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Merger And Acquisition


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Merger And Acquisition

  2. 2. <ul><li>Merger : </li></ul><ul><li> The statutory combination of two or more corporations in which one of the corporations survives and the other corporations cease to exist. Acquisitions : </li></ul><ul><li>Direct purchase or combination of net assets of one company to form a consolidated company or a new company. </li></ul>
  3. 3. Global cross-border M&As, value and growth rate,1988-2006
  4. 4. Cross border M&As valued at over $1 billion, 1987 - 2006
  5. 5. Why it is done M And A is done <ul><li>Mergers pursued for a variety of reasons: </li></ul><ul><ul><li>Economies of scale in operations </li></ul></ul><ul><ul><li>Consolidation in saturated markets </li></ul></ul><ul><ul><li>Improving competitive position through larger asset base </li></ul></ul><ul><li>Two thirds of mergers fail </li></ul><ul><ul><li>Largely because of inability to merge cultural and other human factors </li></ul></ul>
  6. 6. HISTORY <ul><li>In 2003 the value of M&A business in the US was worth $510,866.4,compared to 1.2 trillion in 1998. </li></ul><ul><li>Statistics show that one of the major reasons for failure of M&As is the human resources aspect. </li></ul><ul><li>However, the success rate of these M&As is estimated to be a mere 30 – 40%. </li></ul>
  7. 7. HR Issues & their Implications on Various Stages of M&A <ul><li>Stage 1: Pre Combination </li></ul><ul><ul><li>Identifying, forming, searching, selecting and planning. </li></ul></ul><ul><li>The HR implications in this phase </li></ul><ul><ul><li>Systematic and extensive selection </li></ul></ul><ul><ul><li>Combination which minimizes problems at a later stage. </li></ul></ul>
  8. 8. HR Issues & their Implications on Various Stages of M&A(cont…) <ul><li>Stage 2: Combination </li></ul><ul><ul><li>Selecting, designing, creating, retaining and managing </li></ul></ul><ul><li>The HR implications in this phase </li></ul><ul><ul><li>Selecting the appropriate candidate </li></ul></ul><ul><ul><li>Creating team design </li></ul></ul><ul><ul><li>Communicating the benefits of merger </li></ul></ul>
  9. 9. HR Issues & their Implications on Various Stages of M&A(cont…) <ul><li>Stage 3: Solidification & Assessment </li></ul><ul><ul><li>Solidifying, assessing, revising and learning. </li></ul></ul><ul><ul><li>The HR implications in the integration phase </li></ul></ul><ul><ul><li>Creating and evaluating a new structure </li></ul></ul><ul><ul><li>Elective leadership and staffing of the new entity </li></ul></ul><ul><ul><li>The new entity must learn. </li></ul></ul>
  10. 10. Managing HR Issues in M&A <ul><li>To manage organizational stress </li></ul><ul><ul><li>establish performance criteria </li></ul></ul><ul><ul><li>identify who will stay and who will go </li></ul></ul><ul><ul><li>create a new organizational structure </li></ul></ul><ul><ul><li>assume the leadership of the emerging organization </li></ul></ul>
  11. 11. <ul><li>CHALLENGES IN M & A </li></ul>
  12. 12. <ul><li>Emotional Support. </li></ul><ul><li>Positive environment for change. </li></ul><ul><li>Counteraction to job insecurity. </li></ul><ul><li>Reduce level of uncertainty an fostering realistic expectations. </li></ul><ul><li>Commitment to job may be developed by showing career growth . </li></ul>
  13. 13. <ul><li>Procedural Integration. </li></ul><ul><li>Physical Integration. </li></ul><ul><li>Socio – Cultural Integration. </li></ul>
  14. 14. <ul><li>Avoid Quick changes at any levels. </li></ul><ul><li>Avoid large scale reduction early on the process of amalgamation. </li></ul><ul><li>Avoid Restructuring pitfalls. </li></ul><ul><li>Do trim employees based on pragmatic reasons, way to do it, and better pay off compensation. </li></ul>
  15. 15. <ul><li>Communication </li></ul><ul><li>Creation of task forces </li></ul><ul><li>Employ a variety of communication mechanisms </li></ul><ul><li>Employee Integration </li></ul><ul><li>Integration project plan </li></ul><ul><li>HR due diligence review </li></ul><ul><li>Identify critical talent based on strategic objectives </li></ul><ul><li>Talent Retention </li></ul><ul><li>Retention bonuses </li></ul><ul><li>Senior level accountability </li></ul>
  16. 16. Process Of HR Due Diligence.
