To date, there has been an increase in global integration trends in the global economy.
Large national companies are increasingly thinking about entering international markets and obtaining a world name.
However, to be successful both nationally and globally, the company must have competitive advantages. One of the progressive forms of acquiring such advantages is mergers and acquisitions. The market of mergers and acquisitions is unstable; it is cyclical. Currently, in the context of globalization, there is an aggravation of competition, and many companies face significant challenges in their attempts to enter new markets, obtain strategically critical scarce resources, and increase the capitalization of their business. M & A deals allow the company to overcome the difficulties of growth.
With the right choice of the target company and the correct implementation of the integration process, the M & A transaction can help companies to increase the speed at which products enter the market, outrun competitors and reduce the pressure of destructive market forces. However, still, such transactions lead to a change in the organizational structure of the company. Basically, in this process, the organizational development of the company takes place, which does not always have a positive impact on the two companies.
Criteria for selecting companies are closely related to the tasks assigned. If it is a question of unrelated diversification and financial motives of the transaction, then, naturally, the organizational and cultural aspects of the partner's choice will be less critical. However, when a partner is needed to share knowledge and create synergies, or if a merger involves some degree of integration, an integrated assessment is needed. Therefore, the purpose of this work is to analyze the role of M & A for organizational development and what challenges the company faces during this process.
As the processes of globalization of the world economy deepen, the problem of competition arises all the acuter. When national companies are included in the world market, competition goes to an entirely different level. In the global market, such companies may face leveling their competitive advantages, even to the point of their total depreciation. This situation forces us to change the strategy of behavior radically. As the processes of economic globalization increase, enterprises are in fact compelled to compete no longer with national companies, but with a whole world industry that is hugely diverse regarding technical equipment, production level, market share. All this raises the bar of the barrier to entering the global market, without giving the enterprise time for gradual, systematic development and forcing it to be immediately included in the production process.
One of the most common ways to quickly enter the market is mergers and acquisitions (M & A - from the English Mergers and Acquisitions). According to the basic terminology proposed by SF Reed, fusion occurs when one corporation is connected to another and dissolves in it. Absorption is a general term used to describe the transfer of property. In recent years, growth through acquisitions has become an essential component of the success of many companies in the new economy. It can be said that mergers and acquisitions were the only factors in the growth of their market capitalization. It is much faster to absorb than to build. And in the new economy, for example, the speed of bringing to the market, the rate of positioning, the pace of transformation into a viable company solve everything.
Assessing the trends of the existence of the phenomenon of mergers and acquisitions as an option for the development of companies, we can conclude that the methods of their implementation were complicated with each subsequent stage of development of the world economy. On this occasion, the question becomes logical, what are the current motives for concluding merger or acquisition agreements between competitors?
By exploring the problem of mergers and acquisitions, different analysts in their way propose to group their motives and reasons. In our opinion, to force or encourage a company to enter into an agreement with a competitor, there are three groups of factors: the internal necessity of the company, due to the need to find a new direction or way of its development; external conditions caused by changes in the business environment, which threatens to lower the efficiency of the company and makes it looks for new ways of development; their own desires, plans and ambitions of management of the company.
The action of internal motivational factors manifests itself in the aspiration of the merging company or the acquirer to acquire new skills (for example, technological advancements, better ways to organize business processes or experience of staff of a competitor). Often the internal motives of a company to create an alliance with a rival by the merger is the desire to gain access to new products, markets, distribution channels and financial resources of another company. This motive, in particular, is dominant when foreign companies purchase domestic competitor companies in the food industry (for example, the beer industry). The company-initiator thus plans to gain additional advantage from the expansion of the market, saving on costs of entering the market. A less common, but no less critical motive is the desire of the merging company to obtain tax savings through the purchase of a loss-making competitor.
The influence of external motives of mergers or acquisitions is explained by the company's desire to maximize its production capacity in the context of a general reduction of the market. Such an opportunity arises in the event of a merger with a company that produces products differentiated by the company. Acquiring such a company will prevent the process of reducing or curtailing its production due to the use of excess capacities for the production of another company.
The motives caused by the managers' own desire are manifested mainly in their desire to obtain specific financial benefits from the purchase of competing companies (for example, the expansion of control over the company-competitor and its staff and the influence on them, obtaining additional remuneration from the owners at the expense of growth of turnover and course shares after absorption or merger). Note that in most cases, mergers or acquisitions caused by such a motive are hostile to competitive companies and are least guided by the achievement of economic or financial efficiency for the business as a whole.
In the practice of mergers and acquisitions, there are also examples where the motive for agreeing was the common desire of participating companies to obtain virtually the same benefit. For example, the merger of companies in one industry allows them to negotiate with suppliers to reduce purchasing prices and to benefit from lower costs through the implementation of large batches of purchases. One of the motivating motives for both companies may be their desire to reduce their own costs for research and development of new products or technologies.
