FHI acquires AED: A conversation with CEOs Albert Siemens and Gregory Niblett

After months of intense speculation, AED announced Wednesday (June 8) it will sell its programs, expertise and other assets to FHI, a global health group on the verge of becoming one of the largest development organizations in the business. AED’s revenue stream had narrowed significantly in December, when the U.S. Agency for International Development, one of the company’s main donors, temporarily suspended new funding after an audit raised questions about AED’s work in Pakistan and Afghanistan. In March, the Washington-based nonprofit called on interested buyers, generating interest around the globe. Three months later, AED signed an asset purchase agreement with FHI. Devex spoke with the two men at the heart of the ongoing acquisition process, AED President and CEO Gregory R. Niblett and FHI Chair and CEO Albert J. Siemens, the day after they announced the agreement. In a Devex exclusive, the two spoke candidly about the monumental task ahead as well as the road traveled so far. Congratulations, first of all, on reaching an asset purchase agreement. You’ve both been presenting it to your colleagues this week. What has been the reaction so far from your colleagues at AED, Mr. Niblett? Niblett: I would say that the reaction has been enthusiastic, and the information was well received. We told staff at a town hall meeting yesterday. We told senior managers the day before. And then we announced it yesterday morning. And I’ve had a lot of emails and messages from people individually since we announced it and since we sent the communication to all the AED employees, and it’s been very well received, people are very enthusiastic about the news, they feel that this is a great cultural match and fit between two nonprofits, and I think people are generally excited. Mr. Siemens, what have you heard from your colleagues so far? Siemens: Well, I think it’s consistently positive. We’ve been actually quite amazed at how positively everybody is looking at this. There are probably multiple reasons for it, but I think first: Our people at FHI see it as two organizations coming together with similar missions, and that’s to improve the lives of underserved populations. And then, second, is the realization that this is not a fulfillment but a step in the direction of FHI’s strategic goals. Let me just share with you what I mean by that. Since the early 1970s – in fact, we’re celebrating our 40th anniversary this year – we’ve been involved in research and programmatic implementation of health-oriented work in the developing world. And we’ve seen it very much as a health discipline, from research to practice. However, as the years have gone by and perhaps generally in the last 10 years – certainly in the last seven to eight years – we’ve been dealing with the challenges with HIV, malaria and tuberculosis; one realizes that it’s so much more than addressing a virus or treating a virus or preventing a virus. When we’re dealing with HIV, at least in the populations we deal with, which are typically disadvantaged in some way or another, you’re dealing with a much broader array of issues and challenges. We’ve come to realize – and this is not novel, I suppose, but we’ve been thinking about it in great detail – that when people are impacted in a disadvantaged environment, they’re impacted by multiple factors, and these factors are interrelated. So, health is certainly tied to education. Education is tied to poverty or economic opportunity. Economic opportunity is driven by having jobs, having supportive governments, having supporting civil society involvement. So, for the last four years, FHI has even written into its strategic plan that health is a component of development. We’ve been moving in the direction of a much broader development platform. And, AED happens to represent the extension of this platform. So, not only do they have a health portfolio, but they have a much broader portfolio of these areas I mentioned before. So, moving from health and science to economic strengthening to civil society to education, these were really attractive to us since we want to move forward with a comprehensive approach to development, to the extent that we could do that. So, it’s similar cultures, it’s similar approaches to working in partnership all around the world, which is not FHI or AED at any time going in telling the world how to do things, but actually building capacity of organizations with local groups and multiple funding sources, working in true partnership. And together, we can actually do that more effectively, and really can scale – on the basis of a centralized highly efficient infrastructure, we can scale, we can do more, in essence, with less, in a challenged economy. I think our people are excited because they understand the continuation of our mission. Speaking of scaling up: Mr. Siemens, do you see additional growth potential for FHI, or does the acquisition of AED bring your organization to the appropriate size for the foreseeable future? Siemens: I think certainly when one does something like this, one has to be very realistic. There are two similar-sized organizations coming together here. We believe this forms a wonderful foundation building on the two individual foundations, to bring those two foundations together. And we believe we have to work together to make this an effective enterprise going forward, an enterprise that’s focused on outcomes. We’re not interested in growing for the sake of growing. In fact, growth or presence in terms of size has little to do with our vision here. It’s really about bringing the expertise together and [ensuring] support for the types of programs that are ongoing and building for the future. We don’t see this as a strategy of continued growth. We know what we need to partner, and we’ll be partnering strategically as we always have. You announced an asset purchase agreement this week. Where does that put you in the acquisition process? For one thing, I believe you’ll need to get USAID approval for the transfer of programs. Niblett: We have further to go before we complete the sale. We hope some time in the next month or so to be able to come to a