Lade Inhalt...

Success factors in post-merger management

Hausarbeit 2017 19 Seiten

BWL - Industriebetriebslehre

Leseprobe

I. Table of Contents

II. Table of Abbreviations

III. Table of Figures

1. Introduction
1.1. Problem Definition and Objectives
1.2. Scope of Work

2. Theoretical principles of Merger Management
2.1. Merger objectives: gains and efficiencies

3. Phases of a merger

4. Keys to a successful post-merger management (PMM)
4.1. Objective(s)
4.2. Strategy
4.3. Communication
4.4. Leadership and management
4.5. Corporate culture and cultural compatibility
4.6. Change management
4.7. Post-merger integration controlling

5. Conclusions

6. References

7. Internet References

II. Table of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

III. Table of Figures

Figure 1: Theories of merger motives

Figure 2: The three stages of a merger

Figure 3: The merger project organization

Figure 4: Integration approach according to the degree of autonomy and interdependency

1. Introduction

According to a 2015 BCG report, since 2013 M&A activity has experienced a strong recovery across all regions, especially intense in 2014 with a 20% increase and a total deal value of almost $2 trillion[1]. Some data say that approximately 50% of the deals fail to deliver the targeted financial returns[2] leading, in the rest of the cases, to the loss of big sums of money invested in the process. Some other estimates are even worse and talk of less than 20% of the mergers being finally successful[3]. However, despite the crucial importance of M&A processes for the global economy, the academic study on organizational change processes after mergers and acquisition integrations did not seriously start before the middle of the 1980s[4]

The final goal of every merger or acquisition is to improve overall performance and increase competitive advantage by leveraging synergies between 2 different business entities[5]. This is also known as the “2+2=5” effect[6]. As an example, a study, based on samples from mergers over 1955 to 1987 between NYSE and NYSE/AMEX targets, confirmed that stockholders of acquiring firms –after adjusting the company size and the beta risk- experienced a wealth loss of approximately 10% during the first 5 years after the merger[7]. However, no empirical evidence can confirm whether mergers, on average, create value[8] for their shareholders. Therefore although mergers is one of the most studied areas in finance, it is still broadly discussed which should be the criteria to measure the success of a merger[9]. While empirical research strongly focuses on stock return rates the day of the merger announcement, some other experts prefer to focus on long-term performance of the merged company[10] after the post-merger integration.

1.1. Problem Definition and Objectives

This assignment intends to present, analyze and assess the key factors playing a major role in the success of the post-merger integration. Although the statistic says that failed mergers are many more than those being successful, some success stories such as those from ABB, Chemical/Manufacturer’s Hanover, Bank of America/Schwab or GE Capital[11] show that successfully managing corporate performance after a merger process is not only possible but also highly rewarding for those companies managing to do it. Therefore in this assignment we will try to give an answer to the following questions:

Why some merger processes are not successful while some others are? What are the differences between them? What are the causes?

1.2. Scope of Work

The objective of this assignment is to uncover the main factors determining the success in the management of a post-merger integration process. For that it is important to understand some theoretical background behind such processes. Therefore we will start by setting the general theoretical background and after it we will specifically focus on the post-merger integration. There we will analyze, with the help of previous studies, corporate tools designed by some reputed consulting companies, or previous documented managerial experiences, some of the key strategies to reduce obstacles like resistance, complexity or cultural difference in order to land in the safe waters of a successful merged company. It will be then in our conclusions, using some of the deductions and theories previously presented, when we will reflect whether we have been able to meet our initial objective.

2. Theoretical principles of Merger Management

Strategic mergers are typically horizontal mergers that achieve operating synergies by combining firms that were former competitors or whose products or assets fit well together[12]. Evidence on the motives behind a merger can be obtained through direct investigation or through indirect inference from previous merger outcomes[13]. As an example, a survey among managers has shown that the most commonly cited drivers to carry out any merger process are[14]:

- to create synergies
- to increase market share
- to protect markets by eliminating rivals
- to acquire products or technologies
- to strengthen the core business by expanding into new areas
- to access other countries or regions
- to achieve competitive size

Abbildung in dieser Leseprobe nicht enthalten

Figure 1: Theories of merger motives[15]

There are seven different theories on the motives to initiate a merger process[16]. They differ in aspects such as the way in which the merger is initiated, the beneficiary (shareholders or managers?) or the source of the merger gains[17]. See Figure 1.

2.1. Merger objectives: gains and efficiencies

Since managers often mention synergy and efficiency creation as the reason to start a merger[18], we will focus here on the synergy theory understanding it as one of the main drivers which motivate post-merger management decisions. Based on the efficiency theory, which seeks the creation of new synergies, the main gains after a merger are three: financial, operational and managerial synergies[19]. According to this theory[20], financial synergies result in a lower cost of capital by investing in different businesses as a way to lower the systematic risk of a company’s investment portfolio, by increasing the size of the company to allow it to access cheaper capital and by establishing an internal capital market allowing capital to be allocated more efficiently. Operational synergies are achieved by combining the operations of separate business units, through knowledge transfer or by reducing the operational costs of the involved units. Managerial synergies are the ones gained through the acquisition of superior planning and monitoring skills from managers in the target company[21].

