Managing m and A

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Knotted forever

By AmitPande&Sandeep K Krishnan

In an ideal merger, the newly created entity pools the best features of the two merging organizations. A

well planned process built on the foundations of an open, honest and consistent communication

strategy can pave the way.

Mergers and acquisitions have become a common phenomenon in recent times. A merger of the size

like HP-Compaq has implications for the workforce of these companies across the globe. Although the

merging entities give a great deal of importance to financial matters and the outcomes, HR issues are

the most neglected ones. Ironically studies show that most of the mergers fail to bring out the desired

outcomes due to people related issues. The uncertainty brought out by poorly managed HR issues in

mergers and acquisitions have been the major reason for these failures.

The human resource issues in the mergers and acquisitions (M&A) can be classified in two phases the

pre-merger phase and the post merger phase. Literature provides ample evidence of difference inbetween the human resource activities in the two stages: the pre-acquisition and post acquisition

period. Due diligence is important in the first phase while integration issues take the front seat in the

later. The pre acquisition period involves an assessment of the cultural and organizational differences,

which will include the organizational cultures, role of leaders in the organization, life cycle of the

organization, and the management styles. The mergers often prove to be traumatic for the employees

of acquired firms; the impact can range from anger to depression. The usual impact is high turnover,

decrease in the morale, motivation, productivity leading to merger failure. The other issues in the M&A

activity are the changes in the HR policies, downsizing, layoffs, survivor syndromes, stress on the

workers, information system issues etc. The human resource system issues that become important in

M&A activity are human resource planning, compensation selection and turnover, performanceappraisal system, employee development and employee relations.

M&A activity presents a different set of challenge for the human resource managers in both acquiring

and acquired organizations. The M&A activity is found to have serious impact on the performance of the

employees during the period of transition. The M&A leads to stress on the employee, which is caused by

the differences in human resource practices, uncertainty in the environment, cultural differences, and

differences in organizational structure and changes in the managerial styles.

The organizational culture plays an important role during mergers and acquisitions as the organizationalpractices, managerial styles and structures to a large extent are determined by the organizational

culture. Each organization has a different set of beliefs and value systems, which may clash owing to the

M&A activity. The exposure to a new culture during the M&A leads to a psychological state called

culture shock. The employees not only need to abandon their own culture, values and belief but also

have to accept an entirely different culture. This exposure challenges the old organizational value

system and practices leading to stress among the employees. Research has found that dissimilar cultures



can produce feeling of hostility and significant discomfort which can lower the commitment and

cooperation on the part of the employees. In case of cultural clash, one

of the cultures that is dominant culture may get preference in the organization causing frustration and

feelings of loss for the other set of employees. The employees of non-dominating culture may also get

feelings of loss of identity associated with the acquired firm. In certain cases like acquisition of a lesserknown or less profitable organization by a better one can lead to feelings of superiority complex among

the employees of the acquiring organization. In case of hostility in the environment the employees of

two organizations may develop us versus them attitude which may be detrimental to the

organizational growth.

The uncertainty during the M&A activity divert the focus of employees from productive work to issues

like job security, changes in designation, career path, working in new departments and fear of working

with new teams. The M&A activity leads to duplication of certain departments, hence the excess

manpower at times needs to be downsized hence the first set of thoughts that occur in the minds of

employees are related to security of their jobs. The M&A activity also causes changes in their well

defined career paths and future opportunities in the organization. Some employees also have to be

relocated or assigned new jobs; hence the employees find themselves in a completely different situation

with changes in job profiles and work teams. This may have an impact on the performance of the

employees. Research has found that at least two hours of productive work per employee per man day is

lost during the M&A activity in the organizations. The increased political processes that may be

underway in the organizations to sustain the importance of the various individuals and departments will

add to the confusion.

The human resource systems vary across organizations owing to the differences in the organizational

culture, sectoral differences and national cultural differences. For example if the compensation in the

acquired firm is lesser compared to the acquiring firm, the acquisition will raise employee expectations

(for the employees of acquired firm) of a possible hike in compensation which may not be realistic. On

the other hand if the compensation level of employees in acquiring firm is lower the employees may

press to have equal compensation across all the divisions of the firm. The pay differential can act as a

de-motivator for the employees of acquiring firm and may have long term consequences. The

compensation issues may also involve legal angle. Two cases in the Indian context are important which

underline the importance of legal issues related to compensation in M&A activity.

The first case involving Hindustan Lever Limited acquiring TOMCO, the employees in TOMCO enjoyed

better terms and services compared to the HLL employees. The HLL employees argued that if TOMCO

employees are allowed to work on their original terms and conditions, two classes of employees will

come in existence. Since both the set of employees now belong to same firm, a case of discrimination

will arise against the employees of HLL. However the court supported TOMCO employees in the process.

The second case involves merger of Glaxo and Wellcome-Burroughs who decided to merge in 1996. The

Indian arms however couldnt merge in the last seven years because of high pay differential between

workers of Glaxo and Wellcome in India. The workers of Wellcome were offered a one



timecompensation of Rs. 2 lakhs in 1998, which they refused. Further the VRS scheme launched by the

firm evoked very tepid response.

Since 1997 the firms have been working as independent subsidiaries in India. Compensation differences

need to be rectified by the acquiring firm so as to maintain the morale of acquired firm employees and

to retain them. The compensation structure

among the organizations may also differ creating troubles, for example one of the firms may have

performance based pay while other may have higher component of fixed pay. Hence the differences in

compensation structure and performance appraisal systems also need to be rectified so as to bring

equity in the human resource systems and to treat employees at the equal level.

Another practical problem is differences in the grading or organizational structures in the systems. Since

the organizational structures are different designations for the employees are used, during the

integration of acquired organization the acquiring organizations need to develop a mechanism toremove the differences in the grading systems bring them at equal level, as many a times the

compensation is related to the grade of employee in the organization.

The employee relations issues gain more importance in the acquisitions of manufacturing units in India.

The power equation between management and trade unions is bound to change with the acquisition.

The acquiring management also needs to keep track of number of unions in the workplace and

equations between them as many Indian manufacturing units have multiple unions. Hence

comprehensive analysis of trade unions operating in the plant should be done. This will require study of

management-union equation, employee contracts, political linkages of the unions, compensation

related clauses, number of trade union and dynamics between the unions.

The impact on the employees can be divided into categories of psychological trauma, increased

workload, survivor guilt and stress. The reaction of the employees can vary from anger to dejection and

depression. The process of merger can have inbuilt psychological and social threats which should be

identified like exodus of managers due to the perceived job insecurity. There is also fall in the morale,

commitment and loyalty. The merger can lead to depression and impaired performance. The

dissimilarity in the cultures can produce the feelings of hostility and significant discomfort, which impact

on the commitment and cooperation on the part of employees. The cultural difference also leads to

counterculture feelings where employees tend to completely reject the dominant culture of the

organization. The impact of cultural shock is significant and long lasting on the employees. The initial

shock is followed by employees making their own perceptions based on values and past experiences.

