What Are Mergers & Acquisitions?• When one company takes over another and clearly established itself as the new owner – acquisition• acquiring firm retains its identity, while the acquired firm ceases to exist.• when a larger, more powerful, and richer organization takes over another organization – hostile takeover• when two companies, more or less on equal footing, decide to join forces – “merger of equals”• both parties accepting risk and sharing in the potential rewards
Why Do Companies Merge?• Economies of Scale• Saturated Market Consolidation• Competitive Position Improvement• Synergy Merger Types• Horizontal• Vertical• Market extension• Product extension• Conglomeration• strategic
Major HRM Issues in Mergers &Acquisitions Research shows that consistently 65% of mergers and acquisitions that fail do so because of people issues Requires a focus on one new vision and one new organizational mission Problems occur when the larger or stronger of two organizations tries to significantly influence the integration.1. Lack of Communication2. Lack of Training3. Loss of Key People4. Corporate Culture Clash & Power Politics5. Employee Resistance
Cultural issues in mergers andacquisitions business world seems littered with integrated companies that have lost value for shareholders "What forces are powerful enough to counteract the value-creating energy of economies of scale or global market presence?" Culture-dominant barriers to effective integrations culture - found to be the cause of 30 per cent of failed integrations
What does this mean for integrating two companies?CULTURE AFFECTS RESULTING INDecision-making style (for example: •Effective integration requires rapid decision-making.consensus contrasted with top-down) •Different decision-making styles can lead to slow decision-making, failure to make decisions, or failure to implement decisions.Leadership style (for example: dictatorial or •A shift in leadership style can generate turnover amongconsultative, clear or diffuse) employees who object to the change. This is especially true for top talent, who are usually the most mobile employees. •Loss of top talent can quickly undermine value in an integration by draining intellectual capital and market contacts.Ability to change (willingness to risk new •Unwillingness to implement new strategies.things, compared with focus on maintaining •Unwillingness to work through the inevitablecurrent state and meeting current goals) difficulties in creating a new company.
How people work together (for example: •Merged companies will create interfaces betweenbased on formal structure and role definitions functions that come from each legacy company, or newor based on informal relationships) functions that integrate people from both legacy companies. If the cultural assumptions of the legacy companies are inconsistent, then processes and handoffs may break down with each companys employees becoming frustrated by their colleagues failure to understand or even recognize how work should be done.Beliefs regarding personal "success" •Again, these differences can lead to breakdowns in(for example: organizations that focus on getting work done. If people who believe they have toindividual "stars," or on teamwork, or where achieve goals as a team integrate with people whosepeople rise through connections with senior notion of "success" emphasizes individual performance,practitioners) the resulting situation is often characterized by personal dislike and lack of support for getting the job done.
In the pre-merger phase, successfully planning and initiating an M&A deal requires a sound strategy and a deep understanding of operational, financial, legal, tax, and cultural issues. These are necessary to truly understand the fit and the value of prospective targets. Comprehensive valuation and negotiation skills are required to close a favorable deal.
M&A strategy: In the pre-merger phase, we start by defining ambitious growth and portfolio strategies and identifying attractive M&A targets with a strong strategic fit. Based on an initial outside-in analysis and industry benchmarks, we assess the targets potential for generating value and help come up with a preliminary price.
Due diligence and deal preparations: Accordingly, commercial due diligence and synergy analysis are two of our core strengths within the M&A lifecycle. Furthermore, we work together with attorneys, auditors, and tax advisors to form a complete target profile. Our goal is to ensure that our clients do not pay more than the target is worth.
To realize the best possible deal, we work with our clients and their attorneys to devise sound negotiating tactics. We assist in jump-starting the integration and value capture by installing "clean teams" for advanced data analysis, & by realizing quick wins with arms-length contracts prior to closing.
CROSS BORDER MERGERSThe cross-border merger is a transaction in which the assets andoperation of two firms belonging to or registered in two differentcountries are combined to establish a new legal entity.STEPS INVOLVED IN THE PROCESS OF CROSS BORDERMERGERS:Common draft terms of cross border merger.Merger report of the management.Independent expert report.Share holders’ approval.Registration of the company company’s full name, registered number, registered officeaddress, legal form and law by which the company is governed,and name of the member state, and the name and address of theregistry where company documents are filed.
Benefits of cross border mergers: Dissolution without liquidation. Increases productivity. Cost efficiency. Revenue enhancement.Consequences of cross border mergers: Loss of autonomy. Dominance of monopoly.
BEST PRACTICES Strategic focus on growth objectives Valuation discipline Early cross functional-integration planning Involvement of HR in due diligence Change management
POST ACQUISITIONINTEGRATION-BESTPRACTICES Start planning early Leadership selection Develop Clear, Coherent and Timely Communications Strategies Get an Insider’s View of Knowledge Networks and Information Flow Dedicate Adequate Resources to the Transition Management Team