Best Practices Best Practicesof ofthe theBest BestDealmakers Dealmakers

Being fired by a Frenchman is one thing, but you cant be fired by a German.

Merrill DataSite and The M&A Advisor Present

he business press is filled with many examples of culture clashes that have caused deals to fail. A primary goal for most buyers and sellers involved in cross-border M&A transactions is to capitalize on the synergies gained by combining their organizations. But synergy can quickly dissipate when the impact of decisions regarding the new organizational culture is misjudged, as the following case illustrates:

THE ROAD TO RECOVERY

PART II MASTERING THE ART OF DISTRESSEd INvESTING
Yes, we have a lawyer, the buyer said, He told us the same thing. In effect, the sellers were reducing the selling price by having the buyer take on the responsibility for the social plan. We said, The only thing is that you need a personnel manager who is experienced at doing this. So we sold the business and concluded the deal. The next thing we know, the American buyer brings in a personnel manager from a subsidiary in Germany. A German. The CEO of the French company calls me and begs me to call the CEO in Chicago and tell them, You cannot have a German personnel manager in France to fire people! You just cant! PRACTICES Being fired by a Frenchman BEST is one thing, but you cant be fired by a German. OF THE bEST It is impossible. DEALMAKERS Culturally it didnt work. They had this German guy, going to do it the German way, and because it was a German doing it in a German way, they had strike upon strike upon strike in the French operations. They thought it was all because they were an American company but nobody cared about that. It was all because they put a German HR guy in there. Ren-Pierre Azria, president and CEO of advisory firm Tegris Advisors
As depicted above and as numerous studies have concluded, very often its the people issuesdifferences in management style, organizational culture, and the way we do things around herethat prevent an M&A transaction from achieving its financial and strategic objectives. Yet successful M&A transactions are taking place all the time, lead by experienced dealmakers who know what it takes to keep their deals on track John Wm. (Jack) Butler, Wilbur L. Ross, Timothy Coleman andFeaturing how to drive the greatest value for their shareholders.

We were working on the sale of a French computer leasing company to an American company. We agreed to a lower selling price partly based on the premise that the buyer would take on the difficult task of terminating some of the employees. We told the buyers, Listen; to fire people in France, you have to make a social plan and present it to the work inspector. This is the procedure.

Chapter 3

and other industry leaders

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Best Practices Best Practicesof ofthe theBest BestDealmakers Dealmakers

Being fired by a Frenchman is one thing, Introduction but you cant be fired by a German.
Drawing on the experience and expertise of the best in class dealmakers, The M&A he Advisor, together leading provider of of culture virtual deal management serbusiness press iswith filledthe with many examples clashes that have caused vices, Merrill DataSite, publishes the quintessential dealmakers guide series The deals to fail. A primary goal for most buyers and sellers involved in cross-border Best Practices of The M&A Dealmakers. M&A transactions is to Best capitalize on the synergies gained by combining their organizations. But synergy can quickly dissipate when the impact of decisions Profiling the strategies and unique experiences of the leading M&A practiregarding the proven new organizational culture is misjudged, as the following case illustrates: tioners, The Best Practices of The Best M&A Dealmakers series is distributed in We were working on the sale of a French computer leasing company to an regular installments for M&A industry professionals in both print and interactive American company. We agreed to a lower selling price partly based on the electronic media. Previously published features and chapters are also available in the premise that the buyer would take on the difficult task of terminating some online library of Merrill Datasite and The M&A Advisor. of the employees. We told the buyers, Listen; to fire people in France, you have to make a social plan and present it to the work inspector. This is the We are pleased to present Chapter 3 - Part 2: The Road to Recovery - Mastering procedure. the Art of Distressed Investing, which discusses best practices for buyers of dislawyer, the buyer said, He us the sameon thing. Yes, we have a or tressed companies its assets. As with Part 1,told which focused best practices from the sellers perspective, this installment features candid interviews leading In effect, the sellers were reducing the selling price by having the with buyer take practitioners and analysis of the current trends in restructuring and reorganization. on the responsibility for most the social plan. We said, The only thing is that you need a personnel manager who is experienced at doing this. So we sold the business and concluded the deal.

The next thing we know, the American buyer brings in a personnel manager from a subsidiary in Germany. A German. The CEO of the French company calls me and begs me to call the CEO in Chicago and tell them, You cannot have a German personnel manager in France to fire people! You just cant! Being fired by a Frenchman is one thing, but you cant be fired by a German. It is impossible. Culturally it didnt work. They had this German guy, going to do it the German way, and because it was a German doing it in a German way, they had strike upon strike upon strike in the French operations. They thought it was all because they were an American company but nobody cared about that. It was all because they put a German HR guy in there. Ren-Pierre Azria, president and CEO of advisory firm Tegris Advisors
As depicted above and as numerous studies have concluded, very often its the people issuesdifferences in management style, organizational culture, and the way we do things around herethat prevent an M&A transaction from achieving its financial and strategic objectives. Yet successful M&A transactions are taking place all the time, lead by experienced dealmakers who know what it takes to keep their deals on track and how to drive the greatest value for their shareholders.
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Mastering the Art of Distressed Investing - Creating Value from Distressed Companies

The art of the deal is to uncover hidden value, weigh it against the higher risk, and establish the right deal structure, price and timing to maximize value.
Albert Notini, senior advisor at private equity firm New Mountain Capital, and his team identified a distressed investment opportunity in a technology company that was trying to sell long-term services as well as computer products. The theory was that they were touching so many customers with these products that they could upsell them with services, Notini said, Wrong. What happened was that both sides of the business were stalling out because the cycle time for selling a product was very rapid with no backlog, but the cycle time for selling services was multi-year. So they had this sort of inconsistency where all the profits were coming from the service side but all of the energy from a sales point of view was going into selling the next hot (computer) box. So you had a sense of living to fight the day, but leaving the big money on the table. Notini and his team ended up breaking the business into two companies. We found, when we broke the business apart, all kinds of stranded costs where people had a foot in both sides but werent really adding value. We ended up, by doing that, with two healthy companies, both of Albert Notini on which ending up growing pretty well. We exited at very identifying hidden value attractive multiples.
in distressed companies.

As Notinis story illustrates, troubled companies can yield an attractive return on investment (ROI) for distressed investors, provided they have the insight and the know-how to choose the right targets and reposition them to drive value. But distressed investments also carry a decidedly higher degree of risk. To succeed, buyers need an investment strategy and execution plan that steers their efforts toward the right targets. The art of the deal is to uncover hidden value, weigh it against the higher risk, and establish the right deal structure, price and timing to maximize value. Distressed M&A transactions are more complex, require more in-depth due diligence and are subject to even more compressed timeframes than M&A transactions for healthy companies. This is an area of investing where experienced dealmakers usually prevail over newcomers. The most successful deal teams are

Best Practices Best Practicesof ofthe theBest BestDealmakers Dealmakers

Creditor Committees and Other Influential Parties in he business press is filled with many examples of culture clashes that have caused Investing deals to fail. A primary goalDistressed for most buyers and sellers involved in cross-border M&A transactions to capitalize on the synergies gained by combining their In addition toistaking on investments that carry a higher risk, distressed organizations. synergy can quickly dissipate when the impact decisions investors But must be prepared to negotiate with not just one, of but potentially regarding the new organizational culture is misjudged, as the following case illustrates: many stakeholders who are seeking to benefit from the deal. The purchaser or investor is often toanegotiate with and/or placate multiple conWe were working onrequired the sale of French computer leasing company to an stituencies, including (i) senior junior lien price holders (ii) based trade on creditors, American company. We agreed toand a lower selling partly the 1 As (iii) an unsecured creditors committee, and (iv) a bankruptcy judge. premise that the buyer would take on the difficult task of terminating some a result, the buyer must able to address a to wide ofin financial obliof the employees. We toldbe the buyers, Listen; firearray people France, you gations and negotiation tactics beyondit those encountered in traditional have to make a social plan and present to the work inspector. This is the M&A transactions. procedure.