The more dissimilar the culture is higher will be the cultural shock. The likely reactions as noted by

studies are anger fear, denial frustration and depression which leads to altered behavior, reduced

productivity, stress, illness, accidents , conflicts and a total lack of commitment to make merger work.

The feeling of political back stabbing adds to the psychological trauma. Kids Corner and Kamala



Kamala who was in her early forties was quite puzzled with what is happening with her career. As she

was listening to a lecture on people issues in mergers and acquisitions, she could not just let herself free

from the experiences she was having for the past 6 months. Kamala is working as a Principal in a nursery

school which takes care of about 100 students. She had four teachers working under her and other

three office staffs. The events unfolded as follows. Vidhya group was interested in taking over Kids

Corner which was the nursery managed by Kamala. Although Kamala was not a partner in Kids

Corner, she was given a lot of freedom and authority in running the organization. As a principal she was

vested with the responsibility of taking any decision which affected the organization. The partners of

Kids Corner were running the organization as a service to

the society. The revenues which were collected as fees from the kids were used to fund the salary and

other running expenses of the nursery.

As the professor explained how some of the major mergers turned out to be acquisitions with the bigger

and stronger company trying to take full control, Kamala was worried about her destiny in the

organization. Kamala initiated the process of merging Kids Corner with Vidhya group. Vidhya group

managed many educational institutions from high schools to engineering colleges. However they didnt

have professionally managed preschool in their portfolio. The inclusion of Kids Corner would help then

to get a good group of students in the entry level classes of their high school too. Kamala also thought

this as an opportunity to grow and increase the visibility of Kids Corner. Kamala represented Kids Corner

in all the major negotiations with the Vidhya Group. She was impressed with the way that Vidhya group

discussed various issues with her. They also guaranteed her the post of Principal once the group takes

over the Kids Corner. The parents of the kids were also involved in the take over negotiations. The

Vidhya Group and the parents were of the opinion that since she managed the institute till now, she

knows best to do it further.

The ownership of Kids Corner was taken over by the Vidhya Group. However things changed a lot since

then. Lots of ambiguity crept in regarding the fate of Kids Corner. Kamala was sidelined in some of the

major decisions which were taken regarding the running of Kids Corner. Some of the teachers left the

organization feeling uncomfortable with the new management and their style of functioning. The way

the new management dealt with Kamala also changed a lot. A new person was appointed as the

manager of Kids Corner. He took some of the major decisions regarding the running of the organization,

which Kamala was unaware of.

Kamala thought that there is a major dent in the freedom she had in running the organization. She was

further shocked when the new management informed her that the salary that she is drawing now is too

high for the organization to afford. They wanted the salary to be cut to almost half. With this Kamala

thought that she was cheated by the Vidhya group. She is on leave for almost a week and had discussed

this issue with her colleagues and family. She was in a complete dilemma and has now started thinking

of the options she had before her. After the session, she had a chat with the professor and narrated the

experience she is undergoing. She brought out the options before her Whether to continue with Kids

Corner, join another organization which may give a comparable salary and job profile or fight it out

with the new management.



In the case of Kamala, we can see how the confusion after merger affects the professional life. If

organizations of large size merge, the differences that may exist in practices, the mystery about the

future, feeling of distrust and rumors will be creating havoc in the life of employees. The result as we

have seen in the case may be employees leaving the company or drop in productivity due to apathy

towards work and the management. It is important to understand a merger will be the case of managing

a number of employees like Kamala and this should be a well planned process.

Managing M & A

Clearly defined communication strategy during M&A plays an important role in removing the employee

fears and kill rumors floating around in the organization. The organizations need to reach their

employees before the press as the employees will have

feelings of getting cheated. Studies show that communication strategy that involves senior managers of

the acquired organizations work well. Involving other employees who are trusted by the employees forinstance trade union leaders are also helpful. The employees meeting in small groups so as to discuss

their concerns, fears and positive feelings also helps to lessen the stress on employees of acquired firm.

The group meetings seem to help because many-a-times employees are reluctant to come out and

speak their concerns, whereas in groups where everyone shares same set of feelings to an extent, it

becomes easier to come out with the common set of concerns and fears. This also provides confidence

to employees that the new management is willing to listen to their concerns and feelings, building an

atmosphere of mutual trust.

The transition period also becomes crucial from communication point of view. In case of lengthy

transition period the employee stress increases, the best strategy in this period is to convince theemployees that they are part of new organization and their concerns will be taken care of. The transition

period can also be used to improve communication with the employees of acquired firm. Improved

communication will help to better understand each others cultures and practices. Firms can also use

this period to analyze the human capital of the acquired firm and define their possible roles in the new

organizations. The transition period provides ample opportunity to design the new organization, explain

the new roles to the employees, plan synergies and train the employees as the new role. This will make

the integration process easier for the acquiring organization.

HR takes control

Train managers on the nature of change

Technical retraining

Family assistance programs

Stress reduction program



Meeting between the counter parts

Orientation programs

Explaining new roles

Helping people who lost jobs

Post merger team building

Anonymous feedback helpline for employees

The communication aspect being very important should be handled carefully by the human resource

department. The communication should provide precise information to the employees, providing any

piece of information which is unreal can lead to rumors and counteract. The communication should be

sufficient enough to answer the queries and worries of the employees. The first set of information

should be related to their future jobs, this will help to lessen their worries related to job security. The

communication shouldnt involve false promises which may counteract later. The communication can be

through trusted and credible employees of the acquired company and trade unions can be involved in

the process too.

Acquisition strategy of GE Capital

The GE Capital uses a successful model called Pathfinder for acquiring firms. The model disintegrates

the process of M&A into four categories which are further divided into subcategories. The four stages

incorporate some of the best practices for optimum results. The pre-aquisition phase of the model

involves due diligence, negotiations and

closing of deals. This involves the cultural assessments, devising communication strategies and

evaluation of strengths and weaknesses of the business leaders. An integration manager is also chosen

at this stage. The second phase is the foundation building. At this phase the integration plan is prepared.

A team of executives from the GE Capital and the acquiring company is formed. Also a 100 day

communication strategy is evolved and the senior management involvement and support is made clear.

The needed resources are pooled and accountability is ensured. The third is the integration phase. Here

the actual implementation and correction measures are taken. The processes like assessing the work

flow, assignment of roles etc are done at this stage. This stage also involves continuous feedbacks and

making necessary corrections in the implementation. The last phase involves assimilation process whereintegration efforts are reassessed. This stage involves long term adjustment and looking for avenues for

improving the integration. This is also the period when the organization actual starts reaping the

benefits of the acquisition. The model is dynamic in the sense that company constantly improves it

through internal discussions between the teams that share their experiences, effective tools and refine

best practices.