3. Phases of a merger

It is important to delimit the different stages of a merger. Any merger starts with the pre-merger or planning phase [22] in which scenarios are assessed and the strategy is formulated[23]. The merger phase itself is the negotiation and agreement on the specific deal conditions[24]. It is also called transaction phase [25]. Finally, the post-merger phase, also called integration phase[26], focuses on the creation of an integrated organization[27]. This integration process is also known as post-merger integration (or PMI).

Abbildung in dieser Leseprobe nicht enthalten

Figure 2: The three stages of a merger[28]

4. Keys to a successful post-merger management (PMM)

Mergers entail huge reallocation and use of resources across all industries[29]. Therefore it should not surprise that the management of those resources is critical for all involved stakeholders. The post-merger success depends on different factors such as: company size and diversity, industry characteristics, nature of the products, diversity of their markets and customers, previous experience of the parties involved; the type of takeover (hostile or friendly); performance strength of the acquired firm; and assimilation required[30]. However there is something in common to all companies which failed to deliver in the new post-merger phase. Those companies understood the creation of shared synergies exclusively as a cost-cutting objective failing to pay attention to human and cultural factors[31]. As a proof of this a Forbes 500 study asked CEOs why merger synergies were often not achieved after a merger: the first reason they mentioned was „incompatible cultures,“ and three additional reasons were directly related to the company culture.[32]

4.1. Objective(s)

Before the post-merger integration process has started, hypothesis and objectives must be clearly established. While formulated in the planning phase, it is at the post-merger integration stage when objectives must be finally met[33]. For the integration process, specific objectives formulated by the post-merger project team will necessarily have to be subordinated to, and in agreement with, the general merger objectives[34]. By failing to coordinate the general merger goals and the specific goals for the post-merger phase, confusion and lack of a unified strategy could endanger the final success of the post-merger integration. The integration process can then be considered successful once not only the specific goals belonging to the integration phase have been met, but especially the more important general goals belonging to the merger process[35].

4.2. Strategy

The management of the post-merger integration needs a strategy. That strategy has to be based on the integration potential and aligned with the objectives to be achieved. And it also has to be based on a critical analysis of the starting point of both merging organizations and which their strengths and weaknesses are. As an example, in an article[36] McKinsey explained the merger of two major consumer goods companies and how the acquirer recognized the superiority of the target’s distribution management approach and adjusted its practices to match it. Also an unbiased vision by top management is essential when designing the strategy.

Merging companies need to create a dedicated merger project team which, based on mutual support, shared learning, feedback, coaching and supported by a Merger Executive Committee will be the driving force behind the transition to the new entity[37]. There are four types of teams: business segment teams, key process teams, support service teams and transition management teams[38] (See Figure 3). Apart from them, line-managers from different functional departments will provide functional expertise and guidance to each of the preceding players depending on the transition needs[39].

Abbildung in dieser Leseprobe nicht enthalten

Figure 3: The merger project organization[40]

One of the best known integration models is the one proposed by Haspeslagh and Jemison[41] focused on the degree of corporate autonomy of the integrated organization but also on a given mutual dependency of the merging companies. Depending on the intensity of the Haspeslagh and Jemison’s model there are 4 possible integration levels. See Figure 4.

Abbildung in dieser Leseprobe nicht enthalten

Figure 4: Integration approach according to the degree of autonomy and interdependency[42].

When choosing the model to be used market and products will be crucial because the more heterogenic a market is, and the more divergent the product portfolio of the two merging companies is, the weaker their integration should be[43]. That is why the integration of the financial investments from big multinationals remain either at the partial integration level or even more frequently keep their autonomy[44].

4.3. Communication

Although it is often undervalued, communication through the whole organization with all involved stakeholders always plays a decisive role in the final success of any post M&A process[45]. By communication it is meant here the action of providing information laterally and vertically throughout the organization continually and according to the corporate and day-to-day operations needs[46]. Synergy cannot be generated only from above, nor achieved by reducing the number of employees. Synergy creation requires the engagement and commitment of the whole organization[47].

In the specific case of post-merger management the executives of the merged company should involve early on in the integration process employees from both merging organizations[48] and be ready to frequently disclose detailed information related to the post-merger integration. It would be an easy but effective way of showing to the employees their importance for the merged organization[49]. Communication should be both internally and externally coherent and able to express the specific added value created by the post-merger integration[50]. It should be aligned with the organization goals as a way to maintain a common sense of purpose and belonging while at the same time uncover critical organizational gaps, conflicts or learning needs[51]. But even understanding the importance of communication there is no guarantee of success if it is not carried out through an efficient and transparent strategy. For that it is critical that senior managers and executives understand the need for inclusion, order, self-control, and freedom of choice that their subordinates experiment in such a process[52]. And although it is not easy, by keeping frequent contact with them, and by understanding their role as uncertainty reducers, executives increase the chances of success[53].

