M&A is an acronym for Merger and Acquisition, which means buying and selling of various business empires by one company to and from another company. Mergers and Acquisitions deal with shaking hands of different companies as well as overtaking of one company over another company which can be an overtaking by one big company over a small company or it can be an overtaking of one small company over a big company which has very few chances. Mergers and Acquisitions leads to the formation of a new group of companies. Merger and Acquisition are two different words which have different meanings. These are not synonyms for each other. Merger means joining hands of one company with another company to form a bigger empire. This is done in order to expand the scope for business in the industry in order to give competition to any big rival.
Acquisition has absolutely different meaning which means overtaking of any smaller firm by any bigger firm. If we talk about overtaking of smaller firm by any bigger firm, this is quite general but acquisition may also mean overtaking of bigger firms by smaller firms as well. Generally, public sector acquires private sector companies but there can be various situations in which a private sector company acquires a public sector firm, which is not at all a usual thing to happen and this is known as Reverse Merger. But Mergers and Acquisitions are not that easy like they sound. Most of mergers and acquisitions fail in the industry. There are very less numbers of M&A which succeed in the industry.
In this article we are going to describe various positive as well negative points which lead to mergers and acquisitions including its impact on global economy and how mergers and acquisitions are affected by current financial crisis.
Factors involving successful Mergers and Acquisitions
There are various factors which lead to successful merger and acquisition. These factors are necessary to be incorporated while performing merger and acquisition because there is very less percentage of M&A in the industry which get succeeded. We are going to describe these factors in the subsequent paragraph:
Performing Communication between two firms
Communication between two firms performing merger and acquisition is one of the most important factors which lead to a successful merger and acquisition because it is considered to be one of the most vital steps those two firms can take because without an appropriate interaction, no decisions could be taken in an efficient manner. As far weighted mean among all the success factors for a successful merger and acquisition is seen, communication to be established between two companies is considered to be top most tasks for any company. Communication is important in term of dealing with various strategies of combination of organizational culture of the two companies. (Banal-Estañol & Seldeslachts, 2004)
Building Trust between two firms
After communication establishment between two companies, trust is to be built between them and it is considered to be most important task for companies going under merger and acquisition. According to weighted mean of factors influencing successful merger and acquisition, this factors ranks two and comes exactly after establishing communication between two firms. Trust building is necessary for both the companies because if strong trust is there between the employees and top management of both the companies is there then there would be no harm for successful implementation of merger and acquisition. In case of merger between two companies equal rights should be given in order to rule when new organization is made and in case of acquisition decision is to be taken keeping in mind happiness of the lower and upper level employees.
Establishing Collaboration between two firms
It is very important that two firms go for an establishment of appropriate collaboration. Collaboration between two firms should be well defined and it should suit both the companies and their employees. According to weighted mean of success factors for merger and acquisition, this is third most important factor. It is necessary to have an effective collaboration between the two firms because main aim of all the firms is to have better gain or profit after merger and acquisition is performed. Hence in order to accomplish this task it is necessary for all the companies to have effective collaboration strategies.
Efficiency of the staff and raw materials
It is also important that to have better performance in organization made after merger and acquisition, we should go efficient labor performance in the company. When we talk about better labor performance, this means that there has to be a well recruitment of staff or specified training to be given to them in order to get them well established in the new company. It should be noted that employees are main asset for any company and they need to perform well for success and growth of the organization. If we talk about weighted mean measure, then efficiency of staff should be kept at 4th position. With employees, it is important to have a look at raw materials as well. Raw materials taken for the manufacturing of the products in new organization should be nice so that customers are more satisfied with product and services which the company will provide. (Kala, n.d.)
Maintenance of clashing of egos of employees at top management of the two companies
It should be kept in mind that when there is collaboration between two companies then obviously there would be some fights that will come in between because of various positions in the new organization. This is pretty obvious because in two different companies there would be positions occupied by two different persons or employees but when new organization is formed, and then it would be difficult to decide that which person would take up that position which he or she held in the last organization and which person will go down or top. In this situation, egos of various employees, especially at the top management clash because of which there occurs various problems with in the organization. It is very much important to look after this problem and if this problem is solved, it leads to success in merger and acquisition. According to weighted mean approach, this is ranked fifth among all the success factors.
To Decrease production cost of firm after merger and acquisition
To have more and more profit in the organization, it is important that company resulted after merger and acquisition should have lower production cost in order to have increased profit. This factor is considered to be a resultant of factor of increase in sales or increase in sale can be considered as a resultant of this factor. As far as weighted mean approach is considered, it is ranked sixth. This is an important factor which leads to success in merger and acquisition of any two firms. By decreasing cost of production, merged company can have immense profit without having increase in sale.