Source: Ashkensas, R.N., DeMonaco, L.J. and Francis, S.C. (1998).Making the Deal Real: How GE Capital

Integrates Acquisitions. Harvard Business Review, Jan/Feb98, Vol. 76 Issue 1, p165, 1

Acquisition strategy of Cisco

The acquisition strategy of Cisco is an excellent example of how thorough planning can help in successful

acquisitions. After experiencing some failures in acquiring companies, Cisco devised a three step process

of acquisition. This involved, analyzing the benefits of acquiring, understanding how the two

organizations will fit together how the employees from the organization can match with Cisco culture

and then the integration process. In the evaluation process, Cisco looked whether there is compatibility

in terms of long term goals of the organization, work culture, geographical proximity etc. For example

Cisco believes in an organizational culture which is risk taking and adventurous. If this is lacking in the

working style of the target company, Cisco is not convinced about the acquisition. No forced acquisitions

are done and the critical element is in convincing the various stakeholders of the target company about

the future benefits. The company insists on no layoffs and job security is guaranteed to all the

employees of the acquired company. The acquisition team of Cisco evaluates the working style of the

management of the target company, the caliber of the employees, the technology systems and the

relationship style with the employees. Once the acquisition team is convinced, an integration strategy is

rolled out. A top level integration team visits the target company and gives clear cut information

regarding Cisco and the future roles of the employees of the acquired firm. After the acquisition,

employees of the acquired firm are given 30 days orientation training to fit into the new organizational

environment. The planned process of communication and integration has resulted in high rate of

success in acquisitions for Cisco.

(The case is adapted from Ciscos acquisition strategy, ICFAI Center for management research)

In an ideal merger, the newly created entity pools the best features of the two merging organizations. A

well planned process built on the foundations of an open, honest and consistent communication

strategy can pave the way.

Sandeep K Krishnan and AmitPande are students, Fellow Programme in Management, Personnel and

Industrial Relations area of the Indian Institute of Management, Ahmedabad. They may be contacted at

[email protected] and [email protected]

Bringing People Together: Communication In Mergers & Acquisitions

Mergers and Acquisitions breed uncertainty, ambiguity and fear amongst employees. Rumoursoften begin in organizations before the announcement of any impending deal is formally made.An internal communication plan helps avoid these complications by ensuring that employeesunderstand the reasons for the deal, the objectives the organization is trying to achieve and the potential benefits for everyone involved.



In mergers and acquisitions, employees typically seek answers to the following key questions:

y Will I have a job in the new organization?

y Where do I fit? What am I supposed to do?

y Will my pay, benefits and working conditions change? Will they be better or worse?

y Will this merger be good for me from a career perspective?

These and other questions must be addressed within a matter of weeks of the announcement, as productivity can suffer the longer employee questions go unanswered. Comprehensive,straightforward, concise and timely communication assists in building employee commitmentand focuses employees on the day-to-day operations of the organization. The faster employeesfeel connected to the new organization and their work unit, the faster they will begin workingtoward the business objectives and understand what is expected of them.

Communication Planning

Research shows that organizations using effective communication strategies achieve the bestresults in productivity and shareholder returns.1 Likewise, the importance of communication to asuccessful integration process cannot be overstated. A good communication strategy andexecution is critical to a successful merger or acquisition. To be efficient, that is to contribute tothe success of the business objective, the plan cannot be reactive; it has to be integral to the business plan.

An effective communication plan must take into account many diverse elements:

y The unique needs of various stakeholders, such as managers, employees, investors, customers,

suppliers and distributors, and surrounding communities, need to be identified, understood and

addressed. Each stakeholder group will want to know how the merger will affect them. Once thepreliminary decisions are made to form a merger, focus groups, surveys and information

sessions should be arranged with two purposes in mind: to solicit peoples views about the

merger and to respond to their concerns. Resistance to change most often occurs when people

do not know what is going on. Moreover, communication messages will assume different

nuances, depending on whether the audience comprises individuals from the acquirer or the

acquiree organizations.

y Stakeholders have to be informed as to who will be making decisions and when. Normally, a

special team of executives and managers is created as part of the merger or acquisition process

with a communication cell formed to ensure that frequent and accurate messages are

disseminated from the responsible managers on an ongoing basis.

y Information needs and issues must be monitored and dealt with throughout the integration

process. Systems for two-way communication are established through newsletters, special

communiqués, e-mail, corporate Web sites and town hall meetings so people can feel they are

part of the process - not on the receiving end of decisions. Taking a proactive approach is an

effective means for defusing erroneous information or misinformation created by the

grapevine to fill an information vacuum.

y Follow-through is a critical facet of the plan after the formal merger or acquisition agreements

have been implemented. Even though legal and structural amalgamation is completed, usually



the human and cultural blending takes a lot longer. The communication process has to continue

to inform people about changes to policies, procedures and practices.

When communicating with employees, an additional effort is required. The objectives of aninternal communication plan should be to:

y prepare people for their new roles within the organization,

y support employees in accepting and dealing with a significant number of changes,

y make sense out of the many initiatives and how they fit together,

y understand the new employment deal being offered by the company,

y model the new way of working in the organization, that helps to shape the desired culture,

y facilitate the flow of information by listening to employees, offering opportunities for input,

involving employees when possible, and giving feedback in a timely fashion, and

y ensure that messages are consistent and aligned with the integration objectives and any

external communication initiatives.

Technology plays a supporting role in the communication process by providing the means and

opportunity for consistent and timely information to all stakeholder groups. The right balance between high-tech, such as intranets and the Internet, and high-touch media, such as teammeetings with managers, must be applied so that the messages and information are conveyed inthe best way possible. What is important - and frequently very tricky - is to get the information toemployees using the right mix of several communication channels simultaneously, while notoverloading people with information.

Success in meeting milestones must be celebrated along the road to integration. By recognizingand reinforcing progress, employee and stakeholder motivation and commitment are enhanced.

Leadership R esponsibilityThe visibility of leadership and the role of managers in the communication process are essential.Leaders and managers should be equipped to handle the changes in the organization andcommunicate with employees and other stakeholders.

For leaders, communication can be time intensive. Nevertheless, successful organizationalcommunication requires that leaders spend a substantial amount of time communicating -speaking with and listening to employees. Leaders will need to be prepared to communicate theanswers they do have and be open to stating what answers they do not have as yet.

Mergers often mean that tough issues and messages need to be faced and explained in theorganization. For leaders and managers to maintain credibility and trust with employees, theymust be candid in dealing with these problems rather than choosing not to communicate at all.The trust that exists between leaders and their workforce is a fragile creature - synchronizing³say´ and ³do´ is important to maintain credibility.

As well, senior leaders need to model the expected behaviours in the organization. Thearticulation of a strong vision for the future must come from the top and cannot be delegated.



The messages sent through leaders¶ actions have the strongest impact on creating the new culturein the organization and creating the behaviours expected from employees.

Managers in front line work units are vital to the communication process because employees turnto them for information. Employees expect to hear critical information from their bosses as well

as from newsletters,W

eb sites and human resources representatives. Managers need to be trainedas effective communicators. They have to not only work through the changes in the organizationthemselves, but also support their employees in successfully coping with the transition.Managers need to be open, honest, set the right tone and be active listeners. Tools and supportmechanisms have to be available for managers to help them in this role.

K ey Talent Involvement

Often overlooked in a merger is the creation of specific communication directed at key talent,especially managers and employees with critical skills. Good people always have options, but itis in the company¶s best interest to engage critical talent early and aggressively involve them in

the integration process. These individuals need to know they are valued and important to theorganization as the merger or acquisition moves forward.

