Case Name: Unity Bank- Realizing value from an M&A integration 2. Problem Statement The primary question of the case is: Unity Bank has acquired Delta to realize its dream of becoming the World No 1 provider of share registry services. The primary problem is “How to successfully integrate Unity Bank and Delta within the specified timeframe and simultaneously achieve the Target savings? ” The secondary question of the case is: The integration posed multiple challenges but it was critical to infuse the integration without affecting the existing business processes of both companies. .
Background a. Describe the acquirer company/department 1)History -Unity bank was founded in South Africa in 1982 and employed around 8000 people worldwide and had market capitalization of approximately $2 billion -Provider of global shareholder and employee management services -Manages 60 million shareholder accounts for over 10000 corporations across 12 countries on 5 continents -Unity bank provided full range of transfer agency services including share registry administration etc2)Conditions -Unity bank envisioned to become the World no 1 provider of share registry services 3)Culture The bank had a professional workforce -The staff were given incentives and provided innovative projects -IT services of Unity bank were robust and effective. 4)Strengths -Few providers of global shareholder and employee management services -Large customer base -Provided full range of transfer agency services -Ability to manage most complex and largest corporate actions -Professionalism of staff members and nature of their expertise -Ability to attract talented operations and IT professionals and retain them over a ong term -Offered professional but family oriented work culture -Strong IT infrastructure providing sizable entry barrier and economies of scale -Robust enterprise system BLAIR providing great franchise value5)Weaknesses -Small player in United States with only 5 % of the market share -BLAIR platform was outdated and the cost of maintenance and scalability would be high in the long run -Inability to attract clients with large shareholder bases. -Limited brand recognition b. Describe the acquired company/department 1)History -Delta Operates solely in United States. It offers a full range of transfer agency and employee plan administration services to over 15 companies in the Dow Jones industrial average -Delta has 1300 clients and provided services to 19 million shareholders 2)Conditions -Delta had several owners -Delta had multiple IT platforms 3)Strengths -Market leader in United States -Strong client portfolio with large shareholder bases -Strong brand recognition in United States 4)Weaknesses -Multiple IT systems -Low revenue realization from IT systems -Low degree of consolidation in IT systems c.Describe the industry situation -Customers: Spanning all corporate entities across the world but the integration mainly targets the United States corporate space.
-Traditional Competitors: Other transfer agencies operating in the marketplace -New market entrants: The entry barrier is high therefore threat from new entrants low. The company has created a competitive edge through IT -Opportunities: Efficient IT integration can reduce cost hence improve the bottom line. Effective IT resource management could streamline the operations and also provide enormous cost benefits.
New business offering can lead to increase in revenue. IPO’s offer new business opportunities. -Threats: Failure to integrate Delta successfully would hamper cost cutting and affect Unity’s competitiveness.
The clients of Delta could be lost and fundamental aim of the acquisition would not be realized. 4. Key Issues a. How to successfully integrate Unity Bank and Delta within the specified timeframe and simultaneously achieve the target savings? i)Pre merger strategies and due diligence -The entities were operating in the same type of business hence a strategic fit was impeccable.The new entity could leverage the core competency and brand recognition in respective market segment. -Unity bank has a global footprint and Delta would provide the necessary opportunities in United States -The pricing offer for Delta had been properly negotiated and firm valuation was accurate -It was an ambitious acquisition for Unity bank because Delta had comparatively much bigger operation in United States but the key to this issue would lie in the integration result.
ii)Software •Choosing the enterprise platform Unity has a proven system BLAIR which could address all the business needs of UNITY but new development has to be done to incorporate the service offerings of Delta. A development cost of 100 Weeks, 30 person team at $120 per hour has to be incurred to make BLAIR serviceable to Delta clients. The Unity IT staff is well versed with BLAIR hence in house competency is not an issue. But in the long run BLAIR can be a bottleneck for UNITY as it is written in COBOL.
New IT professionals having COBOL competency are hard to find as it is an obsolete language and training cost of new professionals and also the end users for DELTA would be high. DELTA’s Leader is a new system which is not proven and had only been used for limited number of clients. But the strength of leader lies in its next generation vision which would enable the system to meet future business challenges in an efficient manner. In the short run Leader seem to pose multiple challenges in terms of implementation and cost but in the long run it seems to be a wise option.
