OBSERVATIONS FROM PRIVATE SECTOR MERGERS Ian Coulter 19 September

Observations from Mergers in the Private Sector In the private sector there is no harder transaction than to get right. Mergers normally include the expectation/assumption of cost synergies – two “camps” then normally evolve, one who know they are coming [Fear] and one who knows they have to achieve them [Pressure]. No matter how publicised a merger is it will still be a significant disruptive factor to both sets of employees. A clear plan pre-agreed in consultation with senior managers in both entities and executed in a visibly fair process is essential. 2

Observations from Mergers in the Private Sector A large increase in the size or scope of your business will test your management team to the limit. It is hard to predict who will thrive and who will fail in the new arena. There is an obvious and uncomfortable tension between loyalty to your own team and retaining talent in the target team. There can be familiarity bias. Must be continually checked. It is important if change of senior employees is required it is done quickly with minimum additional disruption (i.e. reach mutual agreement on severance). 3

Observations - General Important to have a detailed plan of what you want to do after merger, and/or communicate clear objectives to both management teams being merged. Imperative that you are prepared to adjust this plan when the real experience of what has been merged changes the assumptions. Good engagement with the management in both entities before completion of the merger is a clear positive. No one has a monopoly on good ideas! Good idea to appoint the senior manager/management of the smaller entity to a senior role in your company. 4

Observations - General Cultural fit or tolerance of different business cultures/ways of doing things is crucial to any integration. Each entity has a unique culture. Your culture is alien to the other and vice versa! A strong finance director in the entities merging is essential and a weak one can be dangerous and a source of disruption. A successful integration requires very significant time from senior management – spare capacity to deal decisively with both “shocks” and “gifts” is essential. 5

Observations – Thoughts for your 100 Day Plan Establish control and validate assumptions in your merger plan. Identify key staff. Be seen to be “listening to them” and make sure you actually do “listen to them”, then follow through with matching actions. Implement pre-prepared communication plan to key stakeholders (employees, the public, suppliers, etc). Initial restructuring of back office staff – if this is to be done, do quickly to settle remaining staff. IT integration/transfer - nearly always an expensive disaster. Imperative this is well planned, well resourced and has a realistic timeframe. 6

Observations – Thoughts for your 100 Day Plan Services offered – make any changes to services being offered slowly (otherwise you run the risk of unsettled customers). Continue communication to staff throughout, joint team-working and social functions to build trust. Celebrate successes. Consider bringing in Specialists in this area. Don’t forget opportunities to learn and improve, or re-organise. Existing synergies are nearly always over-estimated or have unintended consequences particularly in the short term. 7

Observations – Key Legal Issues 1.Data Room and Due Diligence Review – you must quantify your risk on contractual matters. 2.Existing Contracts - what constitutes reasonable notice - quantification of damage – how is this done? - watch “consequential loss” - do not assumed implied assignment of contracts. 3. Procurement Processes – Existing and Future 4. Need for a new Conflicts Register and Process? 8

Observations – Key Legal Issues 5. IT Contracts – watch for change controls. 6. Employees – Patricia Rooney will go through. 7.Property – Dilapidation issues? -Environmental? 8. Contingent Liabilities 9

Observations – Key Legal Issues 9. Increased pressure on Corporate Governance Processes. 10. Transfer of existing litigation 10