Mergers and acquisitions continue to be made when so many fail Essay

Critically evaluate why so some meldrs and reachments take place to be stain when so some(prenominal) a nonher(prenominal) fail.The phenomenon of unifications and acquisitions (M&As) triggers an array of opinions and viewpoints. a lot it is a dodge that is seen as a perfect means of achieving growth. It is by no means an organic or natural route to victor, further has tended to be a quick and escaped way of increasing an government activitys size and designer. However although there has been waves of popularity and succeeder since its introduction in the 1960s it has besides suffered criticism callcapable to the amount of bereavements it has accounted for. Despite the strong suggestion that this schema has been the architect for many an organisations d bedevilfall there still be a propensity in the authoritative fear environment for managers to adopt it. throughout this essay I am going to examine some of the argonas that exempt M&As volatility and attempt to disc over why managers ar persevering with the strategy when it is seemingly flawed.Over the last effortfully a(prenominal) decades it has take increasing app arnt that the effect of mergers and acquisitions is not as salutary as once thought. When the growth strategy was pioneered in the middle fibre of the nineteen hundreds it was looked upon as a way of creating an empire across unlike sectors and countries. Many make loved managers were sucked into the strategy, only having eyes for the app atomic number 18nt synergistical and positive affects of M&As. Although over the following years there has been many succeeder stories concerning M&As, when the big picture is examined it displays a more dreadful side of the phenomenon. Hodge (1998) discovered that in the go-go 80s, 37% of mergers outper diversityed the average sh beholder overtake in that period in the first half of the 90s, that figure blush wine to 54%.Despite the encouraging increase during the early 90s there remains a disturbing reality that barely one-half of the m&a cumuluss of recent years delivered shareholder value that outperformed even the relevant application average, a broad deal less provided an adequate return on investment. Added to this he excessively highlighted that only a paltry 25% of deals valued at 30% or more of the acquirers annual revenues could be counted as success. These statistics represent the flaws that exist within the strategy of M&As and clash with the positive theory that analysts and investors expect the incorporate enterprises to be greater than the sum of its parts (Doitte and metalworker 1998). Coopers and Lybrand (1993) along with many other writers deport studied and expanded on some of the diagnose detailors that limit that usefulness of M&As.Tar digest anxiety attitudes and pagan differences heads the list of impediments to the successful melding of two organisations (Davenport 1998). This is appropriate not only in the case of cross-border mergers (Daimler Benz-Chrysler) where there many obvious points of concern such as language and communication, that also within the collaboration of firms based in the same country and even attention. Management frequently have their own way of accomplishmentings that suits both themselves and their employees, which whitethorn be generated through bailiwick or corporate culture. This is loosely characterised by unique and individual working practices amongst different firms nation and domain of a functionwide. in that respectfore when a merger or acquisition takes place the dissolver is the combining of two sets of cultures in an attempt to work to take awayher.In most cases the merge looks both safe and profitable in theory, however focusing frequently underestimate the power of culture. For example when Mellon bound and the capital of Massachusetts Co merged in 1993 they failed to consider how cultural contravene could drain the combined confederacy of i ts most important acquired asset of the talents of Boston Co.s property-management wizards. Offended by Mellons cost-conscious management style, a nominate executive left the organisation. Within the next three months, he had interpreted 30 of his co-workers with him, along with $3.5 billion assets and many of the firms clients (Davenport 1998). I think this example emphasizes the risk associated with M&As due to their inevitable degree of unpredictability. For this reason alone it is hard to imagine a full proof argument advocating their use in modern business. some other pointor that makes M&As a high-risk strategy is the fact that management often have limited knowledge of the industry they are entering. This is obviously the case when two firms from unrelated backgrounds merge (conglomerate integration). In this case management are unaware of the way the industry workings and are restricted to simply consciousness the bare bones of the business. Differences in traditions, e xpectations, buying and specification practices, packaging, logistics, labelling, and legal customs and issues tummy have a surprisingly profound impact on the post-acquisition viability of a target company (Price and Sloane 1998).These differences along with more obvious changes such as simple machinerefour, commercialise and customers make life awkward for management. In most industries it takes time to develop and form bonds with suppliers, customers and even local communities. These types of bonds are commonly a result of in the flesh(predicate) relationships and even friendships that have grown through dealings and negotiations over a long period. M&As break up many of these ties across the industry and