those who know Being their industry/market opportunity and who are also fired by a Frenchman isvery one well thing, very experienced inbut working with distressed companies. As noted in a Deloitte you cant be fired by a German. study Distressed M&A: Leveraging Opportunity in a Downturn, this is an area of investing where what you dont know can definitely hurt you.

a lawyer, the buyer said, Heoften told us the same thing. Yes, we have Equally important, various stakeholders take an early and involved interest a sellers companys plans.price Consider, for example, In effect,in the were restructuring reducing the selling by having the buyerthe take bankruptcy proceedings for American Airlines parent company AMR, a on the responsibility for the social plan. We said, The only thing is that you publicly held company with thousands of stakeholders. In this instance, need a personnel manager who is experienced at doing this. So we sold the a distressed must ready to negotiate with a large number of business andinvestor concluded the be deal. shareholders, secured debtors and unsecured debtors, employee unions, The next thing we know, the American buyer brings in a personnel manager creditor committees and more. from a subsidiary in Germany. A German. The CEO of the French company calls me and begs me to call the CEO in Chicago and tell them, You cannot For such troubled companies, the future is built on a foundation of comhave a German personnel manager in France to fire people! You just cant! promise. In the case of AMR, there does need be be shared Being fired by a Frenchman is one thing, but you to cant fired and by abalanced German. sacrifice across the financial stakeholders, said Jack Butler, internationally It is impossible. recognized leading attorney and partner at Skadden, Arps, Slate, Meagher Culturally it didnt work. They had this German guy, going do it unsecured the & Flom LLP & Affiliates also a member of the legal team to for the it was a German doing it in a German way, German way, and because creditors committee of AMR Corp. Butler noted, I think what thethey credihad strike upon strike upon strike in the French operations. They thought tors are focused on isnt just the cost side, its the revenue side. How do it was because they were an American company but nobody cared airline about you all turn this airline, transform it back into a competitive global that. It was allto because they put a German HR guy in there. that is going have an opportunity for future growth? Because in order -Pierre Azria, president and CEO of advisory firm Tegrishave Advisors Ren for people to share in sacrifice they have to see a future. They to see a direction. As depicted above and as numerous studies have concluded, very often its the people issuesdifferences in management style, organizational culture, and the way we do The investors of any distressed company, regardless of its size, must things around herethat prevent an M&A transaction from achieving itsunderfinancial theobjectives. needs of its various stakeholders. Moreover, must also and stand strategic Yet successful M&A transactions are they taking place all be the time, lead by experienced dealmakers who know what it takes to keep their deals on track and how to drive the greatest value for their shareholders.
1. Nathan Coco, The Top Five Traps in Distressed M&A Transactions, The National Law Review.

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Mastering the Art of Distressed Investing - Creating Value from Distressed Companies

able to communicate well and consistently, and balance stakeholders often conflicting desires with their own overall goal to drive value in their investment. Without effective communication to keep negotiations moving, value is lost rather than realized. For a lively M&A Summit Panel discussion on the complexities of stakeholder negotiations in industries such as the airlines, CLICK HERE . Distressed Investing Good Deals in Bad Times. Those who have succeeded in this arena have done so by creating a clearly defined investment thesis that guides all of their decisions. Indeed, in certain market conditions, these investors narrow their scope even further to the core business sectors Wilbur L. Ross on distressed they know best. As Wilbur L. Ross noted at a recent M&A Advisor Distressed Investing Summit, investing strategies. Our strategy for this year is even more than usual to focus on a couple of individual sectors and to try our work there. The rewards in acquiring a good distressed target can be high, but theyre usually reserved for those who make the most informed decisions. The Distressed Investing Landscape (The Players) The opportunity to buy or invest in a distressed company attracts a number of buyers and financial advisors including: 1. Private equity/distressed investors 2. Distressed debt purchasers (that either buy the debt for its potential ROI or to gain a control position in the company) 3. Strategic buyers/corporations seeking to solidify or expand their footprint 4. Turnaround executives or managers who promote the deal and may help operate the company after bankruptcy 5. Distressed investment bankers promoting and financing the transactions Some companies participate as purely financial investors, purchasing the distressed companys secured or unsecured debt as a means to diversify their portfolio. These investors steer clear of targets that will require both financial and operational management in order to gain the desired ROI. Others take a more strategic approach. Such as acquiring targets at a discounted price and add their own financial, management and operational resources to turn the company around.
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Best Practices Best Practicesof ofthe theBest BestDealmakers Dealmakers

he business press isbring filled with many examples of culture clashes that have Strategic investors also in additional management resources to turn a caused disdeals to fail. A primary goal for most buyers and sellers involved cross-border tressed company around because existing management often lacksin this experience. M&A transactions is to capitalize on the synergies gained by combining their As noted by veteran investor Mike Heisley, co-founder and principal of Stony organizations. But synergy can quickly dissipate when the impact of decisions Lane Partners, There is a world of difference between someone that can manage regarding the new organizational culture is misjudged, as the following illustrates: Nonetheless, a distressed company and somebody that can manage a company.2case no matter how muchon forethought planning goes leasing into a distressed investment, We were working the sale of and a French computer company to an there is no guarantee that distressed asset will yield the valuebased the buyers enviAmerican company. Weaagreed to a lower selling price partly on the sioned. premise that the buyer would take on the difficult task of terminating some of the employees. We told the buyers, Listen; to fire people in France, you Thehave following pages provide insights into how the work most inspector. experienced distressed to make a social plan and present it to the This is the investors approach this area of opportunity. procedure.

There is a world of by difference between someone that Being fired a Frenchman is one thing, you cant becompany fired by a German. can managebut a distressed and somebody that can manage a company. ~ Mike Heisley

the buyer said, He told us the same thing. Yes, we have a lawyer, Sources of Distressed Opportunities In effect, the sellers were reducing the selling price by having the buyer take Distressed investors uncover potential targets through number of on the responsibility for the social plan. We said, Theaonly thing ischannels, that you including investment banks, bankruptcy courts/filings, turnaround specialists, need a personnel manager who is experienced at doing this. So we sold the law business firms and other advisors. and concluded theMany deal. distressed investors also conduct their own research to uncover opportunities that may not yet be on anybodys radar. These The next thing we know, the American buyer brings in a personnel manager investors monitor potential acquisitions by watching for additional indicators of from a subsidiary in Germany. A German. The CEO of the French company distress as: begs me to call the CEO in Chicago and tell them, You cannot calls such me and

great lengths to identify diamondsstudies in the have rough. There is plenty of competition for As depicted above and as numerous concluded, very often its the people good targets, as observed by Tim Coleman, senior managing director and head of issuesdifferences in management style, organizational culture, and the way we do the restructuring & reorganization Blackstone, a leading global investthings around herethat prevent angroup M&A for transaction from achieving its financial and strategic objectives. YetEveryone, successful M&A transactions areadvisor taking place the time, ment and advisory firm. whether they are an or anall investor, is lead by experienced dealmakers who know what it takes to keep their deals on track 2. Bright Stars Among Dark Clouds: Leaders in Distressed Investing Strategize, Distressed Investing Report, May 2009. and how to drive the greatest value for their shareholders.
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have a German personnel manager in France to fire people! You just cant! Rating downgrades of the companys debt Being fired by a Frenchman is one thing, but you cant be fired by a German. Asset sales or equity offerings It is impossible. Changes in senior management Culturally it didnt work. They had this German guy, going to do it the Layoffs it was a German doing it in a German way, they German way, and because Pursuit of union concessions had strikefrom uponcertain strike upon strike in the French operations. They thought it Exits business lines was all because they were an American company but nobody cared about 3 Impending regulatory investigations that. It was all because they put a German HR guy in there. -Pierre for Azria, and CEO advisory firm Tegris Advisors Ren Given the potential thepresident high ROI that canof be gained, many investors will go to

3. John M. Reiss, Matthew J. Kautz, Thomas E. Lauria and Gerard H. Uzzi, M&A Strategies for Bankruptcy and Distressed Companies: Leading Lawyers on Asset Valuation, Deal Structure, and Risk Management, Important Tools in Distressed M&A Transactions, White & Case, LLP. After 2009.

