Mergers and Acquisitions

A Research Overview

David R. King, Florian Bauer, Svante Schriber

• Publisher: Routledge
• Year: 2018
• Print ISBN: 9781138602762
• eBook ISBN: 9780429890802
• Topic: Business
• Subtopic: Business General
• Index: Business

The process of identifying and evaluating a target firm, completing a deal after its negotiation and announcement, and then integrating a target firm after legal combination is a multi-year process with uncertain returns to acquiring firms. Research on mergers and acquisitions (M&As) is progressing rapidly yet it remains fragmented across multiple research perspectives that largely examine different acquisition phases separately and coincide with a focus on different research variables. As a result, research fragmentation means that a researcher in one area may be unaware of research from related areas that is likely relevant. This contributes to research silos with M&A research displaying different traditions, starting points, and assumptions.

Mergers and Acquisitions: A Research Overview summarizes the frontier in M&A research and provides insights into where it can be expanded. It undertakes the needed integration and reconciliation of research in order to derive practical knowledge for managing acquisitions from beginning to end, providing a summary of what is known and its implications for future research.

This concise overview reconciles and integrates the state of the art in our understanding of mergers and acquisitions, providing an essential first stopping point in the research journey of students and scholars working in this area.

1
Introduction

A merger or acquisition is not initiated with the expectation that everything will stay the same. While acquisitions were recorded in the Roman Empire (Carmeli & Markman, 2011), academic research on the phenomenon is more recent, but growing. From an initial study by Dewing (1921), a sharp increase in acquisition research from the 1980s has followed different paths. Finance scholars dominated acquisition research until the publishing of a book by Haspeslagh and Jemison (1991) that continues to influence acquisition research. Subsequent management research has largely developed into four schools of thought surrounding financial or economic, strategic management, organizational behavior, and process perspectives (Bauer & Matzler, 2014; Birkinshaw, Bresman, & Håkanson, 2000; Larsson & Finkelstein, 1999; Haspeslagh & Jemison, 1991), with a focus on what makes acquisitions fail or succeed (Capasso & Meglio, 2005; Cartwright, 2006). While different approaches to assess acquisition success range from event studies, accounting measures, and managerial surveys (Cording, Christ-mann, & Weigelt, 2010; Oler, Harrison, & Allen, 2008; Zollo & Meier, 2008), research generally agrees that acquisitions do not live up their potential (Bauer & Matzler, 2014; Homburg & Bucerius, 2006; King, Dalton, Daily, & Covin, 2004).

While different perspectives offer complementary insights (Meglio & Risberg, 2011), arguably a more fundamental problem is that research has provided mainly incremental advancements. Instead of viewing this as a problem, we view it as an opportunity to address multiple issues. First, fundamental gaps in acquisition research remain (Barkema & Schijven, 2008; Haleblian, Devers, McNamara, Carpenter, & Davison, 2009), and this may be addressed by theoretical integration. Second, several scholars identify fragmentation in M&A research (Bauer & Matzler, 2014; King et al., 2004) with the consequence that potentially important conceptual links are often taken for granted or ignored. This can be addressed by summarizing what is known and identifying areas for future research. Overall, the development of acquisition research is incomplete (Cartwright & Schoenberg, 2006; King et al., 2004) and it remains confined within established boundaries leaving new, potentially important insights understudied.

We summarize acquisition research and outline areas that it can advance by taking a broader perspective. Rather than gap-spotting along established lines of inquiry (Alvesson & Sandberg, 2013), we challenge several implicit assumptions of acquisition research by highlighting organizational change. Typically, it is change – in firm valuations, competitive situation, leadership, or demand – that lead to acquisitions (King, 2006). Change is also inherent in combining two previously separate organizations, and this impacts industry structure. Often forgotten by those not involved in acquisitions: The announcement of an acquisition leads to change in the involved firms even before organizational integration begins. As a result, organizational change underlies all aspects of merger and acquisition (M&A) activity.

Table 1.1 Comparison of organizational change and acquisition research

Organizational Change	Content	Context	Process	Outcomes
	Substance of Change	Internal and external circumstances	Actions to enact change	Adaptation for increased survival
M&A research	Modes of growth	Stakeholders	Acquiring and target firm pre-merger characteristics	Firm performance
	Responding to external change or applying slack resources	Communication
			Deal completion
	Acquisition motives		Post-merger integration
	Target selection and due diligence

Despite this fundamental insight, M&A research has traditionally not integrated insights from organizational change research despite the latter having developed as an important stream in other areas of management research. Against this background, we hold that a better understanding of M&A requires an explicit consideration of organizational change to integrate research under a common umbrella and to identify new areas of M&A research. We apply four themes of organizational change research developed by Armenakis and Bedeian (1999) as an organizing principle for the chapters of this book and relate them to topics in M&A research, see Table 1.1. Our intent is to identify broad research problems whose investigation can help improve our understanding of acquisitions.

Our focus on organizational change assumes it overlaps with research on mergers and acquisitions. Even if there are clear distinctions, arguably most clearly relating to the legal situation surrounding transactions, we integrate related academic literature and consider both topics synonymous unless when explicitly stated otherwise.