External motives, which encourage companies to unite, are also the requirements of creditors to the size of the company, the volume of turnover and profit of the latter in the case of jumbo loans, as well as in case of its entry into the world capital market. The merger of two or more companies with common interests can increase the credit rating and take advantage of the company-initiator. If the goals, motives, and desires of the companies coincide, their mergers or acquisitions become a true status. A key factor for a friendly takeover is the proper assessment of the prospects of the merger and the procedure for the execution of the purchase agreement.
As with any other investment decision, the conclusion on the feasibility of a merger or acquisition procedure should be justified by specific calculations. The level of their detail depends, first of all, on the number of financial resources the company intends to spend on the conclusion of this transaction.
Unfortunately, the results of concluded transactions are not always indicative of the effectiveness and feasibility of a merger or takeover. Studies show that the number of unsuccessful operations is about 60% of the total. The main reason for this is that the revenues generated by the merger do not cover all costs of the merger process (for example, stock purchase, the redemption of obligations, etc.). The negative consequences of mergers or acquisitions are due not only to financial losses but also to the reduction of the efficiency of the management system of the merged company. However, the majority of adverse results of concluded agreements is connected with the poor quality of preparation and integration.
Within the framework of the chosen corporate strategy, the process of mergers and acquisitions must go through seven main stages.
The merger can improve the efficiency of companies that have merged but can worsen the results of current production activities, increasing the burden of bureaucracy.
Experts identify three reasons for the failure of mergers and acquisitions: Incorrect estimation of the absorbing company's attractiveness of the market or competitive position of the absorber; Underestimation of the amount of investment required to complete a transaction; Mistakes made in the course of the merger transaction.
An incorrect calculation of investments for a merger transaction is possible. For example, with the acquisition of BMW by Rover, the approximate cost of the latter was 800 million pounds, and the necessary investment in the next five years after the merger was 3.5 billion. Managers cope with the difficulties caused by the integration of the two companies, with the specifics of the production process, accounting, corporate culture.
The value of companies depends on specific assets, like human resources, the professionalism of managers, the qualifications of workers, engineers, researchers. Change in the host leads to a revision of the established criteria for assessing the personnel and traditions of career planning, to changing priorities for spending funds, to changing the relative importance of individual management functions and, consequently, to breaking down the informal structure. If managers are absorbed, they have a specific share in the capital, their transformation from proprietors into hired workers negatively affects motivation. As a result, they begin to work worse.
Analytical studies of mergers show: it is more profitable to sell a company than to acquire someone else's. In most cases, shareholders of companies that acted as sellers in mergers or acquisitions made a profit, and the shareholders of the acquiring company won less. Two reasons can explain it. First, companies that absorb are more developed than those that are absorbed. If the net benefits of the merger are evenly distributed between the two companies, the shareholders of each company will receive the same income in absolute terms, but in relative, percentage terms, the earnings of the shareholders of the company being absorbed will be higher. Secondly, each applicant for the purchase of the company seeks to exceed the conditions advanced by the previous one. Most of the winnings from the pending merger transaction go to shareholders being absorbed. At the same time, the managers of the company that are going to absorb can take some measures of an anti-seizure nature, seeking that the sale of their company, if it occurs, occurred at the highest possible price in these conditions.
When large corporations are formed, a phenomenon of suboptimization arises - the desire to strengthen intra-group cooperation ties, to buy products in own companies. Own company seeks to set a price that brings maximum profit. Thus, the production becomes expensive and uncompetitive. Modern economics principles imply that business should focus mainly on the “average-priced” market, offering services someone might need right away. You cannot gain much profit when putting an “elite” price tag on something sold at a fair price by your competitors. For example, online research paper writing help for college and university students is always in high demand. Essay writing companies like Write My Paper Hub win the market, offering professional writing assistance from experts, hiring the best academic writers, and dealing with most of the topics students may be interested in. When you don’t have time to write a paper and pay for a sample, you want it to be an affordable experience. As studies show, the academic writing market is booming, only services which offer the best cost-quality balance win the customers.
The consequences of acquisitions lead to such phenomena as an increase in the number of unemployed, bankruptcy of enterprises, a break in economic ties with suppliers, an increase in monopoly, an increase in prices for consumer goods.
About 95% of acquisitions occur by mutual consent of both parties, often in practice there are hostile takeovers - situations in which an extraneous group buys shares of the corporation in an amount sufficient to gain control over it, against the will of the board of directors, this is a hostile takeover. If the controlling interest is acquired, then the previous managers are dismissed and the management of the company passes to others.
