Dr. Glenn S. Prince-Abbi on Industry Consolidation and M & a interview with this day

Full Text of Interview with
ThisDay Newspapers
“Industry Consolidation and Mergers & Acquisitions”
March, 2006

Dr. Glenn S. Prince-Abbi, international consultant and strategy expert, is
Executive Consultant/CEO Espera Global Corporation. He deploys a robust
depth of insight in corporate strategy and institutional development and is widely
referenced as an original thinker and a highly effective driver of organizational
transformation. A successful international speaker and executive trainer, he led
the groundbreaking international seminar on Mergers & Acquisitions in
September 2004 to help build capacity on M & A in the Nigerian financial sector
as follow-up of the Central Bank of Nigeria regulation announced Q2 2004
requiring consolidation via Mergers & Acquisitions for Nigerian Banks. The
CBN then gave a deadline of only 18 months. He spoke to Godwin Haruna of
ThisDay on the current trends in Mergers and Acquisition, Industry
Consolidation and broad issues of corporate strategy, global business
development, crossborder investment and alliances and his company’s
Strategic Business Incubation plans.

Excerpts

This takes us back to where we started when we said that current leaps in
technology have fundamentally redefined the shape of business. Time, in its
erstwhile-defined form has become irrelevant and meaningless in a world that
has crumbled to the size of a grape. Today, all activities in business insist on
happening at the same time for them to be meaningful and to render good value,
by today’s standards. We call it Real-time. This would have been pure
laughable science fiction to our grandsires! Speed, made possible and rendered
fundamental by current technology, has become a key factor in business. The
face and structure of business across the globe has undergone a deep
transformation in the past decade or so in a way it never underwent in one
thousand years! ****

Technology is the high-power lever in this whole process of transformation.
Spurned by current technology, which has enabled a wide array of business and
economic possibilities, the face of business as hitherto known has
metamorphosed dramatically, and growth trends in emerging markets of the
world have intensified. These have in turn contributed tremendously in
leapfrogging the pace of globalization, which itself has been on the rise in the
past two decades and more intensively in the past decade in particular. As a
matter of fact, from the on-set of the 21st century, the pace of globalization as a
formidable economic force, impacting every sphere of engagement, assumed a
spiralling dimension, compulsorily beyond the control of any single entity -
governmental or corporate, or even a combination of both. Believe me,
everything we think or say, and every way we decide or act in business is, in
most cases, both the cause and consequence of globalization!

Dr. Glenn Prince-Abbi’s interview on Industry Consolidation Page: 1
and Mergers and Acquisitions

I’ve stated all this to say that globalization, levered by technology, has in effect
increased the pace of industry consolidation and mergers and acquisitions in all
sectors: banking, insurance, IT, consumer goods, manufacturing, automobile,
aviation and infrastructure. This is the trend in global markets. Nigeria is just
rising up to it. ***

_______________

Sir, you delivered a major international seminar on Mergers and
Acquisitions in 2004, what are your current thoughts on Industry
Consolidation via Mergers and Acquisitions as it is now in the Nigerian
business environment?

The consolidation agenda set in 2004 for the banking industry by the Central
Bank of Nigeria, has essentially concretized into reality on ground. At the
moment, almost all stakeholders, if you like, have realized that this option is the
best for the economy in general. As we argued last year in the midst of the
debate and protestations that followed the announcement by Professor Charles
Soludo, the Governor of CBN, it has been clearly confirmed that global trends
strongly corroborate the CBN’s position. That is why of course our firm decided
to set the pace for providing the competency and expertise needed in the industry
in the area of Mergers and Acquisitions and Post-Merger Integration Dynamics
through our international seminar. We felt compelled to bring that seminar to
Nigeria - a seminar which our firm usually conducts in New York - owing to
the obvious dearth of skill and expertise in M & A and post-merger integration
in Nigeria. The Securities and Exchange Commission, whose Director for M &
A Mr. Sylvester Akele, benefited from the training, responded very creatively
and packaged a follow-up seminar for further capacity building in the industry in
November of the same year and invited me to be the key speaker on Mergers &
Acquisitions and Integration Dynamics. The lecture I delivered was
enthusiastically received and widely circulated. At the moment, I’m particularly
troubled that post-merger integration concerns have been largely relegated to the
back-burner, as a number of operators worked up their mergers in near-panic, all
to meet deadline. It’s not done that way. The all too crucial task of making the
merger or acquisition deliver expected value to shareholders is confronting
operators right now. They must get it right. The challenge is actually a solid
post-merger integration strategy expertly executed. In my judgment, a number of
the merged entities will actually achieve true synergy and real traction only after
two years or so. It happens.

