point along the integration process
(DePamphilis 2015, p. 215). The different elements of the 10C JBD, as discussed in
Chap. 2, will be used for the structuring of the IM in Sect. 4.2.
After the freeze of the JBD, the integration tasks, projects and workstreams could be
defined and described by Integration Scorecards (ISC) and the overall IM. Besides, the
timeline for the integration and its milestones have to be finalized. Last not least, the
integration projects might be mirrored against the integration risk to identify if the latter
are fully covered by the integration initiatives.
The impact of the Integration Approach on the ultimate intended JBD and the implic-
itly necessary SBD changes on the acquirer’s and target’s side are described in Fig. 4.12.
– By evaluating: – the fostering of strategic interdependences and parenting advantages

– the scaling of similarities in the SBDs versus capturing the standalone competitive
advantage of both SBDs
– the limitation of culture integration risks and the leverage of management and talent
retention
– the capture of standalone value and synergies
typical Joint Business Designs patterns for the different Integration Approaches could be
identified:

(Pre-transacon) JBD JBD JBD freeze and

SBD Diagnoscs Blue Print Proof-of-concept implementaon
Acquirer‘s SBD Integraon Approach
CS CS
CS
CA CR Back-
CV Blue CA CR
CP CC CH CM Print CV Test
CP CC CH CM
CF
CF
CO CO
CS
Masterplan
CA CR
CV
CC CH • Definion of Integraon Masterplan: integraon
CP CM
modules, tasks, workstreams and scorecards
CF • Definion of meline and milestones
CO • Definion of integraon risks
Target‘s SBD
Fig. 4.11 Integration Management and JBD: Final adjustments, freeze and implementation
Collaboraon Approach Alignment Approach One Company Approach

CS CS
CA CR CA CR
CV CV CS
CP CC CH CM CP CC CH CM
CA CR
CF CA CM CV
COCS CO CS
CA CR CA CR CP CC CH CM
CV CV CF
CP CC CH CM CP CC CH CM
CF CF CO
CO CO
Integraon Strategy: Foster strategic interdependencies and parenng advantages
1 2 3 4 5 6 7
JBD: Capturing standalone compeve advantage versus scaling SBD similaries
1 2 3 4 5 6 7
JCD: Minimizing culture integraon risk versus build JCD
1 2 3 4 5 6 7
Valuaon: Capture standalone value versus synergy potenals
1 2 3 4 5 6 7
Fig. 4.12 Comparison of patterns of different integration approaches

Example
The transaction-specific answers on those four criteria will give an indication
which Integration Approach and JBD might fit best for the integration and beyond.
For example, the pattern for an incumbent OEM in the automotive business acquir-
ing a startup to get access to critical technologies in autonomous driving systems or
raid-hailing services as a supplement to the traditional core business might look like
the canvas in Fig. 4.13:
Most likely the SBDs of the incumbent and the start-up pre-transaction are sub-
stantially different and therefore offer limited possibilities of leveraging simi-
larities between the SBDs. Synergy potentials might be as well limited, but the
scaling of strategic interdependencies partially necessary to have a spillover of the
technical capabilities of the start-up on the incumbent’s business. The capturing of
the stand-alone unique competitive advantage of the start-up, it’s unique technical
capabilities, might be of utmost importance. Due to the innovative technology inte-
gration risks might loom and differences between an entrepreneurial start-up cul-
ture and more hierarchical, process and efficiency-driven incumbent’s culture have
to be addressed by a JCD which minimizes those integration risks. A Collaborative
Integration Approach, meaning only slight, but precisely defined alignments of the
acquirer’s and target’s SBDs seem to be the most appropriate approach in this case. ◄
The final definition of the transaction-specific JBD and which parts of the acquirer’s and
target’s SBDs should be merged depends significantly on the value levers of the joint
activities and intended synergies:
4.1.2.3 Alignment of Joint Business Design and Synergy Management

The pattern and volume of the intended synergy capture have a significant influence on
the required level of Business Design alignment and integration (Galpin and Herndon
Integraon Strategy: Foster strategic interdependencies and parenng advantages
Low 1 2 3 4 5 6 7 High
JBD: Capturing standalone compeve advantage versus scaling SBD similaries
Low 1 2 3 4 5 6 7 High
JCD: Minimizing culture integraon risk versus build JCD
High 1 2 3 4 5 6 7 Low
Valuaon: Capture standalone value versus synergy potenals
High 1 2 3 4 5 6 7 Low
Fig. 4.13 Integration approach for a potential startup acquisition by an automotive incumbent
2014b). The estimated synergies from the Embedded M&A Strategy phase, which
have been validated within the Due Diligence, serve as a baseline and reference point.
Nevertheless, the buyer should actively seek new synergy opportunities while running
the integration process.
The sensitivity of the Integration Approaches on the intended synergies is interwoven
with the dominant pattern of synergies:
– Focus on cost synergies driven by scale: If the primary lever of the synergy concept is
based on cost synergies, like in industry consolidation plays, the Integration Approach
is most likely intense—Alignment or One-Company Integration Approach—and
should focus on speed and execution. Integration Synergy Scorecards, how the cost
targets could be achieved, should be verified within the Due Diligence and detailed
already between signing and closing. This enables, that the implementation of cost
synergies, like the realization of efficiencies, the design of new “best-of-both” pro-
cesses or the merging of organizational footprints, could be rapidly executed.
– Focus on revenue synergies driven by scope: Revenue synergies have a more strate-
gic touch-point. It has to be defined how new business opportunities could be scaled
or adjacent marketes will be explored. Also, implementation challenges must be
addressed, like how parenting advantages could be levered and dynamic, entrepre-
neurial targets aligned. The most likely Integration Approach will be Collaborative or
Alignment. Therefore, a prolonged integration time span with an intense coordination
of product development, marketing, sales and aftermarket activities, but a looser touch-
point in other modules of the Business Design might be the most sensitive approach.
– New skills and capabilities: In case that the transaction rational is focused on the com-
bination of different, but complementary capabilities, the Integration Approach will be
most likely more strategic and long-term. Capabilities and talent have to be developed
and the new Business Design to be designed. The new vision has to be communicated
permanently by the management to foster the engagement of the employees and to
direct the integration efforts. An Alignment Approach might fit best (Fig. 4.14).
4.1.2.4 Freezing the Joint Culture Design (JCD)

Within the Integration Strategy phase the JCD blue print, as defined in the
Embedded M&A Strategy and stress-tested during the Culture Due Diligence, has to
be finalized and frozen. The JCD mirrors the intended joint culture post-transaction.
The intended culture has to be based upon the purpose, as articulated in the integration
vision, the targeted post-closing joint core values and management norms. If the JBD is
the heart of the Integration Approach and Masterplan, the JCD is its soul.
The implementation of a JCD understood as the new joint values, norms, guidelines,
management behaviours, and practices of the new entity, which are accepted by the
employees of two prior to the transaction independent companies, must be made a cen-
tral plank of the overall Integration Approach (Chakrabarti et al. 2009). This is especially
Main synergy
Cost Revenue Capability

pool
synergies synergies synergies

(scale) (scope) (skills)
• One Company or Alignment • Alignment or Collaboraon • Alignment or Collaboraon

Integraon Approach Integraon Approach Integraon Approach
• Detailed cost synergy • Balance of sound Integraon • Capability and talent
Integraon Approach
assessment mandatory Masterplan and speed of retenon as well as

• Clear definion of JBD Blue integraon development of essence
Print • Mission crical to define which • Sensivity on keeping
• Thorough Integraon parts of the SBDs should be capabilies and Business
Masterplan merged and which part should Design of target alive post-
be kept autonomous transacon
• Trade-off: Integraon speed
of essence, but broad scope • Core: Development of new • Building enrely new
of JBD implementaon business opportunies and Business Designs
revenue scalling
Fig. 4.14 Linkages between Integration Approach and synergy focus
true for transformational deals, where new and partially unknown capabilities and
growth are acquired (PWC 2017a). Culture has a significant and long-term impact on the
way employees interact, communicate, make decisions and get their work done, individ-
ually or within a team. In a best case, the culture transition fosters the integration process
by promoting the new purpose of the joint company as described within its integration
vision and the integration strategy. On the other side, a missing cultural integration or
even culture clash could derail a transaction (Lajoux 2006, p. 118).
Following the 4-step process for the transition to a new JCD, as described within
Sect. 2.7, the breading of the integrated and new joint corporate values, norms, believes
and behaviours involve two phases: First, the transition from two SCDs to one JCD.
Second, the long-term scaling of the JCD beyond the integration process by fostering a
long-term winning culture and its values (Siegenthaler 2009, pp. 147–149) (Fig. 4.15):
The transition to the JCD involves the definition of a dedicated culture change pro-
gram which has to be sensitive to the pre-transaction SCDs, the existing culture gap
between the acquirer and target as well as cultural integration hurdles, like employee
resistance to change. The culture transition has also to balance the new joint value archi-
tecture with the preservation of desirable culture differences between the formerly inde-
pendent companies.
Two organizational layers are in charge to drive the culture transition. The cul-
ture change has to be initiated and orchestrated by change champions as ambassadors
of the transition and is built upon test runs and sequenced rollouts. As “the-tone-of-
the-top” signals the employees the new intended corporate values, management atti-
tudes and norms, for the rollout of the JCD and especially for its communication, the
SCD Diagnoscs
Assessment of (pre-
transacon) SCD of target
& acquirer
JCD scaling JCD Blue Print

Joint Definion of the intended
Foster winning culture
values and measure
Culture „new” JCD and value
culture integraon success Design architecture
JCD transion
Blending and transion of
SCDs to new intended JCD
Fig. 4.15 Culture integration: Transition to and scaling of the Joint Culture Design
top management plays a central role for a successful culture transition. The definition of
management initiatives to communicate consistently the intended culture change and to
foster the joint values are a substantial part of the culture transition program.
Additionally, culture change has to be measured, to get a real-time understanding, if
the transition to the new culture is well understood, supported and in the end realized by
all employees and on all organizational layers or if there are necessary adjustments.
The last step, the scaling of the JCD beyond the integration process, builds upon the
measured and reassessed culture change and transition to the intended joint values, norms
and behaviours. The final target is, after the maybe necessary readjustment of the JCD,
the leverage of the core values of a joint winning culture—which is closely tied with the
competitive advantage of the joint company—on all organizational levels (Fig. 4.16):
The culture transition program is the enabler of the implementation of the JCD. At the
beginning of the culture transition program, the change champions have to be chosen and
their responsibilities to be defined, as change champions orchestrate and drive the cul-
ture change initiatives. Besides, the detailed work streams, test runs and sequenced roll-
outs have to be defined. Thereby a broad set of tools, like face-to-face meetings, tailored
management e-mails, intranet campaigns and web pages, top management letters, social
media initiatives, press releases, newsletters, round tables and management presentations
might be designed for the intended culture transition. The definition of top management
initiatives to drive cultural change and adoption is an integral part of the culture transi-
tion program.
4.2 Integration Masterplan: Planning the Transition 197
SCD Diagnoscs & JCD Transion to “new” Scaling of

Gap Assessment Blue Print JCD JCD
Mapping of SCDs of buyer Definion of consistent Transion to JCD by Leverage JCD beyond
and target on 3 levels: set of core values and culture change program integraon process by
• Regional value archetypes norms for JCD • Balancing joint value • Measuring culture
• Corporate value system architecture with… change
• Management style
Blending culture context,
• preservaon of desirable • Reassessing JCD
especially integraon
culture differences • Adjusng JCD
Assessing values, norms, vision, mission, approach
believes and their roots and intended synergies Definion of culture Fostering core values on
change program: change all organizaonal levels
Mapping the culture gap: Test JCD within Due champions, test runs and
similaries vs. differences Diligence on applicability sequenced rollouts
between the standalone and robustness
value maps Definion management
Idenficaon of potenal iniaves to fosters JCD
culture clashes and
Measuring culture
embed in overall
change (pulse checks,…)
integraon approach
Intent
Create holisc, consistent, powerful Joint Culture Design with clear set of joint core values
Align new JCD with reason why of acquision and core synergies
Avoid culture clash and keep core capabilies and talent ”on-board”
Fig. 4.16 Implementation steps of the joint culture design
4.2 Integration Masterplan: Planning the Transition
The Integration Masterplan (IM) is fundamental for the transition from the SBD and
SCD footprint of the target and the acquirer to the JBD and JCD. Before designing the
IM, any intended integration module and workstream should be based on revalidated
data collected during the Due Diligence and best-practice approaches from benchmarks
of the relevant peer-group.
Besides, the IM must go hand-in-hand with the Synergy Management, especially the
realization, monitoring and controlling of synergies. The IM’s key target is to precisely
define what should be done by whom at which point of time along the integration pro-
cess (DePamphilis 2015, p. 217). By doing so, the IM frames implicitly also the targeted
financial performance of the combined entity and aligns therefor all integration steps
with synergy realization. Besides, the IM has a high granularity, as it is, in essence, a
breakdown of the integration goals into individual integration processes, work streams
and integration teams for each function and business unit. The IM does focus foremost
on the JBD and must be therefore supplemented by a Culture Transition program.
The IPH and team, as well as the change agents, will drive the transition process and
support the overall integration team with the necessary tools and capabilities. The core
tasks are addressed in Fig. 4.17:

#8 #6 CV #4 #2 Definion of counter
CP CC #3 CH CM
#7 #5 communicaon
#9 CF
Culture Change Program Management Lessons learned and
mission
Post Mortem Report
Integraon Approach
Design of Integraon- Integraonal Learning
Integraon targets Implementaon of
Integraon intensity Integraon-Masterplan
Alignment with Day one readiness
integraon capabilies
Synergy Management 100 days plan
Speed and ming Design of and training on Mid term plan Redefine core areas of
integraon toolkit Full potenal Integraon & Synergy
JBD & JCD refinement and
freeze leverage plan Management for long-
Management leverage
Fig. 4.17 Planning the integration: The integration masterplan
4.2.1 Integration Framework
Before defining a suitable set of integration modules as part of the IM, the integra-
tion framework, defining the speed, the horizon and the guidelines of integration, are
discussed.
4.2.1.1 Integration Speed
The speed of integration is interwoven with the length of the integration process, start-
ing from Day One and ending with the closing of the integration project or post-mortem
report. The ideal speed of integration is, as the Integration Approach, dependent on the
specific transaction. Therefore, no general statement is possible if a faster, revolutionary
or slower, evolutionary integration process is, in general, more successful.
A high-speed Integration Approach might realize synergies earlier (DePamphilis
2015, p. 214), which implies in a NPV perspective a positive valuation impact. Also, a
smooth and faster integration might influence which and how much of the anticipated
synergies are captured.
Besides, a fast integration might support a more seamless transition to the new inte-
gration vision, mission and the new joint strategy. This might be especially relevant in
a transformational deal environment. A fast clarification of the management leadership
might speed up decision processes, signal transparency from Day One and may reduce
uncertainty amongst employees. Also, the dynamics of change might be leveraged by
a faster integration style. A last argument in favour of revolutionary approaches is, that
they enable an early (re-) concentration of employees and resources of the new joint
company on the day-to-day business to avoid customer losses and retain key talent.
Latest studies also seem to underline that companies accelerated their speed of integra-
tion (PWC 2017a).
But, on the other side, also arguments for a lower speed integration could be found.
For example, the new top-management would have more time to define a detailed
joint strategy and to identify the true value drivers and synergy levers, which might
be a significant advantage in highly complex integration projects. As well, a less
time-constrained integration offers the possibility to realize a higher acceptance and
motivation by the acquirer’s and target’s employees to participate in the integration pro-
cess and therefore to minimize organizational and cultural resistance. More time may
also make it easier in handling the integration of two different cultures and to transform
both to the intended new, joint culture and value footprint. If a longer timeline for the
integration is intended, it should be based on the decision to spend more time on a sensi-
tive integration planning, and not as an excuse for slow mode or sloppy execution (Davis
2012, p. 13) (Fig. 4.18).
Especially four drivers have a decisive influence on the transaction specific integration
speed. In tendency the integration will need a longer timeframe:
– the higher the target’s and acquirer’s SBD complexity, especially in their organiza-
tional footprint,
– the higher the diversity between the acquirer and the target concerning their SBD and
SCD,
– the longer the time horizon and the higher the complexity for synergy capture, and
– last not least, the higher the intended depth of integration of the JBD and JCD
Acquirer-target diversity in SBDs

(especially, but not limited to organi-
Acquirer zaonal structures and processes)
and target Buyer-target diversity in SCDs
SBD & SCD (especially regional and corporate
diversity values as well as management style)
Integraon
Approach
Size of acquirer and target (depth of Intended me horizon for
Organizaonal layers integraon) synergy capture and full
Complexity of target’s and scale integraon
acquirer’s SBD footprints Complexity Time Paern of synergies
Regional diversity horizon and Volume and diversity of
of SBDs
paern of intended synergies
synergies
Fig. 4.18 Drivers of integration speed

Nevertheless, most recent studies favor a faster than a slower integration process. On the
one side, fast integrations seem to outperform financially wise (Bacarius and Homburger
2005), on the other side, they might signal their employees a clear strategic direction and
management (Mercer Bing and Wingrove 2012), therefore increasing employee accept-
ance and motivation as well as talent retention.
The combination of a more short-term oriented 180-day IM and a mid-term IM allows
a best-of-both approach where the necessary short-term integration issues are embedded
in the first, and the important long-term integration tasks in the latter:
4.2.1.2 Integration Horizons and Milestones

To structure the integration efforts and workflows as well as to set priorities for the inte-
gration four separate horizons are proposed for the Integration Masterplan:
– Day One Readiness

– The more short-term 180-days IM
– The midterm IM
– The full potential long-term plan, which goes beyond the integration process
(Fig. 4.19)
Overall, the IM has to balance in each step day-to-day operating and integration needs.
The IM describes in detail the frozen JBD and JCD, as these serve as reference points
for the overall integration process. The JBD modules are as well ideal to frame and
structure the dedicated integration modules of the 180-day short-term and the mid-term
Pre closing Post closing
IM Design and Day One 180 day Midterm Full scale

Readiness IM IM
Descripon of Integraon Implementaon of IPH and Implementaon of full scale

Targets, JBD and JCD project organisaon IM within all modules:
Definion of IPH (project Ensuring value creaon CS
team & management) focus CA CR

CV
Definion of IM modules Implement top priories of

CP CC CO CH CI
and workflows: 180 day IM within modules

CM
CO
CS
CA CR
CS Permanent monitoring,
CV
CA CR
tracking and controlling of
CP CC CO CH CI CV integraon success
CM CP CC CO CH CI
CO CM
Definion of integraon CO Early counter iniaves in

tracking and controlling Ensuring consistent case of deviaon from IM
concept integraon management
Plan Day One readiness as well as tracking and Lessons learned data base
and business connuity controlling
Fig. 4.19 Integration Masterplan: Integration horizons and milestones

integration. Besides, the IM has to define the organizational structure for the integration
process, specifically the Integration Project House (IPH) with the dedicated project team
and management.4 To keep consistency, speed and transparency from Day One of the
integration onwards, the tracking, monitoring and controlling concept of the integration
process have to be decided upon also at the beginning of the integration process.
After the design of the IM the sequenced rollout of the short-term 180-days integra-
tion, of the more mid-term integration, which should not last longer than two years, and
of the full-scale leverage post transaction have to assure that the JBD and JCD are imple-
mented and synergies are captured.
4.2.1.3 Integration Masterplan Design Principles

The integration guidelines are the framework for the execution of the IM. Content-wise
the main areas of integration are given by the targeted JBD. The JBD involves the internal
operating activities of the Business Design like purchasing, manufacturing, sales and mar-
keting, R&D, IT, finance or HR, which typically are addressed by traditional integration
concepts. But besides, the JBD approach takes also care about the integration impact on
external constituencies, like customers, suppliers, cooperation partners, competitors and
other players of the ecosystem of the company, as described by Fig. 4.20:
The development of the IM is based on four design principles:
At the Core of the E2E M&A Process Design: Final Revalidating and Freezing of JBD
& JCD Blue Print The IM is built upon the JBD and JCD Blue Print of the embed-
ded M&A Strategy. The blending of the two SBDs and SCDs and the verification and
robustness check of the JCD and JBD within the Due Diligence offer further critical
insights and adjustment needs of the first Blue Prints. But, the Due Diligence is a snap-
shot and not a “full picture”, especially of the target’s BD. It is much more a draft of the
potential joint business. After the closing, the buyer has access to the full dataset and first
integration results. This offers the opportunity to blend Due Diligence results with the
first insights of integration initiatives before the freezing of the final IM as a reference
point for the overall integration process (DePamphilis 2015, p. 223).
Best-of-Both Best-Practices and Peer-Group Benchmarks

A second integration principle is to leverage the JBD by applying a best-of-both
approach between the target and the acquirer. Further valuable reference points for defin-
ing the final targets and the layout of the IM are best-practice processes and benchmarks
within the industry peer-group of the target. Other sources for benchmarks could be ISO
9000 standards, quality awards, or consulting reports (Fig. 4.21).
4Compare Chap. 6 on the details of M&A project management and the role of the Integration
Project House (IPH).
External Integraon
Complements
Suppliers Customers
Strategy
Financial
Systems Integraon &
Synergies
Organizaon /
Structure Management
Internal
Operaons / Integraon
Processes Core Capabilies
Communi-
Ressources
caon
Communies Culture Business
Partners
Competors
Fig. 4.20 The integration ecosystem: External and internal stakeholders
Integration initiatives and workstreams End-to-end Revalidang & Freezing JBD & JCD
•- Identification, evaluation and priorization of core - Focus on intended JBD, capabilies and JCD
• integration initiatives and synergies - Ensure fit between JBD and JCD
•- Workstream process model with Integration - Freezing aer robustness check of JBD & JCD
• Scorecards and close tracking process and integraon risk idenficaon
Design principles
for JBD & JCD
Smooth transition SCDs < JCD & SBDs < JBD by Best pracce beyond best-of-both integraon
•- Applying best practices (beyond best-of-both) - Best pracce processes for JBD implementaon
•- Development core competencies & - Winning JCD along the 3 culture levels and
•- Retaining core talent - Close knit integraon & synergy capture
Fig. 4.21 Design principles for the integration masterplan
Smooth Transition from SBDs to the Intended JBD and from SCDs to the Intended
JCD
Also, the smooth transition from the SBDs to the intended JBD should always be guided
by the implementation of best practices beyond a simplified best-of-both optimization.
The same holds true for the transition from the stand-alone cultures to the Joint Culture
Design. Two important core design principles are the development of core competencies
closely linked to the integration mission and the intended strategic rational as well as the
retention of critical core talent.
Integration Initiatives and Workstreams

The Integration Masterplan frames the identified, evaluated and prioritised core integra-
tion initiatives and synergies. Based on these core initiatives, a dedicated workstream
process model with Integration Scorecards and close tracking process could be designed.
4.2.2 Integration Masterplan Modules: Planning the Transition

to the JBD
Following the consistent progression along the E2E M&A Process Design, from the
Embedded M&A Strategy through the transaction phase up to the integration, the ten
modules of the 10C Joint Business Design seem to be perfectly suited for the structuring
of the IM. The combination of the frozen 10C modules of the JBD could be defined as
the targeted “end-state” Business Design. The latter might be used as guiding light for
the overall integration process (Fig. 4.22).
#1 CS-Integraon #3 CV-Integraon
• Built unique, aracve, differenang CV • Define joint offer with maximum
CA-Integraon #6 • Address uniqueness by capabilies and CV and user experience
• Joint R&D plaorm differenaon by compeve advantage • Scaling enlarged product-service-
• Joint manufacturing and best-in-class CV digital plaorm beyond
footprint • Integrang digital approach & standalone potenal
• Joint logiscs network BD innovaon iniaves #4 CR-Integraon
• Joint, seamless support • Customer retenon program
funcons as enablers • Sales & aermarket program
for share-of-wallet exploitaon
CS
CE-Integraon #8 • Best-of-both markeng mix
• Retain and develop
core ecosystem partners: CA CR #2 CM-Integraon
−
−
Key suppliers
Universies and CC
CV
CH
• Consistent and joint CM
segmentaon (use-cases)
CP CM
research Instutes • Define untested white spots
CO
− … other stakeholders CF and blue oceans
• Scale user experience by joint
CO
CV
CC-Integraon #7 #5 CH-Integraon
• Establishment of leadership team
#10 • Blend brand, markeng & communicaon strategy
and organizaonal footprint • Coordinaon and scaling distribuon channel
• Retenon of core capabilies and strategy
development of core talent CF-Integraon #9 • Establish joint sales and aermarket network
• Integraon of digital capabilies • Synergy capture and full value leverage
• Leverage of core capabilies for JBD • Integraon of management and financial reporng guidelines
• Consistent shareholder communicaon
Fig. 4.22 The modules of the integration masterplan

The IM addresses the 10C integration modules, thereby assuring a consistent process
from the assessment of the SBDs up to their integration into one JBD. The IM covers the
bundle of the most important integration topics and workstreams:
1. Corporate Strategy (CS) integration module
2. Customer and Market (CM) integration module
3. Core Value Proposition (CV) integration module
4. Customer Relationship (CR) integration module
5. Channel (CH) integration module
6. Core Assets (CA) integration module
7. Core Capabilities (CC) integration model
8. Cooperative Ecosystem (CE) integration module
9. Cashflow & Financial (CF) integration module
10. Corporate Organization integration module
How the 10C Business Design could be deployed in detail for integration processes is
discussed in following:
4.2.2.1 Corporate Strategy (CS) Integration Module

The core target for the Corporate Strategy (CS) of the joint company is to build a unique,
attractive, and differentiating competitive advantage by providing a compelling offer
for the joint company’s customers. The question of the long-term and joint competitive
advantage within M&As is addressed by the transaction rational.
The key questions are here “what is the value add for the customer by combining
the capabilities of the target and acquirer?”, “could innovative customer use cases be
addressed by scaling the JBD innovation strategies and capabilities?” and “how does the
transaction strengthen the competitive advantage and capabilities in comparison to best
in class competitors?”. Therefore, the CS integration module is closely intertwined with
the CM and the CV integration module. But, as a CS is built upon the core capabili-
ties and assets of a company, it is also closely tied with the CA and, especially, the CC
module.
The reference point for the CS integration module is the integration vision and mis-
sion. The CS integration module goes beyond the integration vision and mission, by
clearly addressing the uniqueness of the joint company’s capabilities and customer offers
in comparison to key competitors and substitutes by a detailed competitive profiling and
best in class comparison concerning competitive advantage and the competitor’s CVs.
On a higher level, this offers also a starting point for integrating digital approaches
and Business Design innovation initiatives to renew or lever the corporate strategy of the
joint company. On a lower level, it helps to decide on the future market-product-brand
portfolio, what also includes the decision, which brands, products or markets should
be covered. Additionally, the technology and platform strategy might be defined with
respect to efficiency and innovativeness. The CS integration module is also a snapshot of

the most important, aligned strategic initiatives post-closing.
Besides, a joint strategic planning process, with all the details like responsibilities,
timelines, milestones, contents and deliverables, has to be set up midterm for the joint
company.
4.2.2.2 Customers & Markets (CM) Integration Module

