Another factor that occurred most after the human factor is poor strategies that are rolled out after the deal is sealed. Merger connotes the fusion, the union of two or more companies or entities into one through a purchase acquisition or a pooling of interests.
It differs from a consolidation the combining of separate companies, functional areas, or product lines, into a single one. In this particular case, a new entity is created. For a merger, no new entity is created. Purchase acquisition is an accounting method used in any merger in which the purchasing company treats the acquired as an investment, adding the acquired's assets to its own balance sheet, and recording any premium paid above market price as goodwill, to be charged against future earnings.
Pooling of interests is also a method of accounting for a company merger, in which the balance sheets of the two companies are combined line by line without a tax impact only allowed under certain circumstances-used when Merger involves stocks only. An acquisition or a takeover is simply acquiring control of a corporation, called a target, by stock purchase or exchange, either hostile or friendly. In corporate law, a merger is the joining together of two corporations in which one corporation transfers all of its assets to the other, which continues to exist.
In effect one corporation consumes the other, but the shareholders of the consumed company receive shares of the surviving corporation. An acquisition, on the other hand, typically involves purchasing the assets and stock of the acquired company. The methods of merger and acquisition are varied and in practice the distinctions often blurred but the key difference between merger and acquisition lies in the position of the shareholder.
Shareholders in merged companies typically exchange their shares for shares in the new company. Acquisition occurs either through buying substantially all the assets in a full takeover or buying part of the stock in a partial takeover.
Sudarsanam [1] indicated that a merger occurs when corporations come together to combine and share their resources to achieve common objectives. The companies involved remain joint owners of the new entity. European Central Bank [2], Gaughan [3], and Jagersma [4] also defined merger as the combination of two or more companies in creation of a new entity or formation of a holding company.
To those who are not privy to the agreement document, the following are some of the things that can influence their definition as to whether a particular agreement is a merger or an acquisition: Name of resultant entity or company: If the name of the resultant entity bears the name of the investor, it is easier for people to conclude that it is an acquisition. If it bears the name of the existing entity, then people will think of the agreement as a merger.
Sometimes the resultant name may be a combination of the names of the two companies involved, and people will still consider it as a merger. How the board and management are constituted: People will easily go for a merger if the board and management of the resultant company are fairly constituted.
People will easily go for an acquisition if the investor has more representation on the board and management.
This is not always true especially when a merger allows for one party to be a management partner. From the above discussion, it can be clearly deduced without any ambiguity that a merger simply is made up of the fusion of two or more companies or entities into one, where none of the entities involved has complete dominance over the resultant entity, and also all the individual entities involved still maintain their identity as separate entities.
The resultant name normally does not differ from the name of the existing company. The name can also be a combination of the two or more companies involved. Mergers and acquisitions represent the ultimate in change for a business. No other event is more difficult, challenging, or chaotic as a merger and acquisition. It is imperative that everyone involved in the process has a clear understanding of how the process works.
Mergers and acquisitions have had an important impact on the business environment for over years [13] Gaugan, They have often come in waves of activity that were motivated by different factors.
This is in part due to pressure from key stakeholders vigilant in their pursuit of increased shareholder value. International mergers and acquisitions also constitute the most frequently used means through which multinational corporations undertake foreign direct investment.
According to Banal-Estanol and Seldeslachts [14], mergers and acquisitions are normally established to open up or expand a current organization or operation seeking or aiming for long-term profitability and an increase in market power, as cited in Chambers What this works intends to do is to try to unravel the reasons why this occur from documented facts by authorities and researchers in this field.
Pablo [23] defined post- merger and acquisition integration as the implementation of changes in functional activities, organizational structures and cultures of the two organizations to expedite their consolidation into a functional whole. This is not to be achieved so easily, taking into consideration the coming together of two separate and different entities. Koetter [24], Cartwright and Cooper[25], Child et al.
Research has been able to show that one of the key areas contributing to these failures is the employee factor in the dynamics. Cascio and Young [37] also revealed that Psychological responses of people are shown to have an impact on organizational performance and, they become more visible during situations of drastic change like Mergers and Acquisitions. In a particular research work, when failure rates were analyzed in more detail, the overwhelming majority of senior personnel highlighted culture and communication to be the two areas that prove to be the most challenging.
