Shareholder hostility tends to be most powerful when the shares are held by a small number of shareholders. This situation arises frequently in the case of attempted hostile takeovers of family-owned companies. 0 The cultural aspects of mergers and acquisitions are very often underestimated when the implementation process is being both planed and executed. 0 Likely cultural failure can to some extent be foreseen in the pre-merger stages. There are normally a number of indicators that show where the existing culture may be somewhat weak and where the extreme pressures of a merger or acquisition may gush cultural integrity beyond breaking point.
These indicators include: 0 high staff turnover; 0 difficulty in keeping hold of key staff; 0 increasing unfair dismissal claims; 0 increasing assertion of harassment; 0 increasing employee conflict and stress; 0 decreasing employee motivation, energy and commitment; 0 deteriorating employee feedback survey results; 0 apparent misalignment between production goals and strategic goals; 0 increasing pressure to consolidate or integrate functions and departments. The largest single failure driver in mergers and acquisitions is ineffective cultural integration. The degree of integration that is required depends largely on the extent to which the merger or acquisition will involve transitional change within the organizational structures of one or both companies. In a takeover, the usual assumption is that one management team will become dominant and the other management structure will be absorbed into the dominant structure.
In such cases it is common for a significant proportion of the target company's senior managers to leave either during or immediately after the merger is concluded.The highest risk of cultural failure occurs where the degree of cultural integration required is greatest. This scenario tends to occur in the case of a merger of equals where the culture of each company is largely retained but a new senior management structure is created. The value generated by a merger is sometimes reduced because key people leave.
These key people often leave because they become disillusioned or uncertain about their future within the company because of the merger or acquisition. In most cases uncertainty is a function of communication. The more a company communicates with its employees the lower the degree of uncertainty will be.It is usually advisable to initiate an effective communication system as soon as possible after the announcement of the merger.
This should be initiated with a circular that is passed to all members of staff in both companies. Mergers and acquisitions tend to result in Job losses. The combined company tends to experience a net migration of people in the period immediately following the merger. The net effect of a merger or acquisition announcement tends to be a steady shedding of employees in the periods preceding, during and immediately following the merger or acquisition. Competitors are fully aware of this and are always searching for suitable people, and especially any key people that leave the merged companies.
The human resources (HER) function in each of the merging organizations has to appreciate the danger of key staff leaving and take action to prevent it wherever possible. It is also vital that any preventive action be taken by HER at the earliest possible time. The price that an acquirer is prepared to pay for a target depends on the potential that the target has to add value to the acquirer. This variable is sometimes known as the value-creating potential of the target. The asking price is equivalent to the stand-alone price of the target plus the value of any acquisition synergies that can be developed as a result of the acquisition. These synergies act to create value.
The value created by the acquisition (VGA) is equal to the combined value of the acquirer and the target after the acquisition has been completed less the stand- alone values of the acquirer and the target before acquisition. The difference between the collective and individual values represents the synergistic benefits of the acquisition. In most cases the stand-alone value of the target is equal to the minimum acceptable sale price, or floor value. In practice there will always be a floor price because the target shareholders always have the option of continuing as they are with no change to the ownership of the target.
0 Failure to achieve the original objective synergies is a classical driver behind merger or acquisition underperformed. 0 Debt and debt position may have a significant impact on the success or failure of a merger or acquisition.In successful mergers or acquisitions the acquirer is able to achieve a low to moderate debt position within a relatively short time of the merger r acquisition being completed. 0 As acquisition debt increases, the overall cost of the acquisition increases as a result of the interest that is payable on the finance. Increased debt and lower debt to equity ratios generally also imply increased business risk.
High debt also means that the company has less flexibility and freedom of action. 0 Implementation processes often run into trouble because the team that is placed in charge is not entirely suitable and/or because the merger process is not planned and controlled using formal project management tools and techniques. 0 Change experience and flexibility are powerful drivers in achieving successful integration.