Mastering the Art of Distressed Investing - Creating Value from Distressed Companies

constantly looking for that angle to find that something that opportunity that nobody has been thinking about, he said. What Investors Need to Know About Distressed Investing Experienced distressed investors advise any buyer who is new to this arena to proceed with caution. When the target is distressed, its even more critical to gain a clear understanding of the targets operations in order to gain a sense of its true potential to deliver value. Buyers should be very wary of misjudging the target and becoming saddled with a turnaround that requires a much deeper investment in skills and resources than they are prepared to take on. The best investors establish a clear investment thesis and do not let themselves be swayed by outside factors. For example, a company may be tempted to buy a distressed competitor just to prevent others from acquiring it. Or it may view the acquisition of a distressed competitor as a way to rapidly expand its product line and sales territory. These decisions, when made in a reactionary mode, can be disastrous. The best insurance against making the wrong acquisition for the wrong reasons is to align every step of the process with the objectives of a well-developed investment thesis. Financial and Operational Considerations In looking for the sources of distress, buyers should avoid the misconception that financial distress is solely caused by a company taking on too much debt. Focusing too much on a companys debt levels can fool a buyer into thinking that the companys problems can be solved simply by restructuring the debt.4 In reality, most troubled companies become distressed through a combination of factors. The challenge lies in getting an accurate picture of the companys finances, its operations and its potential for future growth, given the internal and external challenges and opportunities it faces. This broader diligence is necessary to uncover the companys true value potential and whether it can realistically be achieved. Distressed companies can range from challenged companies with bad balance sheets to good companies with bad balance sheets and everything in between. Gaining an accurate understanding of where the potential target truly sits in that spectrum is critical. Jay Greyson, managing director and partner of investment bank Vetus Partners, cautions investors to have a clear definition of the kind of distressed investment they are seeking before they get too involved with a potential target.
4. John M. Reiss, Matthew J. Kautz, Thomas E. Lauria and Gerard H. Uzzi.

Best Practices Best Practicesof ofthe theBest BestDealmakers Dealmakers

he business press is filled with many examples of culture clashes that have caused deals to fail. A primary goal for most buyers and sellers involved in cross-border A company can be incapitalize distress for number of reasons, Greyson said, There are M&A transactions is to on a the synergies gained by combining their companies out there thatcan arequickly really good businesses but they have much too much organizations. But synergy dissipate when the impact of decisions regarding the books. new organizational culture isput misjudged, as the following case illustrates: debt on the Maybe the debt was on at a time when things were at a peak, but in an economic turndown, if they have too much debt on the books, they We were working on the sale of a French computer leasing company to an may start breaking covenants and to cant service the price debt.partly based on the American company. We agreed a lower selling

The most successful investors bring inisaone team of senior Being fired by a Frenchman thing, but and you cant be fired by a German. operational, legal financial experts who understand both what it takes to run the business and what a successful restructuring needs to look like.

premise that the buyer would take on the difficult task of terminating some Forof these companies,We Greyson says, the Listen; investorto may able in to France, drive value the employees. told the buyers, firebe people you by affecting a financial turnaround. However, at the other end of the spectrum are those have to make a social plan and present it to the work inspector. This is the businesses with a broken business model as well as financial problems. Turning procedure. these companies around will require the investor to invest time and money into a lawyer, the buyer said, He told us the same thing. Yes, we have organizational, operational and financial restructuring initiatives. This represents a much more involved commitment, but it has price proven be a worthy investment In effect, the sellers were reducing the selling by to having the buyer take strategy for companies who know exactly what it will take to turn the company on the responsibility for the social plan. We said, The only thing is that you around and maximize its value. In these cases, many of the most successful invesneed a personnel manager who is experienced at doing this. So we sold the torsbusiness bring inand a team of senior legal and financial experts who underconcluded theoperational, deal. stand both what it takes to run the business and what a successful restructuring The next thing we know, the American buyer brings in a personnel manager needs to look like. from a subsidiary in Germany. A German. The CEO of the French company calls me and begs me to call the CEO in Chicago and tell them, You cannot Deeper Due Diligence to Identify the Right Targets have a German personnel manager in France to fire people! You just cant! Being fired by a Frenchman is one thing, but you cant be fired by a German. In the distressed arena, traditional due diligence checklists and models dont It is impossible. necessarily include all a buyer needs to make an informed decision. Uncovering it didnt work. They hadtarget this German guy, to do it the the Culturally value opportunity in a distressed requires angoing investigative approach that it was a German doing it in a German way, they play a German way, and because goes beyond traditional due diligence. Practical operational analysis should had strike upon strike upon process. strike in the French operations. thought it significant role in the decision Moreover, the analysisThey should be managed was all because they were an American company but nobody cared about by financial, legal and operational professionals with a solid track record of workwas all because they put a German HR guy in there. ing that. withIt distressed companies. Ren-Pierre Azria, president and CEO of advisory firm Tegris Advisors

The due diligence process should be handled carefully in often orderits to the prevent the As depicted above and as numerous studies havevery concluded, very people acquisition of the wrong target, according to turnaround specialist Patrick issuesdifferences in management style, organizational culture, and the wayOKeefe we do of OKeefe Associates: things around herethat prevent an M&A transaction from achieving its financial and strategic objectives. Yet successful M&A transactions are taking place all the time, You have to understand company be some distress lead by experienced dealmakerswhy whothe know what itmay takes toexperiencing keep their deals on track and how to drive the greatest value for their shareholders.
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Mastering the Art of Distressed Investing - Creating Value from Distressed Companies

and what makes it an opportunity for an acquisition, so you can then understand what needs to change, OKeefe said, What you dont want is a company that is in distress because theyre too early in their growth cycle and have too many unknowns in front of them, such as a potentially unproven technology or customer base that is not yet sufficiently diversified. On the flip side, you dont want a company that is too late in their economic cycle, where the best you can hope is a dead cat bounce where the business is really dead and you can maybe run it a little more profitably, but the underlying fundamental business is no longer competitive. Experienced distressed investors also weigh a host of factors that go beyond operational and financial performance. For example, at a recent restructuring and turnaround conference hosted by the Wharton Restructuring Club of The Wharton School at the University of Pennsylvania, panelists identified several key elements that investors should identify before making an investment in a distressed business: Cost position: Know the cost position of your target as it is the ultimate arbiter of corporate conflict. An investor must know the cost position of the company it is investing in relative to that of its peers in order to gauge their ability to compete. Competitive Landscape: Avoid industries where competition is savage, this was likened to sharks fighting with knives. These types of investments rarely work out, particularly when combined with the added constraint of leverage, which leaves very little room for error. Historical Performance: How did the company perform in the 08-09 crisis? Several panelists at the Wharton Conference noted that bankers are leaving the 08-09 financials out of their confidential information memo randums, which is a bad sign. It is important to understand how the company performed under stressful scenarios in order to gauge its ability to withstand another shock and preserve the equity invested. Management: Finally, it is important to know how management handled the last downturn. Were they a deer caught in the headlights or did they respond aggressively and proactively? It is important to see how those who are going to be managing your company perform in the face of adversity. 5 There are many factors that contribute to a companys distress. Acquiring one without a clear purpose and in-depth risk analysis can destroy rather than create value for the buyer. Because the risk/return paradox is so different in healthy versus distressed markets, thorough due diligence is even more important when
5. Notes from the 2012 Wharton Restructuring Conference http://www.distressed-debt-investing.com/2012/02/notes-from2012-wharton-restructuring.html

Best Practices Best Practicesof ofthe theBest BestDealmakers Dealmakers

he business press is filled with many examples of culture clashes that have caused deals to fail. A primary goal for most buyers and sellers involved in cross-border contemplating a distressed transaction. Issues that may not be of great concern in M&A transactions is to capitalize on the synergies gained by combining their a healthy company may be make-or-break factors when considering a distressed organizations. But synergy can quickly dissipate when the impact of decisions 6 company. new organizational culture is misjudged, as the following case illustrates: regarding the

fired by a Frenchman is one thing, CompaniesBeing who have mastered distressed investing on but you cant be fired by a German. their home turf may not be aware of all that they need to know to accurately evaluate a cross-border target.

