Mergers and acquisitions of late have become the order of the day in contemporary business Era. The concept of merger and acquisition provides strategic, operating and financial benefits to both the parent company and acquired or merged company. Most Human Resource Managers of different companies have realized huge financial benefits after having successfully employed the concept of mergers and acquisition in their organizations. Through mergers large companies have formed new products and technologies necessary to maintain their competitive advantage, growth and profitability.
However badly done mergers and acquisitions will automatically result in poor performance of these organizations or businesses whereby the end results will be bad. First of all it will lead to disruption of business activities, dissatisfaction of employees and defection and above all decrease in production plus production of poor quality products from the combined company or the one formed through acquistion. 1 Having realized that poorly or badly done, mergers can lead to poor performance then it is important to find out what destroys values in acquisition and what makes mergers and acquisition fail.
Many mergers and acquisitions fail to deliver the synergies and value promised reason best known to the HR of the companies. 2 One thing that should be clear to the combined company is that the new team formed comprise of people from different cultural backgrounds. The head of the Human resource manager should acknowledge the people in the combined company and he should know that their values and culture matters a lot. Generally tangible and intangible assets may change hands during the process of merger and acquisition but people are considered as essential ingredient in any value chain.
Why do I say this? Merger and acquisition can be said to be a transaction whereby assets of one company is either acquired by the other company or the two companies come together to form a big one. All these involve people who either provides goods and services to the company or use the goods or services produced by the company. At the same time people will work within the target and acquiring companies. For any organization to excel or realize huge profits the so called financial benefits there must be people involved in the decision making about the performance of the business.
What normally happens in most companies who have failed through mergers and acquisitions is that the cultural values of people are not considered. When we talk of culture I simply mean the way people in an organization lead their life. The most common elements of culture include beliefs, values, practices and customs. A good Human Resource manager will therefore have to consider the different interests of his employees. Good relationship should be maintained among the employees and their leaders including the supervisors.
When the employees interests are not considered their self-esteem is lowered in the low production since their morale towards the work will be lowered. The whole process of merger and acquisition is so complex and complicated. The human resource manager will be faced with task of recruiting new employees. He needs to decide on who to retain and who to go home. 4 Those retained should be those who must have led to increased production in one of the organizations at one time. One mistake that most managers and supervisors of these big companies make is failure to assign the right person to the right task.
Each and everyone have his or her own area of specialization. Therefore it is very important to assign an individual an area or task he or she can perform well. This will encourage teamwork and production will be high. At times it might force the company formed to use the new information technology in the organization to realize large financial benefits then the HR should recognize that proper training is very important to the information technology staff on the use of the new technology introduced.
Most heads of companies formed through merger and acquisitions have failed just because they are not interested in knowing the interest of the new employees recruited inn the firm. Teamwork spirit should be developed among workers in order to achieve good results and high production. One cannot work alone because it is often said that two heads are better than one head. The various heads of the companies formed through merger and acquisitions must just consider employee’s interests.
The other reason why companies formed through merger and acquisition have failed to realize the financial benefits is failure to know the value of what is being purchased (even if over paying). Most companies have experienced disappointing results from mergers and acquisitions simply because they pay excess premium which is too much for the company. 5A good dealer or manager should realize that the value of an asset is in the eye of the beholder and tears are in the eyes of those who overpay. It is upon you to bear the risk. This scenario can be termed as ignorance or lack of information before engaging in an activity.
Businesses are formed with an intention of achieving the organizations objectives and missions6. High production and huge financial benefits are the dreams of most managers who head these companies. This implies that a business should provide a future economic benefit to the organization. The value of that benefit can be estimated based upon the return after the cost of money and taxes. Generally returns got from the production process should and must exceed the after tax cost of capital and provide a reward for the risk taken.
Those managers or company owners who engage in business mergers and acquisition should clearly know that the higher the purchase multiple, the thinner the margin for error7. Assets are items that normally depreciate in value and when quoting the values of these assets those involved in the negotiation should be very careful about the financial cost involved. If at all the asset is absolutely vital and over payment is necessary then it should be a conscious decision made and the dealer should be mindful of the risks involved.