4.4. Leadership and management

A merger can only be initiated at the top corporate level[54]. However some executives understand the post-merger integration process as a technical challenge to be delegated to middle managers and post-merger project teams. It happens especially in large post-merger integrations, which very often have similarities with complex IT projects[55]. However only top management has the experience and all the necessary strategic information to see and consider the whole picture. Therefore the main task of the management team responsible for the post-merger integration is not only to work hard to coordinate the success of the integration, but also understand the importance of signaling it, understanding this message as a way to signal through the whole organization their commitment with the new merged company[56]. In the same way, if the leadership team visibly lacks of professional quality, commitment or emotional intelligence, these weaknesses will spread throughout the merging companies. This commitment is signaled through the appointment of high level senior executives, through the alignment of top managers with the post-merger objectives and through clarity about the specific roles to be performed by all members involved[57]. Lastly, cohesion among the members of the top management team should not be forgotten because conflict at that level would imply delayed decisions and a bad example for all members implied in the process[58].

[...]


[1] Cf. The Boston Consulting Group (2016).

[2] Cf. Op't Land et al. (2009), p. 245.

[3] Cf. Bohlin, N. (1998), p.1.

[4] Cf. Vaara (2002), w/p.

[5] Cf. Appelbaum et al. (2000), p. 649.

[6] Cf. Ibid.

[7] Cf. Agrawal et al. (1992), p. 1606.

[8] Cf. Mukherjee et al. (2004), p. 4.

[9] Cf. Agrawal et al. (1992), p. 1605.

[10] Cf. Agrawal et al. (1992), p. 1605.

[11] Cf. Bohlin (1998), p.1.

[12] Cf. Mukherjee et al. (2004), p. 8.

[13] Cf. Ibid.

[14] Cf. Bohlin (1998), p.1.

[15] Cf. Ibid.

[16] Cf. Trautwein (1990), p. 284.

[17] Cf. Ibid.

[18] Cf. Porter (1987).

[19] Cf. Trautwein (1990), p. 284.

[20] Cf. Ibid.

[21] Cf. Trautwein (1990), p. 284.

[22] Cf. Bohlin (1998), p. 2.

[23] Cf. Ibid.

[24] Cf. Ibid.

[25] Cf. Ramm (2009), p. 2.

[26] Cf. Bohlin (1998), p. 2.

[27] Cf. Ibid.

[28] Cf. Bohlin (1998), p. 3.

[29] Cf. Andrade et al. (2001), 109.

[30] Cf. Appelbaum et al. (2000), p. 649.

[31] Cf. Ibid.

[32] Cf. Bohlin (1998), p. 1.

[33] Cf. Jansen (2008), p. 318.

[34] Cf. Ramm (2009), p. 5.

[35] Cf. Wirtz (2003), p. 276.

[36] Cf. Billing (n. a.).

[37] Cf. Fubini and Price (2006).

[38] Cf. Bohlin (1998), p. 4.

[39] Cf. Ibid.

[40] Cf. Ibid.

[41] Cf. Haspeslagh and Jemison (1992), p. 176.

[42] Haspeslagh and Jemison (1992).

[43] Cf. Hase (2002), p. 61.

[44] Cf. Büttgenbach (2000), p. 49.

[45] Cf. Appelbaum et al. (2000), p. 658.

[46] Cf. Appelbaum et al. (2000), p. 650.

[47] Cf. Bohlin (1998), p. 1.

[48] Cf. Bohlin (1998), p. 3.

[49] Cf. Ibid.

[50] Cf. Wirtz ( 2003), p. 345.

[51] Cf. Bohlin (1998), p. 4.

[52] Cf. Appelbaum et al. (2000), p. 650.

[53] Cf. Ibid.

[54] Cf. Fubini et al. (2006). Successful mergers start at the top.

[55] Cf. Fubini et al. (2006). The elusive art of postmerger leadership.

[56] Cf. Fubini et al. (2006). The elusive art of postmerger leadership.

[57] Cf. Ibid.

[58] Cf. Ibid.

Details

Seiten
19
Jahr
2017
ISBN (eBook)
9783668781047
ISBN (Buch)
9783668781054
Sprache
Englisch
Katalognummer
v437672
Institution / Hochschule
FOM Essen, Hochschule für Oekonomie & Management gemeinnützige GmbH, Hochschulleitung Essen früher Fachhochschule
Note
1,7
Schlagworte
pot-merger integration M&A PMI project management

Autor

Teilen

Zurück

Titel: Success factors in post-merger management