Corporations acquire, merge, or create alliances with other companies for a variety of reasons, including extending product lines, moving into new markets and territories around the world, and protecting market share in a declining or consolidating industry. Successful M&A ventures are those that increase revenue and fit into a company’s strategy rather than simply decreasing operating expenses.
M&A yields the following synergies:
* Economies and Cost Savings: By reducing personnel costs and redundant physical plant facilities, companies yield short-term gains. The real financial gains come from economies of scale, such as more purchasing power with suppliers and fewer intermediaries on the supply chain.
* Resource Combinations: By pairing people in new ways rather than just cutting staff, innovative new solutions are born.
* Revenue Enhancement: By integrating functions and staff in a way that makes sense, companies can increase their pricing power, leverage a larger customer base, and cross-sell products and services.
* New Knowledge and Capabilities: Many companies use acquisitions as a form of R&D. Beyond simply acquiring technology, companies must integrate the people and the knowledge behind it.
When combining two companies, it is important to have a high-level vision of the desired “end state.”
There are several different combinations that can occur:
1. Preservation: The acquired company continues its way of doing business with only minimal integration into the parent company.
2. Absorption: The acquired company is totally assimilated into the parent company’s culture.
3. Reverse Takeover: The parent company adopts the culture of the acquired company.
4. Best of Both: A blending of both companies’ policies and practices (often found in a merger of equals).
5. Transformation: Both companies undergo a change and the end result is a company that has been reinvented. This combination is the most difficult to achieve.
When companies combine, culture clashes can be an issue. The key to success is to bring the two cultures together through diplomacy. Company leaders should be aware that a perceived lack of control will cause some employees to leave the company, and the loss of the best and brightest individuals will affect the rest of the workforce negatively.
There is no one-size-fits-all method for managing a merger; however, most successful combinations are built on social psychologist Kurt Lewin’s model of unfreezing, changing, and refreezing. The first step in this model is to involve the employees in the search for synergies. Next, leaders must outline rules and values that will define the desired end-state. Managers and employees must implement the change at this level. Finally, structures, systems, and performance targets must lock in desired behaviors and mind-sets. A new culture requires time and patience, but if done correctly it offers employees a sense of purpose that can carry them and the organization into the future.
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