A thorough analysis and specification of which markets and customer segments, as well
as dedicated use-cases, should be addressed post-transaction is a core ingredient for any
integration project. This involves not only those markets which have been served by the
acquirer and seller on a stand-alone base but as well the definition of untested white
spots and blue oceans. The latter might be especially important for transformative deals,
which intend a business model (re-)innovation (Lajoux 2006, pp. 357–359).
There exists a close link to the CV module, especially due to this mission-critical
question of how to scale the user experience by a joint CV offering. Applying a syner-
gistic view, the joint offer should go beyond simply adding the pre-transaction products,
services and digital applications of the independent companies by defining new use cases
and addressing holistic customer solutions.
As customers are sensitive to changes at their suppliers or business-partners and cus-
tomer retention and gains are crucial for the synergy capture of a transaction, a series of
Day One activities are mandatory for any transaction:
– Assurance of customer retention and continued commitment by customer loyalty

strategies and programs
– Installation of a transparent customer communication, addressing the value add of the
transaction for the customers (for each segment, region, use-case and key customer)
– Smoothing the transition of any customer exposed business activities within the inte-
gration process like the integration of sales and marketing operations and processes.
A swift execution of customer mission-critical issues within the short-term integration
plan is mandatory.
The implementation of the CM integration module is closely tied to other “customer

parts” of the JBD and Integration Masterplan, like the CV, CR, and CH. Besides, CM
integration has a lasting and significant impact on the value creation of the transaction
as the revenues within the CF module are closely intertwined with the customers’ per-
ceived value add of the joint company’s offerings. The early detection of customers at
risk, the potential reasons for defection and the management of key relations are addi-
tional important tasks to be defined within the IM and have to be coordinated with the
Synergy Management.
4.2.2.3 Core Value Proposition (CV) Integration Module

The definition of the joint Core Value Proposition (CV), meaning the products and
services, as well as the digital applications of the combined company solving a dis-
tinct customer use-case, is the centerpiece of the JBD (Osterwalder and Pigneur 2010,
pp. 22–23). The intend of most transactions is the scaling of the enlarged product, ser-
vice and digital platform for tailor-made customer use cases beyond the simply added
standalone solutions.
Within nowadays M&A markets, many transactions focus on the re-innovation of
their own product portfolio or, even more aggressive, to innovate their whole Business
Design by the acquisition of or merger with a target company. The value-add of the
transaction from a CV standpoint is in those cases foremost based on (Osterwalder and
Pigneur 2010, pp. 24–25):
– Newness, in the sense that the joint VP satisfies entirely new customer use-cases or
needs—very often by applying new digital technologies and solutions
– Customization, meaning a tailoring of product and service portfolios to the distinct
needs of a defined customer segment, including customer co-creation, like in the case
of multi-sided platforms
– Accessibility, by making products and services available 24/7 by scaling digital chan-
nels and platforms or by business model innovations, e.g. by robo-advisors in the
FinTech market, which offer retail clients Investment-Banking like products and ser-
vices which have been in former times limited to high-net-worth individuals or corpo-
rate clients.
– Convenience/Usability, as in the case of streaming solutions in the music and film
industry which drove an M&A fancy in the last years. Show-cases for the latter are
the 21st Century Fox acquisition by Disney, the transaction between AT&T and Time
Warner, or Comcast’s acquisition of Sky Europe. Streaming offers an unprecedented
convenience, by making a huge film library and variety available 24-h every day at
home.
4.2.2.4 Customer & Client Relations (CR) Integration Module

During to the ups and downs of integration processes, there might loom the risk of a
high customer churn rate post-transaction, reflecting uncertainties on the customer side
with respect to on-time deliveries, missing customer attention, deteriorating service qual-
ity due to decreasing employee motivation, missing product quality, or due to aggres-
sive post-merger pricing initiatives of competitors. Or customers might become simply
confused by not knowing who will be their future interface or key-account manager.
Therefore, a robust and detailed Customer Relationship (CR) integration model, focusing
on the core customer segments, regions and use-cases, as defined within the CM module,
is a mandatory part of the IM:
Integration of Sales Structures, Teams and Establishment of Best-Practice Processes For

a seamless customer transition into the post-closing world and new customer wins the
customer use cases and attention must be always at the center point of the integra-
tion efforts. A sensitive CR integration balances cost savings, which might result from
reducing overlaps of sales representatives or key accounts at specific customers, with
the retention of existing customers by implementing dedicated customer retention pro-
grams. Besides, they leverage cross-selling synergies. Especially the latter will demand
an extensive training program of the sales teams with respect to the enlarged product
portfolio and service offerings of the joint company.
The degree of integration of sales and marketing organizations is sensitive to the spe-
cific product and service offering post-transaction, the regional and customer footprint
of the target and the acquirer pre-transaction, as well as the original strengths and weak-
nesses of both companies’ sales and marketing capabilities. Especially in cases where
the sales team of the target plays an intimidate role for the customer solution fulfillment,
like in industrial product markets, where iterative customer interactions might be neces-
sary for a successful client solution, the sales teams of the target and the acquirer might
be kept independent, at least for the mid-term. Nevertheless, the tasks and processes on
the back-end, which have no direct customer contact, like technical support, automated
services, billing and shipment services, might offer significant optimization and cost syn-
ergy potentials already short-term, without the risk of disruptive customer interferences.
Along with the integration of sales structures and teams also customer interfaces
should be optimized and any customer confusion limited by offering one clearly defined
interface (key-account manager) to the customer. A tailored set of marketing and sales
KPIs of the joint teams might help to establish this one-face to the customer approach by
fostering a consistent sales and marketing behavior and footprint.
Customer Retention Program and Sales Program for Share-of-Wallet Exploitation

Besides these post-closing sales structure optimization addressing the trade-off between
cost-synergies and customer retention, a dedicated customer retention program might
limit the risk of customer drain. Customer retention programs have to identify in a first
step the most important clients from a volume and customer profitability point of view
by applying ABC assessments. Knowing customer needs and priorities concerning dedi-
cated products, pricing, services, quality and other USPs, a dedicated customer commu-
nication and retention strategy could be designed. As the customer retention is a more
passive strategy avoiding customer losses, it should be supplemented by a more progres-
sive customer-win and share-of-wallet extension strategy and program to leverage the
full market potential of the transaction. This must be supplemented by internal integra-
tion initiatives to streamline and coordinate the two companies’ incentive and bonus sys-
tems, especially for key accounts.
4.2.2.5 Channels (CH) Integration Module

Channels (CH) cover all marketing, especially communication and distribution, as well
as logistics activities, which a company applies to reach out to its core markets and cli-
ents (CM) (Osterwalder and Pigneur 2010, pp. 26–27). The CH integration module is a
mission-critical element, as channels have a direct interface to the customers, are deci-
sive for delivering the CV and enable also add-on aftermarket and service potentials.
Even more nowadays, as the strategic rational of many transactions is based on the tar-
geted transition from indirect channels, like wholesalers or partner stores, to direct, fore-
most web-based channels.
Best-of-Both Marketing Mix and Blending of Brand Portfolio The integration of mar-
keting, especially the transition of the brand management of the target and the buyer, is
a delicate task. Continuity and consistency in the brand image and positioning are sub-
stantial challenges within integration processes. Brand and potential re-branding strate-
gies, triggered by integration processes, might exist on two levels, the company level and
the product level. On the company level, the key question will be, if the target’s com-
pany brand should be kept, repositioned or skipped, meaning substituted by the acquir-
er’s brand(s), or even, as in a couple of merger processes, a totally new brand name and
design launched. This decision should be coordinated with the strategic rational and the
integration vision of a specific transaction.
The degree of integration and necessary brand re-positionings or co-branding initia-
tives on product level might depend on:
– the importance and strength of the brands in the specific markets and
– the below discussed channel strategies for the product and service deliveries
– and customer value propositions
The CH related marketing and brand portfolio integration are therefore closely tied with
the CV and other CH integration modules. For the transfer of customer sensitive data,
leveraging of CRM initiatives or customer data mining, coordination needs also with IT
(CA) arise. As sales and marketing are front end issues, integration initiatives in sales
and marketing might trigger changes in multiple other integration parts, like CA or CC.
Integration and Scaling of Distribution Channel Strategies Especially for the integra-
tion of two B2C businesses, which use overlapping distribution channels on wholesale or
retail level, or in case of the acquisition of a digital target with direct customer access by
an acquirer delivering its products or services through more traditional wholesale distri-
bution channels, the coordination of the distribution strategy post-acquisition is key.
This involves also strategic decisions, like using own sales channels with direct
customer interface, selling via retailers, wholesalers or agents, or extending digital
f ootprints. Mapping of supply channels, how they have been used pre-transaction, where
there have been overlaps of the pre-transaction SBDs and how the joint distribution and
channel approach should look like, might support this decision process.
Establishment of Joint Sales and Aftermarket Networks In more and more markets the
value add is shifting from pure one-time product sales to long-term customer-client rela-
tionships supported by a complex bundle of services accompanying an initial product
purchase, but also beyond by offering aftermarket sales. As these services are decisive
for the perceived performance the establishment of a joint sales and aftermarket network
with global reach might offer a substantial benefit and trigger, therefore, for top-line rev-
enue synergies. As this might involve organizational and process changes, the implemen-
tation of such a joint sales and aftermarket network is more a long-term endeavor.
4.2.2.6 Core Assets—Operations and Processes—(CA) Integration

Module
The integration of core assets (CA) is of essence for all time horizons of the integration
process and does focus on the inner-organizational integration of the JBD. More or less
any business function within a dedicated Business Design is affected by an integration
process, at least within transformative transactions. A smooth transition and retention of
CA assure operational business continuity and Day One readiness. Mid-term, the inte-
gration of CA serves as the overall platform for the internal process and organizational
integration. Besides, the CA integration drives a substantial part of synergies, especially
within transactions where the value creation is based on cost and efficiency gains.
The integration of core assets must, therefore, mirror these cost and efficiency driven
synergy targets by merging internal structures and optimizing processes. But these cost
synergies should be well-thought and should reflect any side effects, not to endanger core
elements of the joint company’s competitive advantage.
The dedicated core assets and their importance are dependent on the targeted JBD.
The main primary operations to be integrated might be research and development, manu-
facturing, logistics, and from the secondary value chain activities finance, HR or IT. The
market exposed functions are already covered by the CR and CH integration.
Establishment of a Joint Development Platform One the one side, the integration of the
R&D pipeline is in most industries decisive for the long-term competitive advantage of
the joint company, as in pharma, automotive, media or high-tech transactions. Besides, it
will define the long-term top line development. On the other side, and especially in cases
where both organizations’ R&D departments have overlaps in prioritized R&D projects,
the streamlining of R&D activities and teams might offer substantial cost savings. Due
to this trade-off and the intangible characteristics of R&D, as in the end, the employees
and their skills define the R&D core capabilities, such integrations have to be designed
sensitively.
A good starting point for the integration of R&D functionalities and departments
might be to bring together R&D teams and portfolio managers of both companies to
share their work. Additionally, the joint R&D priorities for the years to come might be
defined by applying a transparent and consistent R&D scoring model. Also, the rela-
tive importance of R&D for the overall JBD and intended competitive advantage must
be decided upon. Based on this priority setting, a dedicated joint R&D portfolio and
program, mirroring these priorities, can be designed, relevant capabilities refined and
employees staffed or recruited (Lajoux 2006, pp. 307–311).
To assure and lever the R&D integration, the transfer and exchange of technological
and innovative knowledge between the two companies have to be initiated, enabled and
motivated. This can be done by job rotations between the combined firms’ employees
and managers, the design of joint R&D project teams, especially for highly important
R&D projects, and the strengthening of decision-making processes and capabilities on
the R&D level (Galpin and Hendorn 2014a, p. 48). Therefore, a dedicated R&D integra-
tion team is mandatory for most transactions (Grimpe 2007).
Optimizing the Joint Manufacturing Footprint If and how important the manufacturing
(integration) is, depends on the specific Business Design. The first step within the man-
ufacturing integration workstream is regularly to get a more detailed and granular view
of the global manufacturing footprint of the target than the first overview achieved within
the Due Diligence. This optimized picture could then be blended with the acquirer’s
footprint for designing and freezing an optimized joint manufacturing layout. The latter
might be based on a rich set of data like capacity utilization rates, cross-product man-
ufacturing possibilities due to platform strategies, aging patterns of the core assets and
machines, investment needs, cost-per-unit performance, process quality indicators and
others. In case of duplicated factories, it has to be assessed if the acquirer’s or the target’s
factory has a higher score and should be used therefore in the long-run as the single hub.
Additionally, for the target setting of manufacturing process integration workstreams,
a comprehensive benchmark might deliver best-in-class performance reference points
concerning cost, time and quality indicators (DePamphilis 2015, p. 224). These bench-
marks might be deployed by analyzing a set of consistently defined manufacturing KPIs,
like quality and scrap rates, quality gate pass throughs, unit cost targets, time to market,
capacity utilization rates or Kanban and pull principle indicators.
Joint Logistics Network A joint logistics and supply chain strategy might frame the
whole value chain, starting from supplier management and material insourcing, up to
warehousing and customer deliveries. It is, therefore, a “physical bridge” between the
CE and CM module. Only a holistic view on the JBD, mirroring the linkages and feed-
back loops between its different parts, will detect the full value potential of logistics
synergies. As logistics is a data intensive task, IT (CA) is also closely linked to it. IT
serves somehow as enabler for leveraging any logistics optimization and synergy levers.
The Integration Approach and intended JBD, especially the inhouse value chain and
customer delivery process, will define the dedicated joint logistics network. Besides,
external factors, like the customer and market footprint and the supplier network will
influence the best-fit logistics footprint, defined as a seamless flow of products and infor-
mation within the network of manufacturing, warehousing and distribution.
The core target of the supply chain integration is to assure continuity in product sup-
ply and service delivery to customers, to maintain service levels and delivery times,
and to realize targeted synergies. Typical efficiency gains of the logistics network are
working capital potentials by optimizing the inventory and warehousing architecture, the
account payable policies and the accounts receivable management by leveraging invoic-
ing strategies. Additionally, the optimization of the physical warehousing footprint might
offer also significant investment savings or divestment potentials. This optimization of
the global logistics network might be driven by an analysis of the sales, order, distribu-
tion and delivery process, as well as by applying multiple KPIs, like delivery time, deliv-
ery quality, overall investments, geographic reach, unit costs impact and efficiency gains
of logistics, customer’s satisfaction levels as well as inventory turn. External and internal
best-of-both benchmarks might support the target setting process.
Joint Footprint and Seamless Transition of Support Functions: Finance Independently

from the Integration Approach, the integration of the financial systems has to provide
from Day One onwards transparency with respect to the financial performance of the tar-
get company and the joint activities. Another mission-critical activity is the identification
of synergy capture.
The integration of the two pre-deal independent finance functions is the core underly-
ing part of the CF integration module but is as well a precondition for measuring finan-
cial targets and synergy capture in all other integration modules. The CF integration
module is as well interwoven with other support functions, like IT—due to reporting and
accounting reasons—and HR—for management, staffing and development reasons—.
Last not least, the CF integration sets the ground for the Synergy Management, espe-
cially the tracking, controlling and measurement of synergies during the integration
phase. The understanding where FCF is flowing and which value drivers are the most
important is a precondition for successful Synergy Management.
The CF integration model frames a bunch of mission-critical financial workstreams
and processes, like the treasury and cash management integration—including cash
pooling—, the transfer and merging of financial institution relationships of the target
company on the acquirer, the design of a consistent equity and debt capital market com-
munication which covers the integration story, the establishment of a joint risk manage-
ment, group and management reporting system according to the to be applied accounting
standards, and last not least the assurance of tax conformity on all levels.
Like in the case of group accounting and consolidation, the integration of financial
systems is typically driven by many subprocesses. These might involve joint book keep-
ing procedures, accounts and general ledger mapping or uniform signature approvals,
which are in more or less any transaction mandatory. In the mid-term, the design of joint
budgeting and planning processes, financial and management reporting lines and pro-
cesses, as well as compliance standards have to be built up. In finance, as in a couple of
other functionalities, a further integration task is the assessment in how far outsourcing
and shared service centers should be used and offer cost-efficient alternatives to in-house
solutions.
Midterm the finance function structure has to be adjusted according to the finance
vision, describing how the finance function should look like post-acquisition and how it
should fulfill on future needs of the JBD, like digital payments. Job profiles have there-
fore to be redesigned together with HR and employees with the according skillset inter-
nally developed or externally recruited.
A continuous integration task for the finance top-management is the optimization of
the financial structure, meaning the mix of equity, debt and hybrid financing instruments
including different maturities, currencies and floating versus fixed rate debt structures.
This task starts on the buy side already with the arrangement of the acquisition financing,
maybe by using a short-term, but expensive bridge finance instruments.
In case a full transition of the target is not intended or simply financial capabilities
are missing, financial transition service agreements (TSAs) might be additionally signed
with the seller to safeguard an ongoing financial transparency with respect to the target’s
performance from Day One onwards.
Joint Footprint and Seamless Transition of Support Functions: HR HR is a centerpiece

within integration processes and is responsible for a multitude of sensitive integration
tasks, like the harmonization of payroll, bonus and reward programs, the coordination of
HR policies, the appraisal of management, the design of staffing and management devel-
opment plans, as well as of job profile descriptions, the conduct of employee surveys
about the progress of integration, and the design of not only functional but also cultural
training programs. As HR supports all other integration modules concerning staffing and
capability assessment matters, it is, as IT and Finance, a highly interactive integration
module. This means as well, that HR integration has to be executed extremely sensitive,
as any problems will backfire on all other integration workstreams.
From the described multiple tasks, only a selected set of the most important HR inte-
gration workstreams will be discussed in the following. From a strategic point of view,
especially for transformational integration processes, a best-of-both-approach might be
recommended. The advantages of such an approach would be a much wider talent pool
for management appraisals or set of HR processes. Besides, a higher likelihood of key
talent and capabilities retention by increasing the buy-in of both company’s employees
and by creating a one company culture would be achieved.
A further core role of HR is the design of dedicated job profiles which has to be in
line with the skill set needs of the defied JBD. By an appraisal of existing capabilities
and talents among the acquirer’s and target’s employees as well as a blending with the
needed skill sets to deliver on the JBD, detailed job profiles can be drafted and dedicated
recruiting program initiated (Pritchett et al. 1997, pp. 69–85). A contingency plan might
supplement the hiring plan, as the leave rate might be high during the integration phase.
The integration of compensation & benefits plans must be run in compliance with
labor laws and is a very sensitive task, as it influences the employee’s perception of the
transaction’s impact on the individual job situation. Besides, the compensation & bene-
fits plans, bonus programs and employee development plans might be important to retain
critical talent (Lajoux 2006, pp. 262–268; Hanson 2001, pp. 79–80).
HR capabilities might already be involved during the Due Diligence to evaluate the
strength and weaknesses of the capabilities of the target company’s management teams
and talent pool. But HR becomes a true mission-critical part for Day One readiness by
implementing pay and benefit plans, providing employee transition plans or designing
detailed functional job profiles. A fast progress within the HR integration is mandatory to
reduce uncertainty and avoid culture clashes. Additionally, competitors might approach
and lure away key talent (Pritchett et al. 1997, p. 67).
Joint Footprint and Seamless Transition of Support Functions: IT and Platform IT and
digital capabilities are another source for significant synergies, especially in today’s fast
evolving digital ecosystems. But the potential to realize decent IT synergies depends sig-
nificantly on the Integration Approach and the intended JBD. In case the acquirer scales
the target’s SBD by a collaboration approach, most likely the operating systems, includ-
ing IT, will be kept independently, and IT cost-synergies therefore limited. Nevertheless,
for most acquirers the integration of the IT systems is one of the core integration tasks,
starting at Day One. A head-start for complex integrations of different IT landscapes and
platforms demands an intense review of the target’s software, hardware and digital capa-
bilities already during the Due Diligence.
Core questions of the IM for the short-term IT integration might be:
– How to avoid IT interphase problems and to protect Day-One readiness?

– How to safeguard for all mission-critical business processes data and system accessi-
bility, security and migration?
– How to assure the availability of all communication, e-mail and intranet applications?
Mid-term, questions like how to assure system integration and the transition to or align-
ment with the intended joint IT-architecture will dominate. Besides, as IT is not just
about systems and as well about capabilities, IT competencies have, together with HR,
to be evaluated, trained, developed and, in case of gaps, hired. Having decided on the
IT integration priorities and addressed IT risks by putting in place contingency plans,
the IT transition and target systems should be frozen within the IM, as this serves as
the reference point for the IT migration and the coordination of the multitude of IT
workstreams.
Due to the close link to employee capabilities and all parts of the JBD a shared IT
vision might help to set the target for the future IT landscape and systems and to foster
how it will be interlinked with other business matters. This might also help to make the
right decision between simple IT system migrations or where a new IT system or plat-
form set-up might be more efficient. It involves also the question of what has to be done
on the IT system and capability side to support a potential upscaling of the Business
Design in terms of size, new products or other growth initiatives.
For the mid-term IM, a high priority issue is the intended IT architecture. The IT archi-
tecture covers broad areas, like the IT operating model (ERP system) and organizational
design, the IT infrastructure and hardware integration, the software integration, and more
modern topics, like the joint cyber security approach or the integration of Big Data and
AI tools. Customer exposed IT systems, like CR tools or billing systems, as well as IT
systems for mission-critical competencies, should be treated with special care during the
integration and might be more topics for the midterm integration and optimization.
4.2.2.7 Core Capabilities & Management (CC) Integration Module

The competitive advantage of the JBD will be shaped by the core capabilities of the tar-
get and acquirer and how those are integrated. Especially for the integration of those core
capabilities and the retention of key talent the tone-of-the-top and involvement of the
top-management within the integration process is decisive:
Definition of Top-Level Organization and Leadership Team The nomination and

announcement of the new organizational structure and top-management team at
Day-One is a high priority task, as it has a lasting impact on how the transaction will be
implemented and perceived by the target’s and the acquirer’s employees.
The design of the leadership (C-level) management and integration team has to be
defined even before the integration starts. Core elements are here the early and transpar-
ent communication of selection criteria for the joint management team positions, a short
selection timeline and a transparent and objective management appraisal process. Also,
clear joint decision-making processes, management reporting standards, budgeting pro-
cesses and governance principles have to be established and communicated from Day One
onwards. Later in the integration process, the management team will act as a role model
for the transition process and perceived culture changes. Additionally, the integration team
has to be selected as early as the leadership team. This involves also the definition of nec-
essary core integration capabilities and principles. Closely aligned is the potential hiring
of external consultants, if internal integration capabilities might be limited.
Retention of Core Capabilities: Talent Integration and On-Boarding In many acquisi-

tions, especially in high-tech, service industries, pharma, luxury goods or media, the tal-
ent pool and management capabilities represent often one of the primary reasons why
of an acquisition. The embodied knowledge and capabilities of the employees are the
true driver of such transactions. A brain drain or loss of key talent capabilities might
be therefore disastrous for a transaction. The loss of a substantial number of key-talent
might involve significant dis-synergies, as new employees have to be recruited, trained
and integrated within the new joint organization. Additionally, a high employee turno-
ver most likely will degrade morale and productivity (DePamphilis 2015, pp. 213–214).
Nevertheless, due to missing or uncoordinated talent transition plans, as well as under-
valued culture and communication needs, talent integration remains still nowadays a
challenge in many transactions (PWC 2017b, p. 18).
The design and establishment of a staffing and key talent retention process is there-
fore essential. Key talent could be defined as those employees who will significantly
contribute to the reason why meaning the targeted core capabilities of the transaction.
This key talent has to be identified already during the Due Diligence. Based on this
knowledge, staffing and talent retention plans could be formulated at an early stage
of the integration process to retain critical talent and capabilities (PWC 2017b, p. 18;
Galpin and Herndon 2014b, pp. 199–202). If key personnel from both companies are
a fundamental part of the integration, the acceptance of the integration program might
even increase.
A tailor-made talent retention program has to address and clarify sensitive manage-
ment and employee questions like pay, bonus programs, benefits, potential job profilings
including responsibilities and reporting lines, and career planning initiatives immediately
after closing. The design of a joint reward and compensation system is a centerpiece:
The coordination of diverging standalone reward systems to one joint design of a com-
pensation and benefit plan is one of the most sensitive tasks of any integration process
and talent retention. Especially bonus programs of two merging companies might have
very diverse designs (Hanson 2001, pp. 182–185)
Moving from the individual talent to the joint company perspective core ingredients
of such a corporate talent retention plan are talent and capability identification, assess-
ment of the talent pool and the selection processes. Besides, training and development
programs with respect to mission-critical skills, and initiatives which foster team and
corporate identity building might supplement the corporate talent retention and develop-
ment plan.
The future organizational design must on the one side mirror the functional structure
of the JBD, on the other side leverage the intended core capabilities and talent pool. Each
specific function and organizational unit need to decompose the necessary capabilities
and mirror them with the skill sets and profiles of the existing talent pool. In case of
significant capability gaps hiring profiles and programs are to be defined and should
supplement the talent retention program. Based on this capability and talent assess-
ment, the detailed staffing plan can be tailored around the corporate needs and outside
recruitments.
Additionally, a successful retention management is built upon frequent communi-
cation and interaction between top-management and key talent. This should safeguard
talent involvement within the integration process and highlighting the positive impacts of
the transaction for key talent development and corporate strategy. One core ingredient to
foster communication with and openness to key talent are partnership programs, built on
a one-by-one mentoring with senior executives (buddy programs).
4.2.2.8 Co-operative Ecosystem (CE) Integration Module

The Co-operative Ecosystem (CE) integration depends significantly on the specific
industry pattern and Business Design of the target and the acquirer. Nevertheless, pur-
chasing strategies and key supplier partnering as well as co-operations with leading
research institutes and universities might be relevant nowadays for most industries:
Integrated Purchasing Strategies and Key Supplier Relationships Purchasing integra-

tion is an AAA-topic within most transactions of manufactured goods industries, offer-
ing substantial cost-driven synergies by reducing the cost of goods sold per product and
increasing EBITDA-margins. These savings might be realized by a switch to the most
cost-efficient suppliers, as identified within the Due Diligence, and by the bundling
of purchasing volumes of the joint business activities, as the purchasing power of the
joint company might substantially increase in upstream supplier markets. But not only
transaction-based cost savings are important in supplier relationships, as multiple indus-
tries are characterized by complementary offerings.
Economic theory distinguishes between two types of supplier–customer relationships,
substitutes and complements. While the presence of substitutes reduces the value of a
product, complements increase the value of the joint offer. Well known examples are the
pairing of ink cartridges and printers, as the latter has little value without the first and
vice versa. The same holds true for the value of razors which depend upon the supply
of blades and shaving foams, the combination of play consoles and games or the typical
software–hardware combination on laptops and other digital gadgets. Where products are
close complements, they have little or no value in isolation as customers value the whole
system and not the separate parts (Grant 2016; Scott 1999; Brandenburger and Nalebuff
1996). Therefore, the IM has also to address the needs of the supply base of critical sup-
plements, as they might have a significant impact on the joint CV (Rothermael 2001) and
the overall value creation in the CF module. The sensitive handling of the network of
complementary offers might be even more demanding than supplier programs focusing
on cost-cutting initiatives.
Alliances with Co-operative Platforms, Research Institutes and Universities Newer

innovation approaches, like open source innovations, network economies and busi-
ness model innovations, stress the importance of strategic networks in creating lasting
competitive advantage and for leveraging innovation initiatives (Adner 2006; Breschi
and Malerba 2005; Chesborough et al. 2000; Dougherty and Takacs 2004; Shapiro and
Varian 1999). Open innovation approaches are built on the sharing of ideas and techni-
cal know-how among companies, research institutes and universities. In industries where
innovation plays an important role, the integration of the eco-system enables companies
to buy in and licensing out technology. The JBD should strengthen such collaborative
networks that might comprise IP co-operations, licensing deals, component outsourc-
ing, joint research networks or collaborative product developments. These ecosystems
are very sensitive to strategic changes within their co-operations. The IM has to address
these sensitivities and analyze how the co-operative networks could be even more fos-
tered by the JBD (Wassmer and Dussauge 2011).
4.2.2.9 Cashflow and Financial (CF) Integration Module

