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

' littlely evaluate why so galore(postnominal) another(prenominal) unifyrs and skills anticipate to be made when so galore(postnominal) fail.\r\nThe phenomenon of intermixrs and acquisitions (M& angstrom;A’s) triggers an array of opinions and viewpoints. Often it is a outline that is seen as a blameless way of achieving growing. It is by no actor an organic or ingrained route to wages, but has tended to be a ready(a) and easy way of increasing an schemes surface and force. til now although at that place has been ‘waves’ of popularity and succeeder since its introduction in the 1960’s it has in like manner suffered criticism collectable to the amount of failures it has accounted for. notwithstanding the strong suggestion that this dodge has been the architect for numerous an(prenominal) an establishments d professfall there still remains a propensity in the reliable descent purlieu for managers to adopt it. Throughout this ess ay I am going to examine some of the argonas that explain M& adenosine monophosphate;A’s volatility and flack to disc everywhere why managers be persevering with the outline when it is come outingly flawed.\r\nOver the last few decades it has grow increasing evident that the effect of mergers and acquisitions is not as beneficial as once thought. When the product system was pioneered in the middle part of the nineteen hundreds it was looked upon as a way of creating an empire across disparate sectors and countries. M all get a lined managers were sucked into the dodging, only having eyes for the app arnt synergistical and positive affects of M& international deoxyadenosine monophosphateere;A’s. Although oer the following years there has been umteen mastery stories concerning M&A’s, when the big video recording is examined it displays a more ugly side of the phenomenon. Hodge (1998) find that ‘in the go-go ’80s, 37% of mergers out performed the average stockholder crop in that period; in the first half(a) of the ’90s, that figure rose to 54%’.\r\nDespite the encouraging increase during the early ’90s there remains a disturbing reality that ‘bargonly one-half of the m&a deals of recent years delivered sh areholder value that outperformed steady the relevant industry average, a good deal less provided an adequate return on enthronisation’. Added to this he also risquelighted that ‘only a contemptible 25% of deals valued at 30% or more of the pull inr’s annual r until now outues could be counted as winner’. These statistics reconcile the flaws that exist at bottom the strategy of M&A’s and clash with the positive theory that ‘analysts and investors expect the incorporate enterprises to be greater than the sum of its parts’ (Doitte and metalworker 1998). Coopers and Lybrand (1993) on with m each other writers piss an alyze and expanded on some of the key promoters that cumber that use upfulness of M&A’s.\r\n coffin nail anxiety attitudes and cultural differences ‘heads the list of impediments to the successful melding of dickens organisations’ (Davenport 1998). This is appropriate not only in the field of cross-border mergers (Daimler Benz-Chrysler) where there many obvious points of concern frequently(prenominal) as language and communication, but also indoors the collaboration of unfluctuatings based in the same field and even industry. attention a good deal arrest their own ‘way of working’ that suits both themselves and their employees, which may be generated through national or corporate culture. This is loosely characterised by unique and individual working practices amongst contrary firms nation and worldwide. Therefore when a merger or acquisition takes place the conduct is the combining of cardinal sets of cultures in an try to wor k together.\r\nIn some cases the merge looks both safe and profitable in theory, however perplexity much underestimate the power of culture. For pillowcase when Mellon Bank and the Boston Co interconnected in 1993 they failed to consider how ‘cultural conflict could give out the combined company of its just about valuable acquired addition of the talents of Boston Co.’s money- way wizards. Offended by Mellon’s cost-conscious management style, a key administrator left the organisation. Within the next three months, he had interpreted 30 of his co-workers with him, along with $3.5 billion assets and many of the firm’s clients’ (Davenport 1998). I think this example emphasizes the risk of exposure associated with M&A’s due to their inevitable degree of unpredictability. For this intellect alone it is laboured to imagine a full proof cause advocating their use in modern business.\r\nAnother factor that makes M&A’s a h igh-risk strategy is the fact that management often have limited knowledge of the industry they are entering. This is obviously the case when two firms from unrelated backgrounds merge (conglomerate integration). In this case management are asleep of the way the industry works and are curtail to hardly understanding the bare bones of the business. ‘Differences in traditions, expectations, buying and specification practices, packaging, logistics, labelling, and legal customs and issues washstand have a surprisingly profound concern on the post-acquisition viability of a target company’ (Price and Sloane 1998).\r\nThese differences along with more obvious changes such as product, market place and clients make life awkward for management. In most industries it takes sentence to mother and form bonds with suppliers, customers and even local communities. These types of bonds are normally a result of private relationships and even friendships that have grown through transaction and negotiations everyplace a long period. M&A’s break up many of these ties across the industry and leave new-made management with the task to start fresh alliances. In many cases the change is not well received and an organisation that essentially is unchanged in terms of its core out activities back end fail.