The most important factor in determining whether an acquisition becomes successful or not, is how well the post-merger integration is done. The post-merger integration takes many times the effort of closing the deal, but is a lot less glamorous and often shortchanged. This presentation will provide some guidelines for an effective integration, such as having a single integration leader and open communication and will highlight potential pitfalls to avoid such as believing the sales force can easily represent both product lines. The integration involves not just combining the two companies but also finding better ways to run the combined business. The business improvements can often be as large as the synergies.

1. Financial Planning & Analysis for CPG
Chicago, May 23 – 24, 2012
Post Merger Integration of
CPG Companies
By Anders Stubkjaer
President, AS Consulting Group
This presentation is solely for the use of conference participants. No part of it may be
circulated, quoted or reproduced for distribution outside the participants’ organization without
prior written approval from AS Consulting Group. This material was used by AS Consulting AS Consulting Group
Group during an oral presentation; it is not a complete record of the discussion

2. Anders Stubkjaer Background
President of AS Consulting Group
Focus on profitability improvements, acquisition integrations and turnarounds
Mix of line management jobs and consulting experiences
14 years as CFO and division finance roles in public, family owned and private
equity sponsored companies
Recently spent 3 years as CFO / COO completing dramatic turnaround
10 years as management consultant
Extensive acquisition experience
Acquired over 20 companies for public and private equity sponsored companies
Integrated over 15 companies – 4 largest were consumer products companies
Involved in over $300 M of annual profit improvements and acquisition synergies
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3. The Post Merger Integration Is Critical To The Success Of An Acquisition
Observations:
Value Creation from Improving Margins
Most buyers pay a premium over the
EBITDA Value Purchase Value
Revenue Margin $ @ 7 Mult Price to Buyer stand alone value of the selling company
500 6% 30 210 250 (40) Synergies are required to justify
500 9% 45 315 250 65
500 12% 60 420 250 170
purchase price
Synergy opportunities are real, but too
often the synergies are not implemented
CPG Merger Integration – Examples of Results or is offset by other events
Profit Improvements
Examples Revenue Projected Actual Act % When combined with a business
#1 330 20 35 11% practices review of both the buyer and
#2 225 8 6 3% seller organizations, the total profit
#3 500 25 30 6% improvements can often be well larger
#4 700 50 75 11% than the pure integration synergies
The extra amount adds significant
Target improvements at 4 – 6% of value to the buyer
the acquired revenue
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4. Keys To Integration Success
1. Start integration process before closing
2. Focus on running the core businesses with limited distractions
3. Dedicated focus on integration effort
4. Integration teams develop targets and project schedules
5. Keep the customers happy
6. Make culture and senior people decisions early
7. Go beyond traditional integration savings
8. Track implementation
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5. Start Integration Process Before Closing
Integration Team - Example Observations:
In due diligence phase, ask for more
information than is strictly needed to value
the company, but which is useful in
preparing for the integration
Employee communication in both buyer and
seller organizations is needed immediately
following announcement of the deal.
Communication assures the employees that
a fair process will be involved in integrating
the companies
Use period until closing to get organized
Determine integration teams and
preliminary members
Involve larger group in understanding
strategy for the deal and synergy
analysis used for valuing the deal
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6. Focus On Running The Core Businesses With Limited Distractions
Observations:
Inattention to the core businesses can
Cost of Distraction - Example quickly cause profitability to deteriorate
Many small decisions involving
Buyer Acquisition Combined
Revenue 1,000 400 1,400 management teams add up quickly
Growth Reduction Integration is disruptive no matter how
% 1% 3%
well it is executed. Identify disruptions
$ 10 12 22
Profit on growth reduction 4 5 9 and how to handle them.
Senior managers normally part of the
Pricing softness 0.5% 2%
Loss on pricing softness 5 8 13
integration savings. Keep management
teams motivated to focus on core
Total Profit Impact 9 13 22 business with incentive programs
% of Acqusition Revenue 2% 3% 5%
Until a function is integrated each leader
must be empowered to make day to day
decisions as in the past without second
guessing by the other leader or by the
integration teams. Decisions on hold
create more issues than slightly wrong
decisions
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7. Dedicated Focus On Integration Effort
Observations:
Team Budget - Example Integration is separate project – not an additional
part of everyone’s job
Appoint dedicated integration leader and backfill
prior position
Dedicate financial person to assist in analyses and
track implementation progress
Bring in extra help
Process expertise to keep project on track
Functional expertise to help determine best
solutions (e.g. supply chain) or implement
solutions (e.g. IT)
Best practices expertise to improve beyond
consolidation savings
CEO / President must show personal support for /
involvement in the integration process. Sometimes
they have already moved on to the next hot
project without appreciation of the integration
scope
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8. Integration Teams Develop Targets And Project Schedules
Observations:
Project Timeframe - Example
Teams will have members from both
companies
Acquisition assumption synergies are
reviewed / validated / modified by each team
without a detailed analysis. This is used to set
targets for each team.