Sir, there is so much transformation occurring everywhere, how will
company executives approach all of this?

Technology is the high-power lever in this whole process of transformation.
Spurned by current technology, which has enabled a wide array of business and
economic possibilities, the face of business as hitherto known has
metamorphosed dramatically, and growth trends in emerging markets of the
world have intensified. These have in turn contributed tremendously in
leapfrogging the pace of globalization, which itself has been on the rise in the
past two decades and more intensively in the past decade in particular. As a
matter of fact, from the on-set of the 21st century, the pace of globalization as a
formidable economic force, impacting every sphere of engagement, assumed a

spiralling dimension, compulsorily beyond the control of any single entity -
governmental or corporate, or even a combination of both. Believe me,
everything we think or say, and every way we decide or act in business is, in
most cases, both the cause and consequence of globalization!

I’ve stated all this to say that globalization, levered by technology, has in effect
increased the pace of industry consolidation and mergers and acquisitions in all
sectors: banking, insurance, IT, consumer goods, manufacturing, automobile,
aviation and infrastructure. This is the trend in global markets. Nigeria is just
rising up to it. And as it matures, it will open more avenues for FDI.

What then do you foresee from the trends?

You compel me to go full throttle on these themes . . . ok let me explain. We
can look at global business scenarios in key categories. As a strategy firm, we
traditionally conduct series of scenario planning sessions which have enabled the
clarification of global trends and their implications for business across the world,
including, of course, how they are apt to impact businesses in emerging markets
as well as teething or slow-growing economies, if you like, in sub-Saharan
Africa, for instance.

Scenario planning work, is a major component of our strategy formulation
process. In the process, we have attempted to segment global trends under key
operative rubrics, namely, political, economic, social-cultural and technological
characteristics. These are the key factors around which any business in
practically any industry should be structured. Corporate Strategy, including
strategies for Mergers and Acquisitions will do well to be woven around these
factors.

Under Political Trends for instance, we have observed that:

1) there is a growing acceptance of the benefits of free trade and foreign
investments
2) Government protection of domestic firms and industries is decreasing
and becoming less effective

First, this pattern of political trends in emerging markets has very clearly opened
up domestic businesses and rendered them more susceptible to outside business
realities. Secondly, it has also increased the tendency towards broader
transnational collaboration by corporate organizations as well cross-border
mergers and acquisitions, in particular. Our projection is that this pattern (I
mean, of cross-border alliances and collaboration of businesses and also of
cross-border Mergers and Acquisitions) will fully play out incrementally across
industries, i.e. banking, insurance, telecommunications, oil and gas, technology,
infrastructure and, of course, aviation. The agenda has been set and the most
focused organizations with very strong strategic guidance will make intelligent
strategic choices and smartly derive the best advantage from the process. I’m
afraid, companies that tend to resist it by not seeking ways of pooling resources
(be it technology, skills and competencies, finance, infrastructure or business
development capabilities) may come to grief. The aviation industry in Nigeria
for instance is in need of a lot of re-jigging or some players may actually crash
(sure you understand I don’t mean air crashes; I mean corporate collapse!!).

