Post-merger Integration Poor post-merger integration is one of the primary reasons acquisitions...

Post-merger IntegrationPost-merger Integration Poor post-merger integration is one of the primary reasons acquisitions fail.Poor post-merger integration is one of the primary reasons acquisitions fail. Must have adequate planning, timing, attention to detail as well as Must have adequate planning, timing, attention to detail as well as contingency plans. contingency plans.

Acquisition postureAcquisition posture

Methods for motivation and integrationMethods for motivation and integration

Types of integration approachesTypes of integration approaches

Rescue Collaboration Contested Situation

Raid

Cooperative Adversarial

Acquisition Postures

Post-merger IntegrationPost-merger Integration


Raid

CooperativeCooperative AdversarialAdversarial

Acquisition PosturesAcquisition Postures

RescueRescue


• RescueRescue

Financial salvage operationFinancial salvage operation

• Firm has significant weaknessesFirm has significant weaknesses• Incumbent top management generally leaves (had their chance).Incumbent top management generally leaves (had their chance).• Loss of leadershipLoss of leadership• Target firm employees threatened by layoffs, sell-offs etc.Target firm employees threatened by layoffs, sell-offs etc.• Generally good cooperation (target firm employees are still part Generally good cooperation (target firm employees are still part of the vanquished firm).of the vanquished firm).• Primary issuesPrimary issues

- Rebuild corporate self esteemRebuild corporate self esteem- Well-defined sense of direction- Well-defined sense of direction


Raid



RescueRescue


• RescueRescue

White Knight ScenarioWhite Knight Scenario

• Decisions based on expediency (severe time pressure)Decisions based on expediency (severe time pressure)• Second guessing (seller), buyers remorse (buyer)Second guessing (seller), buyers remorse (buyer)• Significant post-merger surprisesSignificant post-merger surprises• Post-rescue must determine how the firms will interact and Post-rescue must determine how the firms will interact and conduct compatibility studies of the different cultures, conduct compatibility studies of the different cultures, processes and procedures.processes and procedures.• Chevron rescue of Gulf oil from T. Boone Pickens.Chevron rescue of Gulf oil from T. Boone Pickens.


Raid



CollaborationCollaboration


• CollaborationCollaboration

Acquirer generally does not use heavy-handed tactics.Acquirer generally does not use heavy-handed tactics. Diplomacy and goodwill are critical.Diplomacy and goodwill are critical. Often difficult because of poor follow-up management.Often difficult because of poor follow-up management. Generally less post-merger drift (sag in productivity, loss of Generally less post-merger drift (sag in productivity, loss of morale, etc.).morale, etc.). American Airlines acquisition of TWA.


Raid



ContestedContestedSituationSituation


• Contested situationContested situation

Conditions Conditions

• One party has a strong interest in the dealOne party has a strong interest in the deal• Two parties want very different dealsTwo parties want very different deals• Competitive bid situationCompetitive bid situation

Less of a feeling of a victor and vanquished than in “raid” situations.Less of a feeling of a victor and vanquished than in “raid” situations. Competition can lead to increased ambiguityCompetition can lead to increased ambiguity Significant post-merger drift.Significant post-merger drift. Example: Walmart, J. Sainsbury PLC, and William Morrison Example: Walmart, J. Sainsbury PLC, and William Morrison Supermarkets PLC competitive bids for Britain’s Safeway PLC.Supermarkets PLC competitive bids for Britain’s Safeway PLC.


Raid



RaidRaid


• RaidRaid

Adversarial climate is at its peak (maximum resistance by target Adversarial climate is at its peak (maximum resistance by target firm).firm). Intense emotional battleIntense emotional battle Rumor mill operates in both firms.Rumor mill operates in both firms.

• Target firm generates antagonism among its employees toward the raider (move will hurt employees, morale, and create an uncertain future).• Rally around management and become more cohesive in the struggle against a common enemy.

IBM’s hostile takeover of Lotus Development Corp.IBM’s hostile takeover of Lotus Development Corp.


Raid



RaidRaid


• RaidRaid

If the takeover is successful it does not end the impact of If the takeover is successful it does not end the impact of residual antipathy.residual antipathy.