We were working on the sale of a French computer leasing company Some Additional Considerations Before Taking on Cross-border Targets to an American company. We agreed to a lower selling price partly based on the premise that the buyer would take on the difficult task of terminating some Experts also advise investors to take care when entering into the global distressed of the employees. We told the buyers, Listen; to fire people in France, you investment arena. Companies who have mastered distressed investing on their have to make a social plan and present it to the work inspector. This is the home turf may not be aware of all that they need to know to accurately evaluate procedure. a cross-border target. Governmental and cultural factors can play a pivotal role a lawyer, buyer said, He told us thean same thing. Yes, wea have in creating winning deal.the One of the biggest mistakes investor can make is to acquire a target without clearly understanding the risks related to cross-border In effect, the sellers were reducing the selling price by having the buyer take distressed investments. For example, according to Marcel Fournier, managon the responsibility for the social plan. We said, The only thing issenior that you ing need director of private equity firm Castle Harlan, distressed investors considering a personnel manager who is experienced at doing this. So we sold the European targets should bethe aware of additional factors that can affect their ability business and concluded deal. to achieve their investment goals. The next thing we know, the American buyer brings in a personnel manager Germany. A German. The CEOthe of the Frenchrole company from a subsidiary Specifically, Fournierin advises investors to understand powerful that govcalls me and begs me to call the CEO in Chicago and tell them, You cannot ernments and unions play in European companies, particularly in times of reelechave a German personnel manager in France to fire people! You just cant! tion and high unemployment. Unions are a part of life in Europe, much more Being fired by aseeing Frenchman isUnited one thing, butand you governments cant be fired by German. than were used to in the States; areapart of busiItlife is impossible. ness as well, Fournier said, Your ability to restructure the base employee is far more limited, generally, Europe than in the United States. Fournier Culturally it didnt work.in They had this German guy, going to do it the added, Essentially in some the negotiates on your behalf whether it government was a German doing it in a German way, they you German way, and cases, because likehad it or not for entire industries or sectors, and then you have to implement strike upon strike upon strike in the French operations. They thought it that. was all because they were an American company but nobody cared about that. It was all because put a German HR guy in there.according to Fournier, Another important factorthey to consider in identifying targets, -Pierre Azria, president and CEO of advisory firmtheir Tegris Advisors as Ren is that European companies have not been as free to adjust workforce American have. It hasstudies been very striking to see in often an American recesAs depicted companies above and as numerous have concluded, very its the people sion how quickly and profoundly American companies have adjusted in a matter issuesdifferences in management style, organizational culture, and the way we do of months, he said, This is not the case in Europe and not the habit. Governthings around herethat prevent an M&A transaction from achieving its financial ments, unions, local elected bodies will stand in your way, so that has all to the be taken and strategic objectives. Yet successful M&A transactions are taking place time, into account in timing and cost and your overall ability to do so. lead by experienced dealmakers who know what it takes to keep their deals on track and how to drive the greatest value for their shareholders.
6. Deloitte, Distressed M&A: Leveraging Opportunity in a Downturn, February 2009.

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Mastering the Art of Distressed Investing - Creating Value from Distressed Companies

Fournier summarized, Many of the turnarounds we see in Europe suffer from gross over-employment and we have passed (on them) in many cases for that reason. So in terms of distressed opportunities, I would personally focus on those (turnarounds) that have simply been poorly managed or have suffered from financial distress, and I would be extremely careful on anything that requires deep and substantial adjustment of the workforce. Because governments will give in to public pressure if they have to. Additionally, distressed investors interested in crossborder bankruptcies need to take the time to understand how bankruptcies are handled in the targets country. Bankruptcy procedures are not uniform across the European Union (EU); they are still managed according to the specific laws of each EU country. Sorting through the complexities of a bankrupt company with assets in Italy, France and Germany, for example, may be more challenging than an investor wants to take on.

Marcel Fournier on distressed investing in Europe.

Investment Strategies of Successful Distressed Investors To improve their odds for uncovering value-creating opportunities, the best distressed investors focus on the market sectors where they have the most experience and expertise. For this reason, many experts cite serial acquirers rather than occasional acquirers as being better at distressed investing. In one study of 26,000 transactions executed between 1988 and 2010, The Boston Consulting Group came to the conclusion that serial acquirers produce superior returns when they focus on distressed assets. Although all acquisitions are complex purchasing a distressed business makes the exercise much more complex because there is often an urgent need to restructure the target, as well as limited access to information during the due diligence process. Serial acquirers appear to excel at turning this complexity into value. 7 This is also an area where strategic investors shine. The most successful firms focus on specific industries and generally take a longer view in terms of quantifying their upside. In the opinion of Tim Coleman of Blackstone, The strategic investors do well at this, because they know the business so well that they could go in and run it if they had to. He continued, Certain financial investors also do well, because they know how to leverage the operational and industry expertise of their portfolio companies to assess a target. Within that framework, the most successful investors further refine their invest7. Does Practice Make Perfect? How the Top Serial Acquirers Create Value, (The Boston Consulting Group, The Leipzig Graduate School of Management, April 2011.

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Best Practices Best Practicesof ofthe theBest BestDealmakers Dealmakers

Being by a Frenchman is one thing, to work Weve learned asfired a firm, that for our model but you cant be fired by a German. effectively, we need to have control. ~ Anthony Polazzi
business press is opportunities filled with many examplesto oftheir culture clashes that goals have caused menthe criteria to size up according firms specific and deals to fail. A primary goal for most buyers and sellers involved in cross-border experience. For example, an investor may: M&A transactions is to capitalize on the synergies gained by combining their organizations. But synergy can quickly dissipate when the impact of decisions Focus on Gaining a Controlling Interest regarding the new organizational culture is misjudged, as the following case illustrates:

Some investors may take a minority interestto inan a target We were working on the sale of a French computer leasing company as a means getting a foot in partly the door, but for others, American company. We agreed to aof lower selling price based on the gaining a controlling interest is a must, as explained premise that the buyer would take on the difficult task of terminating some by Anthony Polazzi of Sun Capital Partners. Weve of the employees. We told the buyers, Listen; to fire people in France, you learned as a firm, that for model work effectively, we need have to make a social plan and present itour to the workto inspector. This is the procedure. to have control. We have experienced it from the minorAnthony Polazzi on distressed investing ity perspective of being a board member and the frustraYes, we have a lawyer, the buyer said, He told us the same thing. strategies. tion of watching the board meet quarterly, and deciding In effect, the sellers were reducing the selling price byget having the buyer take on something, but it doesnt implemented until the on the responsibility for the social plan. We said, The only thing is that you next board meeting or the next board meeting after that, Polazzi said. By then its a personnel who the is experienced doing because this. So you we sold the too need late. So from ourmanager perspective, first step is at control need to enact business and concluded the deal. change quickly. Even if you make the wrong decision, its better than no decision, because the Number 1 issue inAmerican distressed situations isin usually inertia. The next thing we know, the buyer brings a personnel manager from a subsidiary in Germany. A German. The CEO of the French company Uncover Value in Industries in Decline calls me and begs me to call the CEO in Chicago and tell them, You cannot have a German personnel manager in France to fire people! You just cant! Some havebe found by capitalizBeing fired by a Frenchman isdistressed one thing,investors but you cant fired value by a German. ing on companies whose products are facing imminent, It is impossible. but not immediate extinction. However, as Polazzi of Culturally it didnt work. They had this German guy, going to do it the Sun Capital pointed out, timing is critical. Its important German way, and because it was a German doing it in a German way, they to understand over what time period and how quickly is had strike upon strike upon strike in the French operations. They thought it the destruction of that industry, he said. Some indusAnthony Polazzi on was all because they were an American company but nobody cared about tries move very quickly but some take a long time. We investing industries that. It in was all because they put a German HR guy in there. very successfully owned, for a period of time, a comin decline. -Pierre Azria, president and CEO of advisory firm Tegris Advisors Ren pany called Genicom, a dot matrix printer company. Of As depicted above and as numerous studies havematrix concluded, veryare often its the people course when we bought it everyone said, dot printers going away, and issuesdifferences in management style, organizational culture, and the way we do youve got lasers, ink jets and all of this stuff. But the reality was that the governthings herethat M&A transaction from achieving its financial ment around wasnt going to turnprevent aroundan and get rid of all their dot matrix printers the and strategic objectives. Yet successful M&A transactions are taking place all the time, next day, even though maybe the cutting edge businesses were. There are still dot lead by experienced dealmakers who know what it takes to keep their deals on track and how to drive the greatest value for their shareholders.
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Mastering the Art of Distressed Investing - Creating Value from Distressed Companies

