Mergers and Acquisitions in Practice

Shlomo Y. Tarba,Sir Cary L. Cooper,Riikka M. Sarala,Mohammad F. Ahammad

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317659556
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Negocios en general

The growth in mergers and acquisitions (M&A) activity around the world masks a high rate of failure. M&A can provide companies with many benefits, but in the optimism and excitement of the deal many of the challenges are often overlooked. This comprehensive collection, bringing together an international team of contributors, moves beyond the theory to focus on the practical elements of mergers and acquisitions.

This hands-on, step-by-step volume provides strategies, frameworks, guidelines, and ample examples for managing and optimizing M&A performance, including:

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• ways to analyze different types of synergy;

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• understanding and analyzing cultural difference along corporate and national cultural dimensions, using measurement tools;

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• using negotiation, due diligence, and planning to analyze the above factors; making use of this data during negotiation, screening, planning, agreement, and when deciding on post-merger integration approaches.

Students, researchers, and managers will find this text a vital resource when it comes to understanding this key facet of the international business world.

1
Mergers and Acquisitions in Practice

A state-of-art and future directions

Shlomo Y. Tarba, Sir Cary L. Cooper, Riikka M. Sarala, and Mohammad F. Ahammad

The frequency and scale of cross-border and domestic mergers and acquisitions have significantly increased during the past two decades in spite of continuous reports on their high failure rates (e.g., Cartwright and Cooper, 1996, 2000; Gomes, Weber, Brown, and Tarba, 2011; Junni, Sarala, Tarba, and Weber, 2015; Zhang, Ahammad, Tarba, Cooper, Glaister, and Wang, 2015). Surprisingly, research studies conducted in different research streams (business strategy, finance, accounting, organizational behavior, and human resource management) have generally failed to step into each other’s turf, hence missing the opportunities for cross-fertilization (Weber and Tarba, 2010; Weber, Tarba, and Reichel, 2009).

Several studies (Sarala, Junni, Cooper, and Tarba, Forthcoming; Weber and Tarba, 2014; Weber, Tarba, and Reichel, 2011; Gomes, Angwin, Weber, and Tarba, 2013) point out that most of the existing research on global mergers and acquisitions has not been systematic or linked to any comprehensive theory. Furthermore, rarely have models been proposed that were applicable across different organizations, as well as various national, cultural, and industry settings.

In our edited book we have compiled a diversity of chapters that deal with an M&A process highlighting the degree of organizational change and its resultant outcomes.

The chapter by Boateng, Lordofos, and Glaister considers the motives for cross-border M&As utilizing pre-merger press announcements and 44 post-merger interviews based on a sample of 22 companies from 8 European countries. Their findings suggest that there are no differences between the secondary data sources reporting the motives for M&As prior to the deal and the primary, first-hand data gathered from interviews with senior managers after the merger deal.

The next chapter by Ahammad, Tarba, Glaister, Kwan, Sarala, and Montanheiro, which explores the strategic motivation for cross-border mergers and acquisitions (CBM&As) for a sample of UK firms acquiring North American and European firms, lends support to the theories of strategic positioning and the resource-based view. The highest-ranked strategic motives for CBM&As are enabling presence in new markets, enabling faster entry to market, facilitating international expansion, gaining new capabilities and obtaining strategic assets.

The following chapter by Pinheiro, Aarrevaara, Nordstrand Berg, Geschwind, and Torjesen addresses the following question: ‘What can be learnt from public sector mergers that could assist in the planning and execution of successful strategic mergers more broadly?’ Undertaking a comprehensive literature review across two sectors of the economy – health and higher education – the authors investigate merger dynamics involving public hospitals and universities, and point to the existing gaps in the rationale for merging, the merger process, and the tangible effects.

Froese, Schmitz, and Wangenheim emphasize that despite the increasing importance of Chinese M&As, little research exists on the outward M&As of Chinese and other emerging market multinational enterprises (EM MNEs). To fill this void, their chapter is aimed at increasing our understanding of the cross-border M&As of Chinese MNEs into industrialized countries by investigating both the pre-M&A and post-M&A integration phase. The case of the Sany and Putzmeister acquisition, one of the most well-known Chinese M&A acquisitions in Germany, is used in order to illustrate their model.