• Employees of the acquired firm may find it difficult to make the Employees of the acquired firm may find it difficult to make the psychological shift from conflict to brotherhood.psychological shift from conflict to brotherhood.• Battles may continue for years (subtle resistance, guerillaBattles may continue for years (subtle resistance, guerilla warfare).warfare).• Incumbent management concerns (recant position of defiance Incumbent management concerns (recant position of defiance or resign).or resign).


Raid



RaidRaid


• Best and brightest may flee to friendlier settings.Best and brightest may flee to friendlier settings.

- Talent usually leaves in the aftermath of hostile takeovers.Talent usually leaves in the aftermath of hostile takeovers.- May leave behind a shell of the former firm and a workforce May leave behind a shell of the former firm and a workforce plagued by resentment.plagued by resentment.

• Parent firm management.Parent firm management.

- Need to engage in fence mending but...Need to engage in fence mending but...- Newly acquired managers and employees may be recalcitrantNewly acquired managers and employees may be recalcitrant so more policing is necessary (tighter controls) and so more policing is necessary (tighter controls) and “ “occupation troops.”occupation troops.”- Further alienates acquired employees, increases Further alienates acquired employees, increases demoralization, management bail outs, and sabotaged demoralization, management bail outs, and sabotaged productivity. productivity.



Incline of Resistance

The degree of resistance becomes more pronounced as one moves The degree of resistance becomes more pronounced as one moves from a rescue acquisition to a raid.from a rescue acquisition to a raid. Illustrates the intensity of the opposition to the other party’s merger Illustrates the intensity of the opposition to the other party’s merger objectives.objectives. Also reflects the amount of resources (time, energy, money etc.) Also reflects the amount of resources (time, energy, money etc.) expended struggling with the event.expended struggling with the event.

• Incline of resistanceIncline of resistance


• As the incline mounts, both negotiation strategies and eventual As the incline mounts, both negotiation strategies and eventual integration policies must change.integration policies must change.• Resistance also leads to individuals becoming more attached Resistance also leads to individuals becoming more attached to and have more personally invested in their particular side of to and have more personally invested in their particular side of the issues.the issues.



Incline of Resistance

• Incline of resistanceIncline of resistance


• The higher the incline of resistance goes, the longer it takes The higher the incline of resistance goes, the longer it takes for the resistance to subside. for the resistance to subside.

- Raids and contested situations usually involve the most Raids and contested situations usually involve the most concerted efforts to resolve.concerted efforts to resolve.- One-shot attempts usually don’t work in these situations One-shot attempts usually don’t work in these situations (too much polarization)(too much polarization)- Requires a strategic integration program.- Requires a strategic integration program.



Incline of ResistanceRisk

Financial risk tends to be greater at each end of the continuum.Financial risk tends to be greater at each end of the continuum. In a rescue situation the acquirer gains a firm beset by financial woes In a rescue situation the acquirer gains a firm beset by financial woes and a dearth of leadership.and a dearth of leadership. Raids almost guarantees resistance and the threat of bail outs by Raids almost guarantees resistance and the threat of bail outs by the most capable people.the most capable people. In a rescue fewer people leave. Incompetent individuals who In a rescue fewer people leave. Incompetent individuals who created the conditions may be difficult to dismiss.created the conditions may be difficult to dismiss. Employees may be passive and inertialEmployees may be passive and inertial Many surprisesMany surprises

• The risk curveThe risk curve


Post-merger IntegrationPost-merger Integration Methods for Motivation and IntegrationMethods for Motivation and Integration

• M&As invariably destabilize firms and create dissonance. This can M&As invariably destabilize firms and create dissonance. This can be used as a motivating force to strive for resolution or restabilization.be used as a motivating force to strive for resolution or restabilization. • Dissonance is not necessarily negative (decreases likelihood that people Dissonance is not necessarily negative (decreases likelihood that people get into a rut or become complacent).get into a rut or become complacent).

• In effect, leaders can create dissonance as “change agents.” M&As In effect, leaders can create dissonance as “change agents.” M&As are, in effect, “change events.”are, in effect, “change events.”

• Ideally, M&As should be used for morale building, attitude Ideally, M&As should be used for morale building, attitude improvement, innovation, and increased productivity. Without improvement, innovation, and increased productivity. Without deliberate strategic planning directed towards these goals a company deliberate strategic planning directed towards these goals a company is likely to be motivated along negative lines.is likely to be motivated along negative lines.


