VideoBuying a company without an integration plan is like driving a car with the handbrake on: you might reach your destination eventually, but the journey will be longer, tougher and will probably damage your vehicle. With a rock-solid plan, however, even a tough acquisition can quickly show signs of success. That was the hope, at least, following last year's takeover of Dutch bank ABN Amro by Fortis, Royal Bank of Scotland and Banco Santander. A bevvy of Dutch, Belgian, Spanish, Scottish and English bankers made M&A history as the first hostile, multinational consortium break-up as well as the sector's largest cross-border deal. (See "Big Money.") But the buyers now face the challenge of ensuring it delivers value while the industry is in turmoil.
Nine months after the takeover, the subprime crisis is in full swing, making ABN's €70.4 billion price tag look steep. When RBS launched a rights issue in April, chairman Sir Tom McKillop admitted to analysts it was "very unfortunate" that the consortium closed the deal when valuations were much higher. "You could call it misjudgment," he said.
Delivering the expected value hinges on how quickly and competently the buyers pull ABN apart and integrate its businesses with their own. Other deal-making CFOs will be keen to see how the finance chiefs of Fortis, RBS and Santander handle the task.
Breaking Up Is Hard to Do
For ABN, February 2007 marked the beginning of the end. When TCI, a hedge fund, criticised the group's "terrible" record of shareholder returns and encouraged it to sell assets or find a suitor, it seemed clear that the Dutch institution — which traces its roots back to 1824 — would not survive in its current form. ABN responded two months later by announcing a €67 billion merger with Barclays, a British bank. But the bid by the RBS-led consortium scuppered that marriage proposal.
The Dutch did not give up without a fight. ABN sold LaSalle, its US subsidiary, to Bank of America against RBS's wishes, leading to a legal spat which dragged on for months. The subprime crisis eventually helped draw the deal to a close — as banks' share prices were battered, Barclays' equity-based bid looked increasingly weak. It withdrew its offer for ABN in October, clearing the way for the multinational consortium.
The way Fortis CFO Gilbert Mittler tells it, deciding how to divide the spoils among the three consortium members was not as complicated as it might have appeared from the outside. From the start, he explains, each member knew what it wanted from the deal. ABN's North American, European and Asian wholesale businesses went to RBS. Spain's Santander would keep most of the Latin American franchises, while Fortis would take most of the Dutch commercial and retail businesses as well as the global private-banking and asset-management divisions. Other assets would be sold, the bidders agreed, with the proceeds shared between the three.
Mittler also describes as straightforward an April meeting in London at which the three CFOs — Mittler, RBS's Guy Whittaker and Santander's José Antonio Alvarez — settled on the valuation of ABN's assets. Even when ABN pushed through the sale of LaSalle a few months later, the consortium agreed to forge ahead with the offer after a quick conference call. "All the energy was kept for two things," Mittler says. "Fighting to get the deal done and working on the separation and integration from that date."
Despite the scale of the acquisition — ABN was a sprawling business with €17 billion in income and more than 100,000 employees — much of this is familiar territory for each of the consortium's members. Between them, they have acquired more than 100 companies over the past 15 years, including RBS's purchase of NatWest in 2000 and Santander's acquisition of Abbey National in 2004. Fortis has made more than 25 deals in the past three years alone. Again, Mittler admits that convincing the market of the validity of its integration was easy. "They believed us because we'd done it before."
Experience does count. "Active acquirers have a better record of post-merger integration than a very infrequent, episodic or first-time acquirer," says Robert Bruner, a professor at the University of Virginia's Darden School of Business and the author of Deals from Hell (Wiley, 2005). "It's a learned skill, a set of competencies that you build up with every new deal." Mittler's favourite example from his bank's track record dates back to 1998, when it integrated seven Benelux banks acquired in previous years, including Belgium's Générale de Banque. The board targeted synergies of €675m from the Générale de Banque deal, and improved that figure by nearly 30%, the CFO says, although over four years, rather than the initially anticipated three.
Analysts agree that Fortis's track record makes it well placed to succeed with ABN. Last year, WestLB analyst Ralf Breuer told The Financial Times, "If someone needs a lesson in integrating businesses, Fortis would be one of my major examples on how to manage it, and be financially successfully at it as well."
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