Capitalizing on

Experience:
Washington Mutual
BDP Case Study
Contacts: Sam Rovit
Catherine Lemire
November 2002
Copyright© 2001 Bain & Company, Inc.

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
 M&A success drivers: capitalizing on
experience

Summary of findings

Detailed results of Detailed findings of

empirical research BDP case studies

Individual BDP case

studies

WashingtonMutualCaseStudy
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Corporate M&A Toolkit
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 BDP case studies
1986-2001
Cintas
(5%)
 As part of the study, we
Fiserv
analyzed half a dozen of
Frequent

(12%) Clear
Channel the best frequent
(21%)
Cardinal acquirers in a broad
Health Fidelity range of industries
Deal frequency

(12%)
National Washington -Interviews with CEO,
(13%)
Mutual CFO or Head of
(9%) Business Development
-Secondary research
Infrequent

 We have codified how

these firms organize and
institutionalize the M&A
process

Small Large
Average deal size

Note: Excess return (1986-01) is noted below the company’s name in brackets WashingtonMutualCaseStudy
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Corporate M&A Toolkit
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 Washington Mutual (WaMu) background

Company  Financial services company that services consumers and small to

description: mid-sized businesses; through subsidiaries, engage in consumer
banking, mortgage banking, commercial banking, financial
services and consumer finance
- Largest thrift and mortgage lender in the U.S.
 2001 revenues of $17.7B

Acquisition  In the 1986-2001 period, made 29 acquisitions

strategy: - SDC captures 19 deals, with an average deal size of 18%
 Started out with small acquisitions in the late 80s, building up to
larger deals in the late 90s

Results:  Total shareholder return (86-01) = 24%

 Excess return (86-01) = 9%

WashingtonMutualCaseStudy
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 Washington Mutual overview
Get in the game
 WaMu has grown
from a small Seattle
thrift to the largest
US thrift and
mortgage lender
 Growth has been
fueled by
acquisitions, yet
WaMu believes
“organic growth is
fundamental; M&A
is a bonus
opportunity.”
 Started out with
small acquisitions in
the late 80s,
building up to larger
deals in the late 90s
 diligence, sets deal
Through this
experience, WaMu
“developed a core
competency. It’s
not like this is
operating business,
but acquisitions at
WaMu are a core
competency now
and are a line of
business.”
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Get line Structure &
Set up a core Kill the deal
management discipline the
deal team fever
involved early process
 Two-pronged  Core deal team  Well-defined  Each deal deal to
organization seeks advice from acquisition criteria, date has received
- Deal team of 6 line and functional “our beacons of light; universal buy-in
people, the people with specific we stick to them from the executive
“quarterbacks of religiously”
expertise, and team
the transaction”  Deal team has
those “who will  Compensation is
- A-team of 25-35 documented its due
have day-to-day diligence approach, based on WaMu’s
FTE, in charge of responsibility for
and methods of overall results , not
integration
integrating the evaluating deal the conclusion of
 Deal team, 100%
acquired company.” economics deals
dedicated to M&A, 
A-team works with - Updated on a - “There is a
has plenty of
the field people, regular basis terrific
transactional through post temptation to do
those also involved
experience and mortems deals that don’t
in due diligence
deep legal, financial  A-team works on the work and violate
- Core A-team is
and analytical skills supplemented by basis of formalized your principles.
So resisting the
 Deal team Senior protocols
temptation is
supervises due Acquisition - Modified through
post-mortems key. Sometimes
Managers who
represent the 3 - “More formal that the best deals
price and structure,
main BUs and used to be are the deals you
negotiates the never do.”
corp functions because of
transaction and
- Also, a large turnover… writing
develops tactical
number of field things down
integration plans helps to transfer
people get
- A-team takes the knowledge.”
involved as team
over from deal
leaders/members  Integration starts
team once a deal early, with the
- Extended A-team
closes creation of tactical
can have 500-
 A-team mostly from plans in due diligence
3,000 people on
corporate functions, an integration and regulatory
with Extensive approval periods
WashingtonMutualCaseStudy
industry and project 5
Corporate M&A Toolkit
mgmt experience
 Washington Mutual’s learning curve

Transaction value
as % of market cap
150%

100

Great Western

Ahmanson
Keystone
Pacific First
50
Bank
United
Pioneer

Dime
0
86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01

# of
0 2 0 0 4 2 3 1 3 2 3 1 1 2 2 3
deals:

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 WaMu’s line and functional managers are
actively involved
Due Deal
Sourcing close Integration
diligence

Deal team A team

Core teams

Vice-chair Steering
M&A committee

Senior Acquisition
Specialist Specialist Dedicated A-team
Specialist Managers
#1 #2 (25-35 FTE)
(8 FTE)
#5
Deal specific

Banking & Home Specialty

resources

HR Legal Financial Loans & Finance

Services Insurance Group

Corporate functions Business segments

WashingtonMutualCaseStudy
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 WaMu’s rationale for “inclusive” approach

 Buy the right target, for the right reasons and pay
an intelligent price
“You are asking the people who are going to inherit what you’re buying
to help assess what they’re going to get, and make value judgments on
whether the target fits the strategy, operational problems, etc.”

