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Mergers & Acquisition have become very popular throughout th...
o     Reducing tax burden.
                       o     Improving profits.
                       o     Eliminating or lim...
process of M&A has a great impact on the work culture during those days as it disturbs whole organization of the
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Impact Of M&A On Employees & Working Conditions


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Impact Of M&A On Employees & Working Conditions

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Impact Of M&A On Employees & Working Conditions

  1. 1. IMPACT OF M&A ON EMPLOYEES & WORKING CONDITIONS INTRODUCTION Mergers & Acquisition have become very popular throughout the world in the recent times. This has become popular due to globalization, liberalization, technological developments & intensely competitive business environment. Mergers and acquisition are a big part of corporate finance world. This process is extensively used for restructuring the business organization. In India, the concept of mergers and acquisition was initiated by the government bodies. The Indian economic reform since 1991 has opened up a whole lot of challenges both in the domestic and international spheres. The increased competition in the global market has prompted the Indian companies to go for mergers and acquisitions as an important strategic choice. The trends of mergers and acquisitions in India have changed over the years. The immediate effects of the mergers and acquisitions have also been diverse across the various sectors of the Indian economy. MEANING OF MERGERS & ACQUISITION The phrase Mergers & Acquisition refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combination of different company that can aid, finance or help a growing company in a given industry, grow rapidly without having to create another business entity. In a merger, two companies come together and create a new entity. There are mergers between equals and unequals. But, In general there are mergers of equals rather than mergers of unequals. Examples of few mergers between equals are: 1. Merger between Arcelor and Mittal Steel forming Arcelor-Mittal. 2. Citicorp and Travellers forming Citigroup. 3. Ciba and Sandoz forming Novartis. Examples of few mergers between unequals are: 1. Chase and J.P. Morgan creating JPMorgan In an acquisition, one company buys another one and manages it consistent with the acquirers needs. There are two major types of acquisitions: Those involving acquisition and integration such as made by Cicso Systems, Infoedge (India) Pvt Ltd; and those involving acquisition and separation such as between Unilever and Best foods. Thus, a merger or acquisition is a combination of two companies where one corporation is completely absorbed by another corporation. The less important company loses its identity and becomes part of the more important corporation, which retains its identity. SCOPE OF MERGER & ACQUISITION M&A has become a daily transaction now-a-days. Mergers and acquisitions are an important area of capital market activity in restructuring a corporation and had lately become one of the favored routes for growth and consolidation. The reasons to merge, amalgamate and acquire are varied, ranging from acquiring market share to restructuring the corporation to meet global competition. One of the largest and most difficult parts of a business merger is the successful integration of the enterprise networks of the merger partners. The main objective of each firm is to gain profits. M&A has a great scope in sectors like steel, aluminium, cement, auto, banking & finance, computer software, pharmaceuticals, consumer durable food products, textiles etc. It is an indispensable strategic tool for expanding product portfolios, entering into new market, acquiring new technologies and building new generation organization with power & resources to compete on global basis. With the increasing number of Indian companies opting for mergers and acquisitions, India is now one of the leading nations in the world in terms of mergers and acquisitions. Till few years ago, rarely did Indian companies bid for American-European entities. Today, because of the buoyant Indian economy, supportive government policies and dynamic leadership of Indian organizations, the world has witnessed a new trend in acquisitions. Indian companies are now aggressively looking at North American and European markets to spread their wings and become global players. Almost 85 per cent of Indian firms are using Mergers and Acquisitions as a core growth strategy. The merger and acquisition business deals in India amounted to $40 billion during the initial 2 months in the year 2007. The total estimated value of mergers and acquisitions in India for 2007 was greater than $100 billion. It is twice the amount of mergers and acquisitions in 2006. Thus, we can say that M&A has become a day to day transaction now-a- days. OBJECTIVES OF MERGER & ACQUISITION The main objective of Merger & Acquisition transaction is as follows: o Proper utilization of all available resources. o To prevent exploitation of unutilized and underutilized assets and resources. o Forming a strong human base.
  2. 2. o Reducing tax burden. o Improving profits. o Eliminating or limiting the competition. o Achieving savings in monitoring costs. REASON FOR FAILURE OF MERGER The main reason for failure of merger is non-integration of human resources of both the transferor and transferee company. It is also not successful because the merger of two organizations is actually a merger of individual and groups working in company which had a great impact on individuals working in a company such as it creates ego clashes among individuals working in a company. There is also failure of M&A when purchasers plans & strategies are not clear to the employees of the acquired firm. IMPACT OF MERGERS & ACQUISITION ON EMPLOYEES & WORKING CONDITIONS Merger & Acquisition helps a Company to grow in a better way but it has a great impact on the employees working in a company & on working conditions. The employees of the companies merging and acquiring are mostly affected by M&A. Due to this reason, there is mostly failure of M&A. To break the mindset of people working in companies undergoing M&A and to convince them that merger is for common good & will help them in their growth is normally an uphill task. 1. When 2 companies who have different style of functioning merge, there is a clash between the companies which pulls them together into different direction apart from their aims & objectives and in the process endanger the advantages envisaged both in the real life as well as in the scheme of amalgamation. Thus M& A had a great impact on the individual or group working in company & on work culture. 