It continued to say that issues ranging from corporate governance to employee satisfaction become complex when different cultures are involved retrieved from www. The uncertainties of Merger and Acquisition situations cause a series of psychological processes that result in manifest positive behaviors like commitment and loyalty, or negative behaviors like absenteeism, and sometimes, even acts of sabotage [39], [40], [41], [42], [43], [44], [45], [46], [47], [48], [49], [50].
ISSN : Vol. Farnham and Horton [51] defined organizations as social constructs created by groups in society to achieve specific purposes by means of planned and coordinated activities. These involve human resources to act in association with other inanimate resources in order to achieve the aims of the organization.
In as much as employees cannot achieve anything without the inanimate resources, the same applies for the reverse. This implies the importance of the employee in achieving good performance, especially in a post-acquisition era cannot be said to be over emphasized.
Despite the upsurge in international acquisition activity, the fact still remains that up to 83 percent of these transactions are unsuccessful [54], [55], [56]. Thus, international acquisitions constitute an unexplained paradox: although academic research and business practice have shown that the majority of these transactions fail to achieve pre-acquisition objectives, acquisitions across borders continue to be very popular and remain the main vehicle through which Multinational Corporations MNCs undertake foreign direct investment [57], [10].
In fact, some research studies suggests that with the right strategy and the right approach to post-merger integration, cross-border acquisitions can create value for the acquiring firm [58], [59], [60], [61].
Thus, even though research suggests that most acquisitions fail, it may make sense in some cases. He enumerated a number of research findings pointing to different failure rates.
So the question is posed: why do mergers and acquisitions work for some and not for others? Differences in organizational culture have a negative effect on acquisition performance [74], [75], [76] , and national cultural differences too have negative effect on acquisition performance [77], [78], [79].
Balmer and Dinnie [80] found that there was an over-emphasis on short term financial and legal issues, at the neglect of the strategic direction of the company.
This neglect included failure to clarify leadership issues, and a general lack of communication with key stakeholders during the merger or acquisition process. Gadiesh and Ormiston [81] list five major causes of merger failure: Poor strategic rationale. Mismatch of cultures. Difficulties in communicating and leading the organization. Poor integration planning and execution.
Paying too much for the target company. Of the above five causes of merger failure, Gadiesh and Ormiston [81] believe that having a clear strategic rationale for the merger is the most significant problem to overcome, as this rationale will guide both pre and post-merger behavior.
They stress that this issue alone may result in the other four causes of merger failure taking place, as cited in Mcdonald, Coulthard, and de Lang [82]. Lynch and Lind [83] also list other reasons for merger failure such as: Slow post merger integration Culture clashes and Lack of appropriate risk management strategies.
The confident managers are more likely to succeed because they will also work harder to overcome difficult obstacles. Promoters convince managers that they can succeed, which may not be true in the end. Distrust- Steger and Kummer [84] pointed out that at the grass root level, that is, below the top level management, the attitudes and moods of the employees are often quite the opposite of over confidence — namely distrust.
First, there is doubt about what will happen in the future. Is there the danger of losing their jobs? If not, how will their jobs and tasks be changed? How will the restructuring affect them personally? Will they have to move to another department, work with other colleagues, work for a different boss? Will the entity of the company that they work for be divested? These are uncertainties that can last quite some time. Second, companies are often reorganized at least every two years.
Third, if people are fired the workload is not reduced which results in fewer people having to produce the same amount of work. Fourth, stakeholder management is performed poorly, if at all. In addition, employees are among the stakeholders who are often treated the worst of all. Rumors spread rapidly, all over the company. Even months after the closing, integration plans are sometimes far from being settled; insecurity among the staff persists longer than necessary.
It is shared among the board members. Haspeslagh and Jemison [6], and Pablo [23] link cultural differences and integration issues with merger problems. Depamphilis [85] pointed out that overpayment leads to expectations of higher profitability which is often not possible, and that excessive goodwill as a result of overpaying needs to be written off which reduces the profitability of the firm. Straud [86] said inefficiencies or administrative problems are a very common occurrence in a merger which often nullifies the advantages of the merger.