The Cash Flow and Financial (CF) integration model is the financial mirror of all other
integration modules and therefore closely aligned with all of them. Furthermore, a close
relationship to the Synergy Management, which will be addressed in detail within the
next chapter, exists:
Integration of Management and Financial Reporting Guidelines Especially for Day

One Readiness and the 180-days integration plan the financial system integration plays
a major role. The financial and accounting organizational design, processes and respon-
sibilities have to be decided at an early stage. This was already addressed within the CA
integration module.
Synergy Capture and Full Value Leverage Besides these more operational integration
tasks, the financial integration has to support the value leverage and full synergy capture.
A consistent financial integration will be realized by providing financial transparency
and accuracy, as well as short reporting and consolidation cycles. The ultimate target is
to get an in-time top-down view on the financial performance of the integration, espe-
cially with respect to synergy capture and core value drivers of the transaction. For the
synergy capture assessment, the financial systems provide the backbone of financial data,
reports and processes. Additionally, it serves as a data feed-in platform for the Synergy
Scorecards, which are a centerpiece for the synergy implementation. The CF integration
model together with the Synergy Management must assure synergy capture on the cost,
on the balance sheet, as well as on the revenue side, to maximize the joint operation’s
FCF.
The CF integration module should also enable a professional cash management,
including cash pooling initiatives, minimizing working capital needs and optimizing the
finance mix between equity, debt and mezzanine funding. Besides, the tax optimization
of the transaction and the joint company is supported.
4.2.2.10 Corporate Organization (CO) Integration Module

The organizational integration complexity depends foremost on the gaps in the stan-
dalone organizational principles, meaning which functional, product, regional, or divi-
sional organizational principles were pre-transaction in place (Lajoux 2006, p. 223).
Besides, the number of organizational layers on the acquirer and sell side pre-transaction
and within the intended JBD play a major role. Pre-transaction organizational struc-
tures of both companies must be understood in detail, including their strategic reason
why. The latter may be driven by the specific needs of the companies’ markets, chan-
nels and ecosystems. A sound understanding will support a sensitive design of the new
joint organization and any necessary structural changes. Also, the decision on a more
centralized or decentralized organization has to be taken, whereby more centralized
pre-transaction structures might make the integration smoother, but might also be less
entrepreneurial driven. In more centralized organizations, support functions might be
more easily coordinated within the 180 days integration plan. Operating units might be
integrated or not within the midterm plan depending on the expected synergies and needs
of autonomy to protect the core business of the target.
Organizational integration involves as well the definition of new or redrafting of exist-
ing formalized responsibilities, processes, policies, governance models and duties as well
as role models for each management layer and function. Here, a more streamlined organ-
ization structure with a reduced number of management layers and reporting lines might
simplify integration tasks. All those tasks have to be coordinated closely with HR.
4.2.2.11 The Role of Communication for the Integration Masterplan

A rigorous, fast and fully transparent integration communication strategy has to support
and supplement the IM. Communication is the “voice of the integration” and acts as a
stabilizer and coordinator. A tailored and energizing communication may even act as a
catalyst for transformational change. Any communication flow has to be in-time, trans-
parent and consistent. A successful communication approach makes employees feeling
well informed, will focus them on core integration tasks and energize integration efforts
and teams. An aligned communication strategy and workstreams with integration prior-
ities and mission-critical change initiatives are for the transition to the targeted JCD and
JBD an important ingredient. A tailored communication strategy has to highlight integra-
tion targets and milestones of the transition program. It has thereby to address the differ-
ent information needs of the internal constituencies, like employees or management, as
well as external constituencies, like antitrust authorities, shareholders, analysts, custom-
ers, suppliers and the co-operation partners within the joint company’s wider eco-system
(DePamphilis 2015, p. 217). On the one side, the general information and communi-
cation needs of the different stakeholders have to be integrated into a holistic and con-
sistent communication strategy. On the other side, the design of such a communication
strategy must deliver as well stakeholder specific individual communication content and
apply constituent specific communication channels, like social media networks, press
releases or capital market news.
The communication flow already starts with the transaction announcement and has
another peak at Day-One. Before publicly announcing a transaction, the acquirer and the
target have to prepare a joint communication masterplan which addresses the joint vision
of the transaction and milestones of the integration, as well as the specific information
needs of the major constituencies of the joint company. At the announcement date, the
target’s and acquirer’s top-management has to communicate clearly the transaction story.
This might include the strategic rationale of the transaction, the integration vision and
a rough canvas of the intended JBD. The consistent and repetitious communication of
the transaction rational and messages by the top management should support a smooth
transition by addressing cultural and information needs. This should also limit any
“not-invited-here” syndrome, especially at the target’s employees. Also, the communi-
cation masterplan has to control the transaction news flow and must prepare responses in
case of unintended leakages of transaction sensitive details.
In the aftermath of Day One, the communication masterplan should support the over-
all integration process. Besides, a successful communication strategy reduces potential
anxieties of the employees, especially on the target side, retains talent and supports to
build identity (Engert et al. 2019). Communication around key integration milestones,
like the announcement of the top-management team, restructurings or relocations, might
be especially sensitive. For the design of such a communication strategy, feedback mech-
anisms, like pulse checks, are important. They provide an idea if communication mas-
sages have been understood and what is going right or what is going wrong. In the latter
case counter initiatives have to be defined. The intended change must be understood and
accepted by all employees.
For the overall communication strategy, the following iterative steps and lead ques-
tions might provide a consistent framework for communication planning, execution and
monitoring. The latter might rest on permanent feedback algorithms if communication
messages are understood and supported by the employees. A consistent communication
strategy defines WHO (management) has to communicate What (content) and When
(time) to Whom (Addressee) and How (through which communication channel):
– WHOM—identification of key constituencies: A communication strategy for an

integration project must be tailor-made and deliver targeted messages. Internal con-
stituencies, like employees, must be informed continuously about the integration
priorities, milestones, and progress as well as the personal impact of the transac-
tion. Especially critical talent may be informed early about their career path and role
within the integration process. External stakeholders, like investors and analysts, have
to be convinced about the transaction rationale and intended synergies. Besides, cus-
tomers must feel comfortable about their own deal value add, like new services or
products and the continuity of business relationships.
– WHEN—timing and milestones of communication messages: A focused communi-
cation planning must also identify communication high-times, like Day One or trig-
gering events of the integration, like the announcement of the leadership team and the
target organization for the employees or shareholder meetings for the investors. The
communication masterplan has to balance sending the right messages at communica-
tion high times and ensuring regular communication flow in-between. A well-timed
communication strategy requires a dedicated communication process for the design,
review, approval, and dissemination of communication content with clearly defined

deadlines and responsibilities to ensure a fast communication flow.
– WHY and WHAT—communication content: Any integration communication flow
has to address the reason why of the transaction and the integration vision. The trans-
action rational must be broken down on milestone specific core massages. The com-
munication strategy has to support the step-by-step transition to the targeted JBD and
JCD. Therefore, all communication content must be anchored in a set of key mes-
sages at each milestone and on the intended synergies. Such a milestone specific com-
munication strategy must also address what the transition means for the individual
employee and why it offers more upsides than risks to initiate an emotional buy-in.
The core communication messages should be tested and refined before rolling them
out across the whole new organization.
– HOW—Communication channels: For reinforcing the communication message, a
broad set of communication channels including town hall meetings, welcome e-mails,
management discussions, social media and press releases, one-by-one onboarding
and others have to be applied (Galpin and Herdon 2014a, p. 181). Each communica-
tion content has a specific context and demands a specific channel. For each of those
channels, a dedicated communication story has to be drafted. Furthermore, for the
monitoring and controlling of the communication success, the communication should
be two-way. Only if communication has an impact, by supporting the transition to
the JCD and JBD, it is a successful communication. Installing feedback mechanisms
and refinements of the communication content ensures that communication messages
are received, understood and initiate the intended change. Feedbacks could be gath-
ered by pulse checks, town hall meetings, focus groups, tailored emails and selected
one-by-one management feedbacks (Siegenthaler 2009, p. 156).
– WHO—The top-management and the IPH are responsibe that the right message and
information flow cascades through the entire new joint organization.
After this framing of the overall communication strategy a couple of constituency spe-
cific communication contents might support the change efforts in the sense of a “360
degree” communication:
Employee Communication (Including Unions) For the employees, it must become

clear what will change for the joint organization as a whole and themselves specifically
as well as how the transition will work out in detail. Employees have an intimidating
interest in any information on the transaction and especially on its impact in terms of
job security, compensation & benefits and their career development plan. Therefore, an
in-time and detailed communication strategy which levers all appropriate communication
channels is important to retain talent, to minimize ambiguity or, even worse, resistance
to change (Kansal and Chandani 2014). A fluent communication should foster a high
degree of motivation to participate in the integration process. Employee communication
has to deliver on transparency, honesty and integrity.
A mix of employee letters, town hall meetings, on-site meetings, skype- or telecon-
ferences and webcasts might be applicable and effective to initiate and facilitate a flu-
ent communication between top-management and employees and to support integration
efforts. But a personal communication channel, either by top-management or the direct
superior is a mandatory element to address and discuss sensitive personal issues. Within
this face-to-face dialog, clear answers on the direct individual impact and consequences
of the transaction are expected by the employees. This personal communication level
has to be embedded in an overall integration massage. Crafting a strong, convinc-
ing integration vision, as described within Sect. 4.1, and which is communicated by
the top-management should provide the frame for the personal communication efforts
(Hanson 2001, pp. 152–172).
Customer Communication The constituency specific part of the communication program

should also take attention of customers, as most likely competitors will approach them
as soon as the merger or acquisition is announced. Not surprisingly, customer churn is
post-acquisition in most cases higher than in normal times (DePamphilis 2015, p. 214).
A reiteration of the joint company’s customer commitment and highlighting the cus-
tomer value add of the transaction are prerequisites of customer communication to avoid
customer drain.
Core messages for the customers must be therefore that product or service delivery
and quality, as well as customer and aftermarket services, will be maintained on existing
level or even improved post-closing. Also, likely benefits associated with the transaction,
like an increased bundle of products and services or new customer solutions, should be
part of customer communication. These messages should be delivered in face-to-face
meetings or by personal contact of the top management or a high-level key account for
each dedicated customer. Such communication initiatives should give the core customers
the feeling to be well informed and that they are an important partner along the integra-
tion process.
Eco-System Partner Communication The same should hold through on the supplier side,
especially for key suppliers with high-tech or critical deliveries. The suppliers or com-
plimentary product partners need to understand the transaction rational and likely con-
sequences. It might be a good starting point to define the best interface between the joint
company and the key suppliers to transmit the integration communication. The ultimate
target is to ensure these valuable relationships with the company’s core suppliers and
partners.
Additionally, the communication strategy also has to take care of the relationships
with the joint company’s wider eco-system, like research institutions and universities,
anti-trust authorities or communities. All external communication, like press releases,
has to be aligned with the internal communication strategy.
Capital Market—Investor, Financial Institution, Equity & Debt Market—

Communication A straightforward argumentation concerning the strategic rationale and
the financial impacts of the transaction, like targeted synergies or the means of payment
and the financing of the purchase price, is key for the company’s investor relations in
equity and debt markets (Lajoux 2006, pp. 388–403). A loyal shareholder, bondholder
and financial institution base might be of special interest during the turbulent times of an
integration process. Especially on the debt side contracts might include change of control
closes. In this case, the target firm’s pre-transaction lenders, public or private, have to be
asked for allowance, otherwise, outstanding debt has to be, on-top of the acquisition’s
bridge finance, refinanced. A further financial threat might be loan covenants, which are
in most instances based on interest coverage ratios, like interest to EBITDA or similar
ratios. The lenders might have a special interest in the cash profile and forecasted perfor-
mance of the joint company to fulfil in-time promised principal and interest payments on
their debt.
4.2.3 Culture Transition Program: Planning the Transition to the

JCD
By ignoring the need for a culture transition program with detailed change initiatives, the
joint organization risks transformation failure and ending in a culture divide and not inte-
gration. Culture change has to be made a central plank of the overall transitional change
initiative (Carleton and Lineberry 2004, p. 81).
Based on the pre-transaction SCD Diagnostics and the JCD Blue Print, which was
stress-tested during the Due Diligence with respect to its robustness, a culture change
program is the transition mechanism from the two SCDs to the intended JCD. The chal-
lenge is here not to expect a total culture transformation of the target to the acquirer’s
culture. Much more, the intent is to design-focused and tailored interventions in both
SCDs for the transition to the JCD. Besides, the culture transition should avoid the risk
of culture clashes by neglecting the target’s and the buyer’s corporate culture origin and
potential gaps.
This culture transition is more an evolutionary than a revolutionary process, which
is anchored in a clear and transparent architecture of joint values, norms and intended
behavioral patterns. The culture transition program should be initiated and planed from a
holistic point of view, especially as its elements are interdependent. The core task of the
culture transition program is the design of an integrated, consistent bundle of change ini-
tiatives. The intent of those change initiatives is to “defreeze” the stand-alone cultures, to
initiate and orchestrate the transition to the new intended value set of the joint company,
and to deepen mid-term this joint culture mindset on all organizational layers.
The transition to the JCD might be fostered by shared standards, processes and
practices including operating procedures, harmonized compensation & benefits plans,
Orchestrate culture
transion by change
champions
Energizing culture Iniate culture

change by top- design workshops
management and test runs
Culture
transion
program
Track culture change Orchestrate culture

by pulse checks change scrums and
full-scale roll out
Fig. 4.23 The culture transition program
governance and controlling processes, or joint ethical values and attitudes. A designated
cultural change program might be built around 5 interrelated principles, as described by
Fig. 4.23.
Orchestrate Culture Transition by Change Champions The culture change team plays
an important role in the intended culture transition. Change champions might be imple-
mented as ambassadors of culture change initiatives. The job of these change champions
is thereby to orchestrate the organizational change initiatives, to design and implement
culture change workshops, initiatives and workstreams, to integrate the top management
within the organizational change process, as well as to build an organizational change
bandwagon throughout the entire organization. Change champions have also to be sensi-
tive to and address potential change resistance and culture clashes.
Initiate Culture Design Workshops and Test Runs The culture transition might be
kicked-off by a first wave of culture change and integration workshops within which
the Blue Print of the new joint values, beliefs, norms, as well as intended management
behaviors and practices, might be detailed end refined. Based on this value architecture
dedicated change initiatives and workstreams will be defined. With test runs the applica-
bility of the drafted change initiatives could be tested before any full-scale rollout.
For each of the organizational layers and functions, the dedicated workshops have to
be tailor-made. They fulfill multiple targets, starting from simply get to know the joining
company’s culture, management styles and employees, to offering an exchange platform
for the clarification of expectations, open questions and roles, to—last not least—detail-
ing the JCD and its intended values and beliefs.
Orchestrate Culture Change Scrums and Full-Scale Roll-Out First, test-runs and scrums
might back-test the intended joint value system. For the full-scale culture transition a
cascading structure, starting at the top and tripling down through the organizational lay-
ers, might be appropriate. Dedicated intercultural trainings might support the rollout and
foster the understanding of the partner’s pre-transaction SCD. Additionally, on corporate
level long-term incentive plans may focus the organization to fulfil on the joint vision
and set of common high-level cultural integration goals. They may also foster a sharing
of best-practices, thereby creating acceptance and an one-company understanding. Such
best-practices include, besides operating standards, ethical values, governance principles,
employee performance standards, or compensation and benefits programs.
Track Culture Change by Pulse Checks Culture change has to be consistently tracked.
This could be done by pulse checks, which initiate a feedback loop between the integra-
tion team and the employees, if:
– the latter understand and share the targets of the culture transition program,
– if employees support the intended change and
– if they feel well informed about the change initiatives and milestones.
Pulse checks nowadays are based on standardized e-mails with a detailed set of inte-
gration questions. This allows a broad coverage of the entire organization with respect
to the perceived integration progress. These pulse checks could be supplemented by
one-by-one management meetings or group discussions to get a deep-routed feedback.
Energizing Culture Change by Top-Management Commitment and the “ tone-of-

the-top” Change champions initiate and orchestrate change initiatives. But the
top-management has to take the leadership role for the overall transformational change
process. A coordinated, visionary and energetic leadership team might therefore per-
fectly complement the role and responsibilities of the change champions. Coordinated
means thereby, that the top-management team has to assure leadership consensus
4.3 Transition Management 225
on strategic matters and integration priorities. The top-management acts as a crucial

role-model for the intended change as well as for the targeted values and behaviors
post-closing.
Also, the top-management might signal change with symbolic acts and use walk
the talk for consistently communicating a powerful and compelling integration vision
throughout the joint organization. Besides, it has to balance soft culture issues with
tough synergy capture. The ultimate target for the top management together with the
culture change agents and the IPH is to assure the realization of the intended JCD
and JBD.
The Link Between the Culture Change Program and Communication Strategy Content-wise
the integration communication initiatives are built upon the integration vision, mission and
JBD, as well as the core values of the new JCD. The target of the communication initiatives
within the culture transition is to facilitate the intended values, norms and behaviors and to
foster the acceptance by all employees throughout the joint company. If a fast, open and
transparent corporate communication is embedded within the corporate culture, it can be
applied as a support tool for a sensitive transition of the two SCD to the JCD.
Besides the verbal and written communication, as well symbols—like, for example,
the design of the new company logo in case of a merger—, might be used to communi-
cate to the employees that a new joint culture will be developed, whereby the employees
are a part of this transformational journey and both companies will be integrated on this
transition.
4.3 Transition Management
The Transition Management with all its integration projects and workstream has to
ensure that the new JBD meets the ongoing business and customer commitments, but
also that the financial and synergy targets are captured as well as integration milestones
realized.
Integration principles should guide this transformational change through the whole
integration process, including Day One readiness, the short-term integration by the
180-days IM, the midterm integration and finally the scaling phase (Fig. 4.24):
4.3.1 Integration Principles
Integration principles guide the integration efforts from the very first integration pilot
program up to the wide-scale roll-out of the IM:
For the transition to the new JBD numerous interdisciplinary integration teams will be
required and have to be coordinated by the Integration Project House (IPH). The IPH and
its team are responsible for driving the integration process, coordinating the integration

#6 CV #4 #2 Definion of counter
#8
CP CC #3 CH CM
#7 #5 communicaon
#9 CF
Management Lessons learned and
mission Culture Transion Program
Post Mortem Report
Integraon Approach
Integraon targets
Design of Integraon- Implementaon of IM Integraonal Learning
Integraon intensity
Project House (IPH) and Day One readiness & Best-Pracce
Alignment with
built up of necessary 100 days IM Plaorm (IL&BPP)
Synergy Management integraon capabilies Mid term IM
Speed and ming Full potenal Redefine core areas of
Design of and training on
JBD & JCD refinement and integraon toolkit leverage plan Integraon & Synergy
freeze Management for long-
Management leverage
Fig. 4.24 Integration Management: Transition Management
modules and workstreams, installing the integration management reporting process and
providing the integration toolkit. The integration module managers and workstream
teams bear the execution task and thereby the responsibility to achieve their specific inte-
gration targets. Integration teams should be staffed from the acquirer’s and the target’s
side, as this would provide a best-of-both talent pool for the integration. As well this
would send a consistent signal throughout the joint organization, that both company’s
employees will be taken seriously on-board and should actively participate in establish-
ing the JBD and JCD.
Target Setting and Responsibilities A coordinated target setting process with clear
responsibilities is mandatory for the IPH and the integration module managers. This
will reduce the risk to get lost in complex integration processes and avoid the duplica-
tion of integration tasks. The individual integration targets should guide, motivate and
give direction. Besides, they serve as a core ingredient for the design of the Integration
Scorecards (ISCs).
Transparency and Communication Another important integration principle is to foster

seamless, transparent and open communication from Day One onwards and throughout
the integration process. Nowadays information flows are at Internet speed. Therefore,
hiding any unpleasant trues, like restructuring needs, is not appropriate. To speed up
integration and retain talent, an open and transparent communication is a must-have
(Fig. 4.25).
Transparency and
Target se ng and communicaon
responsibilies
Integraon
Realize IM and Principles Commitment of
JCD by the top
consistent +
change highly skilled
program change agents
Balance JBD
implementation urgency
with JCD sensitivity
Fig. 4.25 Integration principles
Commitment of the Top and Highly Skilled Change Management Capabilities The
top management has to show commitment and guide the integration process, as the
tone-of-the-top will be taken seriously within any change initiative. An effective and
efficient transition management program focuses on actionable targets and addresses
the critical value drivers of the integration. The hiring, training and continuous in-house
development of change management capabilities are, therefore, besides the top-manage-
ment commitment, a precondition for transactions and improves significantly success
rates and speed of integration efforts as well as employee commitment.
Balance JBD Implementation Urgency with JCD Sensitivity The realization of the inte-
gration program flows along the different four time-horizons. Throughout all of them, the
balance between the more operative and quantitative JBD and the more qualitative and
sensitive JCD has to be addressed.
Realize IM and JCD by Consistent Change Program The realization of the JBD must
be based on the seamless execution of the IM by detailed processes, workstreams
and change initiatives. The same holds true for the transition to the JCD. The com-
plexity of those integration processes could only be managed by a consistent change
program.
4.3.2 Implementing the Integration Masterplan
The implementation of the IM might be structured along four sequenced steps:
– the assurance of Day One readiness

– the execution of the short-term IM (100-days plan)
– the realization of the mid-term IM
– the full potential plan which scales the JBD and JCD beyond the integration horizon
These four steps will be discussed in more detail in the following:
4.3.2.1 Assurance of Day One Readiness

The implementation of the IM has to assure as a top-priority Day-One readiness, mean-
ing from the very beginning of the integration journey a smoothly running day-to-day
business. A structured IM has the advantage of Frontloading integration planning and
being prepared for execution. Core target of Day One readiness is to assure business con-
tinuity. This includes especially “mission-critical” processes.
At the same time customer, talent and core capability retention has to be addressed.
Besides, regulatory and post-transaction obligations have to be fulfilled and integration
risk, which could derail the deal, from Day One onwards monitored and addressed. On
the management side, financial transparency and the implementation of the acquirer’s
governance and compliance guidelines are early-stage must-haves. Last not least, a con-
sistent communication strategy for external constituencies, like shareholders, customers
or the joint company’s wider ecosystem, besides the internal constituencies, like employ-
ees, is an early-stage key success factor (Fig. 4.26).
CM
CS Customer onboarding
Customer informaon about the transacon
and its likely impacts on the customer-supplier
relaonship
Sensive pre-transacon gaps in terms and
condions harmonisaon
CE CA Cross-selling and joint customer offer
CR
CV
CH
CC
CM
IT Finance HR Operaons
Idenficaon crical Closing B/S & Idenficaon of Process flow
IT architecture Accounts core talent and JBD assurance
Migraon of most Full financial capabilies need Business
important data and transparency Retenon of talent connuaon
funconalies Management Contract & pay
Ensure process and reporng system conversion
management data Cash Mgt. (e.g. Ensurance of legal
CM
availability payments,…) framework
Fig. 4.26 Day one readiness heat map
A transaction-specific Day One heat map might identify high-speed integration needs.
Especially the Customer & Market (CM) and the Core Asset (CA) integration module
demand typically a couple of early-stage integration tasks:
– CM integration module: Along the integration process former customers of the

acquirer and target might be approached by competitors. Therefore, customers
have to be early informed about the transaction targets, their implications on the
customer-supplier relationship, and the potential advantages of the integration for the
client, for example, a more holistic customer solution. Customer commitment and
retention programs, as discussed above, should be initiated from Day One onwards to
onboard them and to signal the joint company’s ongoing commitment.
– CA integration module: Within the CA integration module especially the three sec-
ondary value chain activities HR, Finance and IT are challenged already on Day One:
IT has to identify critical IT architecture to avoid any shutdowns and initiate smooth
system and data transitions from the target to the acquirer. Besides, process and man-
agement data availability have to be assured. HR has to identify rapidly core talent
and JBD capabilities needs. Based on this assessment tailored talent and management
retention plans, as well as employment contracts and pay conversion could be initi-
ated, which are in line with legal frameworks (Hanson 2001, pp. 79–80).
– CF: The finance department has to prepare the closing accounts and provide full
financial transparency and data integrity. Also, joint management reporting systems,
budgeting guidelines and planning and reporting processes have to be installed as well
as cash management systems (e.g. payment solutions) implemented. Besides, the CF
integration module has to take control of the target’s FCFs, identify the value drivers
and assure synergy capture from Day One onwards
The further integration modules, like the customer minded CV, CR, CH and the broader
CS, CO, CF and internally focused CC module are more mid-term efforts. The inte-
gration of the product-service bundles of the CV module needs definitely time to be
adjusted and integrated according to the targeted customer use-cases. The same holds
true for the distribution channels and most of the CR activities. As synergy capture is
a short- to midterm endeavor CF is like CS also a more mid-term topic, whereas the
adjustment and merger of core capabilities (CC) and the organizational structure (CO) is
a longer-term integration task.
4.3.2.2 Executing the Short-Term Integration Masterplan