The Four-Phase Communication Process

The accompanying Figure 1 below, depicts four phases of the communication process during theintegration effort of a merger and acquisition event.2



Clearly, to achieve ³all of this effective communication´, resources need to be dedicated to anintensive process. Organizations should avoid the common pitfalls of dedicating too fewresources to communication and focusing most of those on external communication.

A balanced, integrated communications approach, aligning employees and stakeholders with theorganization¶s business goals will result in a more successful integration.

The communication process evolves as the integration effort takes shape. Some constants,however, are paramount. The most important one is management¶s support. Another is the

commitment to keep people informed about how the proposed changes will fit with theorganization¶s values and strategic focus. These efforts help people view the merger or acquisition as an essential ingredient to future business success.

ROLE OF HUMAN R ESOURCES IN MERGER S AND

ACQUISITIONS



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ROLE OF HUMAN R ESOURCES IN MERGER S AND ACQUISITIONS

Introduction:

A merger is a mixture of two organizations to form a new organization, even though anacquisition is the buy of 1 firm by another with no new company being formed. A merger occurswhen 1 firm assumes all the assets and all the liabilities of another. The acquiring firm retains itsidentity, even though the acquired firm ceases to exist. A majority vote of shareholders isgenerally needed to approve a merger. A merger is just 1 sort of acquisition. One firm canacquire yet another in numerous other ways, including buying some or all of the company¶sassets or buying up its outstanding shares of stock. The term ³acquisition´ is normally used whenone organization takes control of yet another. This can happen through a merger or a number of other methods, such as buying the majority of a company¶s stock or all of its assets.

Factors for Mergers and Acquisitions:

The management of an acquiring business may be motivated more by the desire tomanage ever-larger organizations than by any feasible gains in efficiency. There are a number of reasons why a corporation will merge with, acquire, or be acquired by an additional corporation.Sometimes, corporations can produce goods or services a lot more efficiently if they combinetheir efforts and facilities. Collaborating or sharing expertise may obtain gains in efficiency, or aorganization may have underutilized assets, the other company can better use. Also, a change inmanagement could make the organization much more profitable. Other reasons for acquisitionshave to do a lot more with hubris and power.

R egulation of Mergers and Acquisitions:

Mergers and acquisitions are governed by both state and federal laws. State law sets the procedures for the approval of mergers and establishes judicial oversight for the terms of mergersto make certain shareholders of the target business, receive fair value. Normally, state law tendsto be deferential to defences as long as the target firm is not acting primarily to preserve its own positions. Courts tend to be sceptical of defences if the management of a target organization hasalready decided to sell the organization or to bring about a change of control. Since of the fear that mergers will negatively affect employees or other company stakeholders, most states permitdirectors at target organizations to defend against acquisitions. Because of the number of statedefences now accessible, the vast majority of mergers and acquisitions are friendly, negotiatedtransactions.

Motives behind M&A



i) The following motives are considered to add shareholder value:

Economies of scale, increased revenue / increased marketplace share, cross selling,synergy, taxes, geographical or other diversification and resource transfer.

ii)T

he following motives are considered to not add shareholder value:

Diversification, overextension, manager¶s hubris, empire building, manager¶scompensation, bootstrapping and vertical integration

Mergers and Acquisitions: Doing the deal

Begin with an Give

When the CEO and top managers of a organization determine that they want to do amerger or acquisition, they begin with a tender give. The procedure typically begins with the

acquiring firm carefully and discreetly buying up shares in the target organization, or building a position.

The Target¶s R esponse

Once the tender give has been made, the target firm can do one of several things Accept

the Terms of the Off er, Attempt to Negotiate, Execute a Poison Pill or Some Other Hostile

Tak eover Def ence.

Closing the Deal

Finally, once the target company agrees to the tender supply and regulatory requirementsare met, the merger deal will be executed by means of some transaction. In a merger in which 1firm buys one more, the acquiring company will pay for the target company¶s shares with cash,stock or both. When the deal is closed, investors generally obtain a new stock in their portfolios -the acquiring company¶s expanded stock. Occasionally investors will get new stock identifying anew corporate entity that is developed by the M&A deal.

The Human Side of M&A Activity

A lot of attention is paid to the legal, financial, and operational elements of mergers andacquisitions. But executives who have been by way of the merger procedure now recognize that

in today¶s economy, the management of the human side of change is the real key to maximizingthe value of a deal. The management of the human side of M&A activity, even so, based uponthe failure rates of M&As, appears to be a somewhat neglected focus of the top management¶sattention. Men and women problems happen at a number of phases or stages of M&A activity. Alot more specifically, folks issues in just the integration phase of mergers and acquisitionscontain:

(1) Retention of key talent;



(2) Communications;

(3) Retention of key managers; and

(4) Integration of corporate cultures.

HR issues in 3 Stage Models of Mergers and Acquisitions

The three stages: (1) Pre-combination; (2) Mixture and integration of the partners; and (three)Solidification and advancement.

Selected HR Issues in the three Stages of M&A Stage 1: Pre-Mixture Identifying factors for theIM &A Forming IM & A team/leader Searching for possible partners Selecting a partner Planning for managing the procedure of the IM and/or A Planning to discover from the method

Stage 2-Combination and Integration

Choosing the integration manager Designing/implementing teams Creating the newstructure/methods/ leadership Retaining key employees Motivating the employees Managing thechange procedure Communicating to and involving stakeholders Deciding on the HR policiesand practice

Stage 3: Solidification and Assessment

Solidifying leadership and staffing Assessing the new strategies and structures Assessing the newculture Assessing the new HRM policies and practices Assessing the concerns of stakeholdersRevising as needed Learning from the process

Role of the HR Department in M&A activity

1. Developing key methods for a company¶s M&A activities

2. Managing the soft due diligence activity

three. Offering input into managing the method of change

4. Advising top management on the merged company¶s new organizational structure

5. Overseeing the communications

6. Managing the learning processes

7. Re-casting the HR department itself

8. Identifying and embracing new roles for the HR leader



9. Identifying and developing new competencies

The strategic contribution of HR as consisting of the ³Five P¶s´: Philosophy, Policies, Programs,Practices, and Processes.

Conclusion

Merger and Acquisitions success entirely depends on the individuals who drive theEnterprise, their ability to Execute, Creativity, and Innovation. It is of utmost importance toinvolve HR Experts in Mergers and Acquisitions discussions as it has an impact on key peopleissues. As Mergers and Acquisitions activity continues to step up globally, Organizationsinvolved in these transactions have the opportunity to adopt a different approach which includesthe increased involvement of HR experts. By doing so they will attain aa lot better outcome andincrease the chance that the overall deal is a total success.