On the Economic front, which works in tandem with the Political, we have
observed that:
1) There are fewer barriers to trade, investments, and financial flows;
2) There are increased trade and investments flows
3) There are improved institutional frameworks for business, trade, and
investment

Again, this pattern portends well for cross-border collaboration or alliances and
mergers and acquisitions, particularly in highly technical and capital-intensive
sectors, such as aviation where there is now a growing concern.

Let’s examine our observations under the rubric of Social-Cultural trends in
emerging markets.
1) There are increasingly educated, trained, and competent consumers and
populations
2) There is continuing convergence in consumer needs, desires, and wants
3) Disposable income, in spite of the often celebrated harsh economic
realities, is growing rather than shrinking - this is striking
4) There is easier and greater movement of skilled manpower across
regions

These trends What do they indicate?

These are definite trends in emerging markets and growing economies. What do
they indicate? Increased business activities, of course, and greater business
opportunities for players across industries. Taking advantage of these
opportunities means that there must be increased investments in all industry
sectors. I mean bold investments which should deliver real value to
shareholders in the medium and longer term. In this regard, a viable option in
high-potential, developing economies, such as Nigeria, remains that of
consolidation, mergers and acquisitions and in a number of cases, smartly
structured diversification strategies supported with excellent processes and
delivery systems. This will strengthen and enlarge the capacity of firms and
position them solidly as viable enterprises ready to deliver new levels of
competitive value to investors. This pattern, having long taken a foothold in
North America and Western Europe as sophisticated markets, is assuming a
firmer structure in the emerging markets of Asia. It will certainly take a grip
also in Africa, and Nigeria is moving towards that direction - rapidly.

Finally, examining Technological Factors and Characteristics, our scenario
planning sessions throw up the following existing trends, namely,
1) That there have been more rapid and disruptive changes in technology
2) That emerging economies have clearly demonstrated greater readiness
and ability to utilize and absorb technology
3) That “make or buy” decisions are changing fast and the corporation’s
boundaries are increasingly less defined
4) That there is widespread diffusion of information and communications
technologies, allowing broader geographic dispersion and integration of
business activities.


This takes us back to where we started when we said that current leaps in
technology have fundamentally redefined the shape of business. Time, in its
erstwhile-defined form has become irrelevant and meaningless in a world that
has crumbled to the size of a grape. Today, all activities in business insist on
happening at the same time for them to be meaningful and to render good value,
by today’s standards. We call it Real-time. This would have been pure
laughable science fiction to our grandsires! Speed, made possible and rendered
fundamental by current technology, has become a key factor in business. The
face and structure of business across the globe has undergone a deep
transformation in the past decade or so in a way it never underwent in one
thousand years!

That’s amazing . . .
Oh yes, that’s like it! We have today, whether we appreciate it or not, a business
universe without borders and boundaries. It is in this sense that we foresee a
deep ingraining of cross-border industry consolidation and mergers and
acquisitions, since we are talking about that subject matter. The fact is: this
phenomenon will affect every aspect of business. It speaks volumes about how
grand strategy at the corporate level or business strategy in specifics should be
configured. As I had said on some other occasions in time past, globalization is
here, global competitiveness for business organizations in any industry or on
any terrain is becoming a pressing necessity as a prerequisite for growth and
further survival. No serious business can afford to think in terms of its local
context alone. The local context of a business is now a direct product of global
business trends. A fundamental departure from this mindset would be mean
committing corporate hara-kiri!

You clearly have been in full support of the agenda for industry
consolidation from the moment it was announced by the Central Bank
Governor, Charles Soludo. What are your thoughts on industry
Consolidation in other sectors such as Insurance and Aviation?