The top priority of Day One to protect business continuity must be retained also along
the execution of the short-term IM. Short-term is thereby understood as the first phase
of executing the integration and is somewhere between the first 100–180 days after clos-
ing.5 Besides, the transition to the JBD by starting to implement the IM along the 10C
modules is the core target of this phase. The top-level structure to execute the IM mod-
ules is ideally identical to the 10C structure of the IM. Therefore, the short-term integra-
tion content is more or less covered by the 10C IM modules. Nearly any function and
organizational layer will be involved, at least in One-Company Integration Approaches.
An intense change program has to make the transition to the JBD happen and must be
well-thought and orchestrated. Each of the 10C integration modules will be broken down
on dedicated change initiatives and workstreams with precisely defined timelines, mile-
stones and deadlines. The implementation of the JBD should focus on the build-up of the
defined JBD as well as on core value drivers and synergies. The IPH will kick-start the
integration execution by orchestrating the integration modules and initiatives, providing
integration tools and training, and initiate a fluent and continuous integration manage-
ment reporting process.
Additionally, the culture transition program, as driven by change agents, and
the approval of the second line top-management and organizational change needs
are kicked-off at the start of the execution of the short-term IM. This should ensure a
step-by-step transition to the JCD. The target is to mobilize the acquirer’s and target’s
organization for the culture transformation journey.
5The short-term integration plan is in some articles and text books also described as 100-day plan,
e.g. by Davis (2012, p. 12).
Whereas the JBD integration handles the more quantitative tasks the culture transition
addresses the “soft skill” side of the integration. In parallel to these core tasks, the exe-
cution of the short-term IM should also realize any “low hanging fruits”, meaning easily
to be captured synergies, along the integration process. These quick wins are important,
as they will motivate and build credibility throughout the entire organization. A further
workstream is the establishment of a seamless integration communication, which should
keep all important external and internal constituencies informed, and which has to start
from Day One onwards along a regular communication timeline.
Along with the implementation of the short-term IM, a lot of important decisions have
to be taken. These will be addressed by a close coordination between the IPH and the
steering committee of the specific transaction, to ensure top management involvement.
Besides, the steering committee has to decide on integration specific tasks like integra-
tion project approvals, sign-offs, resource allocations or staffing, and should track the
integration progress closely at dedicated intervals, most common every 2–3 weeks. An
additional high priority task for the short-term IM, especially from a top-management
point of view, will be the implementation of the joint governance, compliance, financial
reporting and budgeting principles. This will demand a detailed account mapping for
consolidation purpose, and a thorough cash, payment and financial institution interface
integration.
4.3.2.3 Realizing the Mid-Term Integration Masterplan

By realizing the mid-term IM, the full JBD integration and JCD transition should be
achieved. In most instances, this phase will last one year up to 18 months in addition to
the execution of the short-term IM. A clear cut-off date has to be defined, otherwise inte-
gration will be a never-ending journey and might be perceived as a failure. In the follow-
ing, just a couple of typical and important mid- to long-term IM execution issues will be
highlighted, as most topics have been addressed within the IM discussions:
The CS module should achieve the competitive positioning of the joint company
within the peer-group by shaping the joint competitive advantage. This goes hand in
hand with the CV integration completion by realizing the full bundle of joint product and
service offerings, including platform strategies, if applicable. If the joint offering goes
beyond the simple add-on of the stand-alone offerings this might be one of the most cru-
cial long-term efforts of an integration project. Additionally, the joint product and service
portfolio is closely linked to the mid-term CM module integration execution, as it will
define, at least partially, the potential share-of-wallet extension on the customer side. To
have a tailored customer approach and address the most crucial use-cases, a detailed cus-
tomer segmentation might be used as a supplement.
A best-of-both marketing mix, a coordinated channel and brand management strategy,
as well as a joint sales and aftermarket footprint, might be top priorities of the CR and
CM integration modules.
On the more inward focused CA module the establishment of the joint R&D pipe-
line and platform or an integrated manufacturing footprint might be the dominant issues.
There might be a couple of specific R&D or plant projects which might go beyond the
18-month horizon of the mid-term integration plan. Last not least, for the CC module the
development, scaling and exploitation of the joint core capabilities have to be realized.
The talent and capability development is crucial to achieving this mid-term target.
4.3.2.4 The Full Potential Plan: Scaling JBD, JCD and Synergies for the
Long-Term
The typical M&A process ends with the realization of the midterm IM. This “end-point”
also should be defined time wise, as integration processes bear the risk to become ever-
lasting. But the further shaping of the joint competitive advantage based on the original
transaction rational, the scaling of the JBD and the development of a winning culture
based on the JCD should be extended beyond the integration phase. Based on a review of
the integration progress, the achieved or missed targets—including the assessment of the
route causes—in building the JBD, and the joint culture progress, the full potential lever-
age of core capabilities and strategic positioning beyond the IM could be defined.
Leverage is partially based on what was learned along the integration. Additional syner-
gies, possibilities to optimize the Business Design, potentials for efficiency gains or addi-
tional markets and new use-cases might have been identified along the integration journey.
4.4 Integration Monitoring, Controlling and Learning
A disciplined and holistic process of integration requires finally a consistent and trans-
parent tracking and reporting of the integration progress as precondition for the effective
controlling and management of the integration. Core targets of the integration controlling
are the realization of the originally intended transaction rational, especially the JBD and
JCD implementation, and the synergy capture.
The tracking and controlling of the integration progress should focus on key integra-
tion issues and workstreams, core value drivers as well as synergy deliverables. It should
enable an in-time transparency concerning mission-critical questions, like:
– If integration targets are met along the integration project (milestone tracking)
– if gaps in the realization of the originally intended IM and workflows exist
(plan-realization comparison)
– how potential counter measures and initiatives could be initiated (in case of deviations
between realized and intended IM module performance)
Besides, the tracking of integration success and failure is also a pre-condition for integra-
tional learning and the build-up of a best-practice learning platform (Fig. 4.27).
4.4 Integration Monitoring, Controlling and Learning 233

Strategic raonal #1 CS Integraon controlling
responsibilies
Valuaon & synergies Gap assessment
Due Diligence blending CA CR High degree of
#6 CV #4 #2 Definion of counter
#8 transparency
Integraon risk analysis acons
CP CC #3 CH CM
#7 #5 Focused, aligned
#9 CF
Integraon-Strategy Design communicaon Integraonal learning
#10 CO
Integraon vision &
Lessons learned and
mission Culture Change Program
Culture Transion Post Mortem Report
Integraon Approach
Design of Integraon- Management Integraonal Learning
Integraon targets
Integraon intensity
Alignment with
integraon capabilies Implementaon of
Synergy Management Integraon-Masterplan
Speed and ming Redefine core areas of
Design of and training on Day-One readiness
JBD & JCD refinement and integraon toolkit 100 days plan Integraon & Synergy
freeze Mid term plan Management for long-
Coordinaon with Full potenal term full-potenal value
Synergy Management leverage plan leverage
Fig. 4.27 Integration Management: Integration monitoring, controlling & learning
Integration Scorecards and KPIs might support to measure, if integration goals are
met or, in case of significant deviation from the intended integration path, if counter-
measures have to be initiated. The integration process is time critical and the integration
modules are interdependent. Accordingly, integration progress has to be closely moni-
tored at pre-defined milestones (Engert et al. 2019). To control and measure the integra-
tion modules, they have to be broken down in detailed integration workflows.
The management of the integration controlling is a core task of the IPH, which will
be discussed in more detail in Chap. 6 about M&A Process Management & Governance.
At the endpoint of the integration intended synergies should have been realized and tran-
sitory solutions should have been overcome by the full implementation of the JBD and
JCD.
4.4.1 Integration Tracking and Scorecards
Integration Management should be based on a consistent process which ensures a reg-

ular measuring, tracking, controlling and reporting of integration progress (Galpin and
Herndon 2014b, p. 42). A tool-based approach might support those efforts:
Integration Scorecards (ISCs) The evaluation if a transaction is on track, or, in

retro-perspective, was successful, is traditionally based on the assessment if financial
goals and the transaction rational have been achieved (Vazirani 2012). A more holis-
tic approach might add the view of additional external and internal constituencies, like
customers, employees or suppliers (Galpin and Herdon 2014a) by using a Scorecard

approach.
Integration Scorecards (ISCs) may serve as a tracking and early warning system. Such
ISCs mirror a selected set of financial, synergistic and Business Design specific integra-
tion performance indicators to ensure that integration activities, workstreams and pro-
jects are broadly covered and financial performance stays on track, as defined within the
IM. An increasing number of companies measures integration performance nowadays
not just with financial indicators like ROIC improvements, revenue growth, cost savings
or project integration costs, but add operational drivers (PWC 2017b, p. 24):
ISCs for the tracking of integration progress might be built around the following indi-
cators, but must be tailored according to the specific Integration Approach and intended
JBD:
Financial KPIs of ISCs might compare pre- versus post-closing performance of:
– Capital market indicators, foremost based on share price performance versus a

defined peer group (short-, mid-, long-term)6
– RoIC performance of the merged company
– FCF conversion rate, performance and CAGR
– EBITDA and Invested Capital performance and development
– Revenue performance, CAGR and growth momentum
– Cash and debt development
– Linkage to Synergy Management—I: Volume of realized synergies versus planned
– Linkage to Synergy Management—II: % of in time realized synergies
Besides those financial indicators, operational KPIs of ISCs should use a balanced
mix of inward and outward indicators, covering employee, innovation, integration
process-specific and customer matters:
Culture, talent, employee and capability KPIs of ISCs might address:
– Employee leave and absence rates

– Talent retention or—vice versa—churn
– New applications development (especially for JBD critical capabilities)
– Employee satisfaction assessments, e.g. by pulse checks
– Number of escalations within integration process
– Development of employability measures, like “best-companies-to-work-for” listings
6The Cumulative Abnormal Return (CAR) as the share price outperformance post-transac-
tion is the most applied financial indicator for measuring transaction success within scien-
tific studies: Event studies measure for a dedicated company i the CAR in comparison to a
tailored peer group for a defined event window around the announcement date of the transaction:
T
CARiT = rit − E(rit), with E(rit) = αi + βi rm.
t=1
4.4 Integration Monitoring, Controlling and Learning 235
– 360-degree leadership survey or focus group-based indicators (Carleton and

Lineberry 2004, pp. 118–119)
– or even more advanced measures, like LinkedIn analytics
Market and customer KPIs of ISCs are typically:
– Customer retention or—vice versa—churn

– New customers gained
– Development of customer satisfaction scores (complemented by customer surveys or
feedbacks) and, vice versa, customer claims
– Market share development
– Development of pricing indicators
– Number or volume of the joint company’s customer offers (cross-sells)
– In time customer fulfillments or deliveries
Innovation and capability KPIs of ISCs based on:
– Number of patent filings

– Time to market
– Number and revenue development of new product or service introductions
– Percentage of sales or revenue from new products and innovations in comparison to
total sales or revenue
– Market share gains in new segments
– Number of new use-cases successful introduced
– Successful knowledge transfer between the two merging companies (based on a
detailed capability and functional level break-down)
Integration project and process KPIs of ISCs might focus on:
– Financial and management reporting performance (quality, time, accuracy)

– #/time delay of missed, red flag integration modules
– Milestone performance (missed/achieved)
– Overshooting/undershooting of planned integration project cost
– Integration costs relative to synergies, turnover and purchase price
Besides these KPIs each ISC should capture essential cornerstones of the specific inte-
gration module, like the responsibilities for the specific integration module, the team
members, the targets and most important milestones of the integration module, the track-
ing of the overall degree of implementation as well as of the specific KPIs of the inte-
gration module, and, last not least, synergy impacts and side effects on other integration
modules.
The sum of the ISCs should capture all integration modules and therefore provide an
in-time overview of the degree of implementation and potential hurdles of the overall
integration project. They frame the management reporting process and should foster inte-
gration responsibilities, accountabilities and transparency.
4.4.2 Integration Controlling
ISCs are also perfectly suited for the tracking and controlling of the integration pro-
ject. Nevertheless, they have to be supplemented by a detailed integration management
process, assuring a consistent reporting and controlling of integration progress by the
top-management.
The controlling of the integration progress should be based on a regular review, most
likely every two to three weeks, by the steering committee of the integration, involving
the top-management of both companies. The preparation and orchestration of those inte-
gration steering committee meetings are one of the key tasks of the IPH. For the prepa-
ration of those steering committee meetings, an update of all integration modules has
to be prepared and the most important integration subjects and deviations distilled. The
latter could be detected by Degree of Implementation (DoI) and gap assessments. This
will support to focus the steering committee meetings on the most important integration
decision points. Within the steering committee meetings, especially countermeasures for
those modules which deviate most significantly from their milestones have to be decided
upon. Besides, the IPH has to assure a feedback loop of these decisions into the integra-
tion modules.
4.4.3 Integrational Learning: Post Mortem Report and Learning

Platform
“We learn from experience that men never learn anything from experience…” once the
novelist George Bernard Shaw wrote. To avoid this pitfall, the assessment of what went
wrong or well in past integration projects is a good starting point. Feedback loops, learn-
ing algorithms and integration best-practice platforms should foster this learning from
past transaction pitfalls and successful integration cases (Davis 2012, pp. 13, 27). In the
end, this should professionalise in-house M&A and integration teams and ultimately
increase the long-term M&A success rate. The key target of integrational learning is sim-
ply to become better in the next transaction.
A capability assessment might identify how experienced the target’s and the acquir-
er’s management teams are concerning M&A skills. By identifying the gaps between
M&A capability needs and existing capabilities also the buy-in of external consulting
support could be tailored.
4.5 Integration Management for Digital Targets and Business Designs 237
Lessons Learned and Post Mortem Report For the continuous development of inhouse
M&A capabilities the lessons learned of a transaction, in the sense of a brief recapitula-
tion of what went wrong and what went well from the beginning of the Embedded M&A
Strategy up to the closing of the integration process, should be summarized within a
Post-Mortem M&A Report. This report should be discussed with the involved M&A
specialists and managers shortly after finalizing the integration project to crystallize the
lessons learned and potential improvements for the next M&A project. Based on these
lessons learned, internal M&A capabilities could be strengthened as well as M&A tools
(re-)designed.
Learning & Best-Practice Platform Especially for multiple acquirers the implementa-
tion and scaling of a Learning & Best Practice (IlBP) Platform, by applying the poten-
tials of digital M&A tools, might foster an even more intense and continuous M&A
capability development. Such an M&A platform could be cloud-based and accessible
throughout the organization.
4.5 Integration Management for Digital Targets and Business

Designs
The Integration Management of digital targets is a sensitive task for the acquirer: The
new parent company has to balance integration needs to leverage the digital capabilities
of the target within the acquirer’s BD framework with the necessity of the target to stay
autonomous for keeping its entrepreneurial spirit and retaining critical digital talent on
board.
There are two major risks of digital target integrations, the overburdening of the tar-
get company with the acquirer’s integration complexities and processes and the risk to
lose critical digital talent on the target’s side. The core management responsibility for the
integration of digital target companies might be therefore the preservation of the critical
success factors of its SBD post-transaction and a sensitive Culture Design integration.
Key employees and talent have to be kept on board applying suitable incentives, reten-
tion packages, and development programs within the acquirer’s context (Fig. 4.28).
On the other side three major topics have to be addressed to lever the transaction
rational for digital target integrations:
– General acquirer’s management principles, like e.g. governance, reporting and budg-
eting process standards, as well as capability and talent management, have to be
transferred to and aligned with the target company. This assures compliance with the
acquirer’s standards.
– Also, non-mission-critical parts of the target’s SBD could be integrated at an early
stage, as, for example, logistics networks, after sales back-office overlaps or procure-
ment operations.

ve advantage and capability needs − DCF scenarios and simulaons (Monte Carlo) • Implement necessary compliance
Fig. 4.28 E2E M&A Process Design for digital and business model innovation driven transactions
– A third and the key task for the integration of digital targets is the leverage of parent-
ing advantages by implementing critical parent capabilities which are essential for the
scaling of the target’s SBD and the capture of revenue synergies. This involves a sen-
sitive transition of capabilities, management and employees between the parent and
the digital target. A first step could be the identification of cross-selling and growth
leverages by sharing best practices and implementing a know-how transfer or the
exchange of advanced technologies and platforms.
4.6 Summary of Integration Management
In the following a set of crucial questions will be discussed, which might guide the man-
agement through the integration jungle before the key success factors will close the dis-
cussion on Integration Management:
For the board as well as for the IPH leadership team a set of tailored question might
serve as a suitable cross-check if all critical integration issues have been addressed by the
Integration Management:
4.6 Summary of Integration Management 239
Questions
Critical questions for Integration Management success:
– Are Integration Strategy, vision and mission aligned with the transaction rational
and do they address the transaction specific value drivers as well as synergy
capture?
– Does the parenting advantage support the integration and scaling of the target’s BD
within the acquirer’s framework? Is an exchange of mission-critical capabilities
therefore necessary? How about timing?
– Does the Integration Approach keep the balance by protecting standalone business
momentum, but also allowing to achieve intended synergies?
– Is the JBD precisely enough defined before freezing and kicking-off the
integration?
– What modules of the 10C JBD are intended to be integrated and why? Is the
transfer of parenting advantages of the acquirer on the target understood and
initiated?
– Which modules of the SBD should be kept independently? Why? Are business
momentum and talent retention thereby assured?
– Who will be the lead orchestrator of the integration (head of the IPH)? Has the
integration team (IPH) the necessary integration capabilities and experience?
– Is the top-management an integral part of the integration process and does the
board communicate one integration massage?
– Is culture integration taken seriously by the top-management and integration team?
Are change agents for the culture transition defined and do they have the necessary
capabilities?
– Does the Integration Masterplan set the right priorities? Are integration tasks bro-
ken down in measurable and operational Integration Scorecards?
– Is integration execution structured along a defined time path with dedicated
milestones?
– Are integration capabilities permanently improved by appropriate digital tools,
post-mortem reports and best-in-class benchmarks?
4.6.2 Key Success Factors
Best-practice M&A integration case studies, as well as multiple Integration Management

articles and literature, have been researched to identify mission-critical integration
success factors: An Integration Strategy should be defined early, transaction rational
and synergy capture should guide through the integration jungle, top-management
Integraon capability leveraging and Focus integraon on transacon raonal

learning plaorm and synergy capture
Top management commit-

Frontloading Integraon
ment (tone-of-the-top) and
… & coordinaon with
capable project house
Synergy Management
Seamless Joint Culture Implementaon of Joint Business Design

Design Transion by Integraon Masterplan
Fig. 4.29 Key success factors for the Integration Management
communication should show commitment and a comprehensive change management

should drive a seamless transition to the JBD and JCD.
More detailed, six key success factors of Integration Management might stand out, as
Integration Focus on Transaction Rational and Synergy Capture The focus on the orig-
inally intended transaction rationale as well as value and synergy creation should be
retained throughout the whole M&A process. This might be supported by a compelling
and energetic integration vision and mission as well as a set of focused integration tar-
gets, serving as a Northern Star and guiding all integration efforts.
Frontloading of Integration Approach and Coordination with Synergy Management The

assessment of the best-fitting Integration Approach should be initiated as early as pos-
sible: Especially the Blue Print of the JBD and JCD should be already defined during
the Embedded M&A Strategy and be validated during the Transaction Management.
Additionally, as synergy capture requires the integration of the two SBDs, a close coordi-
nation of the Synergy and Integration Management is a further ingredient for a success-
ful integration. The Integration Masterplan should focus on maximum synergy leverage.
Implementation of Joint Business Design by Integration Masterplan The stress-tested

Joint Business Design is an ideal starting point for the structuring of the Integration
Masterplan. Based on the intended 10C JBD framework, a bundle of high priority inte-
gration initiatives could be defined for the Integration Masterplan. An integration prior-
ity matrix might be applied for the identification and prioritization of mission-critical
4.6 Summary of Integration Management 241
integration projects. Besides, timeline requirements and potential integration risks must
be addressed. Integration champions implement consistently the targeted JBD.
The transformational change management should apply a best-of-both-approach,
meaning that the acquirer’s, as well as the target’s capabilities should be exploited for the
achievement of the JBD. The defined JBD has to be implemented by a consistent set of
transition initiatives. The retention of critical talent, the development of core capabilities
and competitive advantages, as well as a maintained business momentum, are key targets
at this stage. The Integration Masterplan must address Day One readiness by ensuring,
besides other topics, integration take-off, as well as financial and management readiness.
Additionally, top talent, core-capabilities and key customers should be retained through
targeted initiatives. The integration should accelerate in the short-term and mid-term
horizon of the transition thereafter.
Seamless Transition to Joint Culture Design Addressing culture integration issues, but
at the same time also accepting differences in cultural origins, meaning gaps in the SCD,
is a further success ingredient. Using a JCD concept assures that the two cultures are
aligned, where necessary. This starts with the application of a detailed Culture Design
Diagnostics within the Embedded M&A Strategy, as described in Chap. 2. Based on
the detailed understanding of cultural values and gaps between the acquirer and the tar-
get company a new, winning Joint Culture Design (JCD) is defined. This JCD is then
back-tested within the Due Diligence. The later enables an early detection of culture
clashes and to be addressed culture integration issues. The JCD will be finally frozen
and implemented within the Integration Management. A sensible culture integration is
closely aligned with the overall Integration Approach.
Besides, successful integrations make culture integration a top-management prior-
ity and responsibility. An open, transparent, and in-time communication strategy must
thereby mirror the information needs of all internal, but also external constituencies. The
communication flow should be continuous and must capture also a portion of constituent
tailored massages.
Tone-of-the-Top: Top Management Integration Commitment and Capable Project

Team Top-management involvement, commitment, accountability and leadership
throughout the integration process is a mission-critical success factor for an integration.
Besides, an agile, high-quality integration project team (IPH), supported by a capable
change management and transition agents—which foster leadership and accountability
for integration initiatives and workstreams at all levels—must be installed and main-
tained though-out the integration process.
Development, Application and Leverage of Best-Practice Integration Capabilities The

integration should be guided and orchestrated by an Integration Project House (IPH)
with all responsibilities and capabilities for the integration. The IPH is also in charge of
the development and application of the integration toolkit and for the inhouse application
training. Further, the IPH has to implement a transparent tracking and controlling of the
integration projects and foster learning-loops to create and apply best-practices in inte-
gration. The permanent improvement of integration competencies should be initiated by
state-of-the-art tools, like learning platforms and learning loops.
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Synergy Management
5
Contents
5.1 Transaction Value Added (TVA) and the Role of Synergies. . . . . . . . . . . . . . . . . . . . . . . . 250
5.2 Synergy Diagnostics and Patterns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252
5.2.1 Demystifying Synergies—I: Financial Diagnostics of Synergy Patterns . . . . . . . . 253
5.2.2 Demystifying Synergies—II: Joint Business Design Diagnostics
of Synergy Patterns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258
5.2.3 Valuation and Prioritization of Synergies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262
5.3 End-to-End Synergy Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264
5.3.1 Synergy Management & Embedded M&A Strategy:
Synergy Diagnostics & Scaling Approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265
5.3.2 Synergy & Transaction Management: Proof-of-Concept of Synergy
Value and Scaling. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267
5.3.3 Synergy & Integration Management: Synergy Capture—Implementation &
Tracking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269
5.4 Synergy Management Toolbox and Synergy Capture Assessment. . . . . . . . . . . . . . . . . . . 272
5.4.1 Synergy Toolbox . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272
5.4.2 Evaluating Synergy Capture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276
5.5 Synergy Management of Digital Targets and Business Designs. . . . . . . . . . . . . . . . . . . . . 277
5.6 Summary of Synergy Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279
5.6.2 Summary and Key Success Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280
Abstract
Synergies are the holy grail of any transaction, as they define, together with the trans-
action premium paid, the value generated by an M&A initiative. Surprisingly, the
concept of synergies is still a very vague concept. Synergies will be in the follow-
ing understood as the net present value of additional Free Cash Flows created by a

246 5 Synergy Management
transaction which goes beyond the standalone values of the acquirer and the target. In
essence, synergies are a surplus concept. The key target of the Synergy Management
along all the primary modules of the E2E M&A Process Design is to capture these
synergies. Therefore, Synergy Management by itself is an End-to-End process, which
supports any of the primary M&A processes: Within the Embedded M&A Strategy,
the Synergy Management has to identify (Synergy Diagnostics) and map the port-
folio of potential sources of synergies (Synergy Pattern) by the combination of the
acquirer’s and the target’s SBDs. Besides, a Blue Print how those synergies could
be scaled (Synergy Scaling Approach) within a JBD has to be drafted. Additionally,
a first rough valuation, timing and evaluation of the likelihood of the synergies are
paramount at this early stage, as the synergies and the standalone value of the tar-
get define the upper boundary of any indicative purchase offer. The identified syner-
gies have to be verified by the Transaction Management, as the transaction value
add is based on “real $” and not “power point $”. The Due Diligence serves as a
proof-of-concept of the Synergy Pattern and the Blue Print of the Synergy Scaling
Approach. Applying the 10C JBD, the early synergy estimates could be broken down
into detailed synergy levers. These more detailed synergy values have then to be feed-
back into the update of the valuation. Finally, Synergy Management is a centerpiece
of the Integration Management. This holds especially true as the premium is paid
already at closing, but the synergies have to be captured within the integration pro-
cess. For any transactional value-added and integration success the synergy realiza-
tion, tracking and controlling is therefore of essence. Additionally, a feedback loop
and learning ecosystem for the optimization of the Synergy Management is part of a
long-term M&A capability approach.
Synergies define, if a merger or acquisition project creates or destroys value, as they are
in essence the origins of the improvements in earnings and FCF which are created by the
combination of two companies. The problem is, that empirical studies show that most
transactions do not or not on a timely base realize promised synergies or underdeliver on
synergy capture. Nevertheless, the forecasts of intended synergies increased in the last
couple of years (Kengelbach et al. 2018, pp. 5 and 17). Therefore, a rigorous Synergy
Management which drives the identification, the verification, the timing, the imple-
mentation and the tracking of the targeted synergies along the E2E M&A Process
Design became even more a decisive factor for synergy capture and transaction suc-
cess (Fig. 5.1).
 Definition
Synergies could be described very broadly as the shareholder value added which is real-
ized by the acquirer due to the acquisition of the target company or by the merger of two
companies. Synergies might be levered on the target’s, the acquirer’s or both sides.
5 Synergy Management 247

Top-Down Synergy Mapping and Synergy Proof-of-Concept and Synergy Implementaon,
Synergy Scaling Approach Synergy-Valuaon Blending Tracking and Controlling

M&A playbook
Fig. 5.1 The E2E M&A Process Design: Synergy Management
To get a deeper understanding of the characteristics of synergies the core principle

of corporate finance will be applied: Companies do create value if they raise and invest
capital to generate FCFs with a return on that invested capital which is higher than the
cost of capital (Koller et al. 2020). Therefore, synergies are generated if the combination
of the two companies creates higher FCFs than the two companies would generate on a
standalone basis. In this case, the value of the combined company VA+T is higher than the
sum of the standalone values of the target VT and the acquirer VA:
VA+T > VA + VT
The value contribution of synergies SYN could, therefore, be defined as the difference
between the value of the new, joint company post-transaction VA+T and the sum of the
parts of the standalone values of the target VT and the acquirer VA pre-transaction.
SYN = VA+T − (VA + VT )
For the calculation of the Transaction’s Value Add (TVA) from this net present value of
the synergies (SYN) the premium paid by the acquirer to the target’s shareholders (P)
has to be deducted (Fig. 5.2):
TVA = SYN − P
This implicitly means, that a transaction does only increase shareholder value on the
acquirer’s side, if, and only if, the net present value of the realized synergies is higher
than the acquisition premium. This is the crucial buy-side transaction hurdle rate. The
flip-sided outcome is, that if the forecasted synergies fall short of the acquisition pre-
mium requested by the sell side, the management team on the buy-side has to abandon
the intended acquisition prior to closing, as it would be value destructive. The verifica-
tion of the value of the synergies within the Due Diligence and the confirmation of how
they could be captured and scaled by the new JBD is, therefore, mission-critical.
NPV of Premium TVA

synergies Transacon
Value Add
Standalone value Standalone value Combined value:

