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Diary of a Deal: Permanent tsb's merger integration programme Back  
Voted 'Deal of the Year' in Finance's annual corporate finance survey in the April 2002 edition by Ireland's top plcs, the acquisition of TSB Bank by Irish Permanent has proven to be one of the more successful financial services unions in recent times. In this deal profile, Gerry Danaher, head of the integration team, talks us through the key decision making aspects of the merger from which companies IT systems to choose, to the selection of the top management team, at all times aiming to attain the 'best of both'.
When the Irish Life & Permanent Group (IL&P) acquired TSB Bank it was always clear that the transaction was designed to strengthen the Group's position in the banking and bancassurance markets and that the post-acquisition strategy was to merge its banking business, Irish Permanent, with TSB Bank.

Those two organisations were coming to the merger with interesting backgrounds. Two years previously Irish Life and Irish Permanent had merged - this effectively was a merger of complementary businesses with the impact on Irish Permanent being felt in the integration of some small head office functions and in a greater emphasis on bancassurance in the branch network. For TSB Bank, the years leading up to the deal had been dominated - at a strategic level - by a search for the most compatible and suitable partner with which to form an alliance.
For both organisations the merger had very positive strategic benefits - the transaction gave Irish Permanent a foothold in the core-banking sector, while the transaction afforded TSB Bank the opportunity to become part of a much larger group while safeguarding those aspects of its character which it prized.

While this was strategically neat, there were many overlaps, which generated uncertainty among staff in both organisations. It is very difficult to capture the complexities and the nuances that are inherent in negotiating a major transaction and subsequently integrating two businesses.
A merger timetable could suggest a series of milestones, delivery dates and projects to be completed; a merger diary is something different - it suggests insights and emotions into what is going on around the milestones and the projects. A merger integration programme is particularly interesting if perceived as a roller coaster of emotion than a series of actions, milestones and checkpoints.

December 2000: announcement of the transaction
The announcement that the trustees of TSB Bank were recommending the IL&P proposal was the culmination of a decade of strategic reflection and debate within the bank. In one sense TSB breathed a sigh of relief that it had reached an accommodation with IL&P around the critical issues of price, strategy and employees; in another sense, TSB felt all the uncertainty you would expect of any organisation about to face into an integration programme with a company it had previously looked upon as a competitor.

One of the critical ingredients in making the merger possible was the agreement of Irish Life & Permanent to approaching the integration with the clear objective of creating a 'best of both' organisation. Importantly, Irish Life & Permanent could demonstrate its credentials on this issue by the way in which they had successfully integrated the business of Irish Progressive with that of Irish Life (retail) following the Irish Life/Irish Permanent merger two years previously on exactly that basis.

December 2000 - April 2001
As anyone who has been involved in corporate deals will testify, completing the transaction is the easy part. Bringing the two organisations together, managing staff through uncertain times and realising the value from the deal is the challenge.

While we had announced the transaction in December, it obviously had to go through a whole series of legislative and regulatory approvals, which meant that it could not be formally ratified for three to four months, and the two organisations had to remain separate during that period.
However, we decided to prepare the ground for the full merger and integration of the two businesses and as soon as the ink was dry on the deal, we were beginning to put the teams in place that would see the integration through. By the beginning of January we had over 100 people drawn from various parts of the two organisations working together to firstly understand each other's business in detail and to then begin designing the new organisation. This was a tremendously exciting period as we worked together and witnessed the shape of the new organisation evolve from the bottom up - albeit on paper only.

This was also the first indication we had of how the two organisations would gel, given that each had its own distinct culture and tradition. The early indications looked good. By setting clear and demanding objectives for the teams working on the integration and creating a positive working environment, cultural differences became less important.

The symbolic importance of that planning period cannot be over-estimated as it sets the tone for how the new organisation will operate. A relentless search for 'best of both', issues and difference resolved through objective analysis and no tolerance for the words 'but that is how we have always done it here', are some of the features of the planning phase. Staff, who worked on the integration, as they moved back into the organisation, then became ambassadors for the integration programme.

IT system selection
In any integration programme there are a number of decisions that are absolutely critical, but also very sensitive.

One of these is the IT system decision. As the IT system tends to pervade all aspects of the organisation, particularly in financial services, the implications of the decision tend to be far reaching. It is also important to take the system decision as early as possible in the integration programme as it gives greater clarity to the other work. Aware of its importance and conscious of its sensitivity, we set about evaluating the respective systems of TSB Bank and Irish Permanent with a view to taking an early decision on which system the combined bank would operate.
This was a very tense period, particularly for the respective IT communities as they worked on a complex programme with very tight deadlines, aware that the decision reached had the potential to impact on their careers with the organisation and indeed their geographical location.