Modern enterprises use several variants of development, among which two principal ones stand out: growth through organic development or growth through the acquisition of a structure from the outside. It should be mentioned that any company initially develops an individual corporate strategy that serves as a basis for making further decisions, so it is necessary for managers to determine a profitable direction: investing a certain amount of resources in buying a new business or redistributing resources among existing activities. Therefore, for the company, the merger and acquisition process is a way to achieve a strategic advantage by integrating a new business, which should be more potent for the effective operation of the company as a whole than the process of internal development.
At the moment, various approaches to the definition and classification of mergers and acquisitions are highlighted. More specifically, the merger is a reorganization, as a result of which all rights and obligations of participants in the composition of two or more companies are transferred to the newly created legal entity. And under the takeover is understood the process of moving all rights and obligations to an existing legal entity in connection with the termination of one or several market participants. In general, mergers and acquisitions are transactions of control over the activities of enterprises that are formal or informal.
At the moment, an increasing number of international companies are involved in mergers and acquisitions. Among them, there is also active on transactions among multinational corporations.
Despite the positive assessments of the experts, a large number of studies in this area indicate that the initial goals of M & A are unattainable or not at al. Therefore, many scholars raise the question of whether such economic operations should be carried out. In 1978, the consulting firm Arthur D. Little conducted one of the first severe M & A studies at the time. The result of the work was a list of the most significant reasons for mergers and acquisitions, which included the following items: obtaining synergies, diversifying the business by entering new markets and expanding the range of products, increasing the market share, using the acquired innovations and legislative advantages of another country, tax benefits, the purchase of the necessary undervalued assets, exit strategy and the desire of managers to significant and successful transactions.
A later audit firm, KPMG, also conducted studies that showed slightly different motives. Of the 100% of the companies surveyed, 22% could not explain the specific reasons for their implementation of such transactions, 31% cited the goal of increasing their market share, 26% relied on geographic expansion of the scope of activity, 15% emphasized the need for diversification and 6 % - said about economies of scale (KPMG, n.d.). Thus, it can be judged that in the second case a more restricted list of M & A motives is considered. Also, some real motives are not always realized or are hidden. Therefore, the analysis of the reasons for conducting mergers and acquisitions, taken directly from the assessments of the practical experience of various companies, has a selective nature and does not give an objective assessment.
All the reasons for mergers and acquisitions boil down to the growth and achievement of the most influential strategic position in the market, which means that the primary goal is the company's strategic advantage, which the company cannot achieve through internal growth of the business. Thus, the strategic approach requires two groups of motives for mergers and acquisitions: strategic and functional. The first group of motives includes the following items: strengthening the competitive position and increasing the market value of the business, obtaining financial stability and developing new business models. While the second includes a variable list of economic, subjective psychological motives, for example, obtaining tax benefits, increasing the market share, accelerating R & D, increasing cash flows and controlling them.
Analyzing the practice of M & A transactions, both domestic and foreign researchers as one of the most serious allocate precisely HR-risks associated with the growth of uncertainty due to the lack of a real strategy for further work and increased concern for employees and the confusion of managers. Negative phenomena are particularly typical for unfriendly takeovers because the acquiring side often underestimates the potential costs of integration, restructuring of the management system, the formation of a new image. Integration really requires a lot of effort, including, of course, the efforts of HR managers.
To fall into the maelstrom of the confluence, the HR must be accepted as a given, that people, as a rule, react negatively to the changes: dismissals, diminished productivity, rejection of new ideas, refusal to accept the rules of "alien" corporate culture. Therefore, one should not expect delights from the employees of the acquired company. Even if a "positive" advertising campaign accompanied the M & A transaction, the discontented would always be, people will still conclude that "the wrapper turned out to be better than candy".
What to do in this situation? People can hide, sit quietly and wait until everything goes by itself, or you can try to manage the changes. I believe that active change management is the only way to achieve results. What should you pay particular attention to when merging / acquiring?
So, when mergers/acquisitions of companies into the sphere of responsibility of the HR Director is: implementation of the previously developed plan and its adjustment (if necessary); Assessment of the impact of changes on the motivation and productivity of employees (both companies). It also means minimizing the loss of critical talents; mitigation of differences and the formation of unified corporate culture; assistance in the creation of effective new inter-functional relationships and systems of subordination. The list is far from exhaustive, it all depends on the specific situation.
To achieve maximum harmonization during the merger, we can use the tried and tested HR tools.
As a rule, HR-specialist rarely comes to the company to be bought "first": the management team starts working when the owners have already agreed with each other. Of course, often selling business owner "appropriately" adjusts its employees, which can complicate the interaction at the first stage. But more often than not people understand that if they do not cooperate, then the deal cannot take place at all. Therefore, it's rare to put "sticks in the wheel".