Acquirer: VA Target: VT VA+T
Fig. 5.2 Synergies, premium and Transactional Value Add (TVA)
From a more detailed valuation point of view, the total value contribution of the syn-
ergies is equal to the net present value of the additional future FCFs generated by those
synergies. The net calculation involves the integration and one-time costs to realize the
synergies as well as dis-synergies, like, for example, the potential drain of important cus-
tomers. As the value contribution of the synergies is based upon the net present value
of additional FCFs, not only the total value but as well the timing of the synergies is of
essence. A realistic assessment of how long it will take to capture the intended synergies
is another substantial task of the Synergy Management, besides their identification and
value estimate.
Concerning the financial pattern of synergies, operating synergies, like cost, rev-
enue and balance sheet synergies, and financial synergies, like reduced cost of capi-
tal or tax losses carried forward of the target which could be deployed by the acquirer,
could be differentiated (Damodaran 2016, p. 2). The pattern and value of the synergies
are based on the specifics of a transaction and the JBD, especially the core assets and
capabilities. Damodaran frames this: “The key to the existence of synergy is that the tar-
get firm controls a specialized resource that becomes more valuable if combined with the
bidding firm’s resources (Damodaran 2016).” Nevertheless, the target could also increase
the value of the resources and capabilities of the acquirer. Especially nowadays synergies
are not limited to the target company. The latter might be the case, where the acquirer
intends to revitalize his own portfolio by an acquisition.
Investors often question if those synergies could be realized within the integration and a
couple of studies show that their skepticism seems to be justified in many cases (Cogman
2014; Kengelbach et al. 2018, pp. 18–19). Typical root-causes of synergies failures are:
– Synergy values are overestimated and not broken down in detailed levers or, even
worse, just used as a plug variable to bridge the gap between high purchase prices and
low standalone values of the target
5 Synergy Management 249
– Only synergies on the target-side are assessed, meaning synergies on the buy-side as a
second fundamental source for synergies have been neglected
– The identification of synergies is addressed too late, meaning within the Integration
Management
– No verification of synergies throughout the Due Diligence is initiated
– Sloppy execution, unclear responsibilities and missing controlling negatively impact
synergy implementation and capture
– Underestimation of time needs and efforts along with the transition to the new JBD
– Integration costs to realize the synergies are not figured in
– Culture hindrances or organizational slack is underestimated
As the synergies are the bedrock of any Transaction Value Added these hindrances to
synergy capture are fundamental risks. Therefore, the E2E M&A Process Design
explicitly integrates the Synergy Management as a separate E2E process which runs
in parallel to, but is interwoven with the primary M&A processes, the Embedded
M&A Strategy, the Transaction Management and the Integration Management:
The first Sect. 5.2 explains the center role of synergies for any transactional value cre-
ation by providing a deep-dive with respect to the relationship between stand-alone value
of the target company, transaction premium, purchase price, synergies and TVA. Based
on this understanding the Pattern of Synergies will be classified from a financial and
10C Business Design perspective.
In Sect. 5.3, the Synergy Management as an integral part of the overall E2E
M&A Process Design will be discussed. The core question is here how a Synergy
Management could be designed along the whole M&A process, which ensures a seam-
less interaction with the primary M&A processes. Precise touchpoints between the
Synergy Management and each of the primary M&A Process Design modules supple-
ment this view:
– The Synergy Diagnostics, the Blue Print of the Synergy Scaling Approach and a
first evaluation of the synergies in the Embedded M&A Strategy phase
– The proof-of-concept of the Synergy Pattern and Synergy Scaling Approach in the
Due Diligence
– The implementation, tracking and controlling of the synergies within the
– Furthermore, concepts to create a feedback loop and learning ecosystem for the
optimization of the Synergy Management will be designed.
Last, not least a holistic toolset of Synergy Management will be presented. Multiple
tools could be applied for the identification, verification, tracking and implementation.
These will be highlighted in Sect. 5.4. Additionally, it will be asked how synergy imple-
mentation could be evaluated.
In the two final steps, as within prior chapters, the module outcomes will be applied
to the specifics of the acquisition of digital targets (Sect. 5.5), before lessons learned as
well as key success factors will close the discussion on Synergy Management (Sect. 5.6).
5.1 Transaction Value Added (TVA) and the Role of Synergies
Both parties of an M&A deal will only agree to a potential transaction if they could real-
ize a net-increase in their wealth, which could be described as Transaction Value Add
(TVA). Value accreditive versus destroying transactions will be defined from a buy- and
sell-side:
– From a target’s shareholder perspective, the potential sell-off is only attractive, if,
additionally to the stand-alone value, a premium could be realized. The stand-alone
value of the target company is defined by the intrinsic Equity Value based on an
Enterprise DCF valuation of the target company or, in case of a stock listed company,
by the market capitalization. A rough indicator of premia paid within acquisitions,
independently from a specific industry or regional characteristics, is round about
30% of the stand-alone value of the target company (Kengelbach et al. 2018, p. 13;
Gaughan 2013, p. 298).1 The volume and pattern of synergies are thereby from indus-
try to industry and even from transaction to transaction substantially different.
– The acquirer’s view starts as well with the stand-alone value of the target company.
Additionally, the acquirer might realize synergies. The stand-alone value of the target
company plus the net present value of the synergies defines the maximum purchase
price. Only if the final negotiated purchase price, including the premium and any
transactional side payments, is below this threshold, value is created for the acquirer’s
shareholders:
Standalone Value, Premium, Purchase Price, Synergies and Transaction Value

Added
For the acquirer’s shareholders, the value neutral purchase price is the sum of the target’s
stand-alone value and the net present value of all synergies, as described by Fig. 5.3.
This implies a simple transaction decision rule on the buy-side: Only transactions
where the net present value of synergies is higher than the premium are value accredi-
tive, meaning having a positive TVA on the acquirerer's side (Koller et al. 2020, p. 566;
1Gaughan (2013, p. 298) identified within the timeframe 1980–2011 based on Mergerstat Review
and Econstats.com data slightly higher purchase price premia. This study shows as well, that
premia paid in acquisitions have a positive correlation with high stock market valuations.
5.1 Transaction Value Added (TVA) and the Role of Synergies 251
Transacon Value Add

TVAA
for acquirer
Premium NPV of
P = TVAT synergies
(Transacon Value Add
for seller)
Standalone value Purchase price Standalone value

Target Co Target Co
SELL SIDE BUY SIDE
Fig. 5.3 Transaction Value Added, synergies, purchase price, premium and target standalone value
Gaughan 2013, p. 54; Sirower 1997, pp. 20 and 46). This assessment rests upon a couple
of specific assumptions:
– The stand-alone value of the target company is based on the efficient capital mar-
ket hypothesis: The intrinsic, DCF-based equity value of the target company should in
such circumstances be identical to the market capitalization in case of the stock listed
company.2
– It is also assumed, that the stand-alone value of the target company is identical for
the seller and the acquirer. This assumption would be not correct, if, for example, the
latter could execute value increasing strategies, like restructurings, des-investments
or growth initiatives, which are beyond the target’s management possibilities. These
improvements of the standalone value have to be separated from synergies, which the
buyer might leverage for the target company by being a better parent. The latter syner-
gies are the unique acquirer advantages.
– The net present value of the synergies is here assumed as given. In reality, there is
a timewise disconnect, as the purchase price has to be paid at closing, but synergies
are realized later within the Integration Management. This is summarized in the
well-known phrase “price is what you pay, value is what you get”. Implicitly, M&As
are built upon an unbalanced chance-risk profile: In case the acquirer could not realize
all the synergies within the integration the transaction would be in the aftermath value
dilutive. Figure 5.4 shows such a case of a value dilutive acquisition:
2Harding and Rovit analyze the potential difficulties in the calculation of the standalone value
(Harding and Rovit 2004, pp. 81–83).
Transacon Value
Premium Diluon NPV of
P = TVAT - TVAA synergies
(Transacon Value Add for acquirer
for seller)
Standalone value Purchase price Standalone value

Target Co Target Co
SELL SIDE BUY SIDE
Fig. 5.4 Transaction Value Dilution, synergies, purchase price, premium and target standalone value
Due to this significant effect of synergies on the Transaction Value Added, in the fol-
lowing subchapter the focus will be on the sources of synergies and how they could be
identified.
5.2 Synergy Diagnostics and Patterns
Despite that the term synergy is widely used and the volume of synergies decides on the
value contribution of a transaction, no universally accepted definition of the term synergy
exists. In the following, synergies are broadly understood as the additional value which
is created by the integration of two companies’ Business Designs, independently from
the type of transaction, beyond their standalone values and which would not be exist-
ent, if the companies would not join forces (Damodaran 2006, p. 541).
From a corporate finance point of view, synergies are measured as the net pres-
ent value of future Free Cash Flows which are driven by these synergies due to the
combination of two companies:
Typically, synergies are understood as value upsides which are realized by the acquir-
ing company through an implementation of best practice approaches or a transition of own
core capabilities on the target. Besides, efficiency gains and economies of scale are sources
of synergies. But also vice versa, the transition of core capabilities and best practices from
the target to the buyer could generate substantial synergies. This synergy feed-back loop is
described in Fig. 5.5. The highest level of synergies might be those which are realized in
the JBD by deeply integrating the two SBDs. An example might be economies of scale.
5.2 Synergy Diagnostics and Patterns 253
Joint Synergies
Synergies levered on the Joint
Business Design by integra ng the two
Standalone Business Designs
Acquirer Synergies Parenng Synergies

Synergies driven by the transfer of Synergies driven by the transfer of
competencies and best prac ces of competencies and best prac ces of
the target Co. to the acquirer the acquirer to the target Co.
Fig. 5.5 Synergy loop between acquirer and target
Obviously, this synergy loop becomes more powerful the stronger are the feedback
loops of synergies between the acquirer and the target company. In the following syner-
gies will be characterized from different perspectives:
– the financial decomposition of synergies

– the diagnostics of synergies by assessing the intended 10C Joint Business Design
– the valuation and prioritization of synergies with the Synergy Matrix
5.2.1 Demystifying Synergies—I: Financial Diagnostics of Synergy

Patterns
A first question in the assessment of synergies is, if these could be realized by nearly
any potential acquirer (standalone improvements) or if they are unique for a dedicated
acquirer (true parenting advantages), as explained by Fig. 5.6:
This might have a significant impact on the distribution of the synergies between the
buy- and sell-side. If a major part of the synergies could be realized by multiple bidders,
the bulk of synergy benefits might, most likely, accrue on the sell-side, whereas unique
synergies might offer the buyer a better bargaining position.
One very common classification of (true) synergies is by their financial origin.
This classification has the advantage that it is close-knit to Enterprise Value. The stan-
dalone value of a company was described in Chap. 3 as the sum of the future DCFs
generated by the company. Therefore, a transaction is only value accreditive, if the net
Operang Synergies
Revenue (Growth) Synergies
Cost Synergies
Invested Capital Synergies
Financial Synergies
(True) synergies
Parenng Advantages
Standalone value addded Standalone Improvements

(Value added versus standalone case of seller)
Standalone value
Fig. 5.6 Synergies versus standalone improvements
present value of the joint future FCFs of the target and the buyer are increased beyond
their standalone values. Therefore, the rout-causes of synergies should be in line with the
value drivers of the continuing growth formula.
Following this approach, as described by Fig. 5.7, three different sources of opera-
tional synergies, which depend significantly on the JBD and Integration Approach, and
financial synergies could be identified:
– Revenue synergies
– Cost synergies: Higher efficiencies or bundling effects
– Balance sheet synergies: Optimization of the JBD which reduces the necessary
amount of invested capital
– Financial synergies: Decreasing the cost of capital or taxes,
This classification could be embedded in a consistent Financial Synergy Pattern

framework:
In line with this corporate finance view, the synergies can be classified and detailed,
as described by Fig. 5.8:3
Revenue (Growth) Synergies

Growth synergies are here understood as revenue synergies and have therefore top-line
impact. Growth is an important value driver in M&As (Gaughan 2013, pp. 58–62; Koller
et al. 2020, pp. 583–584; Damodaran 2016). Nevertheless, revenue growth synergies are
3Most text books and articles just separate between revenue or sales and cost synergies; e.g. Davis
(2012, p. 72).
REVENUE SYNERGIES
COST SYNERGIES
 g 
NOPLAT1 − 
 ROIC 
Value =
WACC − g
FINANCIAL SYNERGIES INVESTED CAPITAL SYNERGIES
Fig. 5.7 Valuation and financial synergy patterns
Synergy paerns and modelling: Operang versus financial synergies
Synergies:
VA+T > VA + VT
Operaonal Synergies Financial Synergies*
Revenue Synergies Cost Synergies

Tax Beta
savings Diversificaon
Economies (losses
of Scale carried Unused versus
RONIC RONIC & g conglomerate
(procure- forward) debt capacity,
(aracve (Riding blue
oceans,
ment, new
excess cash discount?
innovaons) prod. tech)
cross sell) of acquirer or
non-opmized
Cost savings target capital
Higher Growht Investment in BD structure
(New BD, markets, capabilies) (SG&A)
or
Opmized Joint IC
(Less Working Capital, CapEx needs)
Fig. 5.8 Financial Synergy Pattern

in most instances harder to achieve than cost synergies. The latter are more dependent on
the inner constituencies of the JBD, especially in case of efficiency gains, whereas rev-
enue synergies are also dependent on external factors, like customers, and are therefore
harder to predict. Typically, it also takes longer to capture revenue synergies in compari-
son with cost synergies (Chartier et al. 2018, p. 3).
Additionally, higher revenues are only value increasing if they are converted into
higher profitability and, in the end, increase FCFs. This can be seen in Fig. 5.6, as
growth in invested capital is only value contributing, if the spread is positive, meaning
the Return on Invested Capital is higher than the cost of capital. Multiple levers for rev-
enue synergies exist. It is important to understand the sources of revenue synergies to
be able to assess their value impact. Revue synergies could be classified along three
dimensions, where to sell, what to sell and how to sell (Chartier et al. 2018, p. 4):
– Where to sell: This lever of revenue growth synergies involves cross selling poten-
tials between the acquirer and the target, better regional market or customer seg-
ment access, channel expansion options, for example by web-based distribution, or
new customer wins. A typical use case might be the consumer goods industry, where
the acquisition of a local competitor might enable the acquirer also to introduce the
own brands via the target’s distribution and communication channels. Another case
might be the acquisition of a cloud company by a digital platform company, where
cloud services or software as a service could be sold by the online platform company
through their own online channels.
– What to sell: Product innovations, new service offerings, or the bundling of both in
the sense of a new, full-coverage customer experience could offer a second growth
lever. This might include an optimized brand portfolio or rebranding which could
lever the exploitation of specific customer segments. Especially attractive new bun-
dles of customer solutions and an optimization of the brand positioning offer not
just revenue growth potentials, but most likely are as well strong value levers. Also,
a higher innovation rate post-transaction, driven by joint R&D efforts or a reduced
development time for innovations, might boost revenue growth and ROIC of the com-
bined company. Besides, a reduction and refocusing on high volume products and ser-
vices could serve as an attractive growth lever.
– How to sell: This covers best-practice transfers concerning the brand, marketing and
sales capabilities. The transfer of best-practices in brand-management between the
acquirer and the target could leverage top-line revenue growth and are often used,
for example, within luxury goods industry acquisitions: Here the likes as LVMH or
L’Oréal acquire typically underutilized brands and scale them with their world-class
marketing and branding expertise. Another growth lever, which is part of “how to
sell” and which as well increases the ROIC post-transaction, might be a joint and con-
sistent pricing strategy, especially in case of intra-industry acquisitions where indus-
tries get more horizontally consolidated. The price increase would boost revenues as
well as ROIC.
The revenue synergies are also in most instances revolving synergies, meaning that they
increase continuously future FCFs. But, the realization of revenue synergies within the
Integration Management is in most instances more challenging and less certain than
cost synergies, because they always include the customer side. The latter have to be
convinced to do (more) business with the joint company post-transaction. Nevertheless,
in the last years, most likely driven by the need for new business models, shareholder
response with respect to sales-driven synergies became more positive (Rehm and West
2016, p. 11).
Cost Synergies
Cost synergies increase RoIC. Economies of scale, as cost advantages due to scale
effects of the joint operations post-closing, are one of the core reasons for transactions.
Economies of scale reduce the costs per product (unit) and therefore the percentage cost
of goods sold (CoGS), which increases RoIC and FCF of the joint activities (Gaughan
2013, pp. 62–72). The same holds through in case of learning curve effects, which are
also size driven synergies and reduce cost per unit. Learning curves effects are found
especially in manufactured goods industries, but are as well applicable in technology
markets, like the chip industry.
Cost synergies are especially relevant in horizontal mergers and acquisitions, as in trans-
actions within a given industry volumes could be easily bundled. Besides economies of scale,
economies of scope might exist. This is, for example, the case in automotive OEM transac-
tions where joint platforms produce different brands or series in one factory and the bundling
of purchasing volumes offers significant synergy potentials across all brands or series.
Other possibilities of cost synergies are the transition of different capabilities and
functional strengths between the acquirer and the target. Functional or core competency
driven cost-savings might exist in technology intensive industries or the pharma and
chemical sector by fostering joint R&D departments and programs. Additionally, nearly
any industry offers potentials for savings in headquarters costs, like sales, general and
administration (SG&A).
Invested Capital (Balance Sheet) Synergies

Invested Capital advantages are the third lever of potential operating synergies. The most
crucial value potentials, at least in case of manufacturing industries, might offer an opti-
mization of the capital expenditure (CAPEX) program or a benchmark driven reduction
of the joint working capital.
A reduced level of Invested Capital due to a CAPEX optimization could be
achieved, for example, by a joint utilization of factories or R&D facilities. A newer,
interesting case in the high-tech industry is the joint usage of server farms for cloud and
other online businesses.
The second lever of Invested Capital synergies offers the optimization of the work-
ing capital, for example by a reduction of the inventory level. The latter are typically
realized with a short timeframe post-closing by a best practice transfer between the
acquirer and the seller.
Financial Synergies
Financial synergies (Gaughan 2013, pp. 82–84), are different than revenue, cost and
Invested Capital synergies, as they are non-operational. Invested capital and financing
synergies are nevertheless partially intertwined, as financing advantages might be real-
ized by the reduction of the necessary Invested Capital. Especially in cases, where the
financing capacity on equity and debt markets might be limited, a reduced Invested
Capital might offer headroom for deleveraging and new investments.
Financial synergies might reduce also the Weighted Average Cost of Capital (WACC).
The combination of two companies might increase the debt capacity and might lead to a
higher debt ratio and lower WACC. But this might only hold if second order effects like
higher costs of distress do not compensate for the primary advantage.
Another financial synergy could be tax advantages. Losses carry forward might be
exploited by the new joint company, but not by the target on a standalone-bases. Tax sav-
ings are a double-edged sword, as they reduce on the one side the tax shield, meaning the
direct impact on the cost of capital of a reduced tax level, but, on the other side, increase
the Net Operating Profit less Adjusted Tax (NOPLAT) as the key input for the FCFs.
Nevertheless, the net value effect is positive.
Additionally, in a wider sense, financial synergies might be realized if the excess cash
of the buyer might be used to finance highly profitable projects of the target company,
which the latter could not fund by itself. This is often an argument in case of the acqui-
sition of a start-up by an incumbent. A further portfolio argument for financial syner-
gies might be triggered in cases where the buyer and the target have counter-cyclical
cash-flow patterns, which would result in a reduced joint risk and therefore cost of capi-
tal (Damodaran 2006, p. 541).
Nevertheless, more or less all financial synergies are based on the assumption
of imperfect capital markets and should, therefore, be handled with care.
Dis-synergies
Last not least, dis-synergies have to be addressed as well. They might rest on cost
increases driven by a higher complexity of the JBD or integration costs. Their net present
value has to be deducted from the sum of net present values of operating and financial
synergies.
5.2.2 Demystifying Synergies—II: Joint Business Design

Diagnostics of Synergy Patterns
An alternative approach for the identification and decomposition of potential synergies

is the assessment of the underlying Joint Business Design. As Business Designs of dif-
ferent industries and even of companies within a specific industry or peer-group might
substantially deviate—this uniqueness is exactly on what competitive advantages rests—,
the derived synergies within this approach are significantly target and acquirer specific.
To apply this approach, the JBD Blue Print has to be described prior to the synergy
assessment, as proposed by the E2E M&A Process Design with it’s Frontloading
Approach.
A showcase might be a European multi-brand consumer goods company, which
acquires a competitor in the North American market. In such a case there might exist
multiple synergies pools within the intended JBD post-closing, like the streamlining of
the joint global manufacturing network (CA), the bundling of purchasing synergies (CE)
or cross-selling potentials between markets (CM) and channels (CH) (Fig. 5.9).
To explain the Approach of Synergy Diagnostics with the 10C JBD concept, in the
following a couple of typical synergy pools of Joint Business Designs will be discussed:
CC Synergies
R&D synergies might be based on the transfer of technology standards or best-practices
between the target and the acquirer. This transition might lead, on the one side, to new
innovations, strengthening the revenue side, or to significant cost advantages, especially
in case of high-tech companies, web-based business models or pharma businesses, due
to overlapping R&D programs. By integrating and reorganizing the R&D portfolio and
introducing more rigorous R&D portfolio review processes, the efficiency might be sig-
nificantly increased. Another driver might be economies of scale (De Man and Duyster
2005; Cassiman et al. 2005).
The acquisition of intellectual property rights or patents is nowadays in multiple
industries, like media, pharma or technology, one of the key reasons why for M&A.
Synergy Pools Synergy pools

CA • Streamlining global manufacturing CV • String-of-pearl strategy
• Best of both process automazaon • Service supplements or
• Joint R&D Network complementary products
• Joint digital plaorm • System soluons
Acquirer‘s SBD • Working Capital Opmizaon • White spot detecon
Buyer‘s
CS SBD
Synergy pools
CR
CA CR • Personalized approaches
Joint Business Design
CV CE • Web presence
CP CC CH CM CS
CF Synergy Pools CS Synergy Pools
• Economies of scale
CM
CO CA CR • Customer cross-
& bundling in purchasing CV selling approach
CS
• Single and / or CE CC CH CM • Complementary
CA CR LCC-sourcing regional markets
CF
CV • Simplificaon
CO
CP CC CH CM
CF CH Synergy pools
CC • Distribuon channel cross-sells
CO or streamlining
Target‘s SBD Synergy pools CO • Markeng mix excellence spill-
• R&D know-how transfer overs
• Joint R&D capability plaorm
Synergy pools
• Access to IP rights, patents • Flat hierarchies, reduced management layers
• Technology or process standards • Reducon in HQ costs
• Best-pracce methods • Talent development and retenon
Fig. 5.9 JBD Synergy Patterns

In those cases, the acquisition of start-up companies and new Business Designs might
allow incumbents to renew and leverage their R&D platform.
Further potentials of capability synergies are best-practice process standards in case
where one company might have, a more mature or experienced operational practice and
team. For example, joint purchasing practices and standards might uplift the merged pur-
chasing team capabilities and quality post-transaction.
Besides, best practice approaches, especially manufacturing methods, like Kanban,
Total Quality Management or Six Sigma concepts, might offer additional synergy poten-
tials. They intend not only to reduce costs but also to optimize pull-through times by
simplifying manufacturing, sales or distribution processes.
CE Synergies
Purchasing synergies play a center role for most M&As, especially in consolidation
plays, where two sizeable companies within the same industry merge. There exist multi-
ple approaches to achieve purchasing synergies:
One lever of purchasing synergies are supplier price gaps between the acquirer and
the target for a specific product or service prior to the transaction and where both com-
panies use the same or a similar supply base. These synergies could be easily diagnosed
during the Due Diligence by comparing purchasing conditions at specific suppliers and
by applying a volume prioritizing ABC-assessment. Also, these kinds of synergies might
be easily realized post-closing, by approaching those suppliers where significant price
gaps exist to agree on lowest cost terms.
A further lever are economies of scale in purchasing. These go beyond the simple
comparison of purchasing structures and might be realized by the bundling of purchasing
volumes of the acquirer and the target company to achieve lower unit costs. The impact
of these purchasing synergies is dependent on the transaction-driven increase in the pur-
chasing volume and the price-elasticity of demand on the supplier’s side. An example
might be the media industry, where M&As increase the scale and improve the bargaining
power with content providers.
The standardization of purchased products and services offer another CE synergy
potential. Here the focus is more on the technical standards in the sense of what the com-
pany buys and not at which price. Additionally, limiting the number of offered products
and to concentrate marketing and sales on fewer, winning products and services could
not only lever revenues but as well simplify purchasing processes and offer further scale
advantages. This might be especially relevant for industries where the acquirer and target
buy technically advanced sub-systems or services.
CA Synergies
CA synergies are deeply ingrained in the JBD. For manufacturing companies, the
streamlining of the global manufacturing footprint might offer substantial cost and
investment savings. Besides the streamlining of the joint factory network, higher utili-
zation rates of plants and machines might offer additional synergy potentials. For R&D
intensive industries, like pharma or technology, a joint R&D network may have the same
effect.
On another page are working capital synergies. Those might be achieved by:
– Optimizing accounts receivables by invoicing strategies, best-practice or factoring

approaches
– Reducing inventories by just-in-time processes or a streamlined warehouse network
– Accounts payable optimization by supplier programs
Working capital optimizations are also from a financial point of view attractive as their
reduction increase one-by-one FCF.
CO Synergies
Organizational design synergies might rest on a simplification of management processes
as well as on a flattening of hierarchies and management layers within the new JBD,
increasing the responsibility and leadership bandwidth of each manager. Another effi-
ciency driver, intended by most M&As, is the reduction in headquarter costs, as only one
department for any central function might be necessary.
High-quality talent development and retention programs, as well as HR best prac-
tices, might safeguard core talent retention and offer efficient management development
approaches.
CV Synergies
CV synergies target more attractive or innovative customer solutions and use cases by
the combination of the unique set of capabilities on the acquirer’s and the target’s side.
A dedicated strategy in this sense are string-of-pearl M&A strategies, where an acquirer
complements his footprint along an industry value chain by up- and downstream M&As.
In a broader sense also acquisitions which focus on supplementary services or com-
plementary products might pay in on the same argument. The latter are paramount in
today’s ecosystems with ever-shifting boundaries. Especially in B2B markets, the devel-
opment of higher-level system solutions by the acquisition of the target company might
be intended by such a strategy.
Even beyond those approaches are acquisitions which try to detect and develop totally
new markets or customer use cases, meaning untested and -discovered white spots. All in
all, CV synergy-based M&As are exclusively driven by revenue synergies.
CR Synergies
CR synergies have to be assessed very sensitive, as they are exposed to customer proxim-
ity and intimacy. Easily these close ties could be damaged and customers lost by a naïve
synergy assessment. At least a long-term horizon might here be mandatory to achieve
any customer relationship synergies.
CH Synergies
Channel synergies might rest on distribution strategies, where cross-selling potentials due
to the acquirer’s and target’s different channel access and footprint might exist. A more
technology-driven case is the use of the web-access of a target company by an incumbent
with less digital market access and knowledge. Another channel lever are logistic network
optimizations, which is foremost an efficiency and cost-driven synergy case.
A last channel synergy might be driven by marketing excellence spillovers, for exam-
ple in brand portfolio management, strategic pricing or communication strategies. This
practice is successfully applied within the luxury goods industry, as explained prior.
CM Synergies
Cross-selling might boost revenue growth. Examples are a joint and coordinated go-to-mar-
ket mechanisms, a stringent customer share of wallet extension strategy or the cross-selling
in regional markets in case of complementary market footprints pre-transaction.
Within a holistic M&A approach, synergies should be analyzed from a business and
financial view to create a detailed synergy understanding and integration priorities: To
involve operational managers for the synergy estimation, besides the M&A team, is rec-
ommended, as they might improve the quality of the synergy verification within the Due
Diligence. It might as well increase the acceptance of synergy targets and the support
within the integration.
5.2.3 Valuation and Prioritization of Synergies
Due to the significant impact of synergies on the TVA their value, but as well their tim-
ing must be planned in detail. Based on a transparent and robust assessment of all poten-
tial synergy pools of a transaction, the priorities for the Synergy Management within the
Integration Management could be decided upon.
For the prioritization of synergies their pattern, timing, and FCF impacts are determined:
Pattern of Synergies
The pattern of the synergies could be defined by the above classification of financial and
JBD synergies. This analysis will also stress how bullet-prove or vague the intended syn-
ergies are. For example, cost-driven purchasing synergies might have a higher likelihood
to be realized by bundling strategies and supplier programs as more soft revenue syner-
gies based on cross-selling strategies.
Nevertheless, any synergy must either reduce costs, increase the FCFs by higher rev-
enues, reduce the need for Invested Capital or the cost of capital to have a value impact.
Timing
As the value of the synergies was defined by their net present value effect, the tim-
ing of the synergies is important for their value contribution (Harding and Rovit 2004,
pp. 81–83). The timeframe for the realization of synergies depends on multiple factors:
The pattern of the synergies defines partially the time need for their realization. For
example, cost or working capital synergies are typically more short-term captured than
factory restructuring based or revenue synergies: The efficiency programs and cost-cutting
initiatives on headquarter level or purchasing programs might be realized already in the first
100 days along the IM, whereas revenue synergies, the restructuring of the global manu-
facturing footprints or the integration of R&D platforms might need a significantly longer
timeframe of up to two years. Additionally, the complexity of the transaction structure, the
size of the transaction, as well as the complexity of the involved companies and their SBDs
might have a decisive impact on the time length of synergy implementation.
The valuation impact of timing is straight forward: As synergies are calculated on a net
present value basis, synergies which might be realized later have a less significant value
impact (Gaughan 2013, p. 81). Another question is if the synergies are recurring or one-
time effects. Recurring synergies have a significantly stronger value impact. On the one
side, one-time cost reductions have only an FCF impact within the given planning period
in which they are realized and increase the value of the joint company by the present value
effect of this one-time FCF improvement. A permanent lower cost level, on the other side,
has a much higher net present value impact, as it consistently increases future FCFs.
Value and Free Cash Flow Impact of Synergies