• Timing IssuesTiming Issues

Impose changes too fast. Impose changes too fast. Approach changes too slowly allows an increase in uncertainty Approach changes too slowly allows an increase in uncertainty and ambiguity.and ambiguity. Acquirers want to reduce dissonance quickly so they maintain a Acquirers want to reduce dissonance quickly so they maintain a low profile and offer assurances that there will be no major low profile and offer assurances that there will be no major changes.changes. Reducing dissonance quickly glosses over needed changes in Reducing dissonance quickly glosses over needed changes in corporate culture, operating practices, management philosophiescorporate culture, operating practices, management philosophies


• Integrated planIntegrated plan

Employee involvement through surveys.Employee involvement through surveys. Make tangible, popular, high-profile decisions.Make tangible, popular, high-profile decisions.

Utilize the Pygmalion Effect (“we will get what we expect from other people”) .

Provide a sense of corporate direction.Provide a sense of corporate direction.

Take an affirming stance.Take an affirming stance.

Give people a flag to wave.Give people a flag to wave.

Clarify roles, responsibilities and working relationships.Clarify roles, responsibilities and working relationships.

Conduct team-building sessions.Conduct team-building sessions.

Post-merger IntegrationPost-merger Integration Types of Integration ApproachesTypes of Integration Approaches

• Two dimensions: Strategic interdependence and organizationalTwo dimensions: Strategic interdependence and organizational autonomy.autonomy.• Autonomy may be necessary to allow boundary protection such that Autonomy may be necessary to allow boundary protection such that the unit can use its capabilities.the unit can use its capabilities.

Particularly important when organizational culture contains Particularly important when organizational culture contains the key capabilities necessary to create value.the key capabilities necessary to create value. Tampering may destroy these capabilities Tampering may destroy these capabilities

• Strategic interdependence needsStrategic interdependence needs

Synergy argumentsSynergy arguments Transfer capabilities (resource sharing, functional skill transfer, Transfer capabilities (resource sharing, functional skill transfer, and general management skills.and general management skills. Functional skills transfer requires transfer of personnel.Functional skills transfer requires transfer of personnel. Difficulty in transferring resources horizontally (violates integrity Difficulty in transferring resources horizontally (violates integrity of units).of units).

Need for Autonomy

High

Low

Need for Interdependence

Low High

Preservation Symbiosis

Holding Absorption

Types of Integration Approaches

Need for Autonomy

High

Low


Low High


Holding Absorption


HoldingHolding

No intention of integrating No intention of integrating and creating value through and creating value through anything other than financialanything other than financial transfers or risk sharing.transfers or risk sharing. Holding company (unrelated-Holding company (unrelated- diversified) strategy. diversified) strategy.

Examples:Examples:• McAndrews and Forbes McAndrews and Forbes (a financial firm) acquisition (a financial firm) acquisition of Revlon and Max Factor.of Revlon and Max Factor.

Need for Autonomy

High

Low


Low High


Holding Absorption


Integration implies a full Integration implies a full consolidation of all operations, consolidation of all operations, organization and culture of the organization and culture of the two firms.two firms. Key issue is timing as opposed Key issue is timing as opposed to how much integration to how much integration should take place.should take place. Won’t see benefits until this Won’t see benefits until this is accomplished.is accomplished.

AbsorptionAbsorption

Need for Autonomy

High

Low


Low High


Holding Absorption


First draft of integration should First draft of integration should occur before acquisition is occur before acquisition is completed.completed.


• Choose a single leader to Choose a single leader to manage the process.manage the process.• Choose the transition teamChoose the transition team• Set up transition structure Set up transition structure including task forces.including task forces.• Determine a calendar of Determine a calendar of events.events.• Communicate throughout Communicate throughout the process. the process.

Need for Autonomy

High

Low


Low High


Holding Absorption


Managing rationalizationManaging rationalization


• Which functions will be merged based on resources/ capabilities to be shared.• Evaluate costs, both savings and additional costs associated with compromises.• Determined, fast-paced changes are best.

Establish best practicesEstablish best practices

• Establish skills to be Establish skills to be transferred.transferred.• Determine who use them Determine who use them most efficiently and model most efficiently and model other, less efficient teams, other, less efficient teams, units etc. after these. units etc. after these.