The next chapter by Schweizer deals with the integration of an acquired, small biotechnology firm by a large pharmaceutical company. Based on the in-depth examination of organizational integration activities of German-based Merck’s acquisition of Boston-based Lexigen Pharmaceuticals, this chapter concludes by developing a practical post-acquisition integration framework.

The chapter by Cooke examines a number of specific human resource management (HRM) problems and challenges encountered in domestic and cross-border M&As. Drawing on empirical examples of extant studies on M&As in different organizational, industrial, national, and international contexts, it illustrates the complexity and difficulties M&A partners may experience, outlines some of the key HR activities throughout the M&A process, and, in doing so, reveals the dynamics of political, institutional, cultural, and psychological factors at play in post-M&A integration.

The following chapter by Humborstad, Solberg, Junni, and Giessner systematically reviews four relevant theoretical landscapes addressing human resource issues in M&As in an effort to provide a more comprehensive picture of the role that HRM plays in facilitating the M&A process and explain how its implementation can contribute to M&A success. Conditions under which HRM should be most effective in facilitating positive M&A outcomes are also addressed.

In the next chapter Kroon presents a study of two recently merged dairy firms in the Netherlands in order to illustrate the importance of employee communication and perceived organizational cultural differences as determinants of employees’ identification with the post-merger organization. Specifically, he shows that a perceived communication climate mediates the relation between merger communication and post-merger identification, and merger communication moderates the relation between cultural differences and post-merger identification.

Building on literature on multiple identities and identity complexity, the chapter by Lupina-Wegener and van Dick reveals that constructing a shared identity is crucial to the success of mergers and acquisitions, and has been typically conceptualized as both content – i.e. the perception of a common in-group identity – and process – i.e. the degree of identification with the new organization. Moreover, it extends current operationalization of a shared identity in M&As by introducing a more nuanced concept of multiple shared identities (MSI) that accounts for multiple group memberships that are shared by organizational members.

The following chapter by Witzmann and Dörrenbächer attempts to clarify whether cultural due diligence (CDD) is a necessary prerequisite for successful post-merger integration (PMI). It concludes that the CDD process creates considerable value for the subsequent PMI as it facilitates a fast and smooth cultural integration and as such accelerates the operative integration of M&As.

Alas, Elenurm, Allikmäe, and Varts examine the Estonian Hansabank’s acquisition of the Lithuanian Lietuvos Taupomasis Bankas. They explore whether activities of the personnel department, such as staffing the new structure and top management team development, were key success factors that helped to improve the management of the Lithuanian bank and achieve the desired organizational culture. By doing so, they enhance our understanding of the role of human resource management in change management processes resulting from cross-border acquisitions in transition economies.

Bauer, Strobl, and Matzler review the studies that indicate positive, negative, U-shaped, inverted U-shaped, and non-significant relationships between acquisition experience and performance. Drawing a more fine-grained and nuanced perspective on acquisition experience, their chapter investigates why, when, and how acquisition experience can have beneficial or detrimental effects.

The final chapter by Kwan presents a comprehensive review of relevant theories and methods from the strategy literature on organizational learning (market-based view, resource-based view, knowledge-based view, and transaction-cost approach) and the finance literature on valuation (the discounted cash flow, real options, and event study methods), applying them to the strategic alliances and thus deepening our understanding of these important and complex business transactions.

We hope that the chapters in this book, taken together, will encourage further research on mergers and acquisitions, and provide important insights to both scholars and executives.

References

Cartwright, S. and Cooper, C. L. (1996). Managing Mergers, Acquisitions, and Strategic Alliances: Integrating People and Cultures. Butterworth-Heinemann, Oxford and Boston, MA.

Cartwright, S. and Cooper, C. L. (2000). HR Know-How in Mergers and Acquisitions. Chartered Institute of Personnel and Development, London.

Gomes, E., Angwin, D., Weber, Y., and Tarba, S. Y. (2013). Critical success factors through the mergers and acquisitions process: revealing pre- and post-M&Amp;A connections for improved performance. Thunderbird International Business Review, 55, 13–36.