Sometimes one must be very happy and excited when he hears of the word working together or synergy as this might bring good results to justify paying too much. However measurements of the expected dollar savings or revenue enhancement attributable to synergy before agreeing to pay a premium to the assets should be done. 8 Most managers have failed to achieve the financial benefits just because they over pay too much for the asset acquired. Financial analyses should therefore be conducted before of starting the business involving mergers and acquisitions.
Synergy is normally believed to be a seductive word but those involved in the deal should make sure that what they are buying is more than a word 9. This means that proper negotiation skills are very important to move the company. The dealmaker should therefore be awake, alert, aware and attentive about the whole process-taking place during merger and acquisitions. Another reason why most companies formed through merger and acquisition fail to achieve financial benefits after the transaction process is lack of clearly stated goals and steadfast focus.
Normally goals and objectives determine whether an organization is to head and move to. Focus hopefully keeps the business on track towards achieving the best results. Most of the dealers involved in the mergers process do not define their financial and strategic objectives before entering the acquisition deal. Business is a matter of how much profit will you make at the end of the day and can be done through laying down the abjectives10. The dealer should proper ensure that he knows what he wants to achieve and the financial benefits he wants to get from the business.
Without a clear focus and vision or mission automatically what is expected will not be achieved. All these will be useless and may land one into a hot soup he is unable to take. When stating the objectives, the strengths, weaknesses, threats and opportunities in the business environment should be identified. Good strategic management will place the company in a good position for competition in a global market environment. Financial objectives should therefore be spelt out before getting involved in the process of merger and acquisition.
Most dealers are not mindful about the financial objectives and in most cases companies that have been formed without clearly stated financial objective have failed to realize the financial benefits they expect to get in return. Always clarity is power and focus magnifies power. The dealers involved in the process should actually know what they want to achieve by coming together and the reason why they have to form merger or acquire another company’s asset. Without a focus and clearly stated objectives, I doubt whether the financial benefits will be realized. Lack of it has made most of these companies to fail seriously11.
Another reason for poor performance of companies that have been formed through mergers and acquisitions is because financial evaluation analysis was not properly performed. This contains drawing plans on how to achieve the benefits and how much will be realized. Evaluation normally refers to passing judgment about the process in terms of benefits and failures. If the advantages outweighs the disadvantages then the process can be successfully be carried out. If the losses to be incurred by the process of merger and acquisition outweigh the benefits then there is no need to carry out the process.
Corporate decisions and actions produce a good result. The financial statements drawn by the two companies should be brought to the table and analysis be made to them. Decisions can then be made in order to pass a sound judgment on what actually to do about the company formed through merger and acquisition. This is to say that through evaluation one would know whether to form the company or not12. The financial report presented by these companies will serve as a springboard for changes under new ownership.
The present performance and future expectation should be properly linked in order to avoid any failure in future. However since most of those involved in the process have not taken this concept so serious, financial failures have been realized. This is a sign of hasty thinking without prior analysis and evaluation. If evaluation on financial benefits is not done then those involved in the merger and acquisition process will be entering in the deal blindly. All the benefits that are to be achieved will then be missed. The company will have to take its risk involved by its hasty decision made in the process.
A good manager should therefore take into account the numbers and the business decisions behind each and every line item. By doing this he should be aware and attentive about the present, past and future issues concerning the organization. If you cannot measure what was obtained in the past and present then link them to what is expected in the future then there is no need of getting involved in the merger and acquisition process. Financial evaluation is thus very important about the past results and present in order to estimate what the new company formed will realize in future.
Since most dealers do not understand this they have ended up failing when participating in the merger and acquisition process. During financial evaluation, assumptions should be identified together with the consideration of deal terms13. This will enable those involved in the merger and acquisition process to project the future results without incurring the risks blindly. By doing the analysis the company will have a strong foundation for smart decision-making. The word smart means that the objectives should be specific, measurable, achievable, and realistic and time bound.