leave new management with the task to perplex fresh alliances. In many cases the change is not well authoritative and an organisation that essentially is unchanged in terms of its core activities dischargeful fail.The art of creating a post-acquisition integration plan is also extremely important, scarcely is difficult to master. Unfortunately, for many companies, it is this phase that the deal fails because the parties focus too much on the financial aspect of the merger or acquisition without adequately addressing the people components that must be considered to forge two organizations into one sticky entity (Doitte and Smith 1998). Employees are often neglected through the process of M&As and even if attention is given to them there is generally a lack of meaningful consultation.Although it is an area that is very tricky to get right from a managerial perspective it is vital if the strategy is to succeed. If managers of apiece company shut themselves off from their employees, employees will feel adrift. Employees resulting low morale and lack of direction will lead to high personnel perturbation (Heitner 1998). This is simply another factor, which makes the strategy of M&As so difficult to implement and along with the previously mentioned problematic areas explains why their success rate is only around 50%. However despite the fact that many investment bankers and journalists believe the difference between their success and failure is a coin toss at best (Davenport 1998) organisations plow to practice them.A major reason behind M&As continued use is the amount of advantages an organisation finish potencyly conglomerate by undergoing a successful merger or acquisition. Although there are many risks and pitfalls involved when the strategy is undertaken management clearly believe the prospective benefits outweigh these possible drawbacks.In modern business globalisation has in many cases become a necessity rather than a luxury. Firms are now desperate to expand into foreign countries in order for them to argue in uninhabited lucrative markets and increase their competitive advantage. If global markets are entered successfully it gives organisations the chance to exploit resources, synergies and opportunities. How ever there is also a sense that in the global marketplace bigger is better (Doitte and Smith 1998) and firms have to be of a certain size to be able to compete. In order to break into global markets organisations need to grow and often quickly so ground is not lost on competitors. In this situation M&As are the most good-natured option for managers. They represent a leap approach whereby firms push aside experience this desired growth rapidly. Managers are aware that it is the growth strategy that carries the highest risk, barely often feel they have little choice. The modern business world demands innovation and expansion and if companies stand still they will simply get left behind.Firms often use M&As as a way of diversifying. A well-executed diversification strategy sess widen an organisations product portfolio and therefore spread an organisations risk. This means entering different markets in order to reduce dependence upon current products and customers. Selling a frame of different products to various groups of consumers will mean that if any one product fails, sales of the other products should keep the business healthy. As a result firms in this situation are less susceptible in market downturns and recessions. It is unlikely that a slump occurs in two diverse markets, but even in a case of a recession, where there are generally negative affects across the board, the organisation with added critical mass is in a better position to weather the crisis.The simplest way for management to achieve this diversification is to merge or takeover another company. It saves time and money being spent developing new products for markets in which the firm may have no expertise. Richard Branson and Virgin has been a major exponent of this over the last decade. His brand now covers air travel, music and even indulgent drinks This is a perfect example how M&As can produce multi-million pound empires extremely quickly. However many organisations can become infl uenced by such stories and attempt to mirror the success without fully understanding whether its the right move in their own business situation. foodstuff power is also a reason firms adopt M&As. This is usually generated when two competitors in the same market merge in what is called horizontal integration. The potential benefits for the purchaser are extremely attractive and hard to ignore. There is huge scope for cost cutting by eliminating extra of sales force, distribution and marketing overheads and by improved capacity utilisation. There is also the opportunity for major economies of scale and increased prices due to the simplification in competition.Coca-Cola achieved this type of acquisition when taking over Orangina, a typical product with very strong distribution in France. Here Coca-Cola place Oranginas customer base as one that they struggled to attract and unconquerable for them to increase their market power they needed to acquire the brand. However, this is by n o means the correct move for all firms. The merge between car manufacturers Daimler Benz and Chrysler has been ridden with problems since its launch in 1998. Sometimes a merge in this way creates twice the size, but double the problems.Similar to the idea of joining forces with a competitor to gain market power, management can undertake a merger or acquisition to block competitors in doing so. This tactic usually comes in the form of a vertical integration where one firm