After this classification of the synergies, their value contribution could be forecasted and
stress-tested within the Due Diligence. As the value contribution of the synergies is cal-
culated on a net present value basis, the total value surplus is simply the sum of the net
present values of the individual synergy pools. Besides, the synergies could be classified
according to their time needs in short, mid, and long-term synergies.
Synergy Matrix
Given the timing and value impact of the synergies the Synergy Matrix, as described in
Fig. 5.10, defines three different synergy fields, high-priority synergies, long-term syner-
gies, and low hanging fruit synergies:
– High priority synergies: This kind of synergies could be realized short-term and
have a significant value impact. Typically purchasing synergies account for high pri-
ority synergies. High priority synergies should be a focus point within the 100 days
IM of the Integration Management.
– Long-term synergies: they have as well significant value impact, but need a mid to
long-term time horizon for their implementation and are a core part of the midterm IM.
– Low hanging fruit synergies: These synergies might have just a minor value impact,
but might be realized within a short time horizon and with minimum integration
efforts, like cost-cutting initiatives on headquarter level.
After this prioritization of the synergies the integration of the Synergy Management into
the broader E2E M&A Process Design framework is discussed:
Short Term High Priority

Low Hanging Fruits
Synergies Synergies
CA:
Time need for Synergy Capture
CA: Purchasing
SG&A Synergies
Synergies
Midterm focus CM:

Cross-Sell
Synergies
CC:
R&D CA:
Manu-
Long Term facturing Long-Term
Synergies Synergies
Low High
Value Impact
Fig. 5.10 Synergy matrix—Prioritization of synergies
5.3 End-to-End Synergy Management
As an E2E support process by itself, the Synergy Management runs parallel to and is inte-
grated with the primary M&A processes, the Embedded M&A strategy, the Transaction
Management and the Integration Management. This is described by Fig. 5.11.
Within each step of the primary processes of the M&A Management the Synergy
Management has to fulfil specific tasks:
– Core tasks of the Synergy Management within the Embedded M&A Strategy phase
are the mapping of potential synergy pools (Synergy Diagnostics) and the drafting of
a Blue Print of the Synergy Scaling Approach
– The Transaction Management is aligned with the proof-of-concept of the
top-down synergy estimates and the Synergy Scaling Blue Print
– The Integration Management goes hand-in-hand with the Synergy Capture, mean-
ing synergy implementation, tracking and controlling
The overview of the tasks of the Synergy Management is described in Fig. 5.12 and will
be detailed in the following subchapters:
5.3 End-to-End Synergy Management 265

• Pipelining: Long- & Short-List − JBD Freeze
• Due Diligence
• Fit Diamond & Assessment − JCD Freeze
• Verificaon of Integraon Approach
Top-Down Synergy Mapping and Synergy Proof-of-Concept and Synergy Implementaon,
Synergy Scaling Approach Synergy-Valuaon Blending Tracking and Controlling

M&A playbook
Fig. 5.11 Synergy Management as an E2E support process for the primary M&A modules
Synergy Diagnoscs & Synergy Proof-of-Concept & Synergy Capture: Imple-

Synergy Scaling Approach Synergy-Valuaon Blending mentaon & Tracking
Synergy Diagnoscs: Synergy Map in Proof-of–concept of top-down synergy Final validaon and sign-off of
line with strategic fit - Porolio of es mates and Synergy Scaling Approach Synergy Master Program and Synergy
qualitave synergy levers Scorecards
Detailed and reframed priories by Synergy o Goals and value targets
First rough financial top-down Matrix (porolio): Timing, value, likelihood o Timing & milestones
esmate (quan ta ve) of synergy
values (with benchmark) o Responsibili es (project owner)
Design of Synergy Master Program between
o Resources needed
signing & closing with detailed Synergy
Combining synergy concept with
Scorecards:
Standalone Value Synergy implementaon
o Using informa on from DD & Synergy-Matrix
Blue Print of the Synergy Scaling o Synergy business case with valua on impact
Synergy tracking
Approach o Implementa on plan and milestones ( ming)
o By DoI
o Defini on of teams, tasks and responsibili es
First dra of synergy cases and o Project repor ng and loops
o Necessary investments, resources &
framing of requirements
capabili es
Synergy controlling and connuous
Es mate integraon costs (dis- o Dra of milestone and DOI repor ng
synergy update
synergies)
Update combined value with latest Synergy learning loop: Develop
synergy esmates synergy database
Fig. 5.12 Synergy Management subprocesses
5.3.1 Synergy Management & Embedded M&A Strategy: Synergy

Diagnostics & Scaling Approach
As the synergies determine, together with the paid premium, the TVA, the potential tar-
get- and acquirer-specific pools of synergies should be defined as early as possible.
Therefore, a holistic Synergy Management starts already within the Embedded M&A
strategy phase with the Synergy Diagnostics and Mapping of the transaction spe-
cific mission-critical synergies. The discussion of potential synergies is well placed
within the initial definition of the Transaction Rationale of the potential acquisition or
merger. This also allows the close coordination between the definition of the competitive
advantages of the transaction and its financial impact, in the sense of synergies. This inter-
play will be described for three cases of different transaction rational:
Lever Market Access

Within cross-border M&As, the intent of the M&A Strategy is typically a better access
to the target’s core markets. In such cases, cross-selling opportunities and therefore reve-
nue synergies might be the highest prioritized value levers.
Product or Brand Portfolio Complementarities and Extensions

The same might hold true for the majority of acquisitions in the luxury goods or pharma
industry, where the buyer might intend to leverage the target’s brands or intellectual
property throughout their own organization. Revenue synergies are again mission-critical.
Industry Consolidation Plays

In contrast, if the transaction rational is an industry consolidation play, which offers stra-
tegic levers by the bundling of purchasing volumes and the optimization of the global
manufacturing footprint, cost synergies might be paramount to capitalize the value of the
transaction.
Within the definition of the Embedded M&A Strategy, therefore, a Synergy Map of
the most likely and important transaction- and JBD-specific synergy levers should be
achieved. This should be supplemented by a description of the underlying assumptions
of Synergy Capture.
Based on this qualitative assessment of the synergy pools a first rough top-down
estimation could be initiated and benchmarked with other public transactions of the
peer-group.
The Top-down Calculation of Synergies and Transaction Value Add TVA

1. Calculation of Standalone Value of acquirer and target company: The valuation of the stan-
dalone value is based on the calculation of the Enterprise DCFs of the two companies by using
pre-transaction FCFs and company specific WACCs. By deducting debt and debt-like items the
two standalone Equity Values are determined and added. This leads to the combined value of
the two companies without any synergies (pre-transaction).
2. Calculation of Combined Value post transaction: The combined value is based on the
Enterprise DCF with synergies evaluating the joint FCFs and cost of capital post-closing
and based on the Joint Business Design. A rough plausibility check of the combined value
is the assessment if the ROIC development of the new joint company is roughly in line with
industry peers.
3. Calculation of Synergy Value: Synergies from a top-down perspective are simply the
Combined Value (with synergies) less the two Standalone Values (without synergies).
4. The Transaction Value Add (TVA) is then simply the Synergy Value minus the premium
paid to the target’s shareholders.
The bottom-up calculation of synergies

A bottom-up calculation of the separate synergies might be a suitable proof of the top-down calcu-
lation of the synergies. Therefore, the multitude of synergy pools must be broken down by a frame-
work like the 10C JBD and be evaluated by calculating the net present value for each of them.
The sum of those net present values of synergies should be in line with the top down estimate to
provide a robust valuation proof.
Additionally, the Synergy Scaling Approach, meaning how the most crucial synergies
might be levered post-transaction, should be defined within the M&A Strategy. This
offers the possibility to run also a proof-of-concept of this Synergy Scaling Blue Print
within the Due Diligence. A first framing of the most important synergies in Synergy
Scorecards might supplement this step finally.
5.3.2 Synergy & Transaction Management: Proof-of-Concept

of Synergy Value and Scaling
The most important interactions between the Synergy Management and Transaction
Management are within the Due Diligence and the valuation phase.
One of the most important tasks of the Due Diligence is the verification of potential
synergies between the two companies. Before the final deal approval at the end of the
Transaction Management phase, the board has to run a plausibility check of the robust-
ness of the synergy estimates, meaning if they are real and deliverable (Davis 2012,
p. 13).
Within the Due Diligence, the Blue Print of the Synergies Map, as defined very
broadly in the M&A Strategy phase, could be assessed with respect if, how far and along
which realistic time-horizon they could be realized most likely within the integration.
The synergies will be at this stage broken down and evaluated not only top-down but also
bottom-up, to achieve a deep understanding of how likely they could be achieved. Given
this much higher granularity of synergy estimates, likely synergies could be assessed and
benchmarked.
The important relationship between synergies and valuation was already discussed in
Sect. 5.1. Holistic valuation models integrate the financial impact of the synergies, their
net present value estimates, from the beginning. This allows as well a separate valuation
of the transaction with and without synergies and therefore the definition of the maxi-
mum premium.
Especially during times of bullish M&A markets, the management team and the
supervisory board have to assure, before the final deal signing, that the promised syner-
gies are bullet-proof, meaning realistic and achievable. This is in so far challenging, as
usually the acquirer’s management team lacks the opportunity to discuss synergy poten-
tials and ways to realize them in detail with the target’s management team prior to clos-
ing (Kengelbach et al. 2018, p. 20). A top-line approach for a plausibility check might
provide additional insights besides the Due Diligence efforts. This could be achieved
by the comparison of the forecasted ROIC and EBITDA- or EBIT-margins under the
assumption that forecasted synergies will be realized with the margins of best-in-class
competitors within the peer-group. If the synergies lead to margins which overshoot
those of the benchmarks significantly, they might be too stretched in the given industry
and ecosystem environment.
Synergy Program and Synergy Scorecards

The verified synergies within the Due Diligence are an ideal starting point to draft the
Synergy Program and the Synergy Scorecards, which describe how those potentials
could be realized within the Integration Management by specific synergy workstreams
and projects. Besides they should assure that robust processes and mechanisms are in
place so that the intended synergy projects are also realized. Clear synergy objectives
and milestones are crucial parts of the workstreams and processes to ensure integration
success on time.
The draft of the Synergy Program and Scorecards already in the Transaction
Management is mandatory to finally verify the value potential of the synergies prior
to signing and to detail the Synergy Scaling Approach. The Synergy Program has also
to be coordinated and interwoven with the IM to assure a seamless transition from the
Transaction Management to the integration.
A brief synergy proof-of-concept example is shown in Fig. 5.12. Purchasing synergies
by low-cost country sources and bundling effects might offer substantial value improve-
ments. A sensitive analysis might use two scenarios, a realistic and an aggressive one, for
the assessment of those synergies.
Purchasing synergies might be also interesting from a valuation point of view, as they
will have most likely a long-term, recurring effect, by reducing the costs of goods sold of
the joint company within all follow-on periods. The net present value of purchasing syn-
ergies mirrors the sum of the cost and therefore FCF advantages of all materials across
the planning horizon. By this breakdown, a detailed understanding of the value improve-
ment potentials of the purchasing synergy levers and in total across all the synergy fields
will be achieved (Fig. 5.13).
To ensure a fast and focused realization and scaling of the synergies within the inte-
gration the acquirer could use within the Due Diligence and between signing and closing
of the deal a so-called clean team which might collect further data from the target to draft
the Synergy Program. The clean team is a third party, independent team, which serves as a
platform between the two company’s potential integration teams, as the latter might be lim-
ited to co-operate before closing due to legal restrictions. The clean team’s task is to detail
the IM and Synergy Program, to ensure an accelerated takeoff after Day One. Therefore,
the clean team will collect, assess and compare before closing confidential data to quantify
and time in all detail the synergy levers. Additionally, the synergy team will work on how
the synergies could be achieved and might develop a first draft of the Synergy Scorecards.
Decomposion total synergies Decomposion purchasing synergies

Synergy- Realisc Aggressive
lever
Raw Cost advantage p.a. Cost advantage p.a.
Cost NPV Cost- NPV material - realisc - aggressive
advantage effect advantage effect
p.a. p.a. A
R&D B
Purchasing C
Manufac- D
turing
Sales ...
Cross-Selling Total
Total
Fig. 5.13 Detailed purchasing synergy assessment by ABC and scenario analysis
5.3.3 Synergy & Integration Management: Synergy Capture—

Implementation & Tracking
For their value impact, the realization of the synergies within the Integration
Management might be one of the most important processes within a whole M&A pro-
ject. Vice versa, multiple studies underline, that a significant number of v alue-destroying
acquisitions underdelivered especially concerning a focused implementation of the
intended synergies.
Therefore, a step-by-step implementation of the synergies within the Integration
Management is of essence for the Synergy Management. This implementation of the
synergies must be matched with the overall IM. A skeleton of important subprocesses of
the Synergy Management within the Integration Management is shown in Fig. 5.14:
This synergy implementation builds upon the synergy verification of the Due Diligence
and comprises the Synergy Masterplan and Synergy Scaling Approach implementation,
the definition of the synergy team and to be applied tools, as well as a dedicated synergy
tracking, controlling and management including a dynamic learning approach:
Freeze of Synergy Masterplan, Scorecards and Synergy Scaling Approach

Ahead of the closing, the dedicated IM and Synergy Masterplan have to be finalized and at
Day One officially released and rolled out. Such a Synergy Masterplan involves tasks like
– The Synergy Scorecards: A description of the high-priority synergies for the first
100-days of the integration and the long-term mission-critical synergies
– the definition of synergy reporting processes, standards and timelines
– the selection of the IPH and Synergy Program leadership team
– the definition of the reporting standards and communication lines between the top
management and the IPH with respect to synergy capture success
Blue Print Integraon Communicaon

Integraon Design of Integraon
Approach incl. Masterplan
JBD & JCD Execuon of Integraon Masterplan
MANAGEMENT
IINTEGRATION
Stress-Tesng Implementaon JBD

Integraon … Day-One
Approach and Readiness
Proof-of-Concept Culture Transion
JBD & JCD
Tracking, Controlling and Management of

Integraon Success
MANAGEMENT
SYNERGIE
Synergy & Scaling Synergy Masterplan Synergie Capture

proof-of-concept and Scaling Model
Synergy Pool & Scaling Synergie Team Synergie Tracking, Controlling and
Model Blue Print & Tools Management
Pre -Closing Closing 100 days integraon. 1 year
Fig. 5.14 Subprocesses of the Synergy and Integration Management
Synergy Team and Tools

The IPH has to manage and coordinate the synergy implementation. Additionally, it has
to enable the project team by the design of appropriate synergy and project manage-
ment tools as well as team reporting standards, like the discussed Synergy Scorecards.
Besides, clear responsibilities, tasks and timelines with dedicated milestones for synergy
capture have to be defined. Based on the list of prioritized synergies, the appropriate
team members and functions have to be selected and involved.
Synergy Implementation
The overall target of the implementation process is a rigorous and in-time execution of
the Synergy Masterplan, which bundles the different Synergy Scorecards, workstreams
and initiatives. The implementation of each of those dedicated synergy projects, as
described in detail in the Synergy Scorecards, is the task of the synergy teams. The IPH
plays the role of the orchestrator of the overall synergy implementation and capture pro-
cess. This split of responsibilities is essential for a successful synergy implementation.
The reference point for the implementation process are the targets as frozen in the prior
defined Synergy Scorecards. This enables transparency along the synergy implementa-
tion process and an early detection of deviations.
NPV Upside Downside Update on

of Synergies Synergy Synergies, Synergy Capture
Forecast Addional
Integraon Costs
According Due Diligence Update during Synergy Implementaon

Proof-of-Concept
Fig. 5.15 Synergy controlling
Synergy Tracking, Controlling and Management

A permanent tracking of the synergies is mandatory for the transparency during the
implementation process.4 This tracking should be triggered down on the level of the
different synergy modules and even individual Synergy Scorecards and implementation
projects.
Such a high granularity of the assessment concerning the implementation pro-
gress of the individual synergy projects is suited for the application of the Degree of
Implementation (DoI) methodology. The latter will be described in detail as one of the
synergy tools within the next subchapter. The DoI method monitors the statues of the
synergy implementation by applying milestones like the initial project idea, the project
description with Synergy Scorecards, the synergy project implementation and the profit
and FCF impact realization by the specific synergy project.
Based on this detailed understanding of the status of implementation of the individ-
ual synergy projects, a permanent real-time monitoring and plan-versus-status reporting
could be initiated. By consolidating bottom-up the individual synergy implementation
projects, a full transparency, backed by the real-time information on individual project
level, is achieved on the full synergy capture of the transaction. This is described in
Fig. 5.15:
4Davis (2012, p. 104) stresses the monitoring need within the overall integration process.
Last not least, the synergy implementation should initiate counter-initiatives in case of
negative deviations from the initial synergy estimates.
Dynamic Learning and Feedback Loops

The codification of best-practices and lessons learned within transactions might sub-
stantially improve the Synergy Management. After the closing of the synergy imple-
mentation projects, a post-mortem report describes if and how the synergies have been
captured, what have been the lessons learned during the synergy implementation phase,
and how the synergy tools and processes could be improved for the next transaction.
Additionally, a debriefing session with the involved M&A team and operational manag-
ers allows to summarize lessons learned. The post-mortem reports and debriefings could
be embedded in an information and learning platform for future M&A deal teams. The
learning platform could also serve as a reliable and sound database for grounding realis-
tic synergy estimates. With this holistic approach, a permanent learning loop is initiated,
which in the long term leads to a step-by-step improvement of M&A capabilities and is
of utmost importance, especially for serial acquirers.
5.4 Synergy Management Toolbox and Synergy Capture

Assessment
5.4.1 Synergy Toolbox
Due to the importance of the synergies for the value creation of the transaction, the
design of synergy tools and their permanent improvement is essential for a professional
M&A management. In the following, a couple of important synergy tools will be dis-
cussed, like value driver assessments, JBD analysis, benchmarks, the synergy prioritiza-
tion matrix, as well as individual Synergy Scorecards and the Degree of Implementation
method.
Value Driver Diagnostics Starting point of the Embedded M&A Strategy is the identi-
fication of potential synergy pools, as discussed. Therefore, tools which will focus on
the diagnostics of the transaction- and JBD-specific synergy levers are in need. A corpo-
rate finance-driven approach is the value driver assessment (Koller et al. 2020, pp. 552–
555), as described in Fig. 5.16:
The original idea rests on the well-known DuPont formula, which breaks down the
key operating performance measure of Return on Invested Capital into the drivers of
operating performance, measured by the profit margin (profit-to-revenue, whereby profit
is in most instances interpreted as EBIT or NOPAT) and capital efficiency, measured by
the revenue-to-capital ratio. This general idea could be used to identify the most crucial
financial value drivers of the target company and the acquirer with a high granularity.
5.4 Synergy Management Toolbox and Synergy Capture Assessment 273
Value Driver A
Price
Revenues Value Driver B
NOPLAT
Units
Material
COGS & SG&A Value Driver C
Labour
Value
RoIC
SG&A
Driver‘s ROIC
CapEx
Impact*
Invested
Capital
Accounts
Cost of
Receivables &
capital
WACC Inventories
Accounts
Payables *Impact of 1% = Value Driver
change in value
driver on ROIC
Fig. 5.16 Value driver tree
The outcome might be a value driver tree which mirrors, based on past and actual
performance figures, the key financial value drivers of the income statement and bal-
ance sheet, specifically for the transaction model and underlying JBD. Given this prior-
itization of the synergies, the top down estimate of the synergy volume could be broken
down with a focus on the most important value drivers.
Joint Business Design Diagnostics The JBD synergy driver diagnostics, as the value
driver-based modelling of potential synergies, ensures a strong focus on the specific
industry and even target company. The 10C JBD assessment breaks down the synergies
on the individual modules, as described in Sect. 5.2.2. Based on this decomposition of
the JBD and its specific synergy potentials, the strongest value contributing synergies
are then selected as high-priority levers. Additionally, these synergies estimates might be
benchmarked:
Benchmarking An additional possibility for the diagnostics, and even more for the ver-
ification, of potential synergies, is given by the benchmarking approach. Benchmarks
could be implemented by three specific approaches to compare the JBD’s value levers:
– A best practice comparison and assessment between the acquirer and the target com-
pany may serve as a starting point
– A comparison of the intended acquisition with former transactions of the acquirer
– A benchmarking of the intended acquisition with published transactions within the
industry-specific peer-group. Especially for listed companies, a lot of details might be
available for benchmarking purposes (Fig. 5.17).
Benchmarking Knowledge pool of former transacons Best pracce transfer:

with peer group target versus acquirer
Purchasing (volume & bundling, lowest price, LCC,…)

R&D (streamlining / avoid duplicaon, R&D porolio,…)
Manufacturing (opmize footprint, LCC shi, integraon target / acquirer, Working Capital opmizaon)
Selling (Cross selling, market overlap, efficient sales organizaon, strategic pricing,…)
Quanficaon and ming of synergies
Forecast of FCF and NPV of synergies
Fig. 5.17 Identification of synergy potentials by benchmarking
Synergy Matrix The Synergy Matrix, which compares and classifies the synergies concern-
ing their value impact and time-need was already applied in Sect. 5.1 (Herndon 2014, p. 58).
This approach offers a simple and transparent tool, on the one side for setting priori-
ties for synergy implementation, on the other side for addressing the different time and
implementation needs of the individual synergy pools. A further advantage in case of an
application already within the Embedded M&A-Strategy is, that it supports keeping the
focus within the Due Diligence and integration on the most crucial synergy levers. Last
not least, the Synergy Matrix allows the setting of time-specific implementation priorities.
Synergie Scorecards The Synergy Scorecard is a detailed description of a specific syn-

ergy project and fulfils multiple tasks. For the synergy integration team, the Synergy
Scorecards are the key tool and reference point for the implementation of the synergies,
as they are based on individual project level. Besides, they enable a real-time transpar-
ency of the Degree of Implementation of the different synergy implementation initia-
tives and early detect potential deviations from the synergy forecasts. Insofar, they are an
important tool for the M&A project management and reporting.
Content-wise, the Synergy Scorecard could be understood as a draft of how the syn-
ergies should be achieved. It summarizes the specific synergy field, the project approach
of how the synergies should be delivered, the project team and responsibilities, the tim-
ing needs and milestones, the necessary resources and investments to deliver on the
intended synergies, their value and profit impact and the actual status of their Degree of
Implementation.
Degree of Implementation (DoI) The Degree of Implementation (DoI), which is some-

times also called degree of hardness, is a further tool for the synergy realization. In
comparison with the Synergy Scorecard, the DoI methodology focuses more on the inte-
gration process than on the detailed description of the synergy project. The methodology
5.4 Synergy Management Toolbox and Synergy Capture Assessment 275
intends to know at any time the detailed statues and volume of synergy capture. The DoI
levels could be set up as follows:
– DoI 1: Synergy project has been identified and roughly valued top-down
– DoI 2: Synergy project has been set up and described in a Synergy Scorecard
– DoI 3: Synergy project has been started and is within the realization phase
– DoI 4: Synergy project is implemented and delivers on the intended FCFs
DoI 4 might even be split up into separate steps of closing the synergy project and the later
profit and FCF improvements. Figure 5.18 describes a synergy tracking process with DoI:
The synergy project teams have the responsibility for the implementation of the indi-
vidual synergy projects and therefore as well for the management and reporting of the
DoIs at each milestone. In case of a deviation from the intended timing or implementa-
tion success, countermeasures have to be initiated and the Synergy Scorecard updated.
The IPH integrates the individual synergy projects and provides a summarized view
on the synergy implementation statues for the top management. It will as well provide a
plan-versus-realized comparison, based on milestone results, and a summary of potential
countermeasures and initiatives.
The application of these synergy tools enables an efficient and E2E consistent
Synergy Management along the whole M&A process.
Degree of implementaon 4
Day One Milestone1 Milestone 2 Milestone 3 Milestone 4 Milestone 5
Fig. 5.18 Synergy tracking with DoI methodology

5.4.2 Evaluating Synergy Capture
If the net present value of realized synergies SYN in comparison to the paid premium
to the seller shareholders P decide on the Transaction Value Added TVA, the evaluation
of synergy capture is key for any transaction. This is explained by Fig. 5.19 along the
Integration Management time path:
For the evaluation, if a transaction was successful, the Transactional Value Add TVA,
as defined in Chap. 3, is applied:

∞
FCFtSYN
TVA = SYN − P = −P
t=1
(1 + WACC)t
The TVA formula shows the fundamental challenge of value creation on the acquirer’s
side: Whereas the seller’s shareholders are always advantaged by the paid premium, the
acquirer’s shareholders only profit if the net present value of synergies overshoot the pre-
mium paid.
But, additional risks lurk for acquirer’s shareholders. One is timing. Whereas seller
shareholders are paid at closing, synergies are realized after closing in the years to come
and are on risk of being not fully captured. Assuming an integration program might last
2 years, the net present value of synergies could be decomposed in the part realized
along with the integration in the first two years post-closing SYNI and the long-term syn-
ergy value SYNLT thereafter:

∞
FCFtSYN 2
FCFtSYN
∞
FCFtSYN
SYN = = + = SYNI +SYNLT
t=1
(1 + WACC)t t=1
(1 + WACC)t t=3 (1 + WACC)t
This decomposition shows that in most instances the bulk of synergy value is realized
even beyond the integration process SYNLT, making it even more challenging to judge if
Timing? - Premium paid today vs synergies Sustainability of synergisc advantage? Can

realized along integraon competors replicate benefits?
Purchase Price (P) ∞
F CF SYN
TVAR = P P ∑ (1+ WACC
t
)t
t=3
P (Premium Paid)
RTVAR =
E qVT
∞
F CFt SYN
TVA = SYN − P = ∑ −p
Standalone F CFt SYN
2
(1+ WACC )t
Value Target ∑ (1+ WACC )t
t=1
t=1
t0 (Closing) t3 t3+1
TVAR = Transaconal Value at Risk,

RTVAR = Relave Transaconal Value at Risk
DNSV = Discounted Net Synergy Value
Fig. 5.19 Measuring synergy implementation and Transaction Value Added TVA
5.5 Synergy Management of Digital Targets and Business Designs 277
an acquisition premium at closing is justified by the value contribution of future synergies.

