Mergers & Acquisitons

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Mergers & Acquisitons by Mind Map: Mergers & Acquisitons

1. Concerns

1.1. Success Rate

1.1.1. Goal to increase shareholder value or return on investment Only 15% achieve desired financial goals

1.1.2. Mergers/Acquisitions more successful among related businesses

1.1.3. Experience of management largely irrelevant: Mergers/Acquisitions are idiosyncratic

1.1.4. Industry and Size may influence success Manufacturing sector mergers less risky than service sector due to differences in fixed investments, processes, and job skills Large firms can absorb small ones easily; two large firms merging is much more difficult

1.2. Financial Impact

1.2.1. Rarely achieve desired goals Acquisitions: average increase of 25% for target firms, 0% for acquiring firms

1.2.2. Various issues can lead to poor financial performance Integration difficulties (capital & culture) Poor valuation/Outstanding debt Inability to achieve synergy Company overreach/Too much diversification Reduced morale leading to lower productivity

1.3. Human Resources

1.3.1. Negative effects on employees Reduced morale, employee insecurity, resentment Employee displacement, loss of jobs Productivity loss estimated at 15%

1.3.2. Management Issues 50% leave within 1 year of acquisition 75% leave within 3 years of acquisition Differences in management culture and style

1.3.3. Review HR practices to ensure cultural congruity

2. Culture: Set of Shared Believes in an Organization

2.1. Culture mismanagement estimated to be responsible for 85% of all failed mergers/acquisitions

2.1.1. Identify differences, identify similarities, identify solutions Key Questions How do we view our culture? How do we view their culture? How do they view our culture?

2.1.2. Consider the use of a cultural transition team to develop, implement, and monitor solutions Task forces formed of members from different cultures can lead to cultural integration Role Models in highly-visible positions of authority champion desired culture Meaningful incentives to reward employees for adopting desired cultural behaviours

2.2. Cultural Options in Mergers/Acquisitions

2.2.1. Cultural pluralism Co-existing company cultures

2.2.2. Cultural integration Blend of company cultures

2.2.3. Cultural assimilation One culture (typically larger company's culture) absorbs the other

2.2.4. Cultural transformation Abandon key elements of old cultures to create a new culture for the new company

3. Human Resource Issues

3.1. Selection

3.1.1. Use benchmarking to develop realistic headcount levels for mergers/acquisitions

3.1.2. Retention Identify highly qualified employees in critical positions, motivate them to stay Integration employees: possess critical skills for transition period, but not for future of company "Keepers": high performers in needed roles Long-term "stars": key talent needed for business in the future Engage with employees to increase retention What might happen to employees who choose to stay? Demotion Competition for Current Job Termination

3.1.3. Reduction On average, over two-thirds of executives are replaced or leave within three years Duplicate positions/Redundant employees to be terminated

3.2. Compensation

3.2.1. Decide on compensation system: which company's system to use? Create new system? Expanded benefits increase costs; reduced benefits decrease morale Potential to sue for constructive dismissal if compensation is changed significantly

3.3. Performance Appraisal

3.3.1. New focus on short-term goals as business is "not as usual" Managers may change from supervisors to coaches to encourage performance

3.3.2. Employee behaviour will likely change Not knowing Not able Not willing

3.3.3. Review/redo performance appraisals for developmental purposes

3.4. Training & Development

3.4.1. Alignment of KSAOs with strategy needs Training may be needed to fill gaps

3.5. Labour Relations

3.5.1. Inform and involve unions from the beginning Unions can help to gain trust and confidence of employees through the process Involvement of unions can lead to reduced labour disruptions and grievances

3.5.2. Understand collective agreement, cannot breach it during merger/acquisition as it is still in effect Attention to job security provisions and notification periods

3.6. Evaluation of Success

3.6.1. Different measurements of success Financial Profit targets Operational Efficiencies/synergies Customer service metrics Customer satisfaction Human capital metrics Employee engagement

4. Human Resource Planning

4.1. Contingency Plan

4.1.1. Identify "What to do" in a merger/acquisition Based on management desires Contacts, Merger Coordinator Chain of Command Communication methods Procedures to follow during a merger/acquisition Senior Team Training: Negotiation and Media Response

4.1.2. Identify the Transition Team Ensure merger/acquisition goes smoothly with attention to cultural and interpersonal concerns List of consultants/experts to help transition M&A Specialist (if company is frequently involved in mergers/acquisitions) List of potential "white knights" to shield company from hostile takeover

4.2. Due Diligence

4.2.1. Evaluation of merger/acquisition Structure of transaction: Merger/Acquisition? Horizontal/Vertical/Conglomerate? Hostile/Friendly? "Hard" criteria (reduced expenses, more profit) commonly win out over "soft" criteria (cultural differences) in decision making Success of hard criteria will likely be contingent on attention to soft criteria

4.2.2. Review HR practices & concerns Collective agreements Employment contracts Compensation (Employee and Executive) Pensions Incentives "Golden parachutes" WSIB data (claims, assessments, ratings) Employment policies Complaints (employment equity, health & safety, wrongful dismissal, etc.) Employee review KSAOs Performance appraisals Contractual obligations

4.2.3. Cultural assessment Cultural audit of each organization Qualitative & quantitative data Identify similarities & differences New "employee value" proposition based on cultures of involved organizations Acculturation strategies Cultural seminars Cultural mentors/role models Measure progress

4.3. Transition Team

4.3.1. Deal with urgent issues Staffing decisions: terminating, hiring, evaluating, training Job analyses for redundant positons Employee retention & reassignment Marketable employees may search for new employment Retain talent & maintain productivity Customers re-examine business relationships

4.3.2. Bridge the information gap Coordinate needs between all companies Update planning to reflect new realities Succession planning Redundancy or lack of expertise Inform employees merger/acquisition Rationale General information Changes in corporate name, structure, products, services Employee reductions Timeline Examine HR policies Complementary Duplicated Contradictory

4.3.3. Deal with stress Manage employee expectations Talk about changes with employees Communication channels Newsletter Webpage Hotline

5. Merger: Consolidation of Two Companies into One

5.1. Horizontal Merger

5.1.1. Two competitors merge to increase market power

5.2. Vertical Merger

5.2.1. Buyer/Seller (Supplier) merge to achieve synergies, controlling all aspects of company success

5.3. Conglomerate Merger

5.3.1. Merger between two unrelated companies

5.4. Acquisition

5.4.1. Chapter treats Mergers & Acquisitions as the same thing (companies joining together); difference is that an acquisition is when one company gains control over another

6. Reasons to Merge

6.1. Strategic Benefits

6.1.1. Operating Synergy Cost reductions via economies of scale

6.1.2. Vertical Integration Buyer/Seller Relationship: more control over quality, dependable supply

6.1.3. Horizontal Integration Rival Relationship: increase market share by creating a bigger company

6.2. Finanical

6.2.1. Reduce expenses (headcount/factories/branches)

6.2.2. Reduce variability of cash flow

6.2.3. Reduce cost to enter new markets

6.2.4. Fund growing business via mature business

6.2.5. Growth through targeting of undervalued companies

6.2.6. Tax advantages

6.3. Management

6.3.1. Personal motivations Positive correlation between size of company and management compensation Prestige, status, proving personal worth