Trends and Success Factors in Mergers and Acquisitions

Identify and critically assess whether the current wave of activity in M&As is like those cycles which have occurred in the past.

The business environment is always dynamic, due to various changes in policy, currency, consumer tastes, consumer patterns, and technology. Therefore, a trend in business cannot last for an extended period. In the case of Mergers and Acquisition (M&A), there are always

different patterns that have characterised and defined this practice. However, what has remained constant is that as much as most people believe that mergers and acquisitions are bound to fail. A statistical study by Banerjee and Nayak (2015, p. 495) revealed that the number of mergers and acquisitions has risen in more in the current years, as shown in figure 1. This business practice has gained meaningful momentum overtime. Apart from determining the change in the waves of M&A, this paper will also asses the operational, strategic, and financial factors that need to be considered for the M&A to be considered successful. Whether evaluating historical trends or exploring contemporary strategies, business dissertation help is critical for navigating the intricacies of mergers and acquisitions.

Waves in M&A

Usually, the patterns of M&A are cyclical, driven by shifts in different industries, financial regulations, shakeouts in vulnerable sectors, and economies of scales in various areas. For instance, the period between 1995-2000, the M&A was majorly influenced by rapid technology, innovations, globalisation, the internet, and the boom in the real estate business. In the same manner, the declining pattern in 2000-2003 was majorly influenced by the crush in the equity market, decline in the market because of national security threats and issues. The cycle again improved between 2007 due to the increase in global liquidity, improvement in the foreign market reserves, and diminished dollar value. The trend again reversed in 2007-2009 because of strict financial regulations that led to the reshaping of the financial market after the 2008 economic crisis. In the years between 2009 and 2013, the trends in M&A slightly reduced because most companies were still re-building their balance sheet, diverted their resources on their core business, divesting non-fundamental assets and accumulating a sustainable cash reserve (Koi-Akrofim 2016, p. 149). But in 2014, there were a few signals of economic turnaround around the world. Such an environment created the needed platform for

deal-breaking and making since most companies had a favourable funding condition, a strong balance sheet, and a stable share price performance. Strategic businesses have dominated the deal-making patterns in the period after 2014, like most clients, and other companies seek to enhance their profit margins via M&A based approach and portfolio diversification. Strategic plans have made up to 85% of the deal value in 2015 and 87% since 2014 up to date (Chondrakis 2016, p. 1789). From such a small analysis, it is clear that the M&A wave is different, even in the 21st century.

A study by Martynova and Renneboog (2005) titled “A Century of Corporate Takeovers: What Have We Learned and Where Do We Stand?” revealed that the M&A had experienced different waves. For example, in the USA, which is known to have sustained the most extended history of the market. The researcher counted five different waves that were witnessed between 1895-2003, and the last one documented was experienced between 2003 to 2007. Every wave has an unusual trait from the other. The researchers stated that the first wave to ever been recorded stated at the culmination of the 19th century (Gornall and Strebulaev 2015). The tide was referred to as the Great Merger Wave. It happened against a background of substantial industrial, economic, financial, business, and regulatory turmoil. This wave led to the development of powerful monopolistic entities in various industries of the market. It was ended by the failed capital market between 1903 to 1905.

The second wave of M&A is estimated to have started after the end of the first world war, and achieved its peak in the 1920s. The wave was projected by the implementation of anti-trust legislation, which allowed for the consolidation of M&A between start-up entities that had missed out on the formation of powerful monopolies in the last wave. This wave was also crushed by the economic depression in 1929 (the great depression). The great depression was followed by the second world war which devastated various components of the market, until in the mid-1950s, when the market experienced another wave of M&A, which lasted for two decades. The objective of these new groups was to take advantage of the growth drivers in the market so that they can limit the unpredictability of their profits. The movement ended in the 1970s when the petroleum market lurched the world into a global recession.

The fourth wave started in 1980, which coincided with various changes in a different field, such as the antitrust policies, the deregulation of financial markets, the establishment of new monetary gadgets such as junk bonds, and the advancement of technology in the electronics industry. The existing environment in the market at that time created the heyday for corporate raiders, which rendered the market hostile for conglomerates that were not favored since they become hulking and economically unstable (Bassi and Gupta 2015). The market crash that started in October 1987 led to the end of this wave.