HR in Mergers and Acquisitions

Contents

[hide]

y 1Role of HR in M&As

y 2Best Practices for Successful M&As

y 3HR Issues During M&As

y 4See Also

Role of HR in M&As

Once a business has decided to merge with another company, one of the most important tasks isthe combination of the two workforces into one. This task is primarily carried out by HumanResources (HR), and it is a critical and ongoing process that supports the entire merger or acquisition. HR must lead decision processes, prepare the company for integration and executethe actual reorganization. Throughout the process, they should also focus on building

relationships with the new company.

What about M&A tools? In today¶s mergers and acquisitions, an org chart is a requirement as itwill make the process of workforce planning easier and quicker. A good software solution canhelp management combine workforces by using visualization and workforce organizationaltools. Management can then set new budgets and organize the structure to best meet the neworganization¶s objectives.



Centralizing the data and personnel files helps in the allocation of resources, mapping out of thefuture company layout, and 'what if' analysis for possible reductions in force or promotions.

The role of HR during mergers and acquisitions can be separated into three phases:

Pre-deal

y Analyze hierarchies and reporting relationships

y Identify key personnel

y Generate headcounts by department

y Roll up total workforce cost

y Audit the workforce for diversity and other characteristics

y Assess government compliance issues

Integration planning

y Model the workforce to determine optimal structure

y Conduct what if scenario planning to visualize merger integration

y Collaborate with department managers to plan resources and structures

y Identify duplicate roles and plan necessary reductions

y Plan optimal management and reporting hierarchies

y Determine pay structure and reward systems

y Determine retirement and benefits structure

y Align workforce costs with departmental budgets

y Determine HR technology

Integration implementation and communication

y Consolidate workforce data into a centralized organizational chart

y Share the integration roadmap with management

y Provide managers with adjusted Spans of Control and budgets

y Publish a view of the new organization to all employees

y Produce documentation of the merger process for auditors

y Capture a history of organizational changes as planning progresses

y Communicate changes in compensation, benefits and reward systems

Post-merger workforce management and optimization

y Merge workforce data into a single system of record

y Ensure the successful assimilation of corporate cultures

y Align resources with corporate initiatives and business goals

y Refine business processes and workflow to reduce operational expenses

y Communicate performance management, talent acquisition and succession planning data.



y Present the unified workforce via a globally accessible, secure, intelligent organizational charting

system

An increasingly important critical success factor in M&A is the ability to identify the

organization that is not only the most strategic play but also the best organizational fit.Organizations with senior HR leadership are able to analyze the human capital factors during thedue diligence process ± often leading to better decisions.

Best Practices for Successful M&As

Research shows that most mergers and acquisitions fail to meet the expectations set for them.During a merger or acquisition, the best thing management and HR can aspire to is a smoothworkforce integration. How can you combine two separate cultures into one? How can youensure that employee morale doesn¶t suffer?

Below are 5 best practices for a successful merger or acquisition.

y Define the integration strategy with a clearly defined strategy is clearly, tactics follow easily.

y Focus on priority initiatives resources should be allocated based on financial impact and

timeline requirements.

y Develop a communication plan establish a two-way dialogue and keep all your constituents

informed: shareholders, customers, employees, vendors and the public. Offer the rationale for

the deal and timing for key events.

y Establish leadership at all levels assigning leaders early on will minimize uncertainty and

establish accountability

y Manage the integration as a business process the strategy must be executed in a timely

fashion

HR Issues During M&As

In implementing a merger or a corporate acquisition, management often focuses on thefinancials. But corporate culture issues and the integration of two groups of people are oftenmore important to the overall success. Crucial issues that can be overlooked include:

y Assessing the two corporate cultures : are they dramatically different?

y Defining the cultural aspects of the new company after combining the two separate culturesy Developing a communication strategy : how will people be informed? Of greatest concern to

employees: job security, relocation, new reporting relationships and changes in benefits.

y Retaining and motivating key employees

y Identifying and key leadership positions and tapping individuals to fill those roles

y Helping employees deal with change



Legal Aspects of Mergers and Acquisitions

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Legal Aspects of Mergers and Acquisitions

Introduction

Mergers and acquisitions comprise the collective term used to describe the integration of

two business firms directed towards the achievement of common business and strategic

objectives. Due to the goal accomplishment direction of mergers and acquisitions, the different

types of business firm combinations constitute transactions with implications to various

stakeholders including firm leaders, managers, employees, customers and investors as well as

the economy within which the business firms operate. This is because the success and failure of

mergers and acquisitions affect not only the business firms but also possibly the industry,

immediate communities, and the economy as a whole. (Sudarsanam 2003, p. 1) As such,

mergers and acquisitions are important decision and processed for many business firms

seeking to achieve business and strategic goals by combining with another firm. Mergers and

acquisitions have become a widespread aspect of the corporate development of business firms

and industries so that less than five years ago the rate of mergers and acquisitions occurring in

the corporate world has reached one such transaction every eighteen minutes or an annual rate

of thirty thousand transactions. These transactions involved billions of dollars often exceeding

the gross domestic product of small countries. (Cartwright & Schoenberg 2006, p. s1) However,

mergers and acquisitions are not simple transactions because of the significant failures.

Succeeding discussions look into the causes of failures, especially the assumption that failures

are more likely caused by soft rather then hard factors.



Understanding Mergers and Acquisitions

As a collection term, mergers and acquisitions pertain to four specific corporate

transactions, which are 1) mergers, 2) acquisitions, 3) buyout, and 4) takeover. While these

specific transactions all comprise business firm combinations for the achievement of business

and strategic goals, these transactions have distinctions. In mergers, the combination occurs

through the integration and sharing of their respected resources with the mutual understanding

that this is necessary in achieving common objectives. With acquisition, the transaction involves

one firm purchasing the majority or all of the assets of another business firm with the effect of

shifting ownership to the purchasing firm. The key difference between mergers and acquisitions

apart from the change in resource ownership is the possible creation of new business entity in

mergers while a new business firm inevitably arises in acquisitions. In the case of a buyout, this

could involve the purchase of another business firm or only one of its business units. This is

similar to an acquisition except that the acquisition can cover only a business unit in a buyout

that would not affect the existence of the other business firm. With regard to takeovers, this is

similar to acquisition but only with the common consideration that the company taking over

another is a larger firm, albeit a reverse takeover could also occur with a smaller firm taking over

a larger firm. This means that mergers comprise one transaction while acquisitions cover

acquisitions, buyouts and takeovers for discussion purposes. The rationale for the distinctions is

in terms of the process and requirements to follow, the regulations to adhere to, and the impact

to the stakeholders in case of successes and failures. (Sudarsanam 2003, p. 3) This means that

success factors have similarities and differences for the different transactions and

understanding differences in success factors, encompassing various interests and implications,

could determine the actual success of mergers and acquisitions.

Apart from distinguishing mergers and acquisitions, it is also important to recognize a

number of different mergers and acquisitions. One type is horizontal mergers and acquisitions



that involve business firm combinations involving potential or actual competing firms holding

counterpart positions in the production chain. This type of acquisition implies that the likely

objective for the combination is the boosting of the competitive position of the firms or expansion

of resources. Another type is vertical mergers and acquisitions that cover the transactions

between firms holding different positions in the production chain such as the combination of a

producer and a distributor. Still another type of mergers and acquisitions falls under other

combinations not covered by the previous types so that this includes the integration between

two totally unrelated business firms. (Clemente & Greenspan 1998, p. 197) Again, the different

types of mergers and acquisitions involve different processes as well as financial and legal

issues that the business firms have to content with. This means that determining the type of

combination is necessary to determine the financial and legal requirements and implications, as

part of the change management process. Doing so not only allows business firms engaging in

mergers and acquisitions to gain control over the transactions but also to ensure the successful

achievement of targets.

