HRM IN MERGERS AND ACQUISITIONS

What Are Mergers & Acquisitions?

• When one company takes over another and clearly established itself as the new owner – acquisition

• acquiring firm retains its identity, while the acquired firm ceases to exist.

• when a larger, more powerful, and richer organization takes over another organization – hostile takeover

• when two companies, more or less on equal footing, decide to join forces – “merger of equals”

• both parties accepting risk and sharing in the potential rewards

Why Do Companies Merge?

• Economies of Scale • Saturated Market Consolidation• Competitive Position Improvement • Synergy

Merger Types • Horizontal• Vertical• Market extension• Product extension• Conglomeration• strategic

Major HRM Issues in Mergers & Acquisitions

Research shows that consistently 65% of mergers and acquisitions that fail do so because of people issues

Requires a focus on one new vision and one new organizational mission

Problems occur when the larger or stronger of two organizations tries to significantly influence the integration.

1. Lack of Communication 2. Lack of Training 3. Loss of Key People 4. Corporate Culture Clash & Power Politics5. Employee Resistance

Cultural issues in mergers and acquisitions

business world seems littered with integrated companies that have lost value for shareholders

"What forces are powerful enough to counteract the value-creating energy of economies of scale or global market presence?"

Culture-dominant barriers to effective integrations

culture - found to be the cause of 30 per cent of failed integrations

What does this mean for integrating two companies?

CULTURE AFFECTS RESULTING IN

Decision-making style (for example:

consensus contrasted with top-down)

•Effective integration requires rapid decision-making.

•Different decision-making styles can lead to slow

decision-making, failure to make decisions, or failure to

implement decisions.

Leadership style (for example: dictatorial or

consultative, clear or diffuse)

•A shift in leadership style can generate turnover among

employees who object to the change. This is especially

true for top talent, who are usually the most mobile

employees.

•Loss of top talent can quickly undermine value in an

integration by draining intellectual capital and market

contacts.

Ability to change (willingness to risk new

things, compared with focus on maintaining

current state and meeting current goals)

•Unwillingness to implement new strategies.

•Unwillingness to work through the inevitable

difficulties in creating a

new company.

How people work together (for example:

based on formal structure and role definitions

or based on informal relationships)

•Merged companies will create interfaces between

functions that come from each legacy company, or new

functions that integrate people from both legacy

companies. If the cultural assumptions of the legacy

companies are inconsistent, then processes and

handoffs may break down with each company's

employees becoming frustrated by

their colleagues' failure to understand or even recognize

how work should be done.

Beliefs regarding personal "success"

(for example: organizations that focus on

individual "stars," or on teamwork, or where

people rise through connections with senior

practitioners)

•Again, these differences can lead to breakdowns in

getting work done. If people who believe they have to

achieve goals as a team integrate with people whose

notion of "success" emphasizes individual

performance, the resulting situation is often

characterized by personal dislike and lack of support

for getting the job done.

Pre-Merging Techniques

In the pre-merger phase, successfully planning

and initiating an M&A deal requires a sound

strategy and a deep understanding of

operational, financial, legal, tax, and cultural

issues.

These are necessary to truly understand the fit

and the value of prospective targets.

Comprehensive valuation and negotiation skills

are required to close a favorable deal.

M&A strategy:

In the pre-merger phase, we start by defining

ambitious growth and portfolio strategies and

identifying attractive M&A targets with a strong

strategic fit.

Based on an initial outside-in analysis and

industry benchmarks, we assess the target's

potential for generating value and help come up

with a preliminary price.

Due diligence and deal preparations:

Accordingly, commercial due diligence and

synergy analysis are two of our core strengths

within the M&A lifecycle.

Furthermore, we work together with attorneys,

auditors, and tax advisors to form a complete

target profile. Our goal is to ensure that our

clients do not pay more than the target is

worth.

To realize the best possible deal, we work with

our clients and their attorneys to devise sound

negotiating tactics.

We assist in jump-starting the integration and

value capture by installing "clean teams" for

advanced data analysis, & by realizing quick

wins with arm's-length contracts prior to closing.

CROSS BORDER MERGERS

The cross-border merger is a transaction in which the assets and operation of two firms belonging to or registered in two different countries are combined to establish a new legal entity.

STEPS INVOLVED IN THE PROCESS OF CROSS BORDER MERGERS:

Common draft terms of cross border merger.Merger report of the management.Independent expert report.Share holders’ approval.Registration of the company company’s full name, registered number, registered office address, legal form and law by which the company is governed, and name of the member state, and the name and address of the registry where company documents are filed.

Benefits of cross border mergers:Dissolution without liquidation.Increases productivity.Cost efficiency.Revenue enhancement.

Consequences of cross border mergers:Loss of autonomy.Dominance of monopoly.

BEST PRACTICESStrategic focus on growth objectivesValuation disciplineEarly cross functional-integration planningInvolvement of HR in due diligenceChange management

POST ACQUISITION INTEGRATION-BEST PRACTICES

Start planning earlyLeadership selectionDevelop Clear, Coherent and Timely

Communications StrategiesGet an Insider’s View of Knowledge Networks

and Information FlowDedicate Adequate Resources to the Transition

Management Team