The premium could, therefore, be also interpreted as Transactional Value at Risk TVAR.5
Alternative measures are therefore assessed as supplements. Empirical event studies
use the Cumulative Abnormal Return within an event window around the transaction
announcement to measure the stock price under- or over performance of acquirers.
An alternative path is to use additional financial indicators to measure transaction suc-
cess, such as:
– ROIC performance versus peer-group

– NOPLAT, EBITDA or FCF performance versus peer-group
– Revenue growth trajectory (CAGR) versus market
– Debt coverage (EBITDA/Net-Debt) development
Additionally, operational measures might be applied as supplements to the financial indi-

cators of M&A success:
– % of customer lost/gained
– Market share gain/losses
– Customer satisfaction changes
– Lost talents or key personal
– # of new job applicants
– # of patent filing development
– # or time delay of red flag integration modules
5.5 Synergy Management of Digital Targets and Business

Designs
Digital M&A has concerning the intended synergies a multitude of differences to tra-
ditional M&As. Within the latter cost, synergies play typically a center role. This tra-
ditional view of cost-driven TVAs is shifted within digital M&As to revenue (Chartier
et al. 2018) and capability focused transactions.
A sensitive Synergy Management for digital target has to address already within the
Embedded M&A Strategy phase three interrelated topics:
– First, the stand-alone attractiveness and value of digital targets, as well as the levers of
synergies within the JBD rest foremost on revenue synergies. Therefore, the diagnos-
tics of the pool of revenue synergy levers are mission-critical, whereas cost syner-
gies and Invested Capital synergies could, more or less, be neglected.
5Sirower and Sahni (2006, p. 87) described a similar idea under the term Shareholder Value at Risk.
– Second, the parenting advantage of the acquirer to scale the target’s Business
Design beyond the simple stand-alone development must be precisely defined: The
parenting advantage of the acquirer might be based on supplementary core capabil-
ities, providing management expertise for scaling the growth, brand management
excellence, a global research ecosystem or a global sales and marketing network.
The transaction and JBD specific parenting advantage have to be built in the Joint
Business Design and serve as a precondition for the Synergy Capture of digital target
acquisitions. A Blue Print of a tailored Revenue Synergy Scaling Approach should
be therefore embedded already in the M&A Strategy phase.
– Third, the impact of the target’s digital capabilities to re-innovate the acquirer’s
Business Design. This is just the mirrored perspective of point 2. Within this context, the
crucial questions are how the targets digital capabilities could be exploited to enter new
digitalized use-cases as an extension of the acquirer’s SBD or how to enter new adjacent
blue oceans of the acquirer’s business by leveraging the target’s core capabilities within
the acquirer’s framework. For the latter, a perfect example might be the pharma indus-
try where global champions like Novartis or Roche, by acquiring digital targets, combine
their newer core capabilities in DNA sequencing with big data or analytics know-how of
the targets to develop segment-of-one treatments, especially in oncology.
These three points together will address the full value additivity potential of a specific
digital transaction (Fig. 5.20).
As digital M&A financial value drivers are more or less exclusively centered
around revenue synergies, the proof-of-concept of revenue Synergy Capture and the
back-testing of the Revenue Synergy Scaling Approach within the Due Diligence are

rave advantage and capability needs − DCF scenarios and simulaons (Monte Carlo) • Implement necessary compliance
Fig. 5.20 E2E M&A Process Design for digital and business model innovations—Synergy Management
5.6 Summary of Synergy Management 279
core elements of the Transaction Management. Traditional Due Diligence topics, like
the past-performance analysis within the Financial Due Diligence, are, on the other side,
irrelevant, if the digital target is a start-up with no corporate history. The revenue syner-
gies have also to be interwoven with the valuation model.
Within the Integration Management, the Synergy Management will be focused on the
rapid scaling of the target’s capabilities within the JBD. This will be mirrored in the
Integration Masterplan. Typically, less intense Integration Approaches, like Alignment
or Collaboration might fit best for digital target integrations.
5.6 Summary of Synergy Management
The bedrock of the Transaction Value Added is synergy capture. A set of critical
cross-checks have therefore ultimate C-level relevance. Best-practice approaches of

Synergy Management will have detailed transaction and JBD tailored answers to the fol-
lowing set questions:
Questions
– Transaction Value Added: Is the net present value of synergies sufficient to justify
the intended deal premium?
– Are synergy pools diagnosed and bullet-proofed? Do they offer enough
granularity?
– Are synergy volumes verified by industry best-practices?
– Is synergy timing realistic? Are synergies one-time effects or recurring?
– Is the Synergy Scaling Approach back-tested and is the model applicable to capture
the mission-critical synergies which will decide on value add or destruction?
– Are the critical synergies described in Synergy Scorecards and embedded in the
broader Integration Masterplan prior to closing?
– Do the IPH and integration teams have the right set of capabilities for a
full-flagged scaling of the synergies?
– Is a systematic Synergy Management with milestones and Degree of Implementation
measurements in place?
– For multiple-acquirers: Are feedback loops and post-mortem reports institutional-
ized to improve consistently Synergy Management capabilities?
Nevertheless, at the beginning of this chapter “the warning signal was raised”, that most
transactions undershoot in Synergy Capture. Besides, a “dark side” of synergies exists:
Synergies might be used as pure justification of boards for paying stoning premia in
today’s M&A markets, without having stress-tested if those synergies are likely to be
captured. But even if synergies are diagnosed, their valuation and implementation might
be, due to multiple rout-courses, incomplete and cursory: Often just the target compa-
ny’s synergies are addressed, whereas the acquirer’s side is neglected. The integration
costs to lever the synergies within the new JBD are often underestimated, as well as the
time need to realize them. Or simply the granularity of synergy pools is to less to be
addressed in detailed implementation initiatives and by clear-cut responsibilities.
5.6.2 Summary and Key Success Factors
Synergy Management is an E2E support process of the primary M&A Process Design
modules:
Synergy Management starts already with Synergy Diagnostics of potential and
likely synergy pools and the Blue Print of a tailored Synergy Scaling Approach in the
Embedded M&A Strategy.
During the M&A Transaction phase, specifically the Due Diligence, the synergy
potentials are stress-tested concerning their likelihood, their forecasted volume and tim-
ing. A proof-of-concept of the Synergy Scaling Approach supplements this step.
Synergy Capture understood as implementation, tracking and controlling of
mission-critical synergies, is a substantial part of the Integration Management. Synergies
should be framed and coordinated by the Integration Masterplan and detailed in Synergy
Scorecards for ease of implementation and trackability.
The targets of the Synergy Management are, therefore:
– Consistent Synergy Diagnostics and Mapping: Identification of the crucial,

transaction- and JBD-specific synergies that drive the valuation
– Synergy Scaling Approach Blue Print at an early stage
– Synergy and Scaling Approach proof-of-concept concerning value, timing and likeli-
hood of synergy capture
– Consistent Synergy Masterplan with Synergy Scorecards framing implementation
initiatives
– Rigorous Synergy Capture (tracking, controlling, management)
– Learning cycles and feedback-loops to achieve best-practice within Synergy
Management, especially for multiple acquirers
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M&A Project Management &
Governance: The M&A Playbook 6
Contents
6.1 Purpose of the M&A Playbook: End-to-End M&A Project Management . . . . . . . . . . . . . 286
6.1.1 End-to-End M&A Process Map. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286
6.1.2 End-to-End M&A Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288
6.2 M&A Playbook and End-to-End M&A Process Design. . . . . . . . . . . . . . . . . . . . . . . . . . . 289
6.2.1 Development of an Embedded M&A Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289
6.2.2 Execution of the Transaction Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290
6.2.3 Managing the Integration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291
6.3 M&A in the 20s: Management of M&A Capabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294
6.3.1 M&A Capabilities in the 20s. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294
6.3.2 M&A Departments 2020+. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296
6.4 M&A in the 20s: Digital Tools of the M&A Playbook. . . . . . . . . . . . . . . . . . . . . . . . . . . . 297
6.5 M&A Project Management of Digital Targets and Business Design . . . . . . . . . . . . . . . . . 299
6.6 Summary M&A Project Management & Governance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301
6.6.2 Summary and Key Success Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302
Abstract
M&A initiatives are typically highly complex: Internal capabilities might be sup-
plemented by external expertise, for example, by insourcing consulting or invest-
ment banking services. Cross-border deals involve multi-country settings with the
risk of culture clashes. Besides, the combination of two companies with different
origins is per se an endeavour. Nevertheless, transactions are in the end also simply
projects: The starting point of a dedicated M&A project within the Enbedded M&A
Strategy phase is as soon as a specific target is chosen to be in detail investigated,

284 6 M&A Project Management & Governance: The M&A Playbook
typically triggering an indicative offer. The end point is the post-mortem report of
the Integration Management. Each transaction has to be orchestrated by a fast, robust
and high quality M&A Process Management. On a higher, tacit knowledge level, the
M&A Process Management builds a bridge between the early stage diagnostics of
M&A capabilities up to the institutionalized fostering of the in-house M&A knowl-
edge after every transaction. As discussed in Chap. 3, transactions have foremost a
significant impact on the acquirer’s financials, valuation and strategy. This triggers
a significant C-level exposure. Project Governance, Compliance and an orchestrated
Process Management with clear-cut milestones and board approvals are therefore
mandatory. New vibrant ecosystems and business strategies revitalizing corporate
portfolios will challenge the M&A department environment of the 20s. A canvas of
likely necessary M&A capabilities and potential designs of the future M&A organi-
zation is therefore part of this chapter. Additionally, digital solutions and new technol-
ogies, like big data, machine-learning algorithms or AI will revolutionize the M&A
market, capabilities and tools. The final subchapter tries to give an outlook on how
these technologies might be applied to improve speed, quality, robustness and effi-
ciency of M&A transactions in the 20s.
M&A Project Management & Governance, as second support process of the E2E
M&A Process Design, ties together the decisive knots throughout a M&A project
(Fig. 6.1):


• M&A Capability Map M&A Transacon Team & Toolkit • IPH , Team & Toolkit
• Navigang through the M&A Strategy • M&A Knowledge Management
M&A Playbook
Fig. 6.1 The E2E M&A Process Design: M&A Project Management & Governance—The M&A Play-
book
6 M&A Project Management & Governance: The M&A Playbook 285
 Definition
For a seamless and successful transaction, the M&A Project Management & Governance
applies a M&A Playbook with the following priorities:
– A detailed assessment of the maturity of the in-house M&A capabilities serves as a

mission-critical starting point, as M&A projects are highly complex and demand a
multitude of specialized skills.
– From the Embedded M&A Strategy phase onwards, the M&A Project Management
has to assure, by transparent process steps, milestones and approvals, that the focus
of the board and the M&A team is on a clearly defined transaction rational and
value add. Additionally, for multiple acquirers, the portfolio of parallel M&A initi-
atives has to be coordinated by a M&A platform with stage gates.
– Within the Transaction Management, the acquirer has to run a proof-of-concept
of the investment thesis, assess the SBDs and the intended Joint Business Design,
as well as verify the synergy estimates within a very short timeframe. Therefore,
the M&A Process Management has to onboard highly capable teams, which are
orchestrated by the M&A team. A second, corporate finance related matter is a
robust valuation. The M&A Project Management has to assure that any synergy
updates and risk assessments of the Due Diligence are feed into the valuation
process.
– Finally, the Integration Management with its clearly structured three horizons of
Day One readiness, 100 days and midterm IM has obvious project characteris-
tics and therefore applies a set of typical project management tools, such as DoI
approaches and milestone reports. Hereby, the Integration Project House (IPH)
plays a center role.
– Throughout the M&A process, a close information loop between the board
or Steering Committee as decision makers and the M&A or integration team as
orchestrater has to be designed with E2E approval steps and stage gates.
Within Sect. 6.1 the two crucial tasks of the M&A Project Management & Governance
module, the assurance of a seamless transaction process and transparently structured
board approvals will be discussed. Within Sect. 6.2, the process specifics of the three pri-
mary M&A Process Design modules are embedded in separate subchapters. The chal-
lenges of digital ecosystems, especially the levers of digital tools for M&A capabilities,
organization and projects in the 20s, will be highlighted in the last two Sects. 6.3 and 6.4.
6.1 Purpose of the M&A Playbook: End-to-End M&A Project

Management
For the design of and smooth navigation throughout a whole M&A project, a M&A
Playbook is recommended. The M&A Playbook is the digital footprint of the E2E M&A
Process Design. Such a Playbook provides a framework for all transactions by a shortcut
description of the M&A Strategy and assures a well-structured, fast handover between
the different M&A process steps for any transaction. Beyond a dedicated transaction, it
serves as a transparent platform for the portfolio of M&A initiatives with standardized
stage gates.
The M&A playbook should enable, to keep the big picture, meaning the strategic
rational of a transaction and its TVA, in mind and protect the M&A team from getting
lost in the details of a M&A process. In the end, the M&A Playbook should pay in for
higher quality, robustness, speed, efficiency and transparency of M&A projects. Besides,
it should foster a strengthening of M&A capabilities and provide a powerful learning
environment.
Such a digital M&A playbook frames the following parts:
– A brief summary of the Embedded M&A Strategy approach, including the intended
strategic rational of M&As on the corporate portfolio and SBU level, the corporate
finance framework, the expected TVA and synergy targets as well as the preferred
external growth design
– A short list of the attractive targets including their Scorecards
– A rough Blue Print of the likely Integration Approach(es) as well as the intended
JBD(s) and JCD(s) with defined parenting advantages
– A digital M&A multi-project platform with clear stage gates and board approval steps
An extended M&A Playbook may add a map of M&A capabilities and gaps, whereby
the latter have to be overcome short-term by an insourcing of consultants or transaction
specialists. The M&A Playbook is in so far much more than a collection of tools, tem-
plates and work samples. It is a transaction knowledge base, which enables seamless
M&A processes along all stages of a typical M&A life cycle.
The sketch of a E2E M&A Process Map with defined stage gates, as the crucial
underlying part of such a M&A Playbook, will be discussed in Sect. 6.1.1. The govern-
ance and C-level approval view will be added in Sect. 6.1.2.
6.1.1 End-to-End M&A Process Map
The underlying skeleton of a M&A Playbook is a M&A process model framework.

On the highest level, the E2E M&A Process Design with the three modules Embedded
M&A Strategy, Transaction, and Integration Management, serves as reference point.
6.1 Purpose of the M&A Playbook: End-to-End M&A Project Management 287
However, for a clear task structure, reporting lines, milestones and stage gates, a higher
granularity is necessary. The following model, as described in Fig. 6.2, is a broadly
applicable version of the second level structure, detailing the overall M&A Process
Design.
The Embedded M&A Strategy part kicks-off with a framing of the general strategic
intent of external growth strategies and their targeted value contribution on the corporate
level as well as for the strategic business units. Based on these guidelines, the identifica-
tion of potential targets within the relevant ecosystem might lead to a long list of target
companies, which could be boiled down by the application of the Fit Diamond to a short
list of highly attractive targets. The latter step, from the overall M&A strategy to a specific
potential target, serves as a first process and management approval step (stage gate 1).
A dedicated M&A project from this short list typically kicks off with a first outside-in
investigation and indicative valuation of the target company. This might lead to a Letter
of Intent (LoI), which is a written document and states the interest of the acquirer in the
target company. Besides, it includes a valuation range as a non-binding indicative offer
and suggestions about the next steps. The LoI has to be approved by the board, as it is an
important, if not legally binding, statement of the company. This step might be described
as preparatory step of the Transaction Management (stage gate 2.1).
If also the seller’s shareholders are interested in further discussions, the second and
most intense phase of the Transaction Management, the Due Diligence will be agreed
as a next step. On the buy side, this might involve multiple iterative steps in close coor-
dination with the valuation update and board information loops. At the end of this phase
the M&A team has to finalize the Due Diligence reports and summarize the most impor-
tant findings, potential risks as well as an update of the valuation for a board discussion

Monitoring of dedicated M&A project by steering commiee at least every 2 weeks
Integra-
Final IPH
Embedded Approval on
Due Valuaon &
M&A of M&A- Post
Indicave Diligence, & Final Integra-
Strategy, Strategy & LoI DD & IM Mortem
Valuaon Synergy (Asset/Share) Deal on
Target Appro- Valuaon Report
Pipeline
Kick Off of & Proof Report
Purchase Appro- Master- Approval
Dedicated val &
Leer of & Agreement val plan
& Selecon M&A Trans-
Intent Valuaon Negoaon Design
(Fit Diamond) Project acon
Update
Closure
Integraon
Management Loops
SG 1 SG 2.1 SG .2.2 SG 2.3 SG 3.1 SG 3.2 SG 3.3SG 3… SG 3.F
SG X.X Stage Gate with mandatory board approval for next step
Fig. 6.2 M&A Playbook: E2E M&A Process & Stage Gate Map
and preliminary approval. The latter is the second stage gate 2.2 within the Transaction
Management.
Preliminary approval means at this stage subject to final contract negotiations. Only if
the acquirer’s team and the seller could agree on acceptable terms and conditions within
the asset or share purchasing agreement, as well as the maximum threshold for the pur-
chase price is not exceeded, the board on the buy side might finally agree to the deal,
which is stage gate 2.3.
After the final approval of the transaction, but even better, as proposed by the E2E
M&A Process Design, within the Transaction Management, the Integration Strategy and
Approach as well as the IM have to be prepared by the IPH and be approved by the
board before Day One as stage gate 3.1. After this approval, the progress on the integra-
tion as well as synergy capture will be reported by 2–3 weekly updates. The whole M&A
project will be closed by a post-mortem report and a final board decision (3.F).
6.1.2 End-to-End M&A Governance
The governance of highly complex projects like mergers and acquisitions has to answer
two organizational questions:
– who is in command for the process and content deliveries within each process step
– who is responsible to make final decisions at each stage gate
The responsibilities with respect to the management of transaction processes seems to

be clear-cut. The strategy team delivers on the Embedded M&A strategy, the corporate
M&A team orchestrates the transaction management, especially the Due Diligence and
the valuation, whereas the Integration Management is the responsibility of the IPH and
the operational management of the business unit closest to the target business.
This organizational design of M&A processes seems to be outdated nowadays. The
early-stage valuation of attractive targets and synergies, the draft of the Blue Print of
the JBD as well as the JCD within the M&A Strategy and the proof of concept of the
same within the Transaction Management, request coordinated processes between
Strategy and Transaction Management. Not surprisingly, especially companies exposed
to dynamic shifts in their ecosystem and multiple acquirers more and more integrated
their Transaction and Strategy Team. A smoother handover between the Transaction and
Integration Management might be achieved with a manager from the transaction team
joining or leading the integration. As an alternative, an operational manager, who will be
in charge of the later integration might participate already in the early stage of a M&A
process, especially during the Due Diligence.
On the management side, the board will be responsible at least for the definition of
the M&A strategy and the final approval of the transaction. For game changing portfolio
transactions, the board would be even involved throughout the whole transaction process.
6.2 M&A Playbook and End-to-End M&A Process Design 289
For midsized or smaller deals, one board member might serve as a Steering Committee
lead for the approval steps within the Transaction Management and for the sequential
Steering Committee meetings within the integration.
6.2 M&A Playbook and End-to-End M&A Process Design
The first level M&A Playbook structure along the E2E M&A Process Design modules
and according project, capability and governance challenges will be briefly discussed.
6.2.1 Development of an Embedded M&A Strategy
Within today’s rapidly shifting ecosystems with blurring boundaries, evolving new tech-
nologies and digital use cases, as well as vibrant competitive environments, strategic
advantages have to be permanently renewed. A multitude of strategic initiatives, as pin-
pointed in Chap. 2 with the Business Model Innovation-Matrix, have to be initiated and
executed at the same time to stay ahead of competition and innovate one’s own Business
Design. This demands a strongly Embedded M&A Strategy, which is able to develop
a clear view of which capabilities and competitive advantages are in need in the years
to come and which ones have to be acquired by external growth strategies due to lim-
ited in-house potentials. Therefore, new targets might have to be detected in uncovered
technology spaces or from adjacent industries. This requests a broad and complete set of
capabilities of the M&A and strategy department.
M&A Strategy Capability Map If a company is in need to supplement its internal growth
strategy with tailored acquisitions or mergers, a good starting point is to ask if the nec-
essary capabilities for the execution of transaction strategies are available in-house. Due
to nowadays complex environments, the traditional streamlined M&A focus on valuation
capabilities plus a rough industry knowledge is no longer sufficient. Instead, a thorough
understanding of market trends and upcoming technologies as well as business mode-
ling capabilities are mission-critical for the design of a convincing M&A Strategy with a
short list of highly attractive targets with strong acquirer fit.
Target Search: Hunt for Competitive Advantage in Ecosystems Without Boundaries A

rough picture of the complexity of new ecosystems and their challenges for the M&A
Strategy and target search is described in Fig. 6.3.
The diagnostics of the company’s ecosystem must mirror dynamics in the company’s
competitive environment, shifts in the macro environment, technology disruptions and
market trends. These are nonlinear processes and assessments. Therefore, the strategy
phase might involve multiple feedback loops, proofs-of-concept and step-by-step stage
gate discussions and approvals.
ECOSYSTEM SCAN STRATEGIZING

New Entrants
Substutes
Incumbent
Suppliers
Competors
Industry Complements
• Which trends within the
Dynamics &
Tangible & ecosystem are decisive for
Network
Capital Markets Intangible Resources compeve advantage and
the Business Design
Educaon (Capabilies)
• Which capabilies are
Macro-
Ecosystem Infrastructure needed therefore
Technology Trends
Ecosystem
Technology Access (e.g. IP)
Scan
Technology
Technology Capabilies
Technology
M&A STRATEGY
Tools
Trends, • Which targets might fit to
Use Cases Use Cases & White Spots deliver on the strategic
& Markets
Dynamics raonal, compeve
Needs & Pricing
advantage and BD
Switching Costs & Market Size, Growth
Lock In Revenue Model & Segmentaon
Fig. 6.3 Dynamic ecosystems and Embedded M&A Strategy process
However, even more decisive are the impacts of these ecosystem levers on the corpo-
rate strategy, the M&A strategy and finally the target search and selection:
– Which trends within the ecosystem are decisive for competitive advantage and the BD
– Which capabilities are needed to implement the chosen strategy
– Which targets might fit to deliver on the intended strategic rational, the competitive
advantage and the BD development.
6.2.2 Execution of the Transaction Management
The core processes of the Transaction Management are the valuation and the Due
Diligence, whereby the latter is the more complex one as it involves multiple parties.
Transaction Team: Orchestrating the Due Diligence The management of this complexity
is the responsibility of the Due Diligence team. It has to align the Due Diligence process
with all internal and external stakeholders and design tailored and robust work streams
and tools.
The Due Diligence team also serves as single point of contact for target information
and access. The ultimate intent of the Due Diligence was described as a p roof-of-concept
of the strategic rational, the assessment of the mission-critical value drivers and the
identification of potential transaction risks. Therefore, robust and fast processes are
requested. This is achieved by feedback loops between the Due Diligence lead and the
Steering Committee of the transaction on material Due Diligence outcomes. The stage
gate model might use at a minimum three gates: The Letter of Intent approval kicks-off
the Transaction Management at stage gate 2.1, mission-critical Due Diligence and syn-
ergy findings have to be reported at stage gate 2.2, whereas the final stage gate 2.3 with
the go/no-go decision is subject to the final valuation and purchase agreement. More siz-
able, complex and international transactions might demand even more feedback loops
with the Steering Committee and interim stage gates during the Due Diligence.
Most antitrust regulations, like the Hart-Scott-Rodino (HSR) Act in the US, prohibit
an acquirer to execute substantial integration steps of the target company prior to expira-
tion of the statutory waiting period. To exploit the time gap between signing and closing,
advanced M&A Process Designs use third-party advisers (“clean teams”) to review syn-
ergy levers and prepare the potential integration steps already prior to closing.
6.2.3 Managing the Integration
Integration processes demand a transaction- and JBD-specific organization for setting the
right integration priorities, the structuring of a tailored IM, the design of robust integra-
tion processes and workflows, as well as for the insourcing of the necessary capabilities.
The integration is typically driven and orchestrated by the Integration Project House
(IPH). Dedicated integration teams implement the modules of the IM. The integration
teams are also in charge to realize the synergies, which have been finally verified dur-
ing the Due Diligence. Both companies, the acquirer and the target, source the integra-
tion team. This ensures that best talent from both organizations is captured and sends
comforting signals to the employees that capabilities and not hierarchies define new and
important management roles.
Besides, a Steering Committee of selected senior management from the acquirer as
well as from the target organization support the integration teams. The core task of the
Steering Committee is to decide on mission-critical decisions at each stage gate.
To handle organizational integration complexities, a detailed integration project man-
agement structure and clear-cut responsibilities are necessary. A three-level project man-
agement structure, as described in Fig. 6.4, is for more complex or cross-border deals a
suitable approach.
Steering Commiee
Synergy Integraon Manager Integraon