matrix printers in use today. You might have a harder time finding them today, but they are there. Identify Opportunities In Transformations I think another way to look at opportunities is to look for companies that are undergoing transformations, said Randall S. Eisenberg, Senior Managing Director of FTI Corporate Finance practice. There are a series of companies, that because their industries have evolved for one reason or another, need to change their business model, and those that move too slowly will get caught up in some sort of restructuring thats ripe for distressed investors to take a look at and be active in.

Randall Eisenberg on analyzing distressed companies undergoing transformation

Focus On The Market Segment With Limited Access To Refinancing Henry Miller, Chairman of Marblegate Asset Management, noted that his firm focuses on the middle market, where distressed investing opportunities can be found by identifying troubled companies who have little access to credit. Financial regulators like the FDIC are leaning Henry Miller on identifying very hard on banks to get rid of assets that are troubled, distressed investing and to make it difficult for them to provide financing opportunities. in the middle market, Miller said. So the issue to me at least is access to capital. If companies have access to capital then they can figure out a solution that works. If they dont have access to capital, whether theyre distressed or not, they are going to be driven to a form of restructuring because its the only solution available to them in the absence of a capital market solution. Identify Assets That Can Be Carved-Out Some distressed investors focus on carving out assets from a distressed company and setting them up to operate independently. These investors target large businesses or corporations with embedded business units or divisions that are unprofitable, often because huge overhead allocations from the corporate umbrella are choking the business unit.

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Best Practices Best Practicesof ofthe theBest BestDealmakers Dealmakers

Being fired by a Frenchman is one thing, If companies have access capital then they can figure but you cant beto fired by a German. out a solution that works. ~Henry Miller
he business is filled with many examples ofaculture clashes that have caused According to Jaypress Greyson of Vetus Partners, this is specialized area of investing deals to fail.profitable A primaryfor goal for most buyers and involved inright cross-border that can be very distressed investors sellers if they have the expertise. M&A transactions is to capitalize on the synergies gained by combining their In his opinion, this strategy works best when its managed by a deal team and adviorganizations. But synergy can quickly dissipate when the impact of decisions sors with deep knowledge in the targets specific industry. His firm has found this regarding the new organizational culture is misjudged, as the following case illustrates: industry knowledge to be so critical to this process that it has focused its investWe were working on on thetargeted sale of a industries. French computer leasing company to an ment banking business We sit with the managers and we company. We with agreed to a lower selling price partly on the ask American them, What if we start a clean slate? If you were takenbased out of the parent premise thatexpenses the buyerwould would go take on the difficult task of terminating some company, what away and how would you restructure? of the employees. We told the buyers, Listen; to fire people in France, you have to make a social plan and present the work inspector. This isbalance the In these situations the goal is to create, on it a to proforma basis, a P&L and procedure. sheet that will indicate if the carve-out will yield a profitable business. Understanding Yes, whatwe it takes to carve out an opportunity takes expertise. lawyer, thesuch buyer said, He told us the specialized same thing. have a Firms who have successfully engineered such transactions staff their teams with In effect, the sellers were reducing the selling price byand having the buyer take senior professionals who have worked in the industry have directly related on the responsibility for the social plan. We said, The only thing is thatbusiness you operational experience that is necessary to create a workable multi-year need personnel manager who is experienced at doing this. So we sold the plan thatawill drive value. business and concluded the deal.

Companies in Challenging German way, and because it was a German doing it in a German way, they Times

The above examples highlight a few of the ways The next thing we know, the American buyer brings injust a personnel manager experienced investors work diamonds in A German. The CEOto ofuncover the French company from a subsidiary in Germany. the rough. For a Chicago more detailed discussion ofcannot how discalls me and begs me to call the CEO in and tell them, You tressed investors and advisors find opportunities, have a German personnel manager in France to fire people! You just cant! click Being fired by a Frenchman isphoto one thing, but you bean fired by aSummit German. on the on the left tocant watch M&A Panel: ItSummit is impossible. M&A Panel: The The Road Back: Navigating Companies in Challenging Road Back: Navigating Times. Culturally it didnt work. They had this German guy, going to do it the

had strike upon strike upon strike in the French operations. They thought it was all because they were an American company but nobody cared about Structure that. ItThe wasDeal all because they put a German HR guy in there. Ren-Pierre Azria, president and CEO of advisory firm Tegris Advisors One of the most important decisions that a purchaser must make in connection As depicted above and as transaction numerous studies have concluded,the very often its the people with a distressed M&A is how to implement sale. The decision issuesdifferences in management style, organizational culture, and the way we of do may be driven by a myriad of factors, including (1) the nature and complexity things around and herethat prevent M&Aneed transaction from achieving its financial the business its assets; (2) thean sellers for operating capital in the inand strategic objectives. Yet successful M&A transactions are taking place all the time, lead by experienced dealmakers who know what it takes to keep their deals on track and how to drive the greatest value for their shareholders.
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Mastering the Art of Distressed Investing - Creating Value from Distressed Companies

Many experienced distressed investors also define their exit strategy early on, before the transaction is consummated, if possible.
terim period prior to a closing; (3) the extent and priority of the existing liens; (4) acrimony among creditor constituencies; and (5) the time available to complete the transaction. Choosing the wrong approach may jeopardize or complicate the execution of the transaction.8 Experts advise buyers to seek the advice of financial and legal counsel who have directly related experience in structuring distressed asset transactions. Plan For A Successful Turnaround to Drive The Greatest Value Once value has been identified, turnaround experts like OKeefe also advise would-be buyers to factor the cost of integrating the new asset into the purchase price. If this is not taken into consideration in setting a price, the buyer may find that the asset they purchased in pursuit of adding value to the company may actually have the opposite effect. No one really focuses, from the deal team perspective, on the fact that once the acquisition is done, how quickly they must move to identify the synergies that make the target a good acquisition, he said. This is just as important, because if you have levered the transaction to any capacity with these potential synergies and you dont get them on a timely basis, then youll overpay for the transaction. OKeefe sees this as a critical aspect of the transaction where investors make a lot of mistakes. In his experience, fund managers are often willing to spend money very quickly on an acquisition in terms of purchase price, but they wont spend money on the due diligence or the turnaround effort, where they could uncork some additional value. From my standpoint, that should just be an added amount to purchase price that you have to pay to get the opportunity repositioned in a way that makes sense and to provide the greatest returns, said Okeefe. Define The Exit Strategy Upfront Many experienced distressed investors also define their exit strategy early on, before the transaction is consummated, if possible. Typically a financial investor such as a private equity firm has a holding period of three to seven years for the turna8. Nathan Coco.