We selected the system in March 2001 but also committed to staff that 'system decisions did not determine people decisions', i.e. that because you worked on the system that was not selected, it did not automatically imply you were redundant. While a voluntary severance scheme programme would be available we would make every effort to address the surplus IT staff issue through re-training and re-deployment.

Day One versus Launch Day
It is critical at an early stage of any integration programme to distinguish between Day One and Launch Day - there is frequently huge confusion around this. Day One is when the transaction is formally ratified and organisations tend to think that they will present themselves to customers as a new combined entity on that day. This, of course, is impossible since the products; processes and systems of the former two organisations are totally different. On Day One therefore all that can be done is to make those changes, which are required from a regulatory, compliance and reporting perspective.

Launch Day, by contrast is the day on which the new integrated business sells an integrated product set and offers a uniform sales and service process across all its distribution channels. As can be imagined, this is a major undertaking requiring system changes, staff training, design and clearance of a new product set through the relevant authorities and so forth.

The question of when launch date would be, generated as you would imagine, quite a lot of debate with a large number of trade-offs having to be considered. With the benefit of some high level estimates of how long various pieces of the jigsaw would take to complete, it was eventually settled by asking the following question, 'What is the longest period you would tolerate before the integrated bank is launched?' The answer that everyone accepted was one year, so it was agreed that all the planning and design work would work with the hypothesis that we would launch the bank in April 2002.

Staff selection -top team appointment
Coming even before the IT system selection decision in terms of criticality and sensitivity are people selection decisions. Every staff member suffers serious uncertainty during an integration process - they typically work through a hierarchy of uncertainties - will I have a job? If so what will I be doing? What will my terms and conditions be? Where will I be based? What will my new boss be like? This uncertainty is inevitable - the only way to address it is to move as quickly as possible, communicate clearly the organisation's plans and intentions and behave absolutely fairly and transparently.

A major issue for a new CEO is whether to appoint the top management team immediately or wait until the transaction is formally ratified. There is no correct answer here - both approaches have pros and cons. In both the Irish Life/Irish Permanent merger and the permanent tsb merger we waited until the transaction was formally ratified. While this ensures that there is a management team in place in each business during an uncertain period with obvious business benefits, it means somewhat less attention to thinking about the future design of the combined business since no formal responsibility for any part of the business has been allocated to any executive. Selecting early would also have serious morale implications for each business were the transaction not to proceed for whatever reason. There are a whole list of other factors inherent in this decision which would require more space than this article affords.

Staff selection: other managerial levels
Once the top team was announced we moved immediately to populate the remainder of the managerial positions. It is important to understand that as a completely NEW organisation is being designed ALL managerial positions must be filled by some process - there are no incumbents. We used an interview process with the interview panel comprising one person from each of the two former organisations and an independent chairperson. This process typically tends to throw up a major weakness in organisations - the absence of well-documented and accurate performance assessment records. In many cases therefore we supplemented the interview and track record process with assessment centres.

As one strives for 'the best of both' in terms of people decisions, the tensions become palpable. Good staffs become displaced - where the respective heads of similar functions from the predecessor organisations are both of high quality only one can be successful. The argument then becomes that that person should be accommodated elsewhere in the organisation and should be part of the selection process for other areas. While that is desirable it is very difficult to achieve because the principles dictate a very structured 'clustering' process. There is a huge danger here that ad hoc decisions, each justifiable on its own merits, undermine the overall principles.
Further complicating the selection process is the need to achieve cost savings. Populating the organisation with the best people, retaining staff support for the process while achieving the business case is at the very heart of any successful integration. Every technical issue in an integration programme, regardless of how complex, pales into insignificance when compared to the people agenda.

Brand rollout/branch amalgamations
A set of issues around when to amalgamate the 49 overlapped branches and when to roll out the new brand permanent tsb generated an enormous amount of internal debate. For simplicity, I'll illustrate the issues by reference to two camps - one camp argued for amalgamating the 49 branches as rapidly as possible and launching the brand when all that had been achieved. The other camp argued for waiting until we had successfully completed the euro transition to begin amalgamations while at the same time arguing for a phased launch of the brand, before the amalgamations were completed.

Again, no right or wrong answers on this issue - managerial judgement at a premium. We eventually decided to limit the number of branch amalgamations to six pilots in the pre-Euro conversion period and to complete the exercise in the period Feb-May 2002. We also decided to phase the launch of the brand starting in Feb 2002 with full rollout completed to coincide with the launch of the bank in June 2002.

And now....
Less than 18 months after the trustees of TSB Bank agreed to the proposal of Irish Life & Permanent plc to acquire the bank, the newly formed permanent tsb is now up and running. A new brand has been launched on the market, branches amalgamated, management teams created and staff trained.

But of course, completing the physical aspects of the integration is only a first step - albeit a critical one. Now the focus shifts to making sure that the new bank realises its potential and that the benefits of the merger flow to all its constituent parts - including to the bank's owners in the Irish Life & Permanent Group.

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