final closing of the sale. The work that takes place between now and closing will be a matter of putting the process in place and the paperwork in place, and requesting from AED funders – government funders, both USAID and all the other agencies, as well as the foundations and non-governmental funders – we’re requesting novation, for them to novate all of our portfolios to FHI. We’re optimistic about that, but there’s a lot of processing paperwork to go through. Any novation we’re having would happen at and after closing. But, that process is well under way. And then, after closing, we’ll be part of the FHI family. Just to clarify: Is FHI acquiring all of AED’s assets and programs, or will some remain under the AED brand? Siemens: We understand this to include all of the assets, programs and expertise that’s represented by AED. Will there be a name change? Niblett: AED chose this process, specifically the acquisition of assets, so that we would ensure the smooth transfer of our programs and projects and our staff into a new home, so to speak. That was our primary objective, to make sure that these projects and programs continue to operate and run smoothly, and that staff have a home in order to … continue to make a difference in the world. So, that was the primary objective. AED will stay behind and separate from this as a virtual organization, which the board of directors will wind down in an appropriate manner. There will be no remaining projects existing in AED after the closing. You talked about staffing. You said this week that “substantially all” staff will be retained after AED’s acquisition. What does this mean, and what do these no doubt difficult staffing decisions hinge on? Siemens: We’re in a situation here where, though the process that AED has gone through, they actually had to right-size the organization in advance of this acquisition, driven by overhead concerns as well as programs going away. So, they did that purely on the basis of good business practice. The reality is that for this kind of work we’re in, which speaks for both FHI and for AED, one always hopes to hire staff to implement programs and one always hopes to have new programs come in after a program winds down, so that you can retain staff. But through the process of being able to keep the stream of funding, they actually had to let some people go, regrettably. But since they did that – this has actually impacted both program and central support staff, as you’d call it, central service staff – we actually anticipate that rather than cutting staff we’re going to be hiring staff to build the capacities that we need. We clearly do not see that as a result of this acquisition, that we will be cutting staff. That’s just not the reality, just because of where we are. … So, that acquisition – whether it’s the central service staff and program staff – isn’t going to drive any reductions. Rather, we believe there are probably going to be some hires. But we cannot predict what will happen with program funding going forward. That’s a risk that we live in this business. Have I said that right, Greg? Niblett: Yes. We’ve been very clear in our discussions that we chose “substantially all” employees because one doesn’t really make a statement like “all employees” because there’s the normal course of business in which you have projects coming to an end, therefore you have employees departing. So the emphasis is on “substantially all” employees, and the caveat to that is that there is the normal onboarding and departing of employees in the normal course of a business week, month or year. Mr. Siemens, you mentioned FHI may be hiring. Can you pinpoint some areas of expertise you may be looking for? Siemens: I think it’s fair to say that this is speculative. We haven’t gone through all details and there will be a lot more details by the time we come to the close. But I can envision, because I’m just aware of some historical needs and where we’ve been recruiting, that there’ll be a couple positions in human resources; there’ll probably be a couple positions on the finance side. But, there’s little more specific I can provide. What will happen to AED’s presence in D.C., both the real estate and staff? Is FHI considering getting rid of some of these assets, perhaps relocate staff? FHI’s headquarters is in North Carolina. Siemens: We certainly are headquartered in North Carolina, but we do not envision major relocations of AED. That’s not the attempt. We are trying to work through the lease matters for the facilities they occupy, and we’re in the middle of doing that. We clearly have a lot of bridges to cross there; that all needs to be worked out between now and the closing. … We’re very clearly headquartered in North Carolina. We don’t anticipate to change that at all. We work on a virtual basis in many cases because of the far-flung nature of the geographic scope of our work. Mr. Niblett, can you describe the last few months at AED – what were they like, and when was the idea of an asset sale and transfer of programs first put on the table? Niblett: I assumed the presidency in January and before that, the chief operating officer position in December. Before assuming the CEO position, I was asked by the board to think about what was the future way forward and decided probably in the mid-January to March period to do some market research and testing the waters on whether it was conceivable that AED could be sold intact, all of it, without splitting it up, which was our preference and our goal. Somewhere in that period, we made a final decision and we made an announcement in March that indeed we would do a sale of all of our assets to one single acquirer, which meant we [were looking for] an organization that would honor and work with both our international and domestic portfolios and nurture those portfolios, and also, looking for an acquirer who’d be very employer-friendly in terms of the transfer of employees. So, we did some initial homework in market research. We pushed the button to go ahead with the acquisition in March. And then, we went through expressions of interest from various contenders, and … a couple of rounds of the proposal process, then narrowing the field, and then ultimately