Need for Autonomy

High

Low


Low High


Holding Absorption


Harness complementaryHarness complementary


• Absorption that homogenizes Absorption that homogenizes two cultures may improve two cultures may improve manufacturing but destroy manufacturing but destroy value in other areas.value in other areas.• Must balance absorption Must balance absorption versus need to keep some versus need to keep some operations separate operations separate

• Cisco Systems quickly integrates its acquired units into existing units using an integration plan based on absorption. Cisco focuses on acquiring small companies with new technology and products that are similar to Cisco’s.

Examples:Examples:

• American Airlines acquisition of TWAAmerican Airlines acquisition of TWA

• American’s acquisition of American’s acquisition of TWA.TWA.

Need for Autonomy

High

Low


Low High


Holding Absorption


PreservationPreservation

Key issue is to keep the Key issue is to keep the source of the benefits or source of the benefits or capabilities intact.capabilities intact. Manage operations at arms Manage operations at arms length (except where length (except where interdependencies such as interdependencies such as financial risk sharing and financial risk sharing and general management capabilitygeneral management capability transfer are needed).transfer are needed). Continued boundary protection Continued boundary protection

• Preserve the culture in which the capabilities are embedded.Preserve the culture in which the capabilities are embedded.• Make managers and employees in both firms more tolerant of differences.Make managers and employees in both firms more tolerant of differences.

Need for Autonomy

High

Low


Low High


Holding Absorption


PreservationPreservation

Accumulate information about the business (domain exploration effort).

• Learn about the acquired Learn about the acquired business through gate-business through gate- keepers.keepers.• Learning from the business Learning from the business (difficult due to distrust (difficult due to distrust and takes time). and takes time).

Identify a host (parent) Identify a host (parent) championchampion

• Acquired unit requires Acquired unit requires resources despite resources despite uncertain recorduncertain record

Examples:Examples:• Time-Warner merger (protect different cultures).Time-Warner merger (protect different cultures).• BP’s acquisition of Hendrix (family owned) to form BP Nutrition (protein from oil).BP’s acquisition of Hendrix (family owned) to form BP Nutrition (protein from oil).• BASFs acquisition of Celanese (protect Celanese’s entrepreneurial culture).BASFs acquisition of Celanese (protect Celanese’s entrepreneurial culture).

Need for Autonomy

High

Low


Low High


Holding Absorption


Most complexMost complex Issue is to transfer capabilities Issue is to transfer capabilities but maintain necessary but maintain necessary autonomy.autonomy. Start process like a preservation Start process like a preservation

• Premium versus patience Premium versus patience (costs are considerable but (costs are considerable but it takes time to develop).it takes time to develop).• Clear understanding Clear understanding regarding strategic regarding strategic objectives, time horizons, objectives, time horizons, and procedures.and procedures.

SymbiosisSymbiosis

Shield acquired firm from Shield acquired firm from uncontrolled interactionsuncontrolled interactions

Need for Autonomy

High

Low


Low High


Holding Absorption


Set up gatekeeper function Set up gatekeeper function to control interactions between to control interactions between acquired and parent units that acquired and parent units that will be collaborating.will be collaborating. Gate keeper (senior executive) Gate keeper (senior executive) must reformulate the goals must reformulate the goals etc. in both units.etc. in both units. Trade operational responsibility Trade operational responsibility for strategic control.for strategic control.

SymbiosisSymbiosis

• Physically or geographically regroup individuals in new buildings with close proximity to Physically or geographically regroup individuals in new buildings with close proximity to parent businesses. parent businesses.

• Gradual shift towards Gradual shift towards strategic control (parent strategic control (parent management increases management increases influence).influence).• Parent must adopt a long-Parent must adopt a long- term perspective and adopt term perspective and adopt the correct time horizon.the correct time horizon.

Need for Autonomy

High

Low


Low High


Holding Absorption


Example:Example:SymbiosisSymbiosis

• ICI’s acquisition of LNP ICI’s acquisition of LNP and and Fiberite (both chemical Fiberite (both chemical companies) from Beatrice companies) from Beatrice Foods and their Foods and their amalgamation amalgamation into ICI’s advanced into ICI’s advanced composites business. Bothcomposites business. Both units produced reinforced units produced reinforced plastic compounds.plastic compounds.• Started as a Preservation Started as a Preservation thenthen shifted to a Symbiotic shifted to a Symbiotic relationship within a year.relationship within a year.• Maintained a Maintained a “gatekeeper”, all“gatekeeper”, all contact with ICI was contact with ICI was initiated initiated by LNP or Fiberlite.by LNP or Fiberlite.

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