EXECUTIVE SUMMARY OF THE UNIVERSITY OF DALLAS COLLEGE OF BUSINESS 2006 MERGERS AND ACQUISITIONS SURVEY:

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Julius Wright
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1 EXECUTIVE SUMMARY OF THE UNIVERSITY OF DALLAS COLLEGE OF BUSINESS 2006 MERGERS AND ACQUISITIONS SURVEY: THE CURRENT STATE OF M&A INTEGRATION Authors: Timothy Galpin and Mark Herndon Mergers &Acquisitions: Process tools to support M&A integration at every level (second edition), Jossey-Bass Publishers, 2007 Contact: Timothy Galpin, Ph.D. Associate Professor, University of Dallas College of Business One hundred twenty-four executives and managers from twenty-one different industries responded. INDUSTRIES REPRESENTED IN THE SURVEY Retail Financial Services Manufacturing Transportation Information Technology Education Social Services Telecommunications Healthcare Professional Services Oil and Gas Media Trade Association Travel Business Services Wholesale Distribution Consumer Packaged Goods Insurance Mortgage Banking Legal Utilities M&A Survey Page 1 of 5

Associate Professor, University of Dallas College of Business 214-679-0424 timjgalpin@aol.com One hundred twenty-four executives and managers from twenty-one different industries responded.

2 Most companies represented in the survey have conducted between one and five M&As since 2000, and most transactions have been conducted in the same industry as the one in which the company competes. NUMBER OF MERGERS OR ACQUISITIONS CONDUCTED SINCE to 5 6 to to 20 More than 20 Since 2000 my current company has done approximately this many mergers or acquisitions RECENT MERGERS OR ACQUISITIONS ARE DONE MAINLY WITHIN INDUSTRIES Disagree Somewhat Disagree Not Applicable Somewhat Agree Agree Since 2000 my current company has done M&As in the same industry in which we compete Even with the high volume of M&A activity during the late 1990s and more recently the early 2000s, it appears that management teams are still not conducting M&A integration efforts well. This troublesome assertion is supported by the finding that almost two-thirds (63%) of the respondents reported that their companies integration efforts are average or below average whereas, the study identified that just over a third (37%) of the survey respondents rated their companies overall M&A efforts as above average or excellent. The two most frequently identified areas that companies can improve during their M&A integration efforts are integration Communication (cited as the top area in need of M&A Survey Page 2 of 5

RECENT MERGERS OR ACQUISITIONS ARE DONE MAINLY WITHIN INDUSTRIES 7 6 5 4 3 2 1 Disagree Somewhat Disagree Not Applicable Somewhat Agree Agree Since 2000 my current company has done M&As in the same

3 improvement by 31% of respondents) and Leadership and Decision-Making (cited as the top area needing improvement by 23% of respondents). RATING OF COMPANIES OVERALL INTEGRATION EFFORTS 7 Percent Respones Excellent/Above Average Average/Below Average I would rate my current company's overall M&A integration efforts as... COMMUNICATION AND LEADERSHIP AND DECISION-MAKING ARE THE INTEGRATION AREAS MOST NEEDING IMPROVEMENT 35% 3 25% 2 15% 1 5% Communication Leadership and decision making Progress and results measurement Structure staffing and selection Retention of key managers and We are excellent at all of the above Project management The ONE AREA my current company can improve to make our M&A integration efforts better is The most concerning finding identified is the amount of time that companies appear to take to complete their integration efforts. In our experience, effective integration efforts can and should be achieved within the first six- to twelve-months after the close of a deal. However, only 33% of respondents indicated that their companies integration efforts are typically completed within the first six- to twelve-months after transaction close, while 67% of survey respondents indicated that their companies have taken from one- to more than five-years to fully integrate acquired companies people, processes, and systems. M&A Survey Page 3 of 5

.. COMMUNICATION AND LEADERSHIP AND DECISION-MAKING ARE THE INTEGRATION AREAS MOST NEEDING IMPROVEMENT 35% 3 25% 2 15% 1 5% Communication Leadership and decision making Progress and results