The fifth wave started in 1993, with the repossession of the economy, and various enhancements in the capital market. Like other streams, different facets helped this wave to thrive. These forces include technological innovations, and privatisation, especially in the telecommunication industry. It was during this period that the European markets developed to the level of the US market. It was around the same time that M&A emerged in Asia, which earlier was characterised by local deals that improved to international agreements as a response to the globalisation of financial trades. The wave was ended by the bursting of the internet bubble in the kick-off of the 21st century.

The sixth wave began in 2003, and just like the other waves, it majorly focused on the international market and majorly focused on improving financial outcomes. The wave was short-lived and lasted up to 2008. As much as there are some commonalities in various aspects of M&A, they also differ regarding their nature, strength, and period. The most common factors that have been identified in these waves include economic recovery, thriving of the financial market, changes in the structural and regulatory frameworks, and the need for entities to adapt to various dynamics in the market (Kling, Nugent, and Van Dyke, 2019). Another common feature that was noted was that in all cases, M&A waves were ended by an end in the financial markets. Figure 2 reveals how M&A waves varied in terms of their intensity (was evaluated in terms of the deals made) and their duration. The first wave was the most pronounced over a short time. The last was the longest, lasting for more than 20 years.

The financial crisis in 2008, ended the sixth wave of M&A, and brought it to a standstill for a very long period, although companies have started to trust the market again due to the unconventional measures that were used by central banks. M&A stalled because most company owners preferred to pay dividends to their shareholders or purchase their shares instead of investing in M&A.

The operational, strategic and financial factors that need to be considered for the M&A to be

Operational factors

The agent theory gives a perspective to what extent the M&A is launched in the interest of the executives rather than considering the importance of the stakeholders. A study conducted by Daepp, Hamilton, West, and Bettencourt (2015) based its measurement of cumulative abnormal returns of entities that had performed criteria. The study supported the same idea. According to current research, managers can strive to acquire different companies to satisfy their interests rather than the interests of shareholders. Sorensen (2000, p. 423) used in empirical evidence on the same concept and concluded that if executives acquire targeted companies that they assume they can manage more efficiently, such M&A Never lead to higher profitability as expected. The results of this study are also in tandem with the stipulations of the portfolio Theory that stated that the interests of the executives are always to diversify and satisfy their welfare. Fujiki, Niino, and Fukuda, Denso Corp (2018) argued that executives could make from judgment while considering to acquire another entity, primarily if non-performance criteria motivate the understanding.

Some studies in this area have focused on the leadership styles of top managers and the involvement in the acquisition and merging process. Thompson, Wallace, and Flecker (1992, p. 301) confirmed that leadership facets strongly influence post matching and acquisition process. In their methodology, they establish a distinction between the personal charisma of a leader that leads to the absorption strategy and integrates the appeal of the managers that influences collaborative vision formation. These authors concluded that the second type of leadership is more effective in the success of mergers and acquisition deals as compared to the first type of leadership trait.

Human Resource and the process of merging and acquiring another entity

Teerikangas, Stahl, Björkmann, and Mendenhall (2015, p. 423) contended that the outcomes after merging and acquiring another entity could be enhanced by using favourable human resource practices such as autonomy, communication, and proper training. These researchers differentiated their framework from the resource-based perspective that has been commonly accepted to establish a sustainable competitive advantage, those who acquired the company or to transfer from the acquired firms’ assets and people with various and enhance skills and knowledge than what its rivals in the market had. On the other hand, Cooke (2016, p. 149) reported that a knowledge-based perspective that focuses on the need to develop and integrate knowledge would help new mergers and acquisitions. They advised that companies should explore synergies by sharing resources as a winning strategy.