Tracking (IPH) Management
JBD Modules
Ecosystem Core Asset Capability Value Proposion Channel Go-to-Market
Integraon Integraon Integraon Integraon Integraon Integraon
• Bundling & Supplier • Factory Footprint • Brand Management • Joint Product • Joint Distribuon • Cross Selling
Streamlining Opmizaon • Plaorm Mgt. Porolio Channel Strategy • Pricing Strategies
• Low Cost Sourcing • R&D Network • Best-Pracce Process • Service and System • Streamlining Logiscs • Streamlining Logiscs
• … • Integrated Cloud Implementaon Business • ….
Server Farm •… •…
•…
Organizaonal and Management Integraon
Financial Integraon
Strategic Integraon
Legal Integraon
Culture Transion
Fig. 6.4 Integration Management: Steering Committee, IPH & integration teams
Steering Committee Members of the Steering Committee are sourced from the board
members of the target’s and the acquirer’s company, which have a direct touch-point
to the transaction. The Steering Committee is responsible for the overall leadership
throughout the integration process and the setting of the priorities of the Integration
Management. This involves also more soft tasks for the top management, like commu-
nication of the integration vision by talk-the-walk. This tone-of-the-top will be a deci-
sive ingredient for the target’s and acquirer’s employees on how the transaction will be
perceived.
Important decisions have to be escalated from the IPH to the Steering Committee at
the stage gates or even in-between for transaction-critical matters. Effective governance,
in the sense of an early and focused escalation and a rapid resolution of critical issues,
speeds up integration processes. Besides, the controlling of the integration process
and deciding on suitable counter-measures in case of deviations is as well a part of the
Steering Committee responsibilities.
The Steering Committee is also in charge for the overall capability sourcing and
the resource allocation within the Integration Management. Besides, not only dedi-
cated resources have to be allocated to the IPH and teams, but also roles, responsibili-
ties and authorities of the integration modules have to be decided upon by the Steering
Committee.
Integration Lead Manager and Integration Project House (IPH) The integration lead
manager is the orchestrator of the integration process and head of the IPH. The key task
of the IPH is the overall project steering and management, especially the coordination
and integration of the different integration modules and work streams of the IM. The
IPH has also to (re-)focus the different integration modules on the key targets of the
integration:
– of realizing the strategic rational

– implementing the JBD and JCD
– capture the synergies
Another important responsibility is the in time and seamless reporting and controlling
of the integration progress. For an efficient and robust integration organization, the IPH
has to support the integration modules by providing tailored integration tools, by coor-
dinating the different integration modules and their work streams, as well as to built a
fast-track communication between the modules.
The IPH has also to orchestrate external resources like investment banks, strategy
consultants, lawyers, or communication specialists. Besides, the IPH is also in charge of
the regular Steering Committee information on the integration progress and has to esca-
late important decisions. Therefore, a senior personality within the acquirer’s company
might be best suited for the integration management lead.
A recent study from PWC analyzed that deal success is correlated with
cross-functional team engagement (PMC 2017, p. 17). The IPH might support the

cross-functional exchange by designing suitable work streams and taking care about
feedbacks between the teams.
Integration Modules and Teams The responsibility for the implementation of the IM and
its separate modules, as described by the Integration Scorecards, is the responsibility of
the dedicated integration teams. The overall integration team is represented by all func-
tional areas of the JBD with an exposure to the integration and the crucial synergy deliver-
ablerables. Aims for the individual integration teams are the capture of targeted synergies
and of the operational deliveries for implementing the JBD along each milestone.
Within more complex transactions, the separate integration modules will have their
own module lead, who coordinates the work streams and prioritizes decisions within the
specific integration module. With respect to the communication, the integration modules
are responsible for the integration progress and synergy report based on Integration and
Synergy Scorecards. Operational wise the core tasks of the integration modules are the
implementation of the defined workflows and synergy levers as well as the resource allo-
cation within the module.
To deliver on integration and synergy targets, the integration work teams must have
access to accurate and timely information, must receive in-time feedback as well as have
to be permanently updated on the broader perspective of the overall integration efforts
and interdependency with other integration modules.
• Understanding culture Empathy M&A & • Sound M&A & valua on skills
resistance & craing JCD & Culture Valua on • Robust Due Diligence process
• Understanding transi on Mind Capabili es management skills
challenges • Tacit know how by best-of-best learning
• Developing transac on • Understanding of ecosystem

Entrepre- In-depth
ra onal & vision paerns and dynamics
neurial Ecosystem
• Building the new JBD • Awareness of shiing
Spirit Knowledge
• Project management boundaries (tech, use cases)
skills
• Design thinking for JBD • Digital tool affinity: AI, algorithms, Big
Crea vity Techno-
development Data, Machine Learning, Block Chain
logical
• Modelling capabili es knowledge
Openness
• Plaorm design and paern awareness
Fig. 6.5 M&A capabilities for the 20s
6.3 M&A in the 20s: Management of M&A Capabilities
Based on the prior chapters’ discussions of the content of the different modules of the
E2E M&A Process Design and the needs of a robust M&A playbook, a canvas of the
capabilities for competing on today’s M&A markets is developed in the following.
6.3.1 M&A Capabilities in the 20s
The development of inhouse M&A capabilities is a true competitive advantage,1 espe-

cially for multiple acquirers. By learning from past mistakes and actual best-practices,
the company might strengthen its M&A capabilities step-by-step, might become more
efficient and effective in the execution of transaction processes and might be enabled to
execute multiple transactions—including divestments—at the same time for a true port-
folio renewal. The development of those M&A capabilities might be achieved by the
application of best practices and standardized tools, processes, and techniques.
The following describes a short roadmap to develop the capabilities for transactions
in the twenty-first century environment. This roadmap is a substantial part of the M&A
playbook and also defines potential training needs of M&A capabilities throughout the
organization (Fig. 6.5).
An E2E view enables to rewrite traditional M&A role models and capability needs.
Additionally, a gap assessment, which matches established acquirer’s capabilities with
1Galpin& Herndon analyzed 12 major components with 75 different elements of enterprise M&A
competencies (Galpin and Herndon 2014, chapter 14).
6.3 M&A in the 20s: Management of M&A Capabilities 295
M&A module specific needs, will highlight which M&A resources and capabilities have to
be developed. Six capability clusters might stand out for the M&A capabilities in the 20s:
M&A & Valuation Capabilities The bedrock of the M&A capabilities is the under-
standing of the standard set of valuation models. Besides, robust Due Diligence process
management skills are mandatory. Whereas the first might be challenged by nowadays
scientific questions of how to value startups, the latter might request industry-specific
skills to assess the BD of the target company. The same holds true for the screening and
diagnostics of potential target companies.
In-depth Ecosystem Knowledge However, due to the underlying dynamics of today’s

ecosystems the understanding of industry patterns for target detection, assessment and
evaluation is too limit. Already at the early stage of target search, the most attractive tar-
gets for the future competitive advantage of the acquirer might be found in adjacent mar-
kets. This will demand a profound understanding of evolving technologies and use cases,
which might be applicable for the JBD, also by M&A and strategy teams.
Technological Openness Additionally, advanced technologies like AI, machine learning

algorithms, big data applications, and others will revolutionize transaction execution by
building more robust, faster and efficient M&A processes and tools. As these new digital
tools for M&A will play out as game changer in the 20s for in-house M&A teams as
well as external consultants, this discussion on “how to run M&A” will be intensified in
the next subchapter.
Bolstered Creativity M&A, and especially valuation, is perceived as a highly scientific

capability. However, as the Business Model Innovation-Matrix described, M&A in the
20s must be thought in alternative settings and compared with growth strategies like
incubators, accelerators, Corporate Venture Capital, Joint Ventures, alliances or in-house
business innovations. This demands creativity to find new solutions and pathways.
Besides, the modeling of the Joint Business and Culture Design might request the com-
bination of state-of-the-art scientific knowledge with out-of-the-box creativity and tools
like design thinking.
Entrepreneurial Spirit Typically, M&A departments are still organized as support func-
tions for the board and the strategic business units. This is in contrast to the need of
entrepreneurial capabilities for developing a sound and convincing transaction rational,
to orchestrate the building of a new JBD or to orchestrate the integration of a complex
target company.
Empathy & Culture Mind Last but not least, empathy and culture sensitivity might
become as well a crucial capability in the 20s. It starts with the diagnostics of the
SCDs of the target company and the acquirer to assess culture gaps, continues with the
development of a powerful JCD in which employees and talents of both organizations

believe, and further with the need to understand culture change resistance within integra-
tions as well as other transition challenges. The permanent “uploading” and training of
this M&A capability set will become an own competitive advantage in the ever-changing
market environments of the 20s.
6.3.2 M&A Departments 2020+
The discussion of the future capability needs for running highly efficient, fast and robust
M&A processes leads to a second, closely aligned question: How should the organiza-
tional design of the M&A Department in the 20s look like?
The answer to this question depends significantly on the overall Business Design,
especially the corporate organization of the company, but as well on the company’s eco-
system. This is described by Fig. 6.6.
Since the 2000s, as capital markets favored focused strategies, global powerhouses like
GE in the US or Siemens in Europe listed their Strategic Business Units or sold non-core
assets. In such circumstances, the typical organizational design of the 2000s as an inter-
play of Corporate M&A teams with the dedicated, in the transaction involved regional or
SBU M&A teams might become less applicable. Blue chip corporations changed or are in
a process of changing the role, responsibilities and capability profiles of the Corporate and
the SBU M&A teams. Corporate M&A teams are more in the role of an orchestrator as
well as stage gate owner. Additionally, the are in charge of corporate portfolio strategies
which should lever parenting advantages. The SBU M&A teams, on the other side, focus
on the classical M&A execution tools and capabilities, like Due Diligence and valuation.
If the 20s are characterized by the discussed vibrant ecosystems with blurring bound-
aries and multiple, parallel running growth initiatives, new organizational designs of
2000 2019 2020s 2025+
Porolio & Porolio &

Corporate Center Holding Center
Corporate C-M&A Holding Center
Corporate M&A Mgt.
Acve Holding Center
Corporate M&A Mgt.
C-M&A
M&A M&A M&A
M&A
SBU 1 SBU 2 SBU 3 SBU 1 SBU 2 SBU 3 SBU 1 SBU 2 SBU 3
S-M&A S-M&A S-M&A S-M&A S-M&A S-M&A S-M&A S-M&A S-M&A
M&A M&A
• C-M&A = Corporate M&A

• S-M&A = SBU M&A
• SBU = Strategic Business Unit
Fig. 6.6 Organizational designs of M&A teams for the 20s

6.4 M&A in the 20s: Digital Tools of the M&A Playbook 297
corporate and SBU M&A departments might have a more hybrid character. Besides, they
will demand new capabilities, like digital technology affinity.
European-US Study: “The organizational design of the M&A and strategy department 2025+2”
The future organizational design of M&A and strategy departments of companies exposed to
dynamic ecosystems have to address questions like:
– What will be the preferred external growth strategies and initiatives (BMI-Matrix) in the 20s
to gain competitive advantage in dynamic ecosystems? What are selection criteria for the best
fitting approach?
– What will be the structure of the future M&A and strategy department? Will they be deeply
integrated, to foster a seamless M&A Strategy to Transaction transition, or separated, to achieve
focused best-in-class capabilities?
– How will the future interplay between corporate M&A teams and SBU M&A teams look like?
The same for strategy?
– What kind of workstreams are therefore necessary? How to orchestrate in vibrant ecosystems
M&A processes?
– What are the future M&A capability needs? Are M&A capabilities scanned, retained and
developed?
… and many further questions will be investigated.
6.4 M&A in the 20s: Digital Tools of the M&A Playbook
Digital M&A tools, which apply new technologies like AI, machine learning algo-
rithms or Big Data approaches will significantly change and support to build more
robust, efficient and faster M&A processes. As the complexity of transactions as well as
the involved Business Designs permanently increase, these digital tools offer substan-
tial levers. Figure 6.7 provides a snapshot of selected digital M&A tools along the E2E
M&A Process Design, which will be briefly discussed in the following:
Digital Tools for the M&A Strategy Many industries are exposed to technology disrup-
tions and changing customer use cases. The application of digital patent and IP assess-
ments, based on AI technology, enables the analysis of which market segments and
technologies might be accessible, which technology fields are actually investment hot-
spots and which ones might be highly attractive with respect to building the company’s
Business Design for the future.
2A current study by the author on “the organizational design of the M&A and strategy department
2025+” explores exactly these question with leading European and US multiple acquirers and uni-
versities. The questions pinpointed above are a selection out of this study.
#1 M&A Strategy #2 Transacon Management #3 Integraon Mgt.
Ecosystem Trend Scoung Financial , Legal, Virtual Dataroom Digitalized Mile-

& Digital IP-Scan Commercial Due & Predicve M&A stone Tracking
Diligence Automaon
Fit Assessment & Target Digital Valuaon Tools Digital Proj. Mgt.
Pipelining
Tech & Cyber DD (AI) Digital Monitor
Digital Synergy Library, incl. Benchmark Data Integrated Valuaon & Synergy Tools
Digitalized Synergy Verificaon, Tracking and Controlling
#5 M&A-Project Management & Governance
Double Sided Online M&A Best Pracce Library

Online M&A Educaon
Consulng plaorm
Cloud Based Digital M&A Playbook and Digitalized Toolkit
Fig. 6.7 Digital M&A tools for the 20s
Additionally, digital trend scouting by using the combination of machine learning

algorithms and big-data assessments could be used to detect targets with new product or
service solutions. A further example from the fit assessment and target pipelining are the
application of search engines to gain insights on critical capabilities and talent in an early
stage of a transaction.
Digital Tools for Transaction Management Within the Transaction Management espe-
cially the Due Diligence is exposed to digital technology revolutions. Big data and
NLP assessments, search engines (e-discovery) and machine learning approaches offer
efficiency and time gains, especially within the Financial and Legal Due Diligence.
E.g. within the latter contract clauses like reps & warranties, exclusivity agreements,
change-of-control clauses or IP-rights could be scanned fully autonomous within a wide
range of contracts.
In the meantime established tools are virtual data rooms, which substituted physical
data-rooms, as they offer multiple advantages on the buy- and sell-side. A new develop-
ment by leading data-room providers are predictive M&A market models based on big
data assessments of M&A transactions within a Due Diligence stage.
The Technology & Cyber Due Diligence developed as a new field within the overall
Due Diligence process. It involves a detailed assessment of the technology platforms and
ERP system architecture in use within the target company based on standardized dig-
ital assessments and checklists. As an addition, the compatibility assessment with the
acquirer’s IT architecture could be used to kick-off an early-stage migration planning.
The cyber assessment, as a supplement, focuses on the identification of potential cyber
and web risks.
6.5 M&A Project Management of Digital Targets and Business Design 299
Digital Tools for Integration Management An efficient and effective Integration

Management is essential for solving the complexity of integration projects. On the one
side, digital tools used in the Due Diligence could be leveraged as well within the inte-
gration. Applications are e-discovery approaches for the assessment and tracking of legal
responsibilities with the support of a digital closing condition monitor. On the other side,
digital M&A project management tools are of value especially for the IPH.
For the implementation, monitoring and controlling of the integration, digitalized
Degree of Implementation (DoI) assessments and Integration Scorecards could track
early deviations from the intended integration progress and trigger counter initiatives.
Digital Tools for Synergy Management Digitalized synergy tools intend an end-to-end
tracking, controlling and management of synergy capture. Digital DoI measurements,
milestone concepts, Synergy Scorecards and Maps are suitable tools for an advanced
Synergy Management. The lessons learned of the synergy implementation could be used
to establish a cloud-based digital synergy library. This database could be used to improve
the synergy performance of follow up M&A projects and provides benchmarked synergy
estimates in an early stage.
Digital Tools for M&A Project Management & Governance

A truly digital E2E M&A Project Management and Governance as a digital M&A
Playbook exploits the potential of digitalization along all three primary M&A mod-
ules: Cloud based M&A project maps visualize the transaction portfolio already from
the starting point of the M&A strategy, including mandatory governance and stage gates.
Besides, real-time project reports and linkages to project tasks are embedded. Digitalized
best practice templates and checklists, a digitalized project steering and a centralized
data management are useful for the Due Diligence. Within the Integration Management
a digitalized and consistent mapping of the project structure, of the work streams and
task assignments, as well as a transparent status tracking and reporting of the integration
modules and deliverables offer efficiency and quality gains.
Last not least, cloud-based M&A best practice platforms and learning programs could
be applied to professionalize the in-house M&A teams. The insourcing of past projects
and best practices might offer a sound data source for machine learning algorithms and
might foster mid-term the development of benchmark M&A capabilities.
6.5 M&A Project Management of Digital Targets

and Business Design
At the end of each of the prior chapters, the specifics of transactions focused on digital
targets and business designs with respect to the primary M&A processes and the Synergy
Management have been discussed. Within this closing subchapter M&A processes, work
streams and tools, which cover the pattern of digital Business Designs, will complement
this view. These are described and highlighted in Fig. 6.8.
M&A Strategy Transacon Management Integraon Mgt.

AI driven Business Model Valuaon of Digital Startup DD: JBD 10C and Parenng Advantage for
Ecosystem- & Innovaon Assets (Reverse DCF) JCD Proof-of-Concept Target Leverage
IP Scan (BMI) Matrix
Valuaon Scenarios, Monte Tech / Cyber DD JBD & JCD Implementaon
Fit Diamond Assessment Carlo (“Blue Oceans”)
Analycs for Talent/Capability Mgt.
SBD and SCD Diagnoscs, FDD, LDD and Commercial DD Earn-outs for
Analycs for Integraon and Mile
JBD (10C Model) & JCD Blue Print Automaon by AI & Big Data Digital Assets
Stone Tracking
Synergy Management
AI and Plaorms for Synergy FC Dra of Organisaonal Alignment Needs Analycs and Big Data for Synergy
& Library (esp. for adjacent BDs) for Synergy Scaling at Parent and Target Scaling and Acceleraon
Blue Print Synergy (Revenue) Back-Tesng of Synergy (especially Analycs for Fostering Parenng Leverage
Scaling Approach R
Revenue) Scaling Approach
Tracking Dominant Design Implementaon
M&A-Project Management & Governance

M&A Capability Modelling Online M&A Best Pracce Library Mentorship Retenon Program
Double Sided Consulng Plaorm (for Insourcing of Missing Capabilies Orga. Design and Culture Tools
Cloud Based Digital M&A Plaorm, Digitalized Toolkit and M&A Educaon
Fig. 6.8 E2E M&A Process Design for business model innovations—Project Management
Digital businesses are foremost on the edge of technology and positioned in adjacent
markets. This environment is perfectly suited for the application of the Business Model
Innovation-Matrix as alternative growth paths besides acquisitions, like incubation,
acceleration, in-house venture capital or alliance approaches typically are available.
As most of digital natives have no or very limited corporate history, digital Business
and Culture Design play a central role along the whole M&A process. The Standalone
Designs have to be diagnosed in detail already during the strategy phase. This allows
to model a Blue Print of the Joint Business and Culture Designs as well as a tailored
Integration Approach. These Joint Designs could be bullet-proofed within the Due
Diligence, if they really pay in with respects to the targeted digital capabilities and
intended transactional rational. JBD and JCD assessments might be for digital targets
substantially more important than FDD or LDD matters.
As the business model also the synergy patterns are specific in case of digital M&As.
Chapter 5 analyzed that more or less all of digital target acquisitions rest on rev-
enue synergies. Therefore, the Blue Print of the Synergy Scaling Approach should be
Frontloaded into the M&A Strategy and back-tested with respect to its robustness within
the Transaction Management. For the scaling of the synergies the parenting advantages
have to be levered as a precondition.
The tracking of the synergy capture is a top priority of the integration. However, also
the review of parenting advantages, which allow the scaling of the target and to create a
dominant Joint Business Design, plays a critical role.
6.6 Summary M&A Project Management & Governance 301
A last, but maybe the most important point, goes back to the origin of digital capabil-
ities. They rest in the end on digital talent. Therefore, digital talent diagnostics, retention
and development is mission-critical, especially for digital transactions.
6.6 Summary M&A Project Management & Governance
Within this final subchapter, a selected set of questions serve as a cross-check if a com-
pany has a robust, consistent and digital M&A Project and Governance process for
M&As in place. Thereafter a short summary of the M&A Project Management and
Governance is provided.
The following questions might initiate and be used as a review of the inhouse M&A
Project, Compliance and Governance performance.
Questions
– Does a defined M&A End-to-End Project and Governance Process with precise
stage gates and approval processes exist? Is a seamless flow between the different
parts of a M&A project assured?
– Are rules and responsibilities of the top-management, the M&A and the
Integration Project House, as well as of all project members clear cut?
– Are digital tools and capabilities used along this M&A Project and Governance
model to improve speed, quality, efficiency and robustness of M&A projects?
– Are all M&A projects covered by this model?
– Are M&A capabilities fostered and lessons learned exploited to improve mid to
long term M&A performance?
6.6.2 Summary and Key Success Factors
The M&A Project and Governance is the second support process of the M&A Process
Design. The ultimate target is here to implement a seamless and governance wise stand-
ardized M&A process with clear-cut responsibilities and milestones to avoid the com-
mon M&A failures, especially between the different stages of a M&A project.
Such a M&A Project Management has to assure in the Embedded M&A Strategy
that potential targets all over the relevant ecosystems are identified and evaluated along
the same criteria (Fit Diamond). Along the Transaction Management the M&A Project
Management must install a tight-knit feedback mechanism between the project manage-
ment and the top management with respect to valuation updates and due diligence out-
comes. The same holds true for the implementation but with a shift of focus on synergy
capture and the implementation of the Joint Business and Culture Design.
References
Galpin, T. J., & Herndorn, M. (2014). The complete guide to mergers & acquisitions—Process
PWC. (2017). M&A Integration: Choreographing great performance—PwC’s 2017 M&A
Integration Survey Report. https://www.pwc.com/us/en/press-releases/2017/pwcs-2017-ma-in-
tegration-survey.html.

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Thorsten Feix

End-to-End M&A Process

ISBN 978-3-658-30288-7 ISBN 978-3-658-30289-4 (eBook)

© Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2020

Responsible Editor: Vivien Bender

Seng the stage: An digital End-to-End M&A Process Design

Fig. 1 Structure of the book and flow of thoughts

1 End-to-End (E2E) M&A Process Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

2.5 M&A Target Profiling and Pipeline. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

4.2 Integration Masterplan: Planning the Transition. . . . . . . . . . . . . . . . . . . . . 197

6 M&A Project Management & Governance: The M&A Playbook. . . . . . . . . 283

© Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2020 1

interdependencies of modules demand an E2E architecture. The M&A Process

1.1 The 7th Merger Wave: The Age of Digital Disruption

Macro view: Development and paerns of the global M&A market

Resilient business model Global glut of

Micro view: The E2E -M&A Process Design

E2E M&A Process Design, digitalizaon and business model innovaon

Business Incubaon / Accelerators

Fig. 1.1 Structure and flow of thoughts of Chap. 1

The Six “Traditional” Merger Waves

– The second merger wave (1916–1929)—Increasing concentration: The interim

A 7th Merger Wave?

Indicave deal premia

development of car-to-car communication and fleet learning, or business model inno-

1.2 End-to-End M&A Process Design for Digital Times

1.2.1 Overview of the End-to-End M&A Process Design

 5 modules build the cornerstones of the E2E M&A Process Design:

1. Embedded M&A Strategy

#1 Embedded #2 Transacon #3 Integraon

#5 M&A Project Management & Governance

to unsuspected and previously uninvolved functional leaders. Other organizations

1.2.2 Modules of the End-to-End M&A Process Design

Embedded M&A Strategy

– The detailed strategic targets which should be achieved by M&A initiatives.

STRATEGIC HOW TO ACQUIRE Leadership atude

 Alternave growth opons 1 2 3 4 5 6 7

 Product/service strategy  Intended advantages and 1 2 3 4 5 6

 Market strategy: Customers, synergies 1 2 3 4 5 6 7

Gender Working principle

regional, channel strategies  Valuaon & financing 1 2 3 4 5 6

 Technology strategy  Integraon approach 1 2 3 4 5 6 7

 Valuaon & financial targets  JBD and JCD blue print 1 2 3 4 5 6 7 1 2 3 4 5 6 7

Fig. 1.4 Embedded M&A Strategy: Sub-modules

In a follow-on step, the long-list of target companies has to be reduced by prede-

Core parts of the Transaction Management are highlighted in Fig. 1.5:

Valuaon Due Diligence Valuaon

Fig. 1.5 Transaction Management: Sub-modules

business plans, IP rights or customer information, on the seller’s side. An alternative

Diligence could be thought of as a process of verification or falsification of the original

Integration Masterplan (IM) covering a dedicated and tailor-made integration pro-

Fig. 1.7 summarizes the mission-critical sub-processes of the Integration Management:

Integraon Strategy Integraon Transformaonal Integraon

Fig. 1.7 Integration Management: Sub-modules

Top-Down Synergy Synergy proof of concept & Synergy implementaon,

Fig. 1.8 Synergy Management: Modules and sub-processes

 A holistic Synergy Management starts within an early top-down assessment of

M&A Project Management & Governance

 A canvas of the M&A Project Management & Governance is the backbone of an

Seng the stage: An digital End-to-End M&A Process Design

1.1 The 7th Merger Wave: The Age of Digital Disruption

Macro view: Development and paerns of the global M&A market

E2E M&A Process Design, digitalizaon and business model innovaon

Business Incubaon / Accelerators

Indicave deal premia

1.2 End-to-End M&A Process Design for Digital Times

1.2.1 Overview of the End-to-End M&A Process Design

#1 Embedded #2 Transacon #3 Integraon

1.2.2 Modules of the End-to-End M&A Process Design

STRATEGIC HOW TO ACQUIRE Leadership atude

Alternave growth opons 1 2 3 4 5 6 7

Product/service strategy Intended advantages and 1 2 3 4 5 6

Market strategy: Customers, synergies 1 2 3 4 5 6 7

regional, channel strategies Valuaon & financing 1 2 3 4 5 6

Technology strategy Integraon approach 1 2 3 4 5 6 7

Valuaon & financial targets JBD and JCD blue print 1 2 3 4 5 6 7 1 2 3 4 5 6 7

Valuaon Due Diligence Valuaon

Integraon Strategy Integraon Transformaonal Integraon

Top-Down Synergy Synergy proof of concept & Synergy implementaon,

1.2.3 Interrelations between the M&A Modules: An End-to-End

1.3 Digital Touch Points of the End-to-End M&A Process

1.3.1 Digital M&A Processes and Tools

#1 Embedded #2 Transacon #3 Integraon

#1 Embedded M&A #2 Transacon #3 Integraon

Ecosystem-Scan: Valuaon of digital Due Diligence of Detailed

GM / Ly ZF Ventures Business Incubaon

Adjacent Acquision of Here BMW & Daimler Share Now

2.1 Reframing of Corporate Portfolio and Strategic Business Unit Strategies. . . . . . . . . . . . . 34

#1 Embedded #2 Transacon #3 Integraon

STRATEGIC HOW TO ACQUIRE Leadership atude

Alternave Growth Opons 1 2 3 4 5 6 7

Product/Service Strategy Intended Advantages and 1 2 3 4 5 6

Market strategy: Customers, Synergies 1 2 3 4 5 6 7

Regional, Channel Strategies Valuaon & Financing 1 2 3 4 5 6

Technology Strategy Integraon Approach 1 2 3 4 5 6 7

Valuaon & Financial Targets JBD and JCD Blue Print 1 2 3 4 5 6 7 1 2 3 4 5 6 7

2.1 Reframing of Corporate Portfolio and Strategic Business

Investment Value creaon

Relave compeve posioning

2.2 M&A for Strategy Development on Corporate Portfolio

2.2.1 M&A for Corporate Strategy and Portfolio Management

• Acquisions “must haves” by

Non-cores Cashflow opmizaon

Relave parenng advantage

Characteriscs of external growth opons

Integraon needs Very high High Limited No Limited Limited