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Best Practices Best Practicesof ofthe theBest BestDealmakers Dealmakers

round and sale of an asset. A corporate/strategic buyer can and may hold onto the fired of bytime. a Frenchman is make one thing, asset for a much Being longer period The key is to sure that the potential but you cant be fired by a German. upside of a distressed investment can be realized in the time frame and according to a strategy that is aligned with the buyers investment goals and capabilities. Summary he business press is filled with many examples of culture clashes that have caused Success in to distressed investing achieved by having the right experience, a good deals fail. A primary goalis for most buyers and sellers involved in cross-border investment thesisis and an exemplary team of legal, financial and operational adM&A transactions to capitalize on the synergies gained by combining their visors who specialize in working with distressed assets. The successful investor organizations. But synergy can quickly dissipate when the impact of decisions regarding the to new organizational culture is misjudged, as the following case illustrates: knows how combine these elements into an extremely effective foundation for sound investment decisions. Equally important, successful investors know how to We were working on the sale of a French computer leasing company to an maintain a healthy sense ofagreed realism every selling opportunity and do not on lose sight of American company. We toin a lower price partly based the the premise end game identifying targets to maximize value for their shareholders. that the buyer would take on the difficult task of terminating some

of the employees. We told the buyers, Listen; to fire people in France, you have to make a social plan and present it to the work inspector. This is the procedure. Yes, we have a lawyer, the buyer said, He told us the same thing.

In effect, the sellers were reducing the selling price by having the buyer take on the responsibility for the social plan. We said, The only thing is that you need a personnel manager who is experienced at doing this. So we sold the business and concluded the deal. The next thing we know, the American buyer brings in a personnel manager from a subsidiary in Germany. A German. The CEO of the French company calls me and begs me to call the CEO in Chicago and tell them, You cannot have a German personnel manager in France to fire people! You just cant! Being fired by a Frenchman is one thing, but you cant be fired by a German. It is impossible. Culturally it didnt work. They had this German guy, going to do it the German way, and because it was a German doing it in a German way, they had strike upon strike upon strike in the French operations. They thought it was all because they were an American company but nobody cared about that. It was all because they put a German HR guy in there. Ren-Pierre Azria, president and CEO of advisory firm Tegris Advisors
As depicted above and as numerous studies have concluded, very often its the people issuesdifferences in management style, organizational culture, and the way we do things around herethat prevent an M&A transaction from achieving its financial and strategic objectives. Yet successful M&A transactions are taking place all the time, lead by experienced dealmakers who know what it takes to keep their deals on track and how to drive the greatest value for their shareholders.
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Mastering the Art of Distressed Investing - Creating Value from Distressed Companies

Contributor Biographies

17

Best Practices Best Practicesof ofthe theBest BestDealmakers Dealmakers

Mr.but John Wm. (Jack) Butler isby a Partner at Skadden, Arps, Slate, Meayou cant be fired a German. gher & Flom LLP. During Jack Butlers time at University of Michigans law school, the bankruptcy code of 1978 was passed, fortuitously providing him with the opportunity to learn the revolutionizing discipline of reorganization of distressed business. After a decade spent gaining legal he business experience press is filled many examples of culture clashes that have caused at with two Michigan law firms, he joined Skadden in 1990 as a deals to fail.partner A primary for most buyers and sellers inmost cross-border andgoal developed, what is today, one of involved the worlds respected M&A transactionsrestructuring is to capitalize on the synergies gained by combining their as one of practices. Since then, Butler has been identified finestcan dealmakers by leading notable such as the reorganizations. Butthe synergy quickly dissipate when the transactions impact of decisions structuring process of Delphi Corporation 2010. Today, he is following consistently recognized as a regarding the new organizational culture in is misjudged, as the case illustrates: leading lawyer as he continues his focus on corporate restructuring and reorganization. In We to were on the sale of a French computer company an addition his working notable business accomplishments, Butler is leasing also respected for to his generous American company. We agreed to a lower selling price partly based on the contributions to the Chicago area.

Being fired by a Frenchman is one thing,

premise that the buyer would take on the difficult task of terminating some of the employees. We told the buyers, Listen; to fire people in France, you have to make a social plan and present it to the work inspector. This is the procedure. Timothy Coleman is Senior Managing Director and Head of the

lawyer, the buyer said, He told us the same thing. Yes, we have a also serves as a member of Blackstones Executive Committee. Since

Restructuring & Reorganization Group at Blackstone. Mr. Coleman

Steel Company, Guangdong Enterprises, Harrahs The next thingManagement, we know, theGeneva American buyer brings in a personnel manager Jazz Company, JPS Textile Group, Inc., Koll Real Estate, Xerox Corporation and XL Capital. from a subsidiary in Germany. A German. The CEO of the French company The International Financing Review recognized Mr. Colemans efforts in the restructurme and begs me totransaction call the CEO Chicago andof tell them, You cannot ing ofcalls C-BASS by naming the thein Restructuring the Year in 2008. Before have a German personnel inPresident France to fire people! You just cant! his joining Blackstone, Mr. Colemanmanager was a Vice at Citibank, where he divided Being fired by a Frenchman is one thing, you cant be fired by a German. Mr. time between corporate restructuring, real estatebut restructuring, and loan syndications. It is is impossible. Coleman a frequent guest lecturer at Columbia University and New York University. He is a member of the in Motion Board of Directors and the Board of Leaders of the Marshall Culturally it didnt work. They had this German guy, going to do it the School of Business at the University of Southern California. Mr. Coleman received a B.A. German way, and because it was a German doing it in a German way, they from the University of California at Santa Barbara and an M.B.A. from the University of had strike upon strike upon strike in the French operations. They thought it Southern California.

In effect, the sellers were reducing the selling price by having buyer take restructuring and reorganization assignments forthe companies, creditor on the responsibility for the social plan. We said, The only thing is that you of groups, special committees of corporate boards, corporate parents need a personnel manager who is and experienced this. So we sold the troubled companies acquirersat ofdoing distressed assets. Mr. Colemans business and concluded the deal. most notable assignments include Adelphia, AT&T, Bear Stearns Asset

joining Blackstone in 1992, Mr. Coleman has worked on a variety of

was all because they were an American company but nobody cared about that. It was all because they put a German HR guy in there. Ren-Pierre Azria, president and CEO of advisory firm Tegris Advisors

As depicted above and as numerous studies have concluded, very often its the people issuesdifferences in management style, organizational culture, and the way we do things around herethat prevent an M&A transaction from achieving its financial and strategic objectives. Yet successful M&A transactions are taking place all the time, lead by experienced dealmakers who know what it takes to keep their deals on track and how to drive the greatest value for their shareholders.
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Best Practices Best Practicesof ofthe theBest BestDealmakers Dealmakers

ing senior management, boards of directors and equity sponsors on how to revitalize companies that are stagnant, underperforming or in crisis. Mr. Eisenberg has led many high-profile national and international across a multitude of industries. is a pastcaused chairhe business press is assignments filled with many examples of culture clashesHe that have man of the Turnaround Management Association, a past president of deals to fail. A primary goal for most buyers and sellers involved in cross-border the Association of Certified Turnaround Professionals, and a Fellow of both the American M&A transactions is to capitalize on the synergies gained by combining their College of Bankruptcy and International Insolvency Institute. organizations. But synergy can quickly dissipate when the impact of decisions

Randallfired S. Eisenberg is Senior Managing Director Being by a Frenchman is one thing, at FTIs Corporate Finance practice and is a Co-Practice Leader of FTIs services but you cant be fired by a German. for underperforming companies. He has extensive experience advis-

regarding the new organizational culture is misjudged, as the following case illustrates:

We were working on the sale ofis aSenior French computer leasing of company to an Before Marcel Fournier Managing Director Castle Harlan. American company. We agreed to a lower selling price partly based on the joining Castle Harlan, Mr. Fournier was Managing Director of the premise that the buyer would take on the of terminating some investment banking group ofdifficult Lepercq,task de Neuflize & Co., Inc., New of the employees. We told he the buyers, Listen; tothe fireorigination people in France, you York, where was responsible for and implementation of various acquisitions, both domestic and international, for have to make a social plan and present it to the work inspector. This is the procedure. the firm and for its clients. Before joining Lepercq, de Neuflize, Mr.
eign In investments France. Mr. Fournierthe was born and raised in France gradueffect, thein sellers were reducing selling price by having the where buyer he take ated as a Civil Engineer from the Ecole Spciale des Travaux Publics in Paris. He received on the responsibility for the social plan. We said, The only thing is that you his M.B.A. from the University of Chicago, and his Master of Economics from the Univerneed a personnel manager who is experienced at doing this. So we sold the sit de la Sorbonne in Paris.

lawyer, the minister, buyer said, He told for us the same thing. Yes, we have a French prime responsible reviewing and assessing all for-

Fournier was Assistant Director of the U. S. office of the agency of the

business and concluded the deal.