Sure I’ve been in full support the industry consolidation agenda; those who
oppose it are simply manifesting the natural human tendency to resist change.
Industry consolidation has great benefits if done right. It creates a basis for
small players to more easily emerge as big players, as they could gradually
crawl on the global scene with improved capacity. If you follow well the
scenarios I have earlier attempted to put forward and clarify, you would see that
industry consolidation via mergers and acquisitions is an important and
wholesome strategic agenda. As insurance companies in Nigeria face
consolidation in that industry, the advantages are immediately obvious. A
substantial volume of underwriting business in Nigeria is still lost to foreign
competitors as a result of capital inadequacy and poor risk management
capability. This will be immediately reversed, as the emergent companies after
consolidation will be in a firm position to take on those deals.

In fact, the regulatory requirement for consolidation in the insurance industry is
particularly timely and advantageous. This is because large volumes of
businesses in high-capital sectors, such as oil and gas, are coming up rapidly as
foreign investment flows in that sector are reaching an all-time high. This
complements the heavy and still-growing investments in telecommunications,

as well as investments, enabled by the new cabotage regime in the maritime
sector, which are in turn expected to rise dramatically. There is every
indication too that investments in infrastructure are bound to gradually grow.
The yawning gaps in infrastructure in Nigeria are clear and this will attract
investments under various packages in Public Private Partnership programmes,
among others. Talking about aviation and infrastructure, I’m told somebody is
building a new airport in Lagos. It’s part of the trend.

This all-round trend of upswing in investments clearly opens up unprecedented
opportunities for underwriting business, and industry consolidation through
mergers and acquisitions, and the attendant enlarged capacity it will confer on
the emerging players will bolster robust business growth in insurance. The snag
is that there is at the moment a lack of the skills, the managerial depth as well as
the strategic institutional development drive that is critical to achieving sound
success in the emerging opportunities. That is where the challenge is, but I
think it is easy to tackle, if insurance companies will secure the needed
expertise to help them in the area of rapid institutional capacity-building and
strategic direction. . . And I do not want to advertise our firms services in this
talk.

And what about consolidation in the Aviation Sector?

Consolidation in the aviation sector is clearly a viable strategic option. I had
mentioned that in a previous forum, shortly after the fateful Bellview air crash
in October 2005. Let’s look first of all, dispassionately at global trends.

Industry consolidation in the aviation industry characteristically poses unusual
challenges. For instance, a merger between America West and US Airways was
announced early last year (2005). The general thinking, going by previous
experience with regard to post-merger integration traumas, is that it would be a
difficult one. For this reason, a holding company arrangement is being
proposed from certain quarters as an option for the merger.

A similar merger of a wide international scope was achieved in 2004 between
Air France and KLM. Considering, we can safely assume, the irreconcilably
disparate cultures and systems, as well as the powerful brand equity each of the
two entities command, this particular merger was accomplished through a
holding company, making room for the two airlines to be managed
independently and to retain their distinct identities. These are all options which
are proving efficacious in the process, just as the option of merging confers
deep synergies that are adjudged to be of strategic importance for growth and
enhanced profitability.

It is accepted in global markets, particularly in the United States, where the
Airline industry has suffered a deep slide since 9/11, that mergers are needed
today to bring some financial stability to the troubled airline industry. The
America West/US Airways merger is only one in a series of mergers to come.

Beside this, the U.S. airline industry in its history has itself undergone quite a
dose of mergers and acquisitions. After going through four different mergers
and acquisitions, Bonanza Airlines, a Phoenix-based regional carrier in the
1960s, was finally acquired by Northwest Airlines in 1985. In 1930,

Transcontinental Air Transport and Western Air Express merged to form what
came to be known as Trans World Airways (TWA). And most recently, in
2001, American Airlines fully acquired TWA, finally erasing that name from
commercial aviation history.

Mergers and acquisitions in the US airline industry intensified with the
introduction of deregulation in the late 1970’s, and so before the end of the
1980s, U.S airlines went through series of mergers and acquisitions to achieve
rapid and sustained competitive advantage up to the point which we have now
known them to be. At the moment, the cycle is about to repeat itself - though
not with the same intensity as was the case two decades ago.