To have same goals for each company
This is also important for both the companies that goals and objectives of both the firms are taken to be same. It is quite necessary because if two companies going under merger and acquisition have two different objectives then it would be quite difficult for the two firms to obtain success in the industry because there would be clashes in the implementation of various strategies which would lead to failure in the organization. Hence it is very much important to have an appropriate goal set up for both companies so that resultant firm gets the best possible result out of merger and acquisition. (Vandeburg, Fulton, & Hine, n.d.)
To go for increase in the sales of the resulting firm
It is important that after merger and acquisition, there has to be an increase in sale for the resulting firm. This is an important condition for successful merger and acquisition of two firms. This quite obvious that two firm which are going under merger and acquisition need to have better opportunity for profit and growth in the future. This is main reason that two companies go under merger and acquisition because they know that it would be difficult to have greater profit or sale in case when these are alone and hence they decide to go under merger and acquisition. There fore it is very much important that two firms which are collaborating should give greater sales and as a result should give greater profit. According to weighted mean approach, this factor is rated seventh among all the success factors for merger and acquisition.
Failure of Merger and Acquisition in International Capital Market
Merger and acquisition between two companies are going at a higher rate day by day. There are lager number of firms which are going for merger and acquisition in the industry but bad thing about this process is that it needs very sharp knowledge and understanding. This is the reason because of which there are around 70 percent companies which fail in merger and acquisition or we can say that around 70 percent of mergers and acquisitions fail in the industry. There are various reasons behind this failure. These reasons are as follows:
Selfishness among the companies undergoing Merger and Acquisition
This is one of the most important reasons that companies under going merger and acquisition fail in most of the cases. When two companies are merged there is always a sense of superiority among the employees of both the companies undergoing merger and acquisition which lead to various clashes among employees whether lower level or top management of both the companies. Major clashes are based on positions to be obtained in the resultant firm. This is situation is more common in case of merger because in case of acquisition one firm is acquired by the other and hence it becomes obligatory for the acquired firm to follow what ever the acquiring firm orders. This selfishness nature among the employees or among the management of employees leads to failure in merger and acquisition of the two firms. (Banal-Estañol & Seldeslachts, 2004)
Variation in the stock market
It is quite obvious that one company may gain hype in the stock market at one time and go down to deep at other time. This is quite known nature of stock market or the international capital market. Suppose a company which has a very good position in the global stock market at one time merge or acquires a company which has a low profile in the stock market then problems start for the resulting firm because negative effect of firm which has low in the stock market are shown in the resultant firm and hence failure may occur. This is one of the most common reasons for failure of merger and acquisition in the industry.
Cheating by one firm
This is again a serious problem that merger and acquisition faces in the international capital market. While most of the deals and agreement in the international capital market among two companies are legal and lawful incase of some illegal situations, one company takes advantage of another company and hence cheat the other company in order to have more and more profit itself and to degrade the other company
Cultural Difference
Organizational culture is also an important factor which is needed for successful merger and acquisition. If two companies have different organizational culture then it becomes very difficult for the company to perform strategies at a singular level and hence leads to failure in the industry.
Effect of global financial crisis on Merger and Acquisition
Global Financial crisis has affect merger and acquit ion to a great extent. There are several positive aspects like there has been an increase in the percentage of merger and acquisition and there are several negative aspects, means decrease in the percentage. Both the aspects have reason behind them. They are as follows:
Increase in percentage is because the scenario that has been created by global financial crisis in which most of the companies are bankrupt. Under this situation, acquisition is the term which increased marginally in the situation. Other situation which occurred was of companies going for merger because they are not capable of staying into the international capital market in the scenario because they are not able to compete. In this situation, merger increase at a great pace. (Financial crisis hits global merger and acquisition deals, 2008)
There can be steps which need to be followed to have successful implementation of merger and acquisition in this scenario
There are various steps that need to be followed in order to get success in merger and acquisition. These steps need to be kept in mind so that a successful merger and acquisition in accomplished in future. These steps are as follows:
It is important for two companies to have a new entity in collaborating as a new firm. This is an important and considered to be first step that led to successful merger and acquisition. It is important for two organization undergoing merger and acquisition to prepare a new entity in future because this assured that two firms are lacking in some aspects because of which these are going under merger or acquisition. It may also be possible that companies are going under merger and acquisition in order to earn more and more profit. In order to any of the two important functions, it is necessary for two firm to prepare a new entity
Next step for successful is to have a new vision in the industry. After merger and acquisition of two companies it becomes eve more important to have a better vision in the industry for success and growth of the resultant company because now two companies get merged into one and scope for enlargement and development becomes more which need more and more hard work and appropriate formulation of plans, tactics and strategies.
When a new vision is prepared for new organization then it becomes important for both the organizations to go for a proper determination in that vision because a appropriate determination would lead to success in merger and acquisition
It is important for the resultant firm to have leadership characteristics among employees of the company because each employee of the company is considered to be an important asset for the company and leadership quality in these employees would lead to have successful implementation of plans in the company which will result in success of the company.
Last but not the least measurement of success is again an important aspect of successful merger and acquisition because it becomes important to have knowledge about how success is going on.