Gomes, E., Weber, Y., Brown, C., and Tarba, S. Y. (2011). Mergers, Acquisitions and Strategic Alliances: Understanding the Process. Palgrave Macmillan, London and New York.

Junni, P., Sarala, R., Tarba, S. Y., and Weber, Y. (2015). Strategic agility in acquisitions. British Journal of Management, 26, 596–616.

Sarala, R. M., Junni, P., Cooper, C. L., and Tarba, S. (forthcoming). A socio-cultural perspective on knowledge transfer in mergers and acquisitions. Journal of Management.

Weber, Y. and Tarba, S. Y. (2010). Human resource practices and performance of mergers and acquisitions in Israel. Human Resource Management Review, 20, 203–211.

Weber, Y. and Tarba, S. Y. (2014). Strategic agility: a state-of-art. California Management Review, 56, 3, 1–8.

Weber, Y., Tarba, S. Y., and Reichel, A. (2009). International mergers and acquisitions performance revisited: the role of cultural distance and post-acquisition integration approach. In C. Cooper and S. Finkelstein (Eds.) Advances in Mergers and Acquisitions, Vol. 8, Emerald Publishing, Bingley.

Weber, Y., Tarba, S. Y., and Reichel, A. (2011). International mergers and acquisitions performance: acquirer nationality and integration approaches. International Studies of Management and Organization, 41, 3, 9–24.

Zhang, J., Ahammad, M. F., Tarba, S., Cooper, C. L., Glaister, K. W., and Wang, J. (2015). The effect of leadership style on talent retention during merger and acquisition integration: evidence from China. International Journal of Human Resource Management, 26, 1021–1050.

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Motives for European Mergers and Acquisitions

Analysis of pre-merger press announcements and post-merger interviews

Agyenim Boateng, George Lordofos, and Keith W. Glaister

The motivation for mergers and acquisitions (M&As) has been a topic of immense interest to academics and practitioners over the past two decades. This interest stems from the various empirical findings which suggest that more than two-thirds of all M&A deals are financial failures when measured in terms of their ability to deliver profitability (Ravenscraft and Scherer, 1987; Tetenbaum, 1999; Hudson and Barnfield, 2001). In a more board context, prior studies suggest that the ability of M&As to create value for acquiring shareholders has been mixed. One stream of research has reported significant positive returns for acquirers (see, Kang, 1993; Markides and Ittner, 1994; Kiymaz, 2003). Other studies have found negative and insignificant bidders’ returns (Eun, Kolodny and Scheraga, 1996; Datta and Puia, 1995; Aw and Chatterjee, 2004). Studies such as those by Erez-Rein et al. (2004) and Carleton (1997) have noted that M&As, generally fail to meet their anticipated goals. Despite the apparent failure of many M&As, we continue to see a rising trend in this activity. For example, UNCTAD (2006) reported that over 80 percent of world foreign direct investments (FDI) are carried out via cross-border M&As.

The above empirical evidence raises the question as to why companies persist with M&A transactions, given the solid evidence of their relative failure. The paradox of whether M&As create value for the acquiring firms is central to the study of M&As. Yet a number of the studies that have attempted to examine the motives for M&As by surveying senior managers have encountered some methodological criticism. It is argued that studies that rely on an ex post assessment of senior managers’ opinions are flawed due to self-justification or social desirability bias. The latter, defined as a tendency of the respondent to present him/herself in a favorable light (Nunnally, 1978), has been recognized as a major problem that can adversely affect the validity of studies in social science disciplines (see Neeley and Cronley, 2004; Fisher, 1993; Bruner, 2002). Researchers such as Fisher (2000) and Mick (1996) have called for increased attention to social desirability bias in design, measure construction, and analysis.

Given the high rate of failure for M&As to meet their anticipated goals, it is important to ask why a chief executive officer (CEO) should give correct answers to questions concerning the motives for M&A when the M&A has failed to deliver the anticipated outcomes of the M&A transaction. The main focus of this study is to shed light on the above question by examining the effects of social desirability bias by carrying out correlational analysis on the pre-merger and post-merger motivation for M&A in eight European countries. We do so by examining senior managers’ opinions regarding the motives for the M&A post-M&A and compare these responses with data collected from secondary sources (press reports) at the time of the M&A announcement. We undertake this procedure in order to s...