The next thing we know, the American buyer brings in a personnel manager in Germany. A German. The CEO the French company from a subsidiary Jay Greyson co-founded and serves as a of Managing Director & Principal in the investment bank of Vetus Partners, the winner of seven calls me and begs me to call the CEO in Chicago and tell them, You cannot M&A Advisors M&A industry Awardsin inFrance 2009 (e 8th Annual have a German personnel manager to fire people! You just cant! M&A including the coveted Boutique investment Banking Firm of Being fired byAwards) a Frenchman is one thing, but you cant be fired by a German. the Year. Personally, he was named Dealmaker of the Year, the highIt is impossible. Culturally it didnt work. had this German guy, going to do it the & Partner inThey Supply Chain Equity Partners (SCEP), the worlds only it was a German doing it in a German way, they German way, and because committed capital Private Equity firm focused exclusively on making investments in thestrike Distribution & Logistics A highly experienced corporate had strike upon upon strike in the industry. French operations. They thought it finance and professional, Greyson has a strong in about analyzing, was all advisory because they were an Mr. American company but background nobody cared structuring, negotiating and they executing capital raising transactions, that. It was all because put acomplex Germanfinancial HR guyand in there. both domestically and internationally. focuses on sourcing andTegris leading the execution Azria, presidentHe and CEO of advisory firm Advisors Ren-Pierre
est individual honor in investment banking. Jay is also a Co-founder

As depicted management above and asbuyouts, numerous studies have concluded, very often its the people divestitures, buy-side programs, distressed and bankruptcy process issuesdifferences intransactions. management style, organizational andbackground the way we do sales, and international Uniquely, Jay combinesculture, his finance with over a decade of extensive experience in M&A the manufacturing, marketing and distribution things around herethat prevent an transaction from achieving its financial of industrial and services. Collectively, Jay has overare 25 taking years of combined and strategicproducts objectives. Yet successful M&A transactions place all theinvesttime, ment banking, private equity and business experience during which he completed numerlead by experienced dealmakers who know what it takes to keep their deals on track ous M&A transactions, including a significant number of cross-border deals. and how to drive the greatest value for their shareholders.
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of private and public company sell-side Mergers & Acquisitions, corporate carve-outs and

Best Practices Best Practicesof ofthe theBest BestDealmakers Dealmakers

retirement in June 2011, and Chief Executive Officer until December 31, 2009. Prior to founding Miller Buckfire, Mr. Miller was Vice Chairman and a Managing Director at Dresdner Kleinwort Wasserstein (DKW), where he served the global head ofculture the firms financial he business press is filled withas many examples of clashes that restructurhave caused ing group. Before DKW, Mr. Miller was Managing Director and Head deals to fail. A primary goal for most buyers and sellers involved in cross-border of both the Restructuring Group and Transportation Industry M&A transactions is to capitalize on the synergies gained by combining their Group of Salomon Brothers. Mr. Miller received his B.A. from the Fordham University College of organizations. But synergy can quickly dissipate when impact of decisions Arts and Sciences (now called Fordham College at Rose Hill) in 1968 and an M.B.A. from regarding the new organizational culture is misjudged, as the following case illustrates: Columbia Universitys Graduate School of Business in 1970. He is a Trustee of Save the Children, The Washington Institute Near East Policy and Fordham University, We were working on the sale offor a French computer leasing company to an a member American of the board of directors AIG and member of the Board of Overseers Columbia company. Weof agreed to aalower selling price partly based on of the Universitys Graduate School of Business. Mr. Miller is a former Trustee of the Turnaround premise that the buyer would take on the difficult task of terminating some Management Association inductedto into the TMAin Hall of Fame. of the employees. We and toldwas therecently buyers, Listen; fire people France, you

Henry S. Miller isa Chairman of Marblegate Asset Management, LLC Being fired by Frenchman is one thing, since its formation in 2009. He was also Co-Founder, Chairman and a but you cant be fired by a German. Managing Director of Miller Buckfire & Co., LLC from 2002, until his

have to make a social plan and present it to the work inspector. This is the procedure.

Mr. Patrick M. OKeefe isHe the managing member of OKeefe & Associlawyer, the buyer said, told us the same thing. Yes, we have a

In effect, the sellers were reducing the selling price by having the buyer take organization, debt restructuring, turnaround consulting, and refinancing solutions. Over the past 25 years of his career, Mr. OKeefe has been active on the responsibility for the social plan. We said, The only thing is that you as a financial consultant and turnaround advisor to under-performing need a personnel manager who is experienced at doing this. So we sold the businesses in various business and concluded the deal. industries including retail, construction, automoThe next thing we know, the American and buyer brings11 inrestructurings. a personnel manager signments in out-of-court Chapter Previously, Mr. a subsidiary Germany. German. TheTurnaround CEO of theManagement French company fromwas OKeefe President in of the DetroitA Chapter of the Association, calls me and begs me to call the CEO in Chicago and tell them, You cannot a past member of International Turnaround Management Association Board, and a former advisory board member of the University ofFrance Detroitto Turnaround Management Program. have a German personnel manager in fire people! You just cant! Being fired by a Frenchman is one thing, but you cant be fired by a German. It is impossible. Culturally it didnt work. They hadis this German guy, going to do it thePartners. Anthony G. Polazzi Managing Director at Sun Capital it was a German doing it in a German way, they German way, and because Mr. Polazzi has spent more than a decade working in private equity and leveraged finance. to joining Sun Capital Partners init 2003, had strike upon strike upon strike in Prior the French operations. They thought Polazzi worked as an company Associate in the Leveraged Finance was all becauseMr. they were an American but nobody cared about Group of CIBCthey World Markets. He HR received dual Bachelor of Arts degrees in that. It was all because put a German guy in there. Economics and Mathematics from Claremont McKenna College. Azria, president and CEO of advisory firm Tegris Advisors Ren-Pierre
As depicted above and as numerous studies have concluded, very often its the people issuesdifferences in management style, organizational culture, and the way we do things around herethat prevent an M&A transaction from achieving its financial and strategic objectives. Yet successful M&A transactions are taking place all the time, lead by experienced dealmakers who know what it takes to keep their deals on track and how to drive the greatest value for their shareholders.
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ates. Mr. OKeefe is recognized as an expert in the fields of corporate re-

tive, manufacturing, and real estate. He has successfully completed as-

Best Practices Best Practicesof ofthe theBest BestDealmakers Dealmakers

was the Chairman and Chief Executive Officer of New Mountain portfolio company Apptis Inc. From 2004 to 2007, Mr. Notini was the President and Chief Operating Officer of Sonus Networks, Inc. Prior joining Sonus, Notini of was the Chief Financial Officer of he business press isto filled with manyMr. examples culture clashes that have caused Manufacturers Services Ltd. (MSL) from 2000 to 2004. Before MSL, deals to fail. A primary goal for most buyers and sellers involved in cross-border Mr. Notini was Executive Vice President for Corporate Development M&A transactions is to capitalize on the synergies gained by combining their and Administration at NASDAQ-listed Wang Global Corporation from 1994 to 1999. Mr. organizations. But synergy canat quickly dissipate when impact of decisions Notini began his career in 1984 the law firm Hale and the Dorr, LLP (now WilmerHale, regarding the new organizational culture is misjudged, as the following case LLP) where he was elected a Senior Partner. Mr. Notini served as Law Clerk to illustrates: the Chief Justice ofwere the Massachusetts Supreme Court from 1983 to 1984 after receiving We working on the sale ofJudicial a French computer leasing company to an his J.D. from Boston College Law School where he served as Editor in Chief of the American company. We agreed to a lower selling price partly based on the Law Review. He holds his masters degree from Boston University and received his A.B. from premise that the buyer would take on the difficult task of terminating some Boston College, summa cum laude. He is currently a director of Deltek, Inc., Camber Corof the employees. We told the buyers, Listen; to fire people in France, you poration, Valet Waste and Iron Bow.