\r\nThe art of creating a post-acquisition integration think is also extremely important, but is difficult to master. ‘Unfortunately, for many companies, it is this phase that the deal fails because the parties focus too much on the financial aspect of the merger or acquisition without adequately addressing the people components that must be considered to forge two organizations into one cohesive entity’ (Doitte and metalworker 1998). Employees are often neglected through the movementment of M&A’s and even if attention is given to them there is generally a lack of meaningful consultation.\r\nAlthough it is an area that is very clever to get right from a managerial lieu it is vital if the strategy is to succeed. ‘If managers of each company fold themselves off from their employees, employees volition feel adrift. Employees’ resulting low morale and lack of direction will lead to high personnel turnover’ (Heitner 1998). This is simply another factor, which makes the strategy of M&A’s so difficult to implement and along with the previously mentioned arguable areas explains why their success rate is only well-nigh 50%. However despite the fact that many investment bankers and journalists believe the difference between their success and failure is ‘a coin toss at outmatch’ (Davenport 1998) organisations continue to utilise them.\r\nA study reason butt end M&A’s continued use is the amount of advantages an organisation enkindle potentially pass on by undergoing a successful merger or acquisition. Although there are many risks and pitfalls involved when the strategy is startn management understandably believe the prospective benefits outweigh these possible drawbacks.\r\nIn modern business world-wideisation has in many cases become a necessity rather than a luxury. Firms are now desperate to expand into unconnected countries in order for them to compete in depopulated lucrative markets and increase their competitive advantage. If spherical markets are entered successfully it gives organisations the chance to exploit resources, synergies and opportunities. However there is also a sense that in the global marketplace ‘bigger is expose’ (Doitte and smith 1998) and firms have to be of a certain size to be able to compete. In order to break into global markets organisations need to grow and often quickly so ground is not lost on competitors. In this situation M&A’s are the most attractive option for managers. They represent a ‘leap’ approach whereby firms mess cognize this des ired growth rapidly. Managers are aware that it is the growth strategy that carries the highest risk, but often feel they have little choice. The modern business world demands mental institution and expansion and if companies stand still they will simply get left behind.\r\nFirms often use M&A’s as a way of diversifying. A well-executed variegation strategy terminate widen an organisations product portfolio and therefore spread an organisations risk. This means entering disparate markets in order to edit dependence upon current products and customers. Selling a cast of different products to various groups of consumers will mean that if any one product fails, sales of the other products should persevere the business healthy. As a result firms in this situation are less susceptible in market downturns and recessions. It is unlikely that a slump occurs in two diverse markets, but even in a case of a recession, where there are generally negative affects across the board , the organisation with added critical mass is in a better thought to weather the crisis.\r\nThe simplest way for management to achieve this diversification is to merge or takeover another company. It saves time and money being spent developing new products for markets in which the firm may have no expertise. Richard Branson and Virgin has been a major exponent of this over the last decade. His brand now covers air travel, practice of medicine and even soft drinks! This is a perfect example how M&A’s can produce multi-million pound empires extremely quickly. However many organisations can become influenced by such stories and attempt to mirror the success without fully understanding whether it’s the right move in their own business situation.\r\nMarket power is also a reason firms adopt M&A’s. This is usually generated when two competitors in the same market merge in what is called horizontal integration. The potential benefits for the purchaser are e xtremely attractive and hard to ignore. There is extensive scope for cost cutting by eliminating extra of sales force, scattering and marketing overheads and by improve capacity utilisation. There is also the opportunity for major economies of scale and increased prices due to the reduction in competition.\r\nCoca-Cola achieved this type of acquisition when taking over Orangina, a distinctive product with very strong distribution in France. Here Coca-Cola identified Orangina’s customer base as one that they struggled to attract and refractory for them to increase their market power they needed to acquire the brand. However, this is by no means the correct move for all firms. The merge between car manufacturers Daimler Benz and Chrysler has been ridden with problems since its put together in 1998. Sometimes a merge in this way creates twice the size, but double the problems.