Teams develop more detailed project
schedule with resource requirements and
expense budgets
More detailed analysis will invalidate or reduce
certain synergies and increase others
Analyses may be less thorough than normal
for the size of the decision. However, better to
get 80% now and move to regular business
status than 100% next year
Once decisions have been made,
implementation plans gets developed,
communicated and progress gets tracked
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9. Keep The Customers Happy
Customers view acquisitions as warning signs for trouble based on their past experience
Supply disruptions (system conversions, facility consolidations)
Communication mistakes as long term links with sales reps, CSRs and plant personnel are
broken
Competitors use the acquisition as a door opener for them
As a result, customers often use the acquisition as a reason for a supplier review
Customers’ integration concerns must be addressed by communication, including visits by the
CEO / President / Sales Management and visits by integration team members
Communicate early in process and as major events happen
Visits can be used to not just calm the customers but as senior sales calls to increase
business
Don’t forget to also communicate to the buyer’s customers and to also visit some
representative medium sized accounts
Integration and growth opportunities will be enhanced by understanding what the customers view
as both companies’ strengths and weaknesses and understanding how their purchasing process
works
E.g. customer may be looking for supply chain assistance not previously offered
Ask customers how they would like to get serviced
Cross sell opportunities often widely overestimated
Ability of sales reps to sell multiple lines also often widely overestimated
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10. Make Culture And People Decisions Early
Cultures are frequently different between the two companies.
Unless acquisition is used as a way to change the buyer’s culture, the buyer’s culture will
prevail. Unrealistic to maintain two separate cultures for any integrated functions no matter
how attractive it looks on paper
Create top level organization structures early in the process
Determine which functions should be integrated, which not, which are TBD
Determine which administrative locations to integrate into
Fill the positions
Buyer’s senior management team will normally prevail due to already fitting the culture,
working together and located in integrating location.
Unless buyer is looking to upgrade a position or seller has an obvious star manager,
don’t spend a lot of effort on analyzing who should run the combined function
Create stay bonus programs for those critical in the transition period
Communicate organizational decisions early.
Better to know the future than hang in suspense
Mid-level management and lower positions can normally not be determined until further into the
integration process with many more seller employees continuing to work for the combined
company.
Remove the nay-sayers quickly. Listen to the people raising valid practical issues. Sometimes it is
difficult to differentiate between the two.
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11. Go Beyond Traditional Integration Savings
Observations:
Profit improvements from a deeper business process review
are often larger than the traditional consolidation synergies
Supply Chain example:
Optimal Network - Example Both companies will typically have multiple warehouses
and supply to an overlapping customer base. Weight
per cube will often vary.
Consolidating smaller warehouses into larger
warehouses will provide some warehouse savings
A full supply chain logistics study may reveal that
neither company have warehouses located in the right
locations and that the optimal combined company
network will be different from either individual optimal
network. Network studies can become very complex
including reviewing sensitivities to future diesel prices
and customer going from store to CDC deliveries
Savings can be very large. In one case, the new
combined supply chain costs was less than the buyer’s
standalone prior cost due to moving to different
warehouse locations and the light weight acquired
products could nearly ride for free on trucks that was
maxed out by weight constraints for the buyer’s
products
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12. Other Functional Tips
IT integration is critical
IT is often a major synergy area and a facilitator to achieve supply chain and other synergies
Conversions efforts are often underestimated resulting in supply chain / customer service
disruptions
Success more likely if
Changing company processes to fit the software process without customization
Detailed review of data being converted
Manufacturing consolidation should include improved manufacturing processes and impact on
supply chain costs
Often the savings from moving production to a more efficient plant can mostly be achieved in
the existing plant by adopting the same processes as in the target plant
Mixing two types of manufacturing in one plant may look good on paper, but not work nearly
as well in practice
Finance must quickly establish tracking mechanisms
Standard reports, dashboards, account profitability, pricing changes, cost changes
Cost plus pricing organizations in danger of giving away the synergy savings
Be selective in integrating sales, marketing and R&D functions. May integrate for some accounts
and product lines and not for others.
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13. FP&A Should Be Included In The Integration Teams
Get to understand the new business, so it is easier to spot any problem trends early
Assist developing integration budgets
Question assumptions used by integration teams
Perform financial analyses of profit improvements under review
Expand the number of options under consideration
Summarize synergies and other improvements. Provide reasonableness checks on savings and
timeframes – up or down depending on culture and team leaders
Provide realistic forecast of the acquired business as acquired staff often less likely to provide bad
news
Track implementation progress monthly in the beginning and quarterly later on.
Excellent learning experience for the FP&A staff
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14. Contact Information
Anders Stubkjaer
AStubkjaer@ASConsultingGroup.com
847-778-2477 Cell .
847-496-4385 Office
www.ASConsultingGroup.com
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