2. Company enters into M& A activity without recognizing the impact on the organization and the overall affect on the human element within the two merging company. when M&A activity do not meet corporate objectives it results in Lost revenue Customer dissatisfaction Employers attrition issues 3. Many personnel issues such as salaries, benefits, pension of employees are also affected due to M&A. Since the organizational structures are different, differences in compensation packages and designation can take place normally. 4. There are ego clashes between the top management and subsequently lack of co-ordination among them may lead to collapse of company after merger. This problem is more prominent in cases of mergers between equals. 5. There is also a separation anxiety among the employees because they think some of their co-workers will be leaving the company. The atmosphere of apprehensions leads to company wide rumours.The employees loose faith in their organization and tend to become demotivated. 6. Employees are the main victims when M & A takes place. They may be hurting themselves by trying to cope with new changes. When they realize that their potential for future growth within the organization dwindles, they often become withdrawn and frustrated which can affect productivity of the company severely. 7. M&A affects the CEOs of the company because they are the most creative and talented people within the organization. The resultant loss of control devastates these individuals. The stress level experienced by these executives often travels through the chain of command, affecting subordinates as well. 8. Employees of the company are mostly scared by M&A that they will be given step motherly treatment. This question is always in the minds of employees of the transferor company. This fear of transfer and retrenchment, the loss of position in the hierarchical level are some of the thoughts which always remain in the minds of employees of both the company. 9. There is also lot of reorganization & restructuring in the company during the days when M&A process is going on .The process of M&A by which company is bought or sold can prove difficult, slow and expensive. This M&A transaction typically require six to nine months and involve many steps. Locating parties with whom to conduct transaction forms one step in the overall process and perhaps it is the most difficult step in the transaction. This
  3. 3. process of M&A has a great impact on the work culture during those days as it disturbs whole organization of the company. 10. In an acquisition the buyer assumes the dominant parent role and the acquired company assumes the subordinate role, acting in the role of stepchild. Just as step parents may deny stepchildren certain family resources acquired company may also experience similar after an acquisition takes place. This situation is caused due to lack of fit between the two organizations. Such lack of fit is an issue and it has a great impact on the acquired company as it affects its work culture, organization and mainly on the employees working in the company. 11. The uncertainties of M&As shift the focus of employees from productive work to issues related to interpersonal conflicts, layoffs, career growth with the acquirer company, compensation etc .Moreover, employees are worried about how they will adjust with new colleagues. The merger involves downsizing, hence the first thing that comes to the mind of employees is related to their job security. Merger also leads to change in the well defined career paths of employees. Due to these reasons employees find themselves in completely different situation with change in job profiles and work teams. This may have negative impact on the performance of the employees. 12. Each company has its own set of values which may conflict with those of acquired company. The employees may not be able to accommodate themselves in new culture and thus may lead to cultural shock. Inability to adapt to new culture increases stress level among employees and results in low job performance. The need therefore is to follow structured approach in dealing with cultural differences. 13. The employees face great uncertainty which in turn produces stress .Such stress ultimately affects their perception and judgments. Due to stress among employees by M&A ,the most common reactions displaced by them are as follows: Loss of identity. Lack of information & anxiety. Talent is lost. Family repercussions WAYS TO OVERCOME IMPACT OF M&A ON EMPLOYEES & WORKING CONDITIONS 1. Firstly organization must effectively develop and implement assistance program for displaced employees. Such program should include advance notification, severance pay extended benefits, retaining program and outplacement activities. 2. Strong emphasis needs to be placed in determining whether the acquired firms personnel is a good fit for the acquiring organization and to whether the mass lay off can be avoided. Moreover communication from the executive team with employees in the pre-acquisition phase needs to be consistent so that anxiety levels among the personnel can be kept at low level. 3. Moreover a company not only needs to select a right target, but also must have culture in place that accepts the acquisition as quickly as possible. 4. There is need for developing and executing effective employee communication, particularly conveying the employees that how the transaction will impact organizational members. Communication between the members of transferor and transferee Company should be open, honest and strategic. Any information regarding the progress of the deal or integration should always be shared among the members because communication is very important throughout M&A process. 5. Finance and the Legal departments are essential for the successful implementation of the integration plan. Therefore, the inputs from these departments should be taken into consideration while working on the plan. CONCLUSION Thus in nut shell we can say that M&A have become common in our countrys business set up. There is a tremendous need for people to grow and become global players expanding their business spheres. If success is to be achieved in M&A cohesive, well integrated and motivated workforce is required who is willing to take on the challenges that arise in the process of M&A and their should be proper organization among employees and they should be provided with proper working conditions. (Author is a student of 4th year ILS Law College, Pune.)