4 Elongating an M&A integration effort only serves to allow the inevitable post-close productivity drop to lengthen and deepen. Dragging out integration creates a significant group of companies in need of merger repair characterized by chronic operational, productivity, service, and/or overall performance issues. Disturbingly, almost half (49%) of survey respondents indicated that their company is in need of merger repair. At best, extended integration causes a deep and lengthy drop in productivity. At worst, prolonged integration can ultimately result in deal collapse and the breaking up of the combined companies. Applying prudent not reckless speed to an integration effort is the best prevention of lengthy and significant drops in productivity, an exodus of customers and key talent, and ultimate deal failure. TYPICAL TIME SPENT TO FULLY INTEGRATE AQUIRED COMPANIES PEOPLE, PROCESSES, AND SYSTEMS 35% 3 25% 2 15% 1 5% 1-6 months 7-12 months 1-2 years 2-3 years 3-5 years More than 5 years The amount of time it has typically taken my current company to fully integrate acquired companies' people, processes, and systems into ours has been... AMOUNT OF COMPANIES IN NEED OF MERGER REPAIR Disagree/Somewhat Disagree Agree/Somewhat Agree My current company is in need of "merger repair" - that is my company has several operational, productivity, service, and/or performance issues resulting from poorly conducted M&A integration efforts M&A Survey Page 4 of 5

Disturbingly, almost half (49%) of survey respondents indicated that their company is in need of merger repair. At best, extended integration causes a deep and lengthy drop in productivity.

5 EXAMPLE OPEN-ENDED COMMENTS FROM THE SURVEY PARTICIPANTS My company bought another health services organization. It seems as though they have not integrated anyone or any operations and I do not think they plan to do so. Over the past six years we've acquired two companies. One of them still suffers from a lack of cultural integration - they are located in San Francisco and we are in Dallas. The other acquisition was recently divested due to poor operational integration and poor due-diligence prior to the acquisition. I work for [a large mobile phone company], and many of our early acquisitions failed. We are now more in the mode of joint-ventures/partnerships to avoid these issues. Technical information for front line troops needs attention. That is, the people who do the service end at the present company need forward training in order to grasp the new companies products faster. Don't wait until the acquisition or merger is complete if at all possible. My company does a good job with mergers and acquisitions. Although, sometimes it isn't communicated until the last minute that the company has acquired another business. From an operational standpoint, the biggest issues have been around IS/IT systems and getting them working - HR systems, Finance systems, even simple workstation infrastructure has been very complicated. A lot of communication goes out, but most of it is really vague. I am currently coming into a M&A situation which was managed very poorly and am having to clean up messes two-years following an acquisition. Mergers so far have been more because of the self-interest of the leadership with no reasoning behind the integration. Only the interest to get fast cash out of the transaction. Stock performance of the new company has lagged the industry and our direct competitors. The newer "acquisition" personnel have a better attitude about their company being acquired by ours (we are a Fortune 200). However, there are some people from prior acquisitions that still talk about "the glory days" and how it was done back at their old company. I've noted that more now that I work at a manufacturing plant that has personnel from a merger over 15 years ago. I think the hourly employees take it more personally than the professional staff. Very minimal communication exists. During a recent acquisition, we thought that because they were in the same industry and grown along the path way we had grown that our cultures would be the same. When we started working on integration, the only two things we had in common were that we sold things to customers and expected to be paid. Everything else was different. There is no downward communication. The company did not prepare its employees regarding merger / acquisition. There is no proper approach or methodology followed. It was total chaos. I currently work as an Acquisition Coordinator and feel that although my company has made many successful acquisitions, we are lacking in the transition/integration area. It remains that the senior executives have the end result in mind but lack a focus on how to get there. There needs to be better synergy between the finance group, the operations group, and integration project management oversight. Communications and leadership was very lacking in the original M&A process. It left a bad taste in employees mouths because trust was never fully gained. M&A Survey Page 5 of 5

One of them still suffers from a lack of cultural integration - they are located in San Francisco and we are in Dallas.

US Employment 1939-2010. * All data from the U.S. Bureau of Labor Statistics

US Employment 1939-2010. * All data from the U.S. Bureau of Labor Statistics US Employment 1939-2010 * All data from the U.S. Bureau of Labor Statistics Total US Non-farm Employment (thousands) 1939-2010 140 000 RECOVERY 120 000 100 000 Sub-prime Mortgage Crisis 80 000 Dot Com