takes over or merges with another at a different wooden leg in the production process, but within the same industry. An example of this is brewery Whitbreads purchase of restaurant chain Beefeater. This type of M&A does not only guarantee outlets for your products or develop closer links with suppliers, it can also go some way to freezing out the flagellum of competitors. However it is not wise for management to undertake a merge with the sole intention to damage competitors. It is important, first and foremost, t hat the strategy has synergistical affects for them the acquirer as otherwise it may struggle.As I have highlighted there are undoubted gains offered by successful M&As. These attractive advantages can often persuade managers, sometimes wrongly, to implement a mergers or acquisitions of their own. The hope is that their organisation can in practice reap the rewards that the theory says is possible. The reality is that many fail because the strategy is mismatch with other objectives and inappropriate in their current position.Despite managements good intentions their judgement has been clouded by the large potential gains M&As can offer. However it is not eternally the case that management adopt the strategy strictly because of the apparent advantages it can for their firm. There is a school of thought that justifiably believes that top management frequently have ulterior motives when adopting M&As. The belief is that decisions made concerning them are not necessarily in the main in terests of the organisation, but more centred on what is best for them as individuals. As a result managers may proceed with poor value acquisitions in order to meet own(prenominal) goals or even objectives they think should be met.The empire-building syndrome is a main subscriber here. As an organisation grows it becomes a more important player in its industry. Naturally as the size and power of the firm increases as does the immenseness of its management and with this comes higher remuneration and social status. Also executive allowance may increase as a result of an increase in firm size, even when there is no corresponding increase in shareholders wealth (Jenson 1986). It is clear that a merger or acquisition strategy can work well for top management regardless of its boilers suit success for the firm.In the same way management can be influenced by prospective financial and prestige rewards, they may also be interested in satisfying their self-fulfilment goals. In low growt h markets management can feel they are not exhausting their full force and talents. In order for them to experience this type of self or suppose fulfilment they may choose to grow their firm via a merger or acquisition. This may present the perfect challenge for management, but not necessarily ideal challenge for their organisation.Finally job security is also an important managerial motive. A merger or acquisition can diverse risk and minimise the costs of financial distress and that of bankruptcy. This added stability helps prevent an organisation becoming an acquisition target themselves. Although the decision powerfulness not be in the best interests of the firm and shareholders, management solidify their own position. Along with the other negative managerial motives they represent a clear reason why M&As continue to be used in the light of so many failures.In conclusion I feel the paper of M&As and the reasons behind their sustained use in business is now much clearer. It is initially very difficult to fathom any organisation adopting a strategy that only has a success rate of around 50%. Dominant factors such culture and management inexperience seem to make any merger or acquisition an uphill struggle. However when the upshot is examined closer the reasons behind these decisions are more obvious. In the modern business environment businesses are constantly looking to better themselves and stay trip the light fantastic toe ahead of competition.It is wrong to claim that as a result organisations are forced into strategies that stimulate rapid growth, but there is a expressed feeling that factors such as globalisation and increased market power are the best route to success. As these are two hallmarks of the M&A phenomenon it is no real surprise that management frequently dissolve that it might be their best strategy regardless of their poor success rate. It is this risk taking mentality, that has become a characteristic of 21st snow management, a llied with the more cynical decision making habits some managers have adopted has kept the use of M&As high. Added to the fact that in the right context M&As can be an efficient and highly profitable growth strategy it is easy to see how they have had and will continue to have a great use in business regardless of their failures.BibliographyTextbooksGlanville & Belton (1998) M&As are transforming the World Ivey Business Journal, Autumn Customer text-section 2, topic 11.Kieran et al (1994) Planning the deals that generate value and gain advantage, Mergers and Acquisitions, March-April Custom text, topic 12.JournalsDoitte S & Smith G (1998). The morning after (avoiding mistakes in acquisitions and mergers). wintertime v63 i2 p32(8).Davenport, T (1998). The Integration Challenge (managing corporate mergers Management Review.Heitner M (1998). The biting business of merging rival firms, Mergers and Acquisitions.Hodge, K (1998), The art of the post deal (outcomes of mergers). Management Review.Price, A & Sloane, J (1998). Global Designs Tough Challenges for Acquirers. Mergers and Acquisitions..Whipple J & Frankel R (2000), Strategic Alliance Success Factors. The Journal of Supply Chain Management.