MM: Is M&A in Europe/Germany strictly a big corporate activity?
KL: In my eyes, it’s even more mittelstand (mid-sized business) related. In central Europe, it’s the main column for business. We have 10,000 companies in central Europe; Germany, Austria, France, Italy, & Switzerland. Mittlestand companies are spread across all industries, but play a specific role in car manufacturing & supply. They also play a big role in services.
MM: How does a big corporate culture merge with a M&A culture?
KL: I talk about the company as a system. M&A is part of that system & has to fit into that system. M&A is not only about culture. It’s built on hard & soft facts. Soft facts are like change management, hr, communications policy, You have to complement them with hard facts like financial performance, restructuring & so on. M&A has to combine both sides. Often conflict management between soft & hard factors is key.
MM comment: When I worked for Siemens in Munich, my task was to integrate Potter & Brumfield, an electronic components firm in Evansville, IN. I was never able to make sense of the crazy CEO who ran P&B.
MM: How do big corporations react to fast-reacting deals?
KL: This is a specific challenge for big companies, & 1 of my tasks when I was asked to introduce M&A strategy was to develop a system which can compete with small companies & private equity. We had to manage this & lead to execution within 2 days. The Board of Directors had to commit to giving this permission. It has to consist of strategic business planning, valuation, structuring, & be managed by 1 person. All this has to be put into a presentation. If the Board of Directors said yes, there’s a high probability it could work. The main task has to happen in the business itself. Corporate has to contribute to command, & be ready to jump in 3 hours. We need to be prepared to be interconnected with the relevant businesses. In my eyes it’s a matter of crash management. In the normal case, the Board of Directors meet every fortnight for major meetings & normal cases are presented. If the Board of Directors says yes, we move forward to due diligence. If there is strategic importance & competition that’s relevant, we have to be very fast. We could reduce the timeframe between having the information on the desk to having the Board of Directors confirm in ½ a day.
MM: How can you plan for M&A 5-10 years out?
KL: Our annual planning included M&A planning once per year for all sectors & all businesses. It’s presented to the Board of Directors each September. For each sector & business we have a page or couple of pages on the development of each business including both organic development & M&A. We plot goals & share of goals that can be reached organically. M&A is only the 2 nd way because of the high risks attached to M&A.
MM comment: Strategic planning was a rote procedure for my unit & didn’t seem to be that strategic. But then a number of our units were in decline anyway.
MM: What other goals might you have other than profit?
KL: It’s a question of the timeframe. There are 2 cases. 1 case is restructuring overlapping businesses with scale. It is relevant which leads to market share which corresponds to higher profits. It has the shorter timeframe. 3-5 years is when the optimum should be reached. There are longer time frame technologies with new technologies such as clean energy. We live in an important phase in global change in business. We have made a lot of investments in energy, water technology, wind energy. The top issue is clean tech.
MM: How does employee retention/satisfaction factor into M&A?
KL: When we buy a company, we buy that company because they are better in that field than we are. Specifically their people are better in this area. The main thing is we need to keep those people on board. We wouldn’t endanger/make acquisitions if those people didn’t stay.
MM: What’s most important: structuring the right deal or integrating it well?
KL: Both are important. There are 3 major sources of mistakes. 1 st is the wrong strategic candidate. If you have the right strategic direction, then you can destroy the target by bad integration. The main sources come from strategy & integration. The transaction phase is more formal & standardized. It’s a lower source of danger than the other 2 places.
MM: When you acquire a firm, how do you really know what you get?
KL: Any deal is a competition in information. In any deal, the seller has better information than you have. You should only look at a deal when you have a feeling you have reached comparable information the seller has. The information process is an end-to-end process in which due diligence is the main part of the process. It begins when you are doing the basic strategy. You do the screening of a lot of candidates. You should only make acquisitions where you are knowledgeable. Only then do you know the clients, competitors, etc. You can find out issues about product strengths & weaknesses. The philosophy on m&a has changed from phase to phase, not only @ Siemens, but the industry. In the history over 100+ years, there was pure diversification, consolidation, or attached M&A, where we can expand, not far away, but directly attached, to grow our business. Seimens moving to medical diagnostics is an example. Lab technology has origins in magnetic imaging. Low field magnetic resonance technology is a ray to develop pictures of the body. The high end does invitro diagnostics, to find out cancer cells in liquids. It illustrates the proximity between where we are & where we want to go. We don’t want to go into areas far from what we’re doing.
MM: Where do you find people with M&A management experience?
KL: Siemens as a big company has the advantage of having a multitude of specialty departments. In the corporation there are 15 departments with relevance for m&a. There is a department dedicated to paragraph 13A. This specific paragraph exists only in Germany & Austria, which obliges the acquirer not to release people from the company you have bought. It illustrates the specialties on board. In the Mittelstand they have to be taken over by external advisors, accountants, hr advisors, legal advisors. The mittelstand must be able to involve these specialists & see the necessity of these specialists.
There are a couple of international networks with partner companies in the US & Europe. It’s an absolute pre-requisite to work with these companies because they are able to work out the differences between the US & German markets. To move from Germany to the US, you need to know about the legislation around HR & pensions. You cannot do this without local advisors who know the local legal situation. A major company like Siemens has these resources locally in New York, but mittelstand companies have to know advisor companies who can contribute to the issue. The critical thing is not finding these companies; they are available. But having the sensibility to think about it this way. People do not have an inclination of what they really need.
MM comment: I agree bringing in outside specialists is key, but I question the role of foreign partner relationships when their interests are not aligned.
MM: Anything else?
KL; If you think about trans-Atlantic MA, it’s about complementarity. Most cases are to enter new markets. With m&a you can do it faster without a price war & have available salesforce & products that are different. For Americans, there’s another issue that’s relevant: when you buy a European family-owned company, you also buy the managerial system which works in 5-6 countries. When you buy an American company, you get a company which is used to working just in the US. Germans acquire volume. Americans acquire diversity.