Managing Mergers and Acquisitions

Introduction

Mergers and acquisitions are becoming commonly practiced strategic options for organizations. Organizations are coming together one way or another to realize emerging commercial opportunities. Goals for this upcoming and popular strategy converges around themes including growth, diversification and achieving economies of scale.

A merger is a consolidation of two organizations into one. On the other hand, acquisition is the purchase of an organization by another which gives the buyer or acquirer the power of control over the organization.

The prime reason for mergers and acquisitions are to maintain or increase market share and to increase share holder value by cutting cost and initiating new, expanded and improved services.

However, in many cases, the opposite is happening. For example, the Daimler-Chrysler merger; although both the firms were performing quite well, the merger of the two organizations did not seem to meet the expectations of benefiting from the merge. Months following the merger, the stock price of Chrysler fell by roughly one half and the firm was beginning to lose money and was expected to continue losing money for the coming few years. To make things worse, there were significant layoffs in Chrysler following the merger of the two firms.

Merger or acquisition success correlates directly with the level and quality of the planning involved. Organizations tend to spend insufficient time in analyzing and anticipating current and future market trends as well as integration issues.

Even though the predominant mergers and acquisitions are carefully designed to ensure a strategic fit between the two organizations, the task of integrating still remains difficult. Research shows that the opportunity for mergers to fail is the greatest during the integration process.

Good management plays a very important role contributing to the success of mergers or acquisitions. This paper attempts to look into issues pertaining management of mergers and acquisitions.

Major Challenges in Mergers and Acquisitions

Cultural Barrier

Culture incompatibilities. In an article written by Schraeder and Self (2003), it was revealed that organizational culture is a factor identified as a potential catalyst to merger and acquisition success. According to the authors, cultures are an integral part of an organization. Some researchers believe that culture is to an organization is what personality is to an individual. During a merger or acquisition, the difficulty of modifying the culture of an organization to fit the other becomes quite salient. Thus, culture difference is seen as a major obstacle in the transition of mergers and acquisitions.

Culture Audit

According to several studies, making mergers and acquisitions work is all about successfully combining the corporate cultures of the two organizations into one. The major reason many mergers or acquisitions create very little or no lasting value for shareholders is the cultures barrier.

The main advantage of a culture audit is that it raises awareness of issues that should be managed during mergers or acquisitions. A cultural audit can help the managers to feel more comfortable when faced with sensitive issues.

When managers from both companies are aware of the cultural gap, they will be able to compromise effectively. Therefore, an effective cultural audit can speed up the resolution of key disagreement.

The most important key in any deal is that the two organizations must able to share a common culture on how to conduct business in future for the new organization.

Human Factor

CEOs and CFOs routinely cite “people” problems and cultural issues as the top factors in failed integrations (Galphin and Herndon, 2000). The human factor should also be taken into consideration before an organization decides to embark on a merger or acquisition. The human factor plays an important role in mergers and acquisitions but it is often neglected. Many mergers and acquisitions announcement causes the employees wondering what their future will be like, in the new organization. Will there be any layoffs? Will their salary be affected? These questions often create ambiguity among the employees and underscore the real issues in the minds of managers and employees.

Merger and Acquisition Success

Communication

Mergers and acquisitions make communication