They lose focus of the fact that they have to concern themselves with the strategic benefits of the merger. Lubatkin [87] said that selecting a merger candidate may be more of an art than a science, as cited in Straud [86]. A PricewaterhouseCoopers global study concluded that lack of management and related organizational aspects contribute significantly to disappointing post-merger results [89], as cited in Salame [88].
Again from the discussion, the most mentioned problem in the integration stage has to do with the human factor the employees-coping with cultural differences, politics, lack of effective communication, etc. They contribute a lot to the success or failure of the deal.
Equipment and processes can be changed without any problem, but human beings are difficult to change. Any attempt to sideline the employee in all these will spell doom for the new setup.
Once management fails to get it right from scratch, it is bound to fail. One particular strategy may not work for different settings and environments, and so it is very important for management to take their time to study the terrain especially during the time before the deal is sealed to plan fitting strategies that can yield dividends at the end of the day.
In most cases, there is so much pressure on management to roll out strategies immediately after the deal is sealed to announce their presence as an entity, and if prior proper planning is not done, it may lead to disaster.
Thanks also go to my dear wife Joyce Koi-Akrofi for her academic advice towards the realization of this work. Lastly, my thanks go to colleagues and friends who in various ways helped me to finish this work. Available at www. Pennings, K. Haspeslagh, D. Soderberg, E. In A-M. Poor Organization Fit Organizational fit is described as "the match between administrative practices, cultural practices and personnel characteristics of the target and acquirer.
It influences the ease with which two organizations can be integrated during implementation. Mismatch of organation fit leads to failure of mergers. Poor Strategic Fit. A Merger will yield the desired result only if there is strategic fit between the merging companies. Merge with strategic fit can improve profitability through reduction in overheads, effective utilization of facilities the ability to raise funds at a lower cost, and deployment of surplus cash for expanding business with higher returns.
But many a time lack of strategic fit between two merging companies especially lack of synergies results in merger failure. Striving for Bigness Size no doubt is an important element for success in business. Therefore there is a strong tendency among managers whose compensation is significantly influenced by size to build big empires. Size maximizing firms may engage in activities, which have negative net present value. Therefore when evaluating an acquisition it is necessary to keep the attention focused on how it will create value for.
Faulty evaluation At times acquirers do not carry out the detailed diligence of the target company. They make a wrong assessment of the benefits from the acquisition and land up paying a higher price.
Poorly Managed Integration. Integration of the companies requires a high quality management. Integration is very often poorly managed with little planning and design. As a result implementation fails. The key variable for success is managing the company better after the acquisition than it was managed before. Even good deals fail if they are poorly managed after the merger. Failure to Take Immediate Control. Control of the new unit should be taken immediately after signing of the agreement.
ABB put new management in place on day one and reporting systems in place by three weeks. Failure to Set the Pace for Integration.
The important task in the merger is to integrate the target with acquiring company in every respect. All function such as marketing, commercial; finance, production, design and personnel should be put in plac In addition to the prominent persons of acquiring company the key persons from the acquired company should be retained and given sufficient prominence opportunities in the combined organization. Delay in integration leads to delay in product shipment, development and slow down in the company's road map.
The speed of integration is extremely important because uncertainty and ambiguity for longer periods destabilizes the normal organizational life. Incomplete and Inadequate Due Diligence. Lack of due diligence is lack of detailed analysis of all important features like finance, management, capability, physical assets as well as intangible assets results in failure.
Ego Clash Ego clash between the top management and subsequently lack of coordination may lead to collapse of company after merger. The problem is more prominent in cases of mergers between equals. Merger between Equals Merger between two equals may not work.
The Dunlop Pirelli merger in , which created the world's second largest tier company, ended in an expensive divorce. Manufacturing plants can be integrated easily, human beings cannot. Merger of equals may also create ego clash. Over Leverage. Cash acquisitions results in the acquirer assuming too much debt.