\r\n standardised to the idea of joining forces with a competitor to gain market power, management can undertake a merger or acquisition to ‘block’ competitors in doing so. This tactic usually comes in the form of a vertical integration where one firm takes over or merges with another at a different stage in the production process, but within the same industry. An example of this is brewery Whitbread’s purchase of restaurant chain Beefeater. This type of M&A does not only guarantee outlets for your products or develop closer links with suppliers, it can also go some way to freezing out the flagellum of competitors. However it is not wise for management to undertake a merge with the sole intention to change competitors. It is important, first and foremost, that the strategy has synergistical affects for them the acquirer as other it may struggle.\r\nAs I have highlighted there are undoubted gains offered by successful M&A’s. These attractive advantages can often stockpile managers, sometimes wrongly, to implement a mergers or acquisitions o f their own. The apprehend is that their organisation can in practice thread the rewards that the theory says is possible. The reality is that many fail because the strategy is mismatch with other objectives and inappropriate in their current position.\r\nDespite managements good intentions their judgement has been clouded by the large potential gains M&A’s can offer. However it is not ceaselessly the case that management adopt the strategy stringently because of the apparent advantages it can for their firm. There is a naturalize of thought that justifiably believes that top management frequently have ulterior motives when adopting M&A’s. The belief is that purposes made concerning them are not necessarily in the main interests of the organisation, but more centred on what is outstrip for them as individuals. As a result managers may proceed with poor value acquisitions in order to meet personal goals or even objectives they think ‘should’ be met.\r\nThe ’empire-building syndrome’ is a main ratifier here. As an organisation grows it becomes a more important player in its industry. Naturally as the size and power of the firm increases as does the importance of its management and with this comes higher remuneration and social status. Also ‘executive compensation may increase as a result of an increase in firm size, even when there is no corresponding increase in shareholders’ wealth’ (Jenson 1986). It is clear that a merger or acquisition strategy can work well for top management regardless of its overall success for the firm.\r\nIn the same way management can be influenced by prospective financial and prestige rewards, they may also be interested in satisfying their self- close goals. In low growth markets management can feel they are not tiring their full energy and talents. In order for them to experience this type of self or job fulfilment they may choose to grow their firm via a merger or acquisition. This may present the perfect challenge for management, but not necessarily model challenge for their organisation.\r\nFinally job security is also an important managerial motive. A merger or acquisition can diverse risk and minimize the costs of financial distress and that of bankruptcy. This added stability helps veto an organisation becoming an acquisition target themselves. Although the decision might not be in the best interests of the firm and shareholders, management solidify their own position. along with the other negative managerial motives they represent a clear reason why M&A’s continue to be employ in the light of so many failures.\r\nIn conclusion I feel the topic of M&A’s and the reasons behind their continue use in business is now much clearer. It is initially very difficult to fathom any organisation adopting a strategy that only has a success rate of around 50%. dominant allele factors such culture and management ine xperience seem to make any merger or acquisition an uphill struggle. However when the topic is examined closer the reasons behind these decisions are more obvious. In the modern business environment businesses are constantly looking to better themselves and stay one-step ahead of competition.\r\nIt is wrong to accept that as a result organisations are compel into strategies that stimulate rapid growth, but there is a definite feeling that factors such as globalisation and increased market power are the best route to success. As these are two hallmarks of the M&A phenomenon it is no real strike that management frequently decide that it might be their best strategy regardless of their poor success rate. It is this risk taking mentality, that has become a peculiar(prenominal) of 21st century management, allied with the more misanthropical decision making habits some managers have adopted has kept the use of M&A’s high. Added to the fact that in the right mise en scene M&A’s can be an efficient and highly profitable growth strategy it is easy to see how they have had and will continue to have a great use in business regardless of their failures.\r\nBibliography\r\nTextbooks\r\nGlanville & Belton (1998) ‘M&A’s are transforming the orbit’ Ivey Business Journal, Autumn; Customer text-section 2, topic 11.\r\nKieran et al (1994) ‘Planning the deals that generate value and gain advantage’, Mergers and Acquisitions, March-April; Custom text, topic 12.\r\nJournals\r\nDoitte S & Smith G (1998). ‘The morning after (avoiding mistakes in acquisitions and mergers)’. pass v63 i2 p32(8).\r\nDavenport, T (1998). ‘The Integration Challenge (managing corporate mergers’ guidance Review.\r\nHeitner M (1998). ‘The thorny business of merging come to firms’, Mergers and Acquisitions.\r\nHodge, K (1998), ‘The art of the post deal (outcomes of mergers)’. M anagement Review.\r\nPrice, A & Sloane, J (1998). ‘Global Designs: problematic Challenges for Acquirers’. Mergers and Acquisitions..\r\nWhipple J & Frankel R (2000), ‘Strategic attachment Success Factors’. The Journal of Supply Chain Management.\r\n'