  17. 17. <ul><li>Pre Merger: </li></ul><ul><li>1) Strategic Planning. </li></ul><ul><li>2) M&A target concern. </li></ul><ul><li>3) Non addressing HR Due Diligence. </li></ul><ul><li>Post Merger or Transitional Phase: </li></ul><ul><li>1) Time Frame and balance. </li></ul><ul><li>2) Unanticipated Turnover. </li></ul>
  18. 18. Objective of HR <ul><ul><li>human resource system issues that become important in M&A activity are: </li></ul></ul><ul><ul><ul><li>human resource planning </li></ul></ul></ul><ul><ul><ul><li>compensation selection and turnover </li></ul></ul></ul><ul><ul><ul><li>performance appraisal system </li></ul></ul></ul><ul><ul><ul><li>employee development and employee relations </li></ul></ul></ul>
  19. 19. How HR works in M&As? <ul><li>The human resource issues in the mergers and acquisitions (M&A) can be classified in two phases: </li></ul><ul><ul><li>The pre-acquisition period </li></ul></ul><ul><ul><li>The post acquisition period </li></ul></ul><ul><li>In pre-acquisition period HR involves assessment of the cultural and organizational differences, which includes </li></ul><ul><ul><li>organizational cultures </li></ul></ul><ul><ul><li>role of leaders in the organization </li></ul></ul><ul><ul><li>life cycle of the organization </li></ul></ul><ul><ul><li>management styles </li></ul></ul>
  20. 20. The different activities done by HR <ul><li>The post acquisition activities done by human resource, these are: </li></ul><ul><ul><li>The difference in organizational culture </li></ul></ul><ul><ul><li>Job security </li></ul></ul><ul><ul><li>Differences in human resource system </li></ul></ul><ul><ul><li>Compensation structure and performance appraisal system </li></ul></ul><ul><ul><li>Differences in organizational structures </li></ul></ul><ul><ul><li>Employee relations </li></ul></ul>
  21. 21. The organizational culture <ul><li>Organizational practices, managerial styles and structures are determined by the organizational culture. </li></ul><ul><li>Employees not only need to throw out their own culture, values and belief but also have to accept an entirely different/new culture </li></ul><ul><li>Dissimilar cultures can produce feeling of unfriendliness and significant discomfort which can lower the commitment and cooperation, whose results may develop “us” versus “them” attitude which may be harmful to the organizational growth. </li></ul><ul><li>Cultural clash , one of the cultures that is dominant culture may get preference in the organization causing frustration and feelings of loss for the other set of employees. </li></ul>
  22. 22. Job security <ul><li>Divert the focus of employees from productive work to issues like job security, changes in designation, career path, working in new departments and fear of working with new teams. </li></ul><ul><li>Causes changes in employee well defined career paths and future opportunities in the organization. </li></ul><ul><li>Result in relocation or assigning of new jobs. This may have an impact on the performance of the employees. </li></ul><ul><li>Increased political processes that may be underway in the organizations to sustain the importance of the various individuals and departments. </li></ul>
  23. 23. Human resource systems and Compensation structure <ul><li>The human resource systems vary across organizations owing to the differences in the organizational culture, sectoral differences and national cultural differences. </li></ul><ul><ul><li>Hindustan Lever Limited acquiring TOMCO, the employees in TOMCO enjoyed better terms and services compared to the HLL employees </li></ul></ul><ul><li>compensation structure and the performance appraisal system among the organizations may also differ creating troubles </li></ul><ul><ul><li>one of the firms may have performance based pay while other may have higher component of fixed pay. </li></ul></ul>
  24. 24. Organizational structures and employee relations <ul><li>Since the organizational structures have different designations </li></ul><ul><ul><li>the acquiring organizations need to develop a mechanism to remove the differences in the grading systems bring them at equal level. </li></ul></ul><ul><li>Employee relations gain more importance in the acquisitions of manufacturing units. The power equation between management and trade unions is bound to change with the acquisition. </li></ul><ul><ul><li>This require study of management-union equation, employee contracts, political linkages of the unions, compensation related clauses, number of trade union and dynamics between the unions. </li></ul></ul>
  25. 25. HR takes control <ul><li>• Train managers on the nature of change </li></ul><ul><li>• Technical retraining </li></ul><ul><li>• Family assistance programs </li></ul><ul><li>• Stress reduction program </li></ul><ul><li>• Meeting between the counter parts </li></ul><ul><li>• Orientation programs </li></ul><ul><li>• Explaining new roles </li></ul><ul><li>• Helping people who lost jobs </li></ul><ul><li>• Post merger team building </li></ul><ul><li>• Anonymous feedback helpline for employees </li></ul>
  26. 26. Acquisition strategy of Cisco <ul><li>It devised a three step process of acquisition. </li></ul><ul><ul><li>analyze the benefits of acquiring </li></ul></ul><ul><ul><ul><li>understand how the two organizations will fit together </li></ul></ul></ul><ul><ul><li>evaluation process </li></ul></ul><ul><ul><ul><li>looked whether there is compatibility in terms of long term goals of the organization, work culture, geographical closeness etc. </li></ul></ul></ul><ul><ul><li>integration strategy is rolled out </li></ul></ul><ul><ul><ul><li>A top level integration team visits the target company and gives clear cut information regarding Cisco and the future roles of the employees of the acquired firm </li></ul></ul></ul>