Being fired byis aSenior Frenchman is New one Mountain. thing, Mr. Notini Albert A. Notini Advisor at but you cant be fired by a German. joined New Mountain in August 2007. From 2007 to 2011, Mr. Notini

have to make a social plan and present it to the work inspector. This is the procedure.

Wilbur Ross the Chairman of same WL Ross & Co. LLC. He lawyer, theis buyer said, Heand toldCEO us the thing. Yes, we have a

In effect, the sellers were reducing the selling price by having the buyer take called companies assets around the world. In 1998, Fortune Magazine on the responsibility for the of social plan. We said, The only thing that you him the King Bankruptcy. In 1999, President Kimis Dae Jung need a personnel manager is experienced doing this. So we sold thecrisis. awarded Rosswho a medal for his helpat during Koreas 1998 financial Ross is a former Chairman of the Smithsonian National Board. Earlier, business and concluded the deal. The next thing we know, the American buyer as brings in a personnel Investment Fund, and he served privatization advisormanager to former in Germany. A German. The CEO of the French company from a subsidiary Mayor Rudolph Giuliani. Ross serves on the Executive Committee of calls meCity and Partnership begs me to call CEO in Chicago and them, You cannot the New York and the of the Japan Society and istell a member of the Chairmans a German personnel managerHe in is France to fire You just cant! and Circlehave of the U.S.-India Business Council. a member ofpeople! the Business Roundtable Being fired by athe Frenchman is oneSchool thing, but you cant be which fired by a presented German. him is a Board member of Yale University of Management, has with its Legend of Leadership Award. He is also a member of the Committee on Capital It is impossible.
Markets Regulation. President Clinton had appointed him to the Board of the U.S.-Russia

has been involved in the restructuring of over $200 billion of defaulted

Culturally it didnt work. They had this German guy, going to do it the German way, and because it was a German doing it in a German way, they had strike upon strike upon strike in the French operations. They thought it was all because they were an American company but nobody cared about that. It was all because they put a German HR guy in there. Ren-Pierre Azria, president and CEO of advisory firm Tegris Advisors

As depicted above and as numerous studies have concluded, very often its the people issuesdifferences in management style, organizational culture, and the way we do things around herethat prevent an M&A transaction from achieving its financial and strategic objectives. Yet successful M&A transactions are taking place all the time, lead by experienced dealmakers who know what it takes to keep their deals on track and how to drive the greatest value for their shareholders.
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Best Practices Best Practicesof ofthe theBest BestDealmakers Dealmakers

and secure method for sharing key business information between multiple parties. Merrill DataSite provides unlimited access for users worldwide, as well as real-time activity reports, site-wide search at the document level, enhanced communications through the Q&A feature and superior project managebusiness press is filled many examples of and culture clashes that have caused ment he service - all of which help with reduce transaction time expense. Merrill DataSites deals to fail. A primary goal forfrom mostanywhere buyers and involved cross-border multilingual support staff is available in sellers the world, 24/7, in and can have your M&A transactions is to capitalize on the synergies gained by combining their VDR up and running with thousands of pages loaded within 24 hours or less.

Merrill DataSite is a secure virtual datathing, room (VDR) solution that Being fired by a Frenchman is one optimizes the due process by providing a highly efficient but you cant bediligence fired by a German.

organizations. But synergy can quickly dissipate when the impact of decisions regarding the new organizational is misjudged, as the following case illustrates: With its deep roots in transaction culture and compliance services, Merrill Corporation has a

cultural, organization-wide discipline in the management and processing of confidential We were working on the sale of a French computer leasing company to an content. Merrill DataSite is the first VDR provider to understand customer and industry American company. We agreed to a lower selling price partly based on thestandard needs by earning an ISO/IEC 27001:2005 certificate of registration the highest premise that the buyer would take onthe theworlds difficult task of terminating for information security and is currently only VDR certified for some operations of the employees. We told the buyers, Listen; to fire people in France, you in the United States, Europe and Asia. Merrill DataSites ISO certification is available for have make a social plan and present it to the work inspector. This is the review at:to www.datasite.com/security.htm.

procedure.

As the leading provider of VDR solutions, Merrill DataSite has empowered nearly 2 Yes, we have a lawyer, the buyer said, He told us the same thing. million unique visitors to perform electronic due diligence on thousands of transaction totaling trillions dollars in asset value. Merrill DataSite VDR solution has become In effect, theof sellers were reducing the selling price by having the buyer take an essential tool in an efficient and legally process foronly completing multiple types of on the responsibility for the socialdefensible plan. We said, The thing is that you financial transactions. Learn more by visiting www.datasite.com today. need a personnel manager who is experienced at doing this. So we sold the

business and concluded the deal.

Today, The M&A Advisor presents, recognizes the achievement of and facilitates connecCulturally it didnt work. They had this German guy, going to do it the tions between the worlds leading mergers and acquisitions, financing and turnaround it was a German doing it in a German way, they M&A German way, and because professionals with a comprehensive range of services including M&A SUMMITS; had strike upon strike upon strike ALERTS, in the French operations. They thought it AWARDS; M&A CONNECTS ; M&A M&A LINKS and M&A MARKET was all because they were an American company but nobody cared about INTEL. To learn more about the premier mergers and acquisitions authority visit: that. It was all because they put a German HR guy in there. www.maadvisor.com.

The next thing we know, the American buyer brings in a personnel manager from a subsidiary in Germany. A German. The CEO of the French company The M&A Advisor was founded in 1998 to offer insights calls me and begs me to call the CEO in Chicago and tell them, You cannot and intelligence on middle market activities. Over the past have a German personnel manager in France to fire people! You just cant! fourteen years we have established a premier network of M&A, Being fired by a Frenchman is one thing, but you cant be fired by a German. Turnaround and Finance professionals. It is impossible.

Ren-Pierre Azria, president and CEO of advisory firm Tegris Advisors

As depicted above and as numerous studies have concluded, very often its the people issuesdifferences in management style, organizational culture, and the way we do things around herethat prevent an M&A transaction from achieving its financial 2012and The strategic M&A Advisor and Merrill DatasiteM&A . All rights reserved. No part of thisall material may be objectives. Yet successful transactions are taking place the time, copied lead or duplicated in any form by any means or redistributed without the prior written consent of The by experienced dealmakers who know what it takes to keep their deals on track M&A Advisor and Merrill Datasite. and how to drive the greatest value for their shareholders.

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Mastering the Art of Distressed Investing - Creating Value from Distressed Companies

BEST PRACTICES OF THE bEST DEALMAKERS

Profiling the proven strategies and unique experiences of the leading M&A practitioners, The Best Practices of The Best M&A Dealmakers series is distributed in regular installments for M&A industry professionals in both print and interactive electronic media. Previously published features and chapters are also available in the online library of Merrill Datasite and The M&A Advisor.

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