We see your XYZ division as our entry into that business. Such clarification helps both the negotiating and the operating managers to sort out the problems and issues that must be addressed. Equally important, clarification provides an external focus for their combined activities and reduces the possibilities of political infighting.
In contrast, overly precise statements of performance expectations can backfire and increase rather than decrease the ambiguity and uncertainty in the situation. Precise definitions of expected results are often based on financial calculations that outside analysts have prepared with neither a detailed operating knowledge of the companies or industry nor a stake in making it work. If detailed objectives become a straitjacket, they can have serious consequences as business conditions change.
While qualitative statements are more ambiguous, postacquisition managers will have more room to maneuver if they have a general framework to guide them in the future. According to our research, a generally unacknowledged factor—the process itself—affects the outcomes of many acquisitions. We are not suggesting that these barriers occur in every acquisition; their frequency varies with the circumstances.
But we have found that hindrances do exist in the acquisition process, and they can have a significant impact on the ultimate success of the deal. Also, understanding how they might affect your particular situation can help minimize their detrimental effects.
Who are the key advisers in this acquisition? How do their analyses address the way in which the business will operate after the deal is closed? What is their incentive to contribute to the integration of the two companies after the acquisition? Are any of them given precedence in decision making?
Are some analyses systematically ignored? Are the decision makers giving adequate attention to operational considerations and nonquantitative issues? What person or group is charged with integrating analyses? Are these people important and respected senior members of the organization? Do the reasons for the acquisition support arguments for speeding up the process?
Does only one appropriate candidate exist? Is internal development an option if no acquisitions materialize? Do environmental factors for example, other bidders or impending regulatory changes make it essential to act quickly? What are the sources of pressure to complete the deal? How is the rush to close affecting the acquisition? Do participants feel rushed and will it affect the quality of the work they do?
Do hidden agendas exist among the advocates of the deal? Are reward structures affecting the rush to close? Are rewards based on acquiring the company or on making the best decision?
Do the people involved receive promotions for completing the deal? Will they be evaluated negatively if they suggest pulling out? Does a system of checks and balances exist? Is the board review process for acquisitions as detailed and rigorous as for other matters? Does any other high-level, uninvolved person or group exist that can review the acquisition process and decisions dispassionately?
Have acquiring executives clarified what the company expects from the new subsidiary? Have they defined minimum acceptable expectations for it? Have they stated these requirements clearly as nonnegotiable points? Have they also recognized and accepted the nonnegotiable concerns of the target company? Have both parties identified negotiable items that operating managers can resolve after the deal has gone through?
Have the planners communicated to both organizations the basic motivation for the acquisition as well as the financial targets for its performance? How much uncertainty exists between the two parties? Are people assuming that the goals and guidelines established during the preacquisition bargaining will remain the same after the acquisition? Some managers may decide that the impact of these barriers is an incidental cost of doing business and they can ignore them in their acquisition strategy.
Other executives may take steps to reduce the costs of the barriers. We recognize that some of these problems may be insurmountable; sometimes institutionalized forces in the acquisition process are stronger than any of the recommendations we have made.
We have no illusions about how difficult this is to do. Our suggestions are only the first step. Beyond that, it may be time for senior managers to rethink their expectations about acquisition activity in fundamental ways.
Developing a better understanding of the subtle yet powerful role that the acquisition process plays in acquisition outcomes is an important part of that reassessment. Like flocks of birds or of packs of wolves, mergers come in waves.
Why mergers have bunched together periodically rather than spread themselves more evenly over the years is not fully understood. Theories which seem to explain one wave do not explain other waves.
Only two characteristics unequivocally link the waves, their identifiable existence and the undistinguished profits record of merged firms. On four occasions in the last one hundred years Americans have witnessed the business community engaging in intense merger activity.
Each of these merger waves is often identified with certain characteristic transactions. The first wave, which peaked between and , is remembered for mergers that created monopolies. The second wave, which crested from around to the late s, was characterized by acquisitions of related firms suppliers, customers, and competitors , but these mergers did not create monopolies. From through , a third wave produced large conglomerate firms composed of unrelated business. Finally, since the incidence of megamergers between large firms has dramatically increased and allowed these firms to diversify their holdings….
Three prime characteristics mark the period of the megamergers as a distinct chapter in the history of American mergers: 1 the large size of target firms, 2 the equally large size, prior success and prominence of the acquiring firms, and 3 the use of hostile takeover tactics. I mark its beginning in Although recorded few large mergers, two of them were portents of things to come. From this point on, established companies would use the surprise takeover tactics of the conglomerate upstarts and the advantage of greater resources to outbid other firms.
See, for example, Michael C. Jensen and Richard S. Mueller, ed. See, for example, Malcom S. Salter and Wolf A. Leighton and G. Susan Ladika is a freelance writer based in Tampa, Fla.
Illustration by James Fryer. Photograph by Jason Paige Smith. You may be trying to access this site from a secured browser on the server. Please enable scripts and reload this page.
HR Magazine Spring By Susan Ladika February 28, Reuse Permissions. Page Content. Putting It into Practice When it comes to mergers and acquisitions, software company Flexera learns by doing. You have successfully saved this page as a bookmark.
OK My Bookmarks. Please confirm that you want to proceed with deleting bookmark. Delete Cancel. You have successfully removed bookmark. Delete canceled. Please log in as a SHRM member before saving bookmarks. OK Proceed. Your session has expired. Please log in as a SHRM member. Work on the bottom line first. Ensure that the employees and customers are taken care of and happy, then work to adjust the operations to support the goals of the new management.
One company I assisted had two rival factions working against the goals of the merged corporation as they had an "old guys" vs. It took the removal of many of the "old guys" to correct the roadblocks and arrive at a fully operational business.
If things don't feel right, they probably are not. Approach every merger or acquisition with caution and a inquisitive mind. If you have a bad gut feeling it might be best to delay or abandon the merger or acquisition. This is a BETA experience. You may opt-out by clicking here. More From Forbes. Jun 25, , am EDT.
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