Smart decisions therefore will lead to right action and direction while dirty decision will lead to downfall in the organization. Making smart decisions by those involved in the process of merger and acquisition will create a roadmap to success19. Another reason for poor performance of companies formed through merger and acquisition is due to failure to develop specialized skill and resources. Those who are involved in the deal at times are not aware of the productivity tools required of them in the merger process. These people should have relevant skills and knowledge before they venture in to the deal.
Skills that most of these dealers lack are about profit making, effective communication and the strengths of the organization plus the limitations. Various professionals should be contacted, finding sources and sources of business information14. All these should be stored in the organization’s database. These skills will help one when entering into a deal dealing with merger and acquisition. I can also say that those companies involved in merger and acquisition do fail to achieve the financial benefits because they do not use professional counsel to add value to their organization and decisions they are making.
They do not realize that merger and acquisition is a complex and complicated process, which is detailed, and time consuming if the two parties are not careful15. It might take years and years before the smooth take over to be finally realized. This implies that a lot of risks are associated with the acquisition process therefore one need to seek help on how to go about the process20. The only source of help is by seeking for advice from professionals who have been dealing with the process and have brought successful results.
Companies that fail do not consult widely on how to approach the merger and acquisition process. Occasionally looking for an advisor may be time consuming and expensive but you will realize that it is very necessary at the end of the day. This is because even though it seems to be expensive but the cost involve is likely to be negligible as compared to problems and troubles that are associated with poorly performed transactions. 16 It would be stupid to refuse seeking for advise from professionals since people learn by asking questions. Nobody is perfect in all fields.
Unless properly information is obtained about the process then the whole deal will generally fail to take place. Another reason for the failure of mergers and acquisition is lack of proper monitoring of activities after the deal has been made. Occasionally those who take part in the process do not become aware of what is going on in the process. During the process from the beginning of merger and acquisition up to after the process we expect mistakes to be made and new insights to be gained. The dealmaker should also do an inquiry about the process in order to make any of the changes taking place in the organization.
The new techniques adopted by the new company formed should be treated in a different and special way. The HR will automatically need to renew the strategies by carrying out what is called SWOT analysis. He will also need to change its policies and system in order to upgrade and correct any mistake seen in the organization. This will create a strong foundation towards meeting the organizations objectives, which involve financial benefits. 18 Lack of good communication in the organization and during the process of negotiation may also bring failures to an organization.
Normally there are people with specific interest in the outcome of an acquisition. These people will have to raise questions, concerns and information needs. This shows that during the process of acquisition, one needs to be allowed to express his or her view before the takeover. Modes of communication should be made open and kept between the principals in the deal, advisors, staff, employees and funding sources. The heads of the two parties or companies involved in the deal should communicate frequently to the relevant people. 7
Close door meeting is not good as this will lead to gossips, rumors, speculations and formation of opposition groups. What do you think the end result will be? People will resist any good idea that will be created in the process. Those involved in the deal should make things open and clear to the people whom they think must participate in the process. They should be mindful of the words they use and if possible they should listen to ensure that the message passed is the intended one. Conclusion Achieving good results in the process of merger and acquisition is not easy.
The human resource manager has to play a key role in ensuring a smooth take over is done. Among the factors he needs to consider are the cultural background of his new employees recruited in the new company, good communication in the organization, having relevant skills and resources that will bring good results. The HR should also ensure that financial evaluation is made before getting involved in the process. It is bad to incur heavy loses because of ignorance or lack of information. It is therefore very necessary to consult the relevant people rich in knowledge in order to achieve a successful result.
The whole process might be stressful since conflicting ideologies will emerge but what should one do to overcome all these? One thing you need is to be alert, attentive and focused. You need to know what is going around you, what has been happening in other places and what is likely to happen in future. To sum the whole story you should pay keen attention to the picture while understanding all that goes in the process from the beginning to the end. With all these I believe if it is huge financial benefits, getting it will not be a problem.