Change content

The first theme (Chapter 2) relates to the content or the substance of organizational change. For acquisitions, significant change corresponds to the change of ownership of a target firm. Still, from the perspective of an acquirer, research generally does not consider differences in target firm selection. Related areas of M&A research involve due diligence and acquisition motives. Evidence suggests that target selection ranges from haphazard or serendipitous to carefully planned. For example, Teva cultivated its acquisition of Biogal in Hungary over five years until the government agreed to lay-offs (Brueller, Carmeli, & Markman, 2016). Both change and acquisitions can come from within an organization (e.g., bottom up or top down), or introduced from outside an organization and involve a range of economically rational or other motives.

Change context

The second theme (Chapter 3) relates to contextual issues associated with using acquisitions as a tool for corporate change. In reviewing the context of change, we summarize research on different stakeholders impacted by and impacting acquisitions (King & Taylor, 2012; Meglio, King, & Risberg, 2015). This extends the dominant approach of considering acquisitions impact on shareholders. Broadly defined a stakeholder is any individual or group that can affect or is affected by the actions, decisions, policies, practices, or goals of an organization (Freeman, 1984). In managing stakeholder interests, managers retain a fiduciary duty to shareholders, but implementation of decisions needs to account for ethical responsibilities toward affected groups (Goodpaster, 1991). While the impact to employees internal to combining firms is well recognized, acquisitions also change relationships with competitors (e.g. King & Schriber, 2016), suppliers (e.g. Kato & Schoenberg, 2014), and customers (e.g. Degbey, 2015; Rogan, 2013). For example, the U.S. defense industry began consolidation in the 1990s following a meeting of executives at the Pentagon (customer) called the “last supper” (Augustine, 1997; King & Driessnack, 2003). In this section, we also summarize research on communicating with acquisition stakeholders.

Process of change

The third theme involves the process of enacting desired change, and it is covered in Chapter 4. While a process perspective for acquisition research has a long tradition (e.g., Jemison & Sitkin, 1986), research combining the relationships between factors before and after an acquisition is scarce (Bauer & Matzler, 2014). Meanwhile, the process of attempting change can lead to better understanding, but it also interrupts coordination on interdependent tasks (Summers, Humphrey, & Ferris, 2012). In acquisitions, coordination is complicated by working to integrate previously separate organizations and routines. For example, companies need to maintain other operating and change activities beyond integration (Puranam, Singh, & Zollo, 2006), contributing to co-evolution of processes (Rouzies, Colman, & Angwin, 2018).

Change outcomes

The fourth theme (Chapter 5) relates to performance variables used to assess organizational change outcomes, such as organizational survival (e.g., Bradley, Aldrich, Shepherd, & Wiklund, 2011). Evaluating performance implications of acquisitions has been a primary focus of research; however, when aggregated in a meta-analysis, common research variables generally do not explain changes in performance (King et al., 2004). While organizational change and regular acquisition activity can increase firm survival (e.g., Bradley et al., 2011; Almor, Tarba, & Margalit, 2014), the primary focus of acquisition research is on financial performance.

Still, a lack of consensus on acquisition performance measures (e.g., Cording et al., 2010; Meglio & Risberg, 2011) and their inconsistent use limits knowledge accumulation (King et al., 2004). The most common accounting measures, short-term stock market measures, long-term stock market measures, and managerial assessments of acquisition performance display low correlations (e.g., Cording et al., 2010; Papadakis & Thanos, 2010; Schoenberg, 2006). This reflects that acquisition performance is a multi-dimensional construct and research design needs to understand difference in performance measures (Cording et al., 2010; Richard, Devinney, Yip, & Johnson, 2009, Zollo & Meier, 2008). Additionally, there are multiple goals beyond financial performance, including growth, resource transfer, and survival, and these goals appear in other research streams, such as entrepreneurship (e.g., Daily, McDougall, Covin, & Dalton, 2002). Additionally, M&A may explain why larger firms display increased survival rates (Sutton, 1997). This is important as it is difficult for firms to grow, build capabilities, and generate market returns (Li, Shang, & Slaughter, 2010), or circumstances consistent with M&A increasing firm survival.

Summary and outlook

The structure of our book begins to integrate M&A research that has a tendency for silo thinking and path-dependent development in different research streams. We also use organizational change to integrate research across M&A phases, as change precedes M&A and it captures the essence of the phenomenon to include intended and actual effects. While an intuitive insight, this notion has received surprisingly little attention in research. Consequently, we build the logic of this book around four main concepts from organizational change literature. Before continuing, we answer two relevant questions: 1) Why is M&A important, and 2) Why is this book worth reading?

Why ...

Table of contents

• Cover
• Half Title
• Series Page
• Title
• Copyright
• Contents
• List of illustrations
• 1 Introduction
• 2 Content of change
• 3 Context of change
• 4 Process of change
• 5 Change outcomes
• 6 Conclusion
• References
• Index