picking FHI. I would say for me, that despite some of the issues AED encountered, what I see my role as is one of looking forward rather than looking back. So, I was looking toward who the acquirer would be and what would be the best acquirer for AED’s programs, projects and staff. And then we finally settled on FHI, and quietly worked on putting together an APA, which we finally signed Monday. (Mr. Siemens leaves.) What alternative solutions were on the table early this year, apart from a sale? Did you consider other options, and why were they abandoned? Niblett: Well, the only other option would’ve been to wait out the clock, so to speak. But, let me back up. Since the suspension, AED had been on a very aggressive track to improve its compliance structures and systems, and it has been in my view successful at that, and we’ve been reporting to USAID about that. And the good news about that is that once FHI acquires AED, it acquires a much stronger portfolio of projects that has been undergirded by improved systems of compliance, which will now hook up with the compliance systems at FHI. So, that has been going along. But, the question that we had to weigh was: Without being able to predict when the suspension might be lifted, could the organization be financially sustainable after some unknown point in time in the future. I didn’t want to run that risk, the board didn’t want to run that risk. While we’re financially healthy and solvent and in good shape, we wanted the most smooth and elegant transfer of projects that we could get, and we determined that the acquisition was the best route. Can you give us an idea of how many interested buyers you heard from, and about their characteristics. For instance, were all of them nonprofit? Niblett: I’ll answer that in a limited way. Obviously, an acquisition process is covered by nondisclosure agreements between the parties that enter as well as AED. So, in much general terms, a number of organizations were interested in AED. A number were interested in parts of our portfolio. But we stuck to our criteria that we wanted to sell our assets to one single acquirer. Even under that umbrella, the one single buyer strategy, there were still a number of organizations that were extremely interested in AED. So, I’d rather not go into specifics about what the entire universe was, but I can say that it included both nonprofits and for-profit organizations that expressed interest and submitted proposals. Were all of them U.S-based? No, they were not all U.S.-based. What tipped the scale toward FHI at the end? I would say that we had competitive criteria, which I repeat again: The first was that we wanted a single acquirer who had the financial resources to acquire the entire portfolio. We wanted one with a good, strong reputation. We wanted one that had good compliance systems and structures in place. We wanted one that had both domestic and international [operations] and would nurture both the international and the domestic work. And we wanted one that had a proposal that was employee-friendly in terms of transferring potentially all of the employees, or substantially all of the employees. So, all of these were criteria. So, you can imagine in a proposal process, each proposal meets those criteria at various levels. It’s a matter of checking off who’s meeting each of them to the satisfaction of those of us who were reviewing them. So, I would say that all of those were factors. We equally considered for-profit and nonprofit. There were some advantages to nonprofit in this particular case in terms of a home for our foundations and a home for some of our non-governmental work. Those organizations who wanted to fund a nonprofit, that was a factor; I wouldn’t say it was the ultimate factor, but it was important. And lastly, I don’t think any acquisition can be done irrespective of what the chemistry is between the organizations. And I think our management team and board found a great resonance with FHI’s management team. The chemistry was good in terms of what existed between the individuals but also between the cultures of the organizations, we just saw a lot of synergies. So, all of those were factors that went into it. And, other contenders were similar and had varying degrees of them, but ultimately, in combining all of those considerations, we felt that FHI met them the best. What is the time frame for AED leadership to wind down the company and assume new roles? I think the timetable on that is unclear. The decision by the AED board was to sell all the assets, and that would leave it without an ongoing revenue base. It will have financial resources after the closing to wind down in an orderly and in a prudent manner. It would be difficult to predict what the timetable on that would be. The dissolution of any organization can sometimes take up to a year. Whether AED winds down over a few months or up to a year in terms of all the legal responsibility an organization has to wind down, remains to be seen. But, the board has made a decision that they will close the organization. My last question was supposed to be one for Mr. Siemens, but if this has been part of your agreement, I assume you can answer this as well: How will FHI be financing the asset purchase? I think that it’s premature to talk about that at this point and maybe into the future, that will be confidential. And I say this because I want to stay focused on the context in which we’re announcing this news. And this context is that this is an asset purchase agreement, which is the step taken before closing. So, we have several weeks – a month or more – before we actually go to closing. There’ll be more announcements made after closing, but I would not want to speculate on either the source or the amount of the purchase arrangement. Read more: - AED Unveils its Buyer: FHI - What’s Next in AED Asset Sale: A Conversation with Misha Galley - AED Hopes to Transfer Programs to ‘Single Acquirer’ - AED to Seek Orderly Acquisition and Transfer of Programs and Assets - AED Barred From Receiving New USAID Funding Pending Investigation into Consultancy’s Af-Pak Work - No Plans at USAID to Release AED Investigation Findings Read more international development business news.