•Delta legacy systems -Multiple legacy systems of Delta like CARMS, GOSP and AORTA needs to be consolidated.How to implement the consolidation on a common platform and which enterprise system would facilitate this consolidation? -How to resolve the data issues in terms of incompatibility like date formats and report formats? iii) Infrastructure -How to integrate the infrastructure of Unity and Delta with huge gaps in terms phone systems, networking hardware, office servers and PC systems? iv) Organizational structure -How to develop a organizational hierarchy in the new entity which address the responsibility needs of the employees drawn from both companies? ) Compensation and benefits -How to rationalize the compensation and benefits of employees from both organization which would help in retaining talent and be in line with company’s compensation policies? vi) Change management -How to motivate the employees in this period of uncertainty and confusion?-How to identify Star performers in the short span and maintain a high stock of talent pool? -How to percolate the change in the organization in the most effective way which would face minimum resistance? b. How to infuse integration change without affecting BAU for both companies? How to integrate the systems of both companies and meet the client requirements at the same time would be crucial like the Triton takeover of Clear communications? 5. Relevant Areas, Facts, Conclusions a. Relevant areas for Issue #1 1)Financial impact -The integration would result approx 60 million savings for the company -Implementation of the system would help in cutting cost in terms of hardware, networks, data centers, employees. -Conclusion: The integration would have substantial cost saving for the company which would justify the acquisition of Delta.
)Capacity utilization -Integration would help in better capacity utilization in terms of hardware, infrastructure and human resource. -Conclusion: The capacity utilization can be maximized and economies of scale could be achieved.3)Monitoring -The monitoring of IT infrastructure would significantly improve hence provide relevant data points for mid level managers to effectively communicate with high level management in terms of resource planning. -Conclusion: The accountability can be established in terms of IT monitoring 4)Risks The risks like disruption of current operation, lack of benchmarking of the methodology, ineffective adoption of new implementation, bottleneck in new application deployment, change management, etc are a few risks which would affect the integration of Unity and Delta -Conclusion: The risk area makes the decisions how to prioritize the options in integration process tough and a roadmap has to be put forth before proceeding with the integration. If the risk area’s identified actually disrupt the current operation then contingency plan to minimize damage should be in place so that the integration does not falls apart. . Relevant areas for Issue #2 1)Loss of clientele -BAU if hampered by any of the integration activities would mean loss of clients which in turn would hamper the prospect of the company to secure future business from big clients -Conclusion: The prime objective of securing big ticket clients would not met if integration hampers any Service level agreements.
6. Recommendations a.Recommendation for Issue #1: I would recommend Unity bank to go in for a phased integration with milestones for every phase completion, they should prioritize their integration activities as – -Determination of enterprise platform Creation of organizational structure -Optimizing infrastructure -Attracting Star performers -People My assessment is based on the fact that savings can be divided into two categories – (Software, hardware, infrastructure) and Human resource.
Targeting the first category (Software. hardware, infrastructure) we are focusing ourselves on a major cost saving chunk and at the same time buying time to allay the employee fears and confusion. In an integration process Change management plays a vital role in ensuring success.Human resource lies in the critical path and by prioritizing as above the risks associated with human resource are mitigated to the maximum extent because the first four activities would ensure the employee involvement and motivate them. More corporate communication would ensure high motivation levels for the employees and ensure smooth integration.
The announcement of termination should be delayed to the maximum possible extent as an upfront termination would severely affect the morale of the employees and would derail the integration process.I would recommend the Leader platform as the enterprise platform as it would prove beneficial to Unity in the long run due to easy and less expensive scalability. The risks and costs associated with finding talent and training are also mitigated by the choice of Leader. Attracting star performers is very crucial for Unity as it would add intrinsic value of Unity and would be in line with the company policy of maintaining high stocks of talented and skilled staff.
Another advantage of having these performers would be that the competency of Delta is ot decimated and could be used in phasing out legacy systems. Identification of such talents could be done by assessing their past performance and also involving them in the integration activity and monitor their performance. To retain the star performers Unity should tailor make a Compensation package and also involve these professionals in turnkey projects. b.
Recommendation for Issue #2: I recommend that there should be partial involvement of BAU team of both companies so that existing business is not affected.To accomplish this, phased integration would be right way ahead. Triton corporate action should be handled with complete focus as they are a big ticket client and successful handling of the account would help in gaining confidence of other stakeholders.
The systems and employees involved in the Triton corporate action should not be involved in the integration process for the time being and allowed to focus on the corporate action of Triton. After the cutoff date these resources should also be involved in the integration blueprint.