The success of integration in the conduct of M & A transactions largely depends on their preparedness. Is the HR unit ready for change? Will it become a "communication hub" for the upcoming changes? Will HR limit the role of a technical expert in personnel administration and recruitment, or will he become a strategic partner? Here much depends not only on the company but also on the HR itself.
For example, the excellent work of HR administrators protects the business from losses. How a good accountant minimizes fines, and a good administrator can ensure the trouble-free lay-off or control procedure. However, the CFO works at a different level: his task is to ensure the company's work in the future. So HR-director (if he became a strategic partner) already in the early stages of the process M & A takes part in the development of criteria for the success of the purchase (within its responsibility), plans to retain critical talents, communications, cultural changes.
In any case, to evade responsibility (mainly, to avoid self-destruction) the HR does not work! Even if a person "quietly sits in office," people will still come, still have to engage in the work actively. If the absorbed company has a full-fledged HR department or at least an HR specialist, the integration process is simplified: there is already necessary information about employees and essential HR tools, and there are traditions in communication. However, if the HR function was reduced to personnel administration (for example, the bookkeeper filled out the accountant), then it is possible to find out what happens to people only from the experts themselves: financiers, buyers, lawyers ... The fuller the circle of colleagues with whom the HR communicates, the better he will understand the actual state of affairs.
When conducting mergers/acquisitions, regardless of the size of the companies, the integration procedure and the number of assets being absorbed, the tasks of the HR manager necessarily include the organization of maximum transparent communication; retention of critical talents; accompaniment of changes in corporate culture.
To minimize HR-risks, the HR-Director should pay attention to the following essential points.
Adaptation methods in the new company of different types of employees differ in their content, as for different groups the most significant are different values. Accordingly, various aspects of adaptation are coming to the fore in a particular group.
In general, among the aspects of the adaptation of employees in the new team can be identified: organizational (explains the specifics of the work, established business processes, interaction with other employees and services). It is also professional (it explains the main production algorithms, it affects the processes of training, professional growth); psychophysiological (determined by working conditions and intensity of the workload); socio-psychological (characterizes the relationship between employees and the existing psychological microclimate in the team).
For ordinary employees (so-called working personnel or labor), the most important is the socio-psychological aspect of adaptation, since in most cases this category of personnel works in teams or shifts. Essential for this category of workers have a professional as well as a psychophysiological aspect (not everyone can adapt to work standing at the machine tool or the conveyor all shift or work in a noisy or hot room) It should be noted that this category of workers is often "Voting with his feet" against the conditions that do not suit her, and she resigns, finding another employer. Such mobility can create particular problems in the reorganization since a shortage of qualified workforce characterizes the current labor market.
Specialists of various levels are one of the most numerous and susceptible to changes in the categories of personnel. The fundamental principle of work to adapt them to a new team is to build an integrated system that takes into account all aspects of the system. One of the essential tasks of adaptation is the creation of equal working conditions for all employees, regardless of whether they are representatives of an absorbed or existing company. Employees of the absorbed company should be sure that their place in the team, the conditions and amount of pay, as well as career prospects, will depend solely on the level of their professionalism and competence, manifested in the work of the new employer. Essential for the adaptation of employees in the new team is the socio-psychological aspect, the successful establishment of interpersonal contacts, smooth and friendly relations in the group about all its members, regardless of their affiliation to the absorbed or absorbed company. A unique role in the creation of such relations is assigned to the quick heads of the company's structural divisions and their deputies. To accelerate the process of adaptation is possible with the help of the mentoring institute, the presence of which allows preserving the connection of generations and instill in the young employee's corporate values.
Middle managers are one of the most complex categories of employees whose adaptation in a new team depends on how much they have managed to maintain their positions in the acquired company and how much their professional status has decreased in the new company. Unsatisfied with their current status, managers are dismissed, usually in the process of reorganization or within the first few months after the changes that have occurred. Successful adaptation of mid-level managers to the absorbed company will also depend on whether it finds mutual understanding with its new leader. The most conflictive in this case is the situation in which the head of the structural division of the absorbed company comes to the position of deputy head of a similar structural unit of the company that has incorporated it. Especially dangerous in this situation will be the development of a hidden conflict between the two leaders, in which the deputy will try to discredit the head of the structural unit, sometimes even to the detriment of the quality of work and the observance of the company's corporate interests.
The conflict of the top managers of the combined company looks the same dangerous in this context (but with even more severe consequences). When developing an absorption strategy and making decisions on the proposal to senior executives of the company to absorb high positions in the management of the operating company, it is necessary to assess the degree of interest of each top manager in cooperation with the new company, the desire to adhere to its corporate values and accept the proposed conditions. With all apparent risks, one should not refuse to cooperate with the management of the acquired company, since the knowledge, experience and business ties of this category of employees are essential for the successful construction of business ties of the already reorganized company and the preservation of frequent customers.