Future interest cost consumes too gre. Incompatibility of Partners. Alliance between two strong companies is a safer bet than between two weak partners. Frequently many strong companies actually seek small partners in order to gain control while weak companies look for stronger companies to bail them out. But experience shows that the weak link becomes a drag and caus friction between partners. A strong company taking over a sick company in the hope of rehabilitation ma itself end up in liquidation.
Limited Focus. If merging companies have entirely different products, markets systems and cultures, the merger is doomed to failure.
Added to that as core competencies are weakened and the focus gets blurred the fallout on bourses can be dangerous. Purely financially motivated mergers such as tax driven mergers o the advice of accountant can be hit by adverse business consequences. The Tatas for example, sold thei soaps business to Hindustan Lever.
Failure to Get Figures Audited. It would be serious mistake if the takeovers were concluded without a proper audit of financial affairs of the target company. Though the company pays for the assets of the target company, it also assumes responsibility to pay all the liabilities. Areas to look for are stocks, salability of finished products, receivables and their collectibles, details and location of fixed assets, unsecured loans, claims under litigation, loans from the promoters, etc.
Many a times the acquire is mislead by window-dressed accounts of the target. Risk of failure will be minimized if there is a detailed evaluation of the target company's business conditions carried out by the professionals in the line of business. Detailed examination of the manufacturing facilities, product design features, rejection rates, and distribution systems, profile of key people and productivity of the workers is done. Acquirer should not be carried away by the state of the a physical facilities like a good head quarters building, guest house on a beach, plenty of land for expansio etc.
Failure of Top Management to Follow-Up. First days after the takeover determine the speed with which the process of tackling the problems can be achieved. Top management follow-up is essential to go with a clear road map of actions to be taken and set the pace for implementing once the control is assumed.
Mergers between Lame Ducks. Merger between two weak companies does not succeed either. The example is the Stud backer- Packard merger of when two ailing carmakers joined hands. By both companies were closed down.
Lack of Proper Communication. Apart fro getting down to business quickly companies have to necessarily talk to employees and constantly. Regardless of how well executives communicate during a merger or an acquisition, uncertainty will neve. Failure to manage communication results in inaccurate perceptions, lost trust management, morale and productivity problems, safety problems, poor customer service, and defection key people and customers.
It may lead to the loss of the support of key stakeholders at a time when tha support is needed the most. Failure of Leadership Role. Inadequate Attention to People Issues. Not giving sufficient attention to people issues during due diligence process may prove costly later on. While lot of focus is placed on the financial and customer capital aspects, not enough attention is given t aspects of human capital and cultural audit.
Well conducted HR due diligence can provide very accurate estimates and can be very critical to strategy formulation and implementation.
Strategic Alliance as an Alternative Strategy Another feature of s is the growth in strategic alliances as a cheaper, less risky route to a strategic goal than takeovers. Loss of Identity. Merger should not result in loss of identity, which is a major strength for the acquiring company. Jaguar car image dropped drastically after its merger with British Leyland. Diverging from Core Activity.
In some cases it reduces buyer's efficiency by diverting it from its core activity and too much time is spe on new activity neglecting the core activity. Expecting Results too quickly. Immediate results can never be expected except those recorded in red ink. Business firms now have to face increased competition not only from firms within the country but also from international business giants thanks to globalization, liberalization, technological changes, etc.
In this paper an attempt has been made to draw the results of only some of t earlier studies while analyzing the causes of failure of majority of the mergers. Making the mergers work successfully is not that easy as here we are not only just putting the two organizations together but also integrating people of two organizations with different cultures, attitudes and mindsets. Meticulous pre-. While making the merger deals, it is necessary not only to make analysis of the financial aspects of the acquiring firm but also the cultural and people issues of both the concerns for proper post-acquisition integration.
Business India, "Biggest deal? Maheshwari S. Open navigation menu. Close suggestions Search Search. User Settings. Skip carousel. Carousel Previous. Carousel Next. What is Scribd? Mergers and Acquisitions Failure. Uploaded by sampath Did you find this document useful? Is this content inappropriate? Report this Document. Flag for inappropriate content. Download now. Related titles. Carousel Previous Carousel Next. IFRS 6 exploration for and evaluation of mineral resources.
Jump to Page. Search inside document.
0コメント