 Get buy-in, commitment to make it work

“Because we just don’t have a dedicated M&A team who does all of these
things and then after the fact pass them to the BUs, we get early
understanding and buy-in on who the targets are, why it makes sense,
what kind of benefits we’ll get, what kind of hiccups they might be
having.”

 Get an early start

“When an acquisition is consummated, they’re already fully engaged…
they have been asked to think about what they’d do with it if they were
to get it. On the day of closing, you’ve choreographed the play before it
starts.”

WashingtonMutualCaseStudy
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 WaMu’s integration process is clearly
organized and defined Integration
Organization Roles

 M&A Vice-Chair  Oversee acquisition activities

Steering  Dedicated A-team mgmt  Facilitate communications
Committee  Senior Acquisition Managers  Resolve issues
 Mitigate risk

 Corporate Center of Excellence  Coordinate and facilitate cross-

Dedicated A-team  Primarily from within WaMu functional integration teams
(25-35 FTE) - Corporate functions  Facilitate communications; central
 Extensive industry experience and point of contact
project management skills  Manage integration risk
 Program management
- Maintain methodology
- Ensure consistency
- Maintain documentation

Senior Acquisition  From 3 main Business Segments  Liaise with the Business Segments and
Managers and Corporate Functions Corporate Functions
 Subject matter experts
(8 FTE)

Business Segments  Front-line employees  Run the Executive Management

& Corporate Oversight Committee
 Participate in Program Management
Functions
Office
 Team leads and members

WashingtonMutualCaseStudy
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 WaMu has codified its M&A process
 Washington Mutual nurtures continuity
of its deal team and A-team
 WaMu has also codified and
documented its M&A process
- To capture standard patterns emerging
over time, especially in integration
- To serve as guide as it has naturally
experienced turnover after several years
of M&A activity

Screening and
Integration
Turnover due diligence
in core  Defined acquisition  Formal protocols
M&A team criteria (“beacons of - Integration
light”) standards
 Due diligence - Methodology
approaches - Documentation
 Methods of - Communication
evaluating deal
plans
economics
 Core A-team is a
 Valuation models
Corporate Center of
Excellence

Refined through post mortems

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 WaMu’s four beacons of light guide all
acquisitions decisions
“We have acquisition criteria, our beacons of light.
We stick to them religiously.”

1. Target 2. Target 3. Target 4. Acquisitions

companies that companies that companies that must grow
match our do not present do not earnings in a
business undue jeopardize reasonable time
strategy operating capital ratios period
risks or impair asset
quality

“By sticking to those beacons, WaMu has become very

disciplined in how we look at things. I like to say we haven’t
really overpaid for an acquisition. We haven’t taken on
anything that caused us to blow up operationally.”
WashingtonMutualCaseStudy
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 WaMu’s general pointers
1. Pick targets that will make you a market leader. Acquisitions need to
be a by-product of your basic strategy.

2. Work with sellers whose values match yours. Pay attention to

sellers’ priorities and culture.

3. Make blunt decisions about who will run the show. Decide early.
Don’t be wishy-washy. The top 4-5 spots should go to your company’s
management team as they are the stewards of your values and the way
you think business should be done.

4. Get everyone involved in fitting all of the piece together. The help
from the front lines is invaluable in making sure you buy the right targets
for the right reasons, and pay an intelligent price. What’s more, they
become more committed to making the deal work.

5. Close your deals quickly. Leverage prior experience to speed up the

process.

6. Go out to win your new employees’ trust.

7. Don’t ever stop growing internally. Keep most people engaged with
their day-to-day responsibilities.

WashingtonMutualCaseStudy
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 BACKUP

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 Washington Mutual background

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 Interview with Craig Tall

 Vice Chair of Corporate Development & Specialty Finance

- responsible for overseeing corporate development, including acquisitions, and
the company’s specialty finance operations.
 Joined the company in 1985 as EVP of WM Financial, Washington Mutual’s
downstream holding company, and became executive vice president for
Corporate Development in 1987
 Became EVP for Corporate Development and Commercial Banking in 1995
 Began to oversee the company’s Consumer Finance Division in 1997.
 Title changed to vice chairman in 1999, and in October 2000 he was
named Vice Chair for Corporate Development and Specialty Finance
 Before joining Washington Mutual, Tall was president of Compensation
Programs, Inc., a national employee benefits consulting company
 Tall received his bachelor’s degree in economics from the Wharton School
of Finance at the University of Pennsylvania, and did graduate studies in
corporate finance and marketing at the University of California at
Berkeley. Tall is a graduate of Seattle’s Lakeside School

WashingtonMutualCaseStudy
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