Importance of Mergers and Acquisitions

In particular, mergers and acquisitions involve the combination of resources that could

involve financial resources, technological resources, human resource competencies, production

chain processes, and logistics systems. These benefits constitute one or more of the reasons

that business firms engage in mergers and acquisitions. Overall, the underlying reason for

mergers and acquisitions is the creation of value for stakeholders through synergy, which

pertains to the expectation of business firms, that after the combination, the value generated

would exceed even the aggregate of the firm values. This means that the expectation involves

the multiplication of value to determine the synergistic result. (Reed-Lajoux 1998, p. 3)



However, in actual practice, the achievement of the targeted synergistic results is not

always achieved with sellers and purchases facing disappointment with the non-

accomplishment of the intended synergistic value. This means that the determination of the area

of combination that best ensures the highest synergistic value for the stakeholders. (Reed-

Lajoux 1998, p. 3) An explanation for the failure to achieve the synergistic targets is the impact

of the type of mergers and acquisitions. Sudarsanam and Mahate (2006, p. s7) explain the trend

in studies indicating that the likelihood of achieving positive or negative synergistic results

depends on whether the mergers and acquisitions were friendly or hostile. Friendly mergers and

acquisitions have the greater tendency to lead to positive synergistic results because these are

driven by value-creating objectives. In the case of hostile takeover, the combination is likely to

lead to negative synergistic results because the combination is likely motivated by the need to

discipline a management deemed to be underperforming.

This means that although mergers and acquisitions offer the benefit of creating

synergistic value for the combined firms, the actual results depends upon the nature of the

mergers and acquisitions. Friendly combinations represent the ideal situation for mergers and

situations to usher a positive synergy while hostile combinations constitute a problem area since

this may not lead to the creation of synergistic value, which defeats the purpose of mergers and

acquisitions. In addition, since hostile combinations occur in actual corporate transactions, there

is need to manage the hostility in order to ensure that expected results are achieved to a similar

extent as friendly turnovers in order to justify the transaction. Moreover, it is through hostile

combinations that that the issue of soft factors, especially corporate culture and the

management of cultural changes become determinants of the success or failure of

transactions.

Processes of Mergers and Acquisitions



Sudarsanam (2003, p. 3) identifies a five-stage process of mergers and acquisitions.

First stage is corporate strategy development, which covers the means of optimizing business

portfolios owned by business firms and the manner of changing these portfolios in order to

reflect the interests of the various stakeholders. However, the results of corporate strategy

largely depend upon the model developed to support corporate strategy implementation. (p. 4)

This means that corporate strategy planning is necessary or key in mergers and acquisitions.

Second stage is organizing for acquisitions so that business firms engaging in mergers and

acquisitions should organized aspects and factors involved in the transactions (p. 5). This is

necessary in order for the business firms to gain control over the transaction process flows in

expectation of intended results and to address emerging issues. Third stage is the structuring

and negotiation of the transaction that should be comprehensive to include changes in resource

control, management, financial control, and other similarly important factor (p. 6). This stage

also requires clarity and depth so that the negotiating firms know have an idea of the intentions

of the other party and the implications of actions likely to occur after the closure of a deal.

Fourth stage is post-acquisition integration that involves the role project-management teams in

auditing the internal controls of the acquired business firm together with the development of

plans of integrating the auditing functions and systems of the two combined business firms (p.

7). It is also in this stage that emerging issues including gaps in communication between the

combined business firms, business stability, and human resource conflicts are determined to

ease the integration process. Fifth stage is the post-acquisition audit, which refers to the

completion of risk-based audits, appraisal system audits, integration audits, and performance

audits. These are necessary for the combined firms to determine whether the transaction has

resulted to their intended results. (p. 8) Since audits provide an assessment of the strengths and

weaknesses of the results of the transactions based on performance standards, business firms

are able to derive lessons on strategies that usher successful mergers and acquisitions by

looking at effective and ineffective actions given particular circumstances.



The description of the processes indicates that problems or issues in mergers and

acquisitions occur during the implementation stage of the transaction plan.

Hard and Soft Factors in Mergers and Acquisitions

Bertoncelj and Kova (2007, p. 169) discussed that mergers and acquisitions result to the underperformance of the

resulting business firm/s because of the failure of executives to consider both economic and human factors in the transaction. Harding and

Rouse (2007, p. 126) added that although financial measures are important in determining the success of mergers and acquisitions,

business firms should also look into the extent that core competencies have been developed through the alignment of the organizational

structure with the organizational culture and vice versa. To manage effectively the transition or implementation period of mergers and

acquisitions, it becomes important to utilize both hard factors such as financial ratios and soft factors comprised of non-financial ratios.

Bertoncelj and Kova (2007, p. 172) further add that in considering soft factors, the focus is on people, the introduction

of new business values, and the changes in the attitudes and behaviour of the people forming part of the new business firm. The transition or

implementation period of mergers and acquisitions greatly rely on innovation or the positive dynamics of the creativity, knowledge, skills and

relationships arising among the human resources. In mergers and acquisitions linking internal and external innovative factors would result to

the facilitation of continuous innovation. As such, investments in human capital become an important success strategy for mergers and

acquisitions. Since the effect of soft factors are more difficult to measure compared to the hard factors, the problem area in the management

of the transition or implementation stage of mergers and acquisitions necessarily fall under the operation of the soft factors.

Soft Factors as Reasons for the Failure of Mergers and Acquisitions

The soft factors intervening in the transition or implementation of mergers and acquisitions include: 1) learning environment; 2)

management team; 3) intellectual capital; 4) organizational culture; and 5) communication. The nature and extent that these soft factors

influence organizational processes determines the issue of whether the soft factor can be attributed with failures of mergers and acquisitions.

Learning environment pertains to the management of knowledge as a valuable resource. Firms initiating mergers and acquisitions

should have a strong organizational structure and culture geared towards learning in order in order to support the decision to engage in the

integration and changes arising from the implementation of mergers and acquisitions. Having a strong learning environment enables

business firms to ensure continuity in organizational learning during the transition period of mergers and acquisitions. Organizational learning

then comprise a form of competitive advantage because this indicates the ability of human capital to adjust to changes and innovate on

processed and systems redounding to the benefit of consumers. (Bertoncelj&Kova2007, p. 173) Specifically, ensuring the continuity

of the learning environment provides human capital with a high incentive for developing trust in the new leadership or management and a

motivation for employee satisfaction. This allows employees of the firms to exercise flexibility during the transition stage as well as accept the

changes in business values and practices. (Dimovski&Skerlavaj 2006, p. 75)



Learning environment becomes a problem in mergers and acquisitions when both the combining business firms have not been

able to establish strong learning environments. When one business firm has not been able to establish a strong learning environment, while

the other has done so before the combination, the firm with a strong learning environment can contribute this is a core value to the merger.

