WORKING with your senior financial counterpart on a major merger – knowing that one of you is out of a job at the end of the process – must be, at the least, uncomfortable. But for then-Dixons group FD Humphrey Singer and Carphone Warehouse opposite number Nigel Langstaff, the situation in 2014 was straightforward, natural and mutually supportive.
“To be honest, the group FD decision was not one of the toughest ones, because Nigel had been with Carphone for a long time – since the mid-90s – and had reached a point where he wanted to move on and do some different stuff in his life,” Singer tells Financial Director.
Langstaff stayed on to the end of 2014, a few months after the mega-merger – which created a £3.8bn business – had been struck.
Appointments among the major roles shows an even mix of execs and non-execs from the two. As examples, Carphone Warehouse chief Sir Charles Dunstone became chairman, and Dixons boss Seb James became group CEO. Key roles were decided early in the process.
“That’s really important because you don’t want to have people distracted by their own futures – you want it to be clear for the senior team that are working on that deal, to allow them to really focus on the transaction itself,” says Singer.
Handling the multitude of overlaps in the businesses was much more difficult. “The secret is to do it as quickly as you can and in a way that is least painful – which is about being very honest, as much as you can, with people. Do it quickly, professionally and sensitively,” he continues.
Staff have to take stock and readjust their plans, but it can work out well, with Singer seeing two of his former senior finance team in new companies.
“From their own career point of view, they have probably ended up in better places than they might have ended up with if they’d stayed, so it’s not all necessarily bad news,” he adds.
With senior management and staff aware of what the deal meant for them, it allowed them to focus on ensuring that the deal would – and should – work. Singer’s role in the merger was broad, but clear. It was also representative of the evolutionary path that the CFO role has taken in the past 20 years.
“It’s not so much the CEO thinking up an idea and asking the CFO, ‘Does it add up?’ It’s a team that comprises various specialisms. As FD, you are more of a player in the strategic conversation. We had a clear gap in our portfolio selling mobile phones and needed to do something about that, because technology was converging and consumers were thinking in a more seamless way,” he says.
A strategy team was formed, of numerically talented M&A experts, as well as Singer’s finance team. An equivalent group was set up on the Carphone side. A number of different work streams were set up, the most crucial being the one tasked with putting together the business plan. This plan had to span several years, representing the two businesses as one. This included identifying any benefits from synergies. Eventually, a staggering 26 synergy work streams were formed, coming up with ideas and identifying both revenue upside and cost savings. A minimum of £80m in synergies was identified by 2017/18, and that was transmitted to the investor community.
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“You then use that, ultimately, to sell the idea to analysts and investors, and use that with your lender banks to put together financing for the transaction,” Singer explains. The synergy target has now been brought forward to 2016/17.
As is clear from Singer’s responsibilities, communication of the combined entity’s direction of travel – and the question of who would be coming along for the ride – was absolutely core to its success, almost as important as calculating whether the deal was beneficial.
“In many respects, you end up being a sort of salesman to a lot of stakeholders: selling the story and explaining what you’re doing, while a lot of the actual work is being done by the teams back in the company. I spend a huge proportion of my hours explaining externally the story of Dixons Carphone,” explains Singer.
One of the more important aspects of that communication included referring to a single business unit, rather than two companies, he says: “In a merger, you have to very quickly abandons that ‘them and us’ language.”
That’s hard work, he admits, because it’s instinctive to speak about your one business, “and as leaders of the [combined] organisation we’ve all tried hard to quickly talk about ‘we’.
“I find myself talking about things as if I did them, but actually pre-date the merger and were undertaken by Carphone. But you have to get into that place quickly – it’s quite important.”
The use of “subtle language” and the importance of communication had traditionally not been among accountants’ core skills. And it wasn’t something at which Singer believes he was particularly adept, either, despite senior roles at Dixons, Cadbury Schweppes and Coca-Cola Enterprises: “It was a baptism of fire: it’s a definite skill and it helps if you’re naturally good at it.”
Such skills are important to senior members of finance teams, and his experience has made him think about his own staff.
“The lesson I’ve learned is that we’re going to do some of this in my own team, provide training and experience of public communication earlier in their careers,” he continues.
Back to the banks, and the small matter of organising £900m in financing. “That was definitely my baby to get sorted”, says Singer matter-of-factly. There is now a £650m multi-currency term and revolving credit facility, as well as a £260m revolving credit facility, both of which mature in April 2017. Some £250m in bonds will also mature in that period.
There was another key issue to be broached by both parties. One that is often forgotten, but is described by Singer as “rule one” of mergers: to make sure both companies continue to function, business as usual.
“The last thing you need through the integration process is allowing the business to go off the boil,” says Singer.
This challenge involves making sure that standard business processes, such as the undertaking of the usual business reviews, are not skipped in the heat of the merger. “It would be easy to say, ‘I’ll skip that [meeting] and just do merger stuff.’ You’ve got to squeeze it all in.”
