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Value Maximizing Acquisition Integration

A three-page excerpt from our 16-page Best Practice Guidebook:

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guidebook summary

Firm: Cisco Systems, IncIndustry: Computer Peripheral ManufacturingHeadquarters: San Jose, California, United StatesGeographic Footprint: GlobalOwnership: PublicRevenue (2012): $46.1 billion USD

Value Maximizing Acquisition Integration

Problem: Given the volume of acquisitions, diversity of acquired products and business models, and intent to fully integrate all acquired businesses, Cisco needs to create an integration process and organization to handle multiple concurrent acquisitions with minimal disruption to business for both Cisco and the acquired company.

Solution: Cisco develops an acquisition integration process that includes:• Building a clear management structure and cross-functional integration

team, owned by the corporate development team• Ensuring early engagement and participation by the team responsible

for the integration execution•Developing a formal integration process—from due diligence to

post-integration monitoring•Creating a metrics-driven monitoring system—based on

value-drivers* and synergies•Constructing a timely and effective communications strategy

Business Results:• Increased revenue and product opportunities from acquisitions

since 1993• 80% employee retention rate from acquired companies•Capacity to complete an acquisition on average every six weeks for

the past 14 years

Resources Required: •Dedicated integration staff•Company culture that fosters acquisition acceptance

Applicability of Best Practice to Executive Functions: Function Applicability

CEO/Leadership

Corporate Development

Best Practice Guidebook

* Value-drivers are defined as the goals set by Corporate Development to monitor the success of the integration.

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Source: Cisco Systems, Inc; Growth Team Membership™ research.

Commitment to DealPre-Commitment to Deal

Cisco’s acquisition integration process emphasizes early interaction with target companies to improve execution and focus on the deal’s value-drivers

Acquisition Integration Process Overview

Post-Integration Monitoring

Integration Execution

Integration Plan Evolution

Integration Plan Development

Deal Strategy Development

Deal Announcement Day One Integration Completion

Activities• Review target background

information and preliminaryfindings

• Create Integration Vision based on deal value-drivers

• Identify customer and stakeholder concerns and potential operational risks

• Defineoperationaldiligence objectives

• Finalize questions for Operational Due Diligence Checklist

Activities• Conduct Operational

Due Diligence• Identify key employees in

the target company•Draft high-level integration

budget•Draft Integration Plan of

Intent•Develop communication

strategy

Activities•Mobilize integration

team to work together with their functional counterparts in the target company

• Conduct gap analysis of each function using integration checklists

• Use gap analysis to evolve the Plan of Intent into the Plan of Record

• Roll out communication strategy

Activities• Carry out integration

activities•Hold weekly integration

meetings with the Integration Team and Integration Leaders

• Conduct monthly integration reviews with the Executive Integration Committee

• Conduct a formal integration review six months into the execution

ObjectiveArticulate deal strategy, planned product offer, and go-to-market strategy in preparation for target engagement.

ObjectiveConduct operational due diligence of the target company to arm the integration team with the information it needs to make the deal successful.

ObjectiveModify the Plan of Intent through tactical interaction with the acquired company.

ObjectiveExecute the integration plan and focus on milestones and value-drivers.

ObjectiveMonitor the company post-integration to identify long-term benefitsandpotentialchallenges.

Participants•Deal Sponsor•Deal Lead• Integration Leaders

Participants• Integration Leaders• Integration Team

Participants• Integration Leaders• Integration Team• Target Team Counterparts

Participants• Executive Integration

Committee• Integration Leaders• Integration Team • Acquired Team Counterparts

Participants• Corporate Development

Activities• Assess post-integration

reviews from integration team

• Update integration process based on lessons learned

• Perform quarterly portfolio reviews for two years

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growth team m e m b e r s h i p™ best practice guidebook

Source: Cisco Systems, Inc; Growth Team Membership™ research.

Integrating Smaller DealsSmaller deals typically involve private companies with fewer than 1,000 employees. For these deals, the EIC is supplemented with a steering committee comprised of the heads of functions supporting the Cisco business unit sponsoring the deal. Small-deal EIC and steering committee members are typically vice president-, general manager-, and senior director-level executives.

Deal Sponsor and Division

Functional Heads

key takeaway: Match the level of executive management oversight to the scale of the dealIn addition to the Executive Integration Committee (EIC) responsible for integration, Cisco employs

two alternate levels of executive management for large- and small-scale integrations

Integration Management Structure

Integration TeamRole and Responsibilities: Full-time, cross-functional, subject-matter-expert team that:• Interacts with the target/acquired company• Identifiesgapsandsynergiesfortheintegrationplan•Develops detailed integration plan• Implements integration activities

Integration Team

Executive Integration Committee (EIC)Role and Responsibilities: • Provide input and

decisions related to issues impacting the integration plan

• Ratify the integration plan and oversee strategic goals of the acquisition

• Ensure resource availability for integration teams

• Approve business change decisions

Corporate Development Integration Executive

Target company

CEOSenior Sales

Executive

Deal Sponsor

Integrating Large DealsLarge deals typically involve public companies with thousands of employees. These deals’ integration management structures use the EIC, supplemented by a steering committee comprised of heads of functions and their target company equivalent. Large-deal EIC and steering committee members are usually vice president- and senior vice president-level executives.

Target Company Functional Heads

Cisco Functional Heads

Integration LeadersRole and Responsibilities: • Leads integration planning•Directs execution of integration activities• Reports to the Executive Integration Committee• Serves as business advisor to deal sponsor/target

executiveIntegration Leaders

There are two Integration Leaders on each Integration Team: one from Cisco’s Corporate Development team and an Integration Leader from the target company (which becomes involved in the process after the deal announcement). The target company Integration Leader is typically a COO or CFO—someone withexpertiseonthetarget’sfinances,operations, and systems.

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