However, when both firms do not have a strong learning environment, the integration of inflexible and ineffective learning environments and

the resistance or nil adjustability of employees leads to problems in integration of this soft system. The problem arises more so in

acquisitions, especially hostile acquisitions, because of the lack of a mutual synergy objective when compared to mergers.

Management team pertains to the new management leading the merged business firms. The team needs to be pre-selected during

the planning stage in order to rationalize the retention and creation of new positions for the leadership of the newly emerged business firm.

(Bertoncelj&Kova2007, p. 173) Management team becomes a problem in mergers and acquisitions when there is resistance from

the existing management pool of both companies or there is a shortage of competent managers. In mergers and friendly acquisitions, the

mutual objective of sharing resources indicates the cooperation of business firms in selecting the members of the management team so that

he problem is more on the resistance of managers due to the impact of organizational restructuring. With regard to hostile acquisitions,

management underperformance problems in the business being acquired creates problems such as lack of management competency

contributions from the firm together with resistance and other problems arising from organizational restructuring of the management team.

The value accorded to intellectual capital constitutes the differentiating factor for modern

business firms operating on a global scale because experts and specialists working for the

company determines the capability of business firms to engage in innovations necessary to

address emerging business issues. This means that intellectual capital valuation and

assessment need to be made during the planning stage in order to ensure smooth transition

during the integration of human capital. (Bertoncelj&Kova2007, p. 174) During the post-acquisition integration

stage, it is important to manage the evaluation of the intellectual capital of both firms in order to select and form a team that is unique to the

merged firms because of the combination of expertise and talents collaborating based on the new business values and objectives. Similar to

management organization, intellectual capital becomes a problem during the transition period when there are insufficient experts and talents

to assess or when the intellectual capital of the firms does not match the new objectives and business values of the firms. In the case of

mergers, the solution is simpler because of the mutual sharing of values so that even with these problems one firm ideally contributes what

the other does not have and vice versa. With regard to acquisitions, whether friendly or hostile, lack of sufficient intellectual resources would

influence the efficiency and competitiveness of the resulting firm.

Organizational culture pertains to the belief and value systems of business firms comprising the basis of identification of human

capital with the firm and the framework for the operations of the firm. During the transition period of mergers and acquisitions, change

becomes necessary in order to integrate the organizational cultures of both firms to develop a single organizational culture that reflects the

aspirations of the newly combined firm. (Bertoncelj&Kovac2007, p. 175) In the case of mergers involving the fusion of two business



firms, problems arise when the organizational culture of one or both business firms are not adaptive or when key cultures clash

(Teerikangas& Very 2006, p. s32). However, when the merger does not involve fusion or integration but only the sharing of

resources, there would be no problem unless cultural values covering the resources meant to be shared arise. With regard to acquisitions,

regardless of whether this is hostile or friendly, the purpose is fusion so that the problem of cultural adaptability constitutes an actual issue

during the implementation stage of the acquisition.

Communication constitutes the key tool during the transition or implementation stage of mergers and acquisitions since it is open

and accurate communications in real time that enables the business firms to manage and control the process of resource sharing or

integration. During mergers and acquisitions, the communication chain and process lengthens because of the need to coordinate with more

people and discuss more aspects in detail. This means that it is important for business firms intending to engage in mergers and acquisitions

to establish effective communication channels even during the early stages of the transaction in order to ensure the ease in coordination

during the transition stage. Moreover, the communication channels of the two business firms have to be connected to build collaborative

relationships among the people forming part of the two business firms. In addition, communications should be clear and open to the extent

that only accurate and truthful information to support actions on the part of both business firms. (Bertoncelj&Kovac2007, p. 177) In

the case of mergers, communication becomes a problem when the common goals of the two business firms or the value contribution

expected from each other have not been clearly and expressly communicated so that the firms develop the perception that the other

business firm have not kept up with its end of the bargain or misrepresented its value contributions. Nevertheless, with clarification of these

important factors during the transition period, the business firms are reminded of the justification for engaging in the merger and the intended

results. With regard to acquisitions, communication becomes a problem when channels of communication are not open or the parties carry a

non-cooperative attitude towards the impending change. This becomes a bigger problem in acquisitions because of the necessity of

integrating the two firms resulting to the inevitable importance of communication to facilitate the exchange of information and the settlement

of differences in opinion and interest.

Based on the consideration of the operation of the soft aspects during the transition or implementation period of mergers and

acquisitions, these soft aspects become a problem during the implementation stage when these factors were not recognized as important

intervening factors during this stage. Apart from the non-recognition of the importance of these soft factors, the lack or limited evaluation

measures for soft factors make it difficult for business firms to determine the extent of the impacts of these factors during the assessments

made during the implementation stage of the merger or acquisition when compared to the greater measurability of hard factors. As such, the

failure of business firms to approximate the impact of soft factors or focus on soft factors would likely lead to the failure of the merger or

acquisition because of the inability to address important issues such as organizational structure and culture integration or the management of

organizational restructuring of human capital.

Legal Aspects of Mergers and Acquisitions covering the Soft Aspects

Legal aspects of mergers and acquisitions cover the hard and soft aspects with laws

covering the hard aspects involving taxation, liquidation and business registration regulations



while laws pertaining to the soft aspects include labour relations regulations and employment

welfare standards. Labour relations regulations involves the binding agreement between the

representative union of the employees with management covering various aspects such as

wage rates, benefits, training and development, and removal from employment. In the case or

mergers and especially in acquisitions, the acquiring firm need to consider the collective

bargaining agreement in order as a means of integrating the work force of the two business

firms. In addition, if there is no collective bargaining agreement, existing employment contracts

should be considered because this constitutes a concern for the employees of the firm being

acquired. (Reed-Lajoux 1998, pp. 34, 367) In the case of mergers, the need to consider

collective bargaining agreements and employment contracts in managing the soft factors during

the transition stage may not be necessary when there is no major change in the organizational

structure of the business firms. However, in case of changes in the organizational structure and

work conditions of the employees, there would be need to consider these legal contracts to

address the concerns or issues of the employees. If these factors are not considered, then the

soft factors of management organization, intellectual capital and communication would become

problematic when employees of the firm being acquired become hostile or uncooperative during

the transition period of the merger. With regard to acquisitions, existing agreements with

managers and employees should be considered to determine the ways of providing incentives

for cooperation for both employees to be retained in the new organization and employees to be

let go during the implementation stage of the acquisition.

Employment standards cover a wide-range of laws including specifics of the

employment agreement such as minimum wager rates, work periods, breaks, leaves, benefits,

removal from employment, separation payments, and other issues governed by the employment

laws of the jurisdiction within which the business firms engaging in mergers and acquisition

operate or the legal jurisdiction governing the business firm being acquired. In addition, there



are also international standards on health and safety in the workplace, skills training and

development as part of quality standards, and workplace environment regulations. (Reed-Lajoux

1998, p. 236) In the case of mergers, the management of these standards could constitute

problems only in case of the differences in the laws and standards applied by the merging

business firms. When this happens there is need to align the different rules in order to establish

a common labour standard within the laws of the countries where the business firms operate.