You may ask me, what are the possible lessons for the aviation industry in
Nigeria in the light of global trends. There are a lot. My position is that there is
need for focused capacity-building among Operators in the Nigerian aviation
industry.

Really, in any environment where vast opportunities lie untapped, just as the
case in Nigeria, a Merger or Acquisition option for players could offer great
synergies and accompanying economies of scale. This has strong strategic value
for companies. There are yet unexplored opportunities in the Nigerian aviation
industry. Incentives were provided by the Federal Government through (Federal
Airports Authority of Nigeria (FAAN). For instance, a 50 per cent waiver on
landing/parking fees for a period of 6 month is being granted to encourage the
development of routs. Lots of opportunities have been identified for specialized
segments such as cargo and tourism, supported of course by incentives from
government.

The existing capacity of operators in the sector still fall way behind the
opportunities offered on ground. A similar need for capacity-building can be
identified when we consider the need for domestic airline operators to achieve
world-class standards in service delivery and operational efficiency. This is
particularly important for moving forward. Operators will do well to seek, or
position themselves to attract, foreign investments and to pool resources to
enable them achieve new competitive levels of service delivery and operational
performance. Doing that, they will also be able to take the most creative
advantage of all that the industry offers. All of this calls for focused and
visionary leadership, strength of managerial depth and strategic behaviour
among the operators in an industry which should be run at world-class levels by
every consideration. Nothing short of that is acceptable. Sure you understand?

It appears quite good, but in your experience, how will such mergers work?

I was actually coming to this crucial issue. We have repeatedly said that hardly
will any Merger or Acquisition work without a well formulated and prosecuted
post-merger integration strategy. A number of companies in practically all
industries have discovered much to their chagrin that they over-looked or
treated lightly the need for putting in place a solid integration programme. The
right expertise must be sought to achieve this. This is important for the merger
or acquisition to succeed. Aviation industry players in the dispensation to
come, if you like, will do well to consider this.


Before the close of 2005, there was indeed a frenzy, a near-panic among banks
to merge to meet the regulatory requirement. Strategic issues, such as post-
merger integration to lead to competitive value delivery, were not in the front-
burner of concern among the banks. At best what I see being put across by
merging entities are mere rationalizations about strategic fit and all that. For me,
this is particularly worrying.

The need for synergy capture and that of unlocking all the expected value
foreseen before the merger, calls for a sound management of the integration
process. Factors having to do with post-merger integration dynamics must be
factored in right at the stage of due diligence. In general, it is rather intriguing
that while companies seek financial consultants to put together the M & A deal,
they treat the integration aspect rather lightly and either decide to do it
themselves without the skill or seek advisors that lack the required competency
in strategy and institutional development or culture integration. It is a far
trickier process than is being realized. It is not surprising then that far less than
50 per cent of mergers really succeed.

The fact remains that the process of integration is where the success of the
merged entity lies. After investing billions in a particular merger or acquisition
it is important that a foolproof process of managing the post-merger integration
dynamics be put in place to ensure success. This is simply elementary wisdom.
But the lack of it has characteristically accompanied most M & A deals and
therefore the disappointing failure rate recorded globally. I assume that this
lesson will be smartly learnt by firms in the Nigerian business environment as
consolidation gains ground in various industry sectors.

As a matter of fact, there are other offerings in the horizon. Take it that from
this self-same consolidation framework across industries, will emerge channels
and platforms for cross border investments and alliances by which smarter
parties would take creative advantage of more of the renown opportunities
which our country offers as a locus of investment among developing countries,
as global investors look to such locations to extend their growth strategy.

As a company we are steadily shifting and moving our gaze towards this very
horizon through what we call strategic business incubation (SBI).

_______________


Dr. Glenn S. Prince-Abbi on Industry Consolidation and M & a interview with this day

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Dr. Glenn S. Prince-Abbi on Industry Consolidation and M & a interview with this day