Singer admits to being “somewhat sleep-deprived” during that period but adds, “Yeah – it’s fun and a huge privilege to be involved at a senior level in these businesses and I enjoy what I do.”
Such juggling of priorities requires a strong support network, professionally and personally: “You have to have a really senior, capable team at work, and then a very supportive family who recognise what you’re doing – and I’m very blessed. That’s what make it possible.”
Singer also took sage advice from other senior business people in the orbit of the two companies: namely, their non-executives. Such advice was helpful in avoiding what Singer describes as the “deal frenzy”. “They should not be too caught up in the heat of the moment, and provide wise counsel. We got a lot of that from both sets of non-execs. You take external advice (without breaching confidentiality) and remain calm,” he says.
When the deal became public in May 2014, the two businesses and their converged transaction teams underwent a metamorphosis – not necessarily butterfly-like, but a change nonetheless. From the transaction focus came an implementation management team, which saw new skillsets and new faces brought in. The group strategy and HR directors now focused on what needed to be done pre- and post-completion – a team that still exists a year later, Singer points out.
For him, this involved getting down to the “nitty-gritty” of making sure core business processes were in place – and didn’t fall between the cracks: “From day one, I need the treasurer to know where his money is and how he’s going to make sure that’s where it all gets counted and controlled. That’s very, very practical.”
Without wishing to romanticise the process, Singer believes that treasurer Neil King has enjoyed getting his teeth into some “big things to do”, he says: “There’s a hell of a lot to do, but you’re part of creating this new entity, and that’s something you will look back on in your career – in many years’ time – and say it was worthwhile.”
Talk is cheap
From where does a multibillion-pound deal such as that which has brought together Dixons and Carphone Warehouse come? It’s certainly not delivered by the stork … but who broaches the subject of a deal first?
Dixons Carphone FD Humphrey Singer points out that Dixons chief Seb James and Carphone Warehouse boss Andrew Harrison knew each other socially, and both were involved in the charity Tablets for Schools. While Singer judicially avoids saying who mentioned the deal first – he may well not know who did – early exploratory conversations took place in December 2013 between “various” senior executives.
“I was in those conversations right from the beginning,” says Singer. From these came more detail, which included discussions between him and Carphone Warehouse counterpart Nigel Langstaff. Inevitably, the press got wind of the deal soon after steering committees and external advisers got involved, by February 2014. As both were publicly listed companies, further communications become much more rigorously controlled.
“Then it snowballed from there,” adds Singer. By August 2014, a £3.8bn deal was complete.
Singer created a team of six senior staff that reports to him, a mix of people from both companies. Group finance staff were in place just four months after the deal went through. Having a completely integrated function is something Singer says “was a really important thing to get sorted”. All key business unit finance heads were also in place from last August. The process to bring together the two finance teams began at that point, and has just been completed.
Again, Singer refers to the “tough decisions” that needed to be made, such as Dixons’ Hanwell head office closing and moving to Acton.
Part of the deal frenzy might have seen Singer push for an all-out new IT system. But he certainly didn’t get frenzied. While there’s a “big IT agenda”, Singer is pragmatic about technology: “I’m not terribly keen on massive IT implementations that cost a fortune and take years to arrive. We have lots to do, but it’s piece by piece.”
And decisions have been made, tech chosen. The group has, for example, selected Oracle’s HFM product for consolidation – which was used by Carphone and had been on Singer’s radar for Dixons anyway. “That was a relatively straightforward decision,” he says, “but implementing it was a harder piece of work.”
It was a two-stage process – firstly making sure the group can “add up the numbers”, which means integrating Dixon’s data into the existing Carphone system. Secondly – and the business is still in the middle of this – launching an up-to-date version of the technology for the merged entity. One version of the truth can unlock much insight, Singer suggests, and a pre-merger finance team member has stepped up to manage the project. “He’s having fun doing it,” Singer says without sarcasm.
Replacing the whole ERP system, though, is a much bigger decision. “Again, I want to be pragmatic about it, do it when we need to and not before, be clear what the benefits are, and make sure the scope is controlled and achievable because there’s lots of other stuff to do,” he says.
Early on, a post-merger business must be clear on its key processes, find the “rhythms” to which it runs on budgets, set up the audit committee and capital approval committee – standard things – he comments. It’s almost the opposite of the thinking, and calculating, that goes on pre-deal.
“Just make it happen – don’t spend too much time navel-gazing about it,” he concludes. ?
IN BLACK AND WHITE
2014-present Group FD, Dixons Carphone
2011-2014 Group FD, Dixons Retail
2010-2011 UK&I finance director, Dixons Retail
2008-2010 Group FC, Dixons Retail
2007-2008 FD, Currys (Dixons Retail)
1996-2007 VP, finance, Coca-Cola Enterprises