After meeting basic legal requirements, the merging business firms can consider whether to

provide greater incentives to managers and employees by considering competitive environment

and the objectives of the firms. With regard to acquisitions, the issue of adherence to labour

standards constitutes a sound practice due to the importance of managing soft factors in this

type of transaction since a new business firm emerges. Due to the greater risks and wide-

ranging implications or effects of acquisitions to the different stakeholders, legal compliance can

constitute an incentive for cooperation especially when people have to be removed and

changes have to be made on tasks and positions.

Conclusion

It is true that the failure of a significant number of mergers and acquisitions are attributed

to the intervention of soft factors during the implementation stage of these transactions. One

reason for the attribution is the increased impacts of soft factors to business success, especially

to the plans requiring changes in the resource control or organizational structure and culture of

business firms. This means that soft factors have greater impact in acquisitions when compared

to mergers because of the inevitability of the creation of a new business entity in acquisitions

while is only a possibility in mergers. Another reason for the attribution of failures to soft factors

is the lack or limited measures in assessing the impact of soft factors. Evaluation of the impact

of soft factors supports the provision of the understanding of the issues arising from the

operation of the soft factors to facilitate the determination of means of effectively addressing



these problems. Finally, another reason for the attribution is the operation of soft factors during

implementation more than the planning stages so that actual problems are likely to be caused

by these factors relative to the soft factors. As such, the management of these soft factors

including the legal aspects are necessary especially in acquisitions to ensure smooth transition.

6 important aspects of Global Mergers & Acquisitions

byViral Dholakia on April 22, 2010

With a rebound in global markets, Indian companies are back with their appetite to go for ambitious overseas acquisitions in order to log into inorganic growth-driven expansion plans.

According to the quarterly deals data, the total value of outbound (overseas) deals by Indian

companies grew to over $12 billion in the March 2010 quarter f rom a measly $52 millionseen in the same period last year. The number of deals also increased to 45 from 15 over theyear.

Gradually, the strength of the recovery is ensuring that corporate honchos pull-up their firms back to the normalcy levels of pre-crisis duration a couple of years back. Going further,increased optimism would lead to revival in the number of outbound deals by the corporateIndia.



Indian Mergers & Acquisition Deals Comparison over last year

Month Volume Value* MOnth Volume Value*

Jan 10 15 341.3 Jan 09 5 40.2

Feb 10 13 615.8 Feb 09 6 135.7

Mar 10 17 12303.6 Mar 09 4 52.2

* in million / # according to data from Grand Thorton India

However, closure of mega-deals may need to determine and verify several aspects in order toenvelope a seamless coming together of two different entities from different culture andlocations altogether.

6 important Aspects of Global Mergers & Acquisitions

Global Thinking

The foremost requirement for a corporate looking to go global, to start with, is to change the old

technocrat mindset and think big and global. Companies working in overly competitiveenvironment have to change fast as per the evolving dynamics in their industry of operation.

BhartiAirtel¶s take-over of Zain Telecom is a case in point. Even as Bharti holds a numerouno position in the growing telecom markets of India, the company¶s management whiffed saturationof the urban markets in India along with regime of intensifying price wars.



Without being content with their current market share and stature, the company initiated a boldstep of acquiring African assets of Kuwait¶s Zain Telecom in a whooping $10.7 billion deal,inviting wrath of analyst¶s community over valuations.

As per an estimate only one in two Africans hold mobile phone and with Zain having strong

presence in most of the countries in Africa, Bharti has taken a lead in diversifying its risksinvolved in domestic markets.

Pricing and Valuations

Pricing and valuations at which the targeted firm is being taken over is the most crucial decisionto be taken while contemplating a global acquisition move. Preferably, both the CEO and theCFO of the company needs to figure out the net cost-benefit analysis involved in acquiring anoverseas company.

At the same time, it must be kept in mind that merely pricing and valuation should not form a

base of final decision. Even long term impact of the deal should be taken into account.In most of the mega-deals, the valuations are often touted as being overtly expensive in terms of pricing.

But, if the deal is likely to be earnings accretive over the longer duration it may be worth it to gofor a bold move. Similarly, if the move is likely to give the company a quick head-start within agiven market, it could be worth it rather than going for slow organic growth process unless thevaluations demanded are above realistic levels. The example of BhartiAirtel provided above fits perfectly well under this heading too.

Abiding Local Laws

An overseas company targeted to be acquired is governed by specific local laws and policies.Different countries are governed by diverse set of jurisdiction processes. It could be in the formof local land acquisition laws or even local labour laws with different set of trade union rules.

Take the case of Tata Steel¶s acquisition of UK¶s Corus, where the initial strains have begun toshow through labour issues and could likely result in labour strikes on account of Tata Steel¶sdecision to mothball its Teesside unit in northeastern England.

The regulatory issues of overseas destination have to be tackled in conformation with local jurisdiction laws and rules under the recommendations of local legal experts.

Flexible Decisions & Adaptability to Change

Companies have to ensure that their business decisions and mandates are flexible and adaptableto change in the overseas markets. A product which is an instant hit domestically need notnecessarily be as much viable in a foreign market.



Take the case of same company BhartiAirtel. The telecom company played well its cards relatedto low-cost, high-volume game in the growing markets of India. In fact, it got a firm footholdthrough this strategy as India¶s premier telecom operator.

And now the company is looking to replicate the same model in Africa¶s too. It is not necessary

that the same model would work over there too.If the volume game does not work over there,the company needs to be ready with a Plan B to quickly adapt to the diverse trend of local

consumers.

Diverse Tactics of Marketing

An acquisition abroad is like marrying with an entity with distinct features and characteristicsaltogether, even though the new entity becomes a part of one¶s own company post-takeover.

While on the marketing front, it could entail relating to diverse tastes of consumers situated inthe destination country. It could be more sensible to hire employees from local state who are

more acquainted of the local environment conditions and trend dynamics.

Availing services of the local employee expertise in production and marketing aspect could beseen as a game clinching aspect for going along with overseas ambitions. Employing local people would attract less stiffness from local people on issues related to employment concerns.

Higher levels top executives, preferably even on the board seats, would act as an added boost for an able aid to top management in working our local business strategies for the company.

Serving to Social Causes of Local Destination

A foremost most rule that drives any top class company is to serve the social causes of thesociety. W hatever you give, comes back ± goes the saying. A responsible and accountablecompany would be better-off to part away some small portion of its earnings as a give-back tothe local country and its people.

Companies can initiate a number of societal objectives like adopting responsibility for improvinginfrastructure of a specific area or a location. It could be donations to charity organization andleprosy hit people.

It could as well be any other social cause which spreads awareness among the people. Taking part in rehabilitation of areas hit with natural disasters. Most of all, the companies should also

take accountability about the environmental aspects and welfare of the local country.

y

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