Srivastava (2018, p. 7) examined the question on the issue performances among mergers and acquisitions from the point of participants positioning in the wave of M&A Wave. These investigators are convinced that initial situations can have a positive effect on the profit of shareholders in mergers and acquisitions. Their perspective on this is that companies that react earlier in an M&A Wave have a competitive advantage over their rivals since they can benefit from the asymmetry of information in the market. the theory was used in a study by Nahavandi, and Malekzadeh (1988, p. 81) to give empirical evidence on the method discussed above and concluded that successful mergers and acquisitions are usually founded in the early participants to purchase other entities at a lower and underestimated price which creates our unique integration of imitable sealants

A study conducted by Öberg and Holtström (2006, p. 1267) reviewed the link between mergers and acquisitions and privatisation and the performance of acquiring a newly privatised entity. As per the tenets of the economic Theory, the transfer of Capital on the market and the market competition ought to enhance performance in the financial sector. Even so, in some instances, some studies have contradictory theoretical perspectives on this issue. For example, Angwin and Meadows, (2015, p. 242) were not successful in proving the fact that privatisation improves financial performances. Other analyses by Fiorentino and Garzella (2015) gave contrary results. Additional studies took a different approach to analyse this issue. Gomes, Mellahi, Sahadev, and Harvey (2017, p. 590) investigated if environmental situations instead of ownership have more impact as compared to performance. Theories of M&A revealed that the performance mergers and acquisition deals are majorly affected by the strategic and organisational adjustments among the merging entities, and by their systems of transformations. Meglio, King, and Risberg (2017, p. 415) confirmed that the alteration and the transformation process change in a primary manner when one principle in the deal is the government. In the classical systems of M&A, the seller is obligated to protect stakeholder’s interests only by maximising the selling price and probably is not capable of influencing the post M&A process. However, in cases of privatisation, the government stands in the position of the vendor, and its interests, in most cases, are beyond simple economic considerations. Thus, the government has the right to impose its political or social factors directly or indirectly through other programs even after the deal.

Amel-Zadeh and Meeks (2019) revealed that for M&A to minimise future business risks, they should try to diversify into a similar business. This is due to the fact that economies of scales could lead to more productivity and, in the long run, could give an entity a competitive advantage. For example, companies such as Arcelor Mittal, have specialised in acquiring a competing organisation to sustain their competitive position in the global market and the steel industry. In cases where two merging companies are similar in terms of manufacturing and markets, then M&A could lead to growth in terms of scale. The homogeneity could lead to a synergistic effect in the process of M&A. Synergies can mostly point to a higher power in the market, administrative efficiencies, and decrease the cost of capital. It is essential to have an idea of where the synergies can happen and quantify the synergies as much as possible. A company should, therefore, be able to use various examinations and analyses in their different value chains through backward integration, cutting increased costs in areas such as logistics and marketing. Such a system will give an ideology on whether the partaken merger or acquisition is worth the resources (both time and capital) being invested into the process (Režňáková and Pěta 2016, p. 372). For example, as much as there are a lot of business synergies between Coca Coal and Quaker Oats, the two entities could not make a merger due to the fact that the value generated was not worth the resources to be spent.

In some instances, diversifying in unrelated deals could create more economic value in comparison to diversifying into the related business. Some researchers argued that instead of emphasising on economies of scale, entities should focus on expanding their strategic assets since they cannot be examined easily by non-diversified rivals. These assets could act as the foundation of competitive advantage to the company (Zaremba and Płotnicki 2016, p. 259). For instance, when the low battery life started to affect the competitiveness of Apple, the company bought the chip designer P.A semi in 2008 to design the chip, particularly for apple products. The move gave Apple an advantage over other companies. Economies of scale are only capable of providing a short-term competitive advantage, which is also imitable. A study by Rottig (2017, p.21) revealed that the risk for diversifying into other unrelated ventures are always higher in comparison to the risks associated with expanding into related entities. Bari Fanchen and Baloch (2016, p. 1527) stated that curvilinear link between a company’s relatedness and performance. In the quest for diversification, in some cases, companies could over diversify. In most cases, over-diversification can lead to the reduction of the marginal benefit curve and an increase in cost that ultimately leads to loss of company value.

The fundamentals of a successful merger of two unrelated businesses seem to be the integration of financial systems where the operation is not attended to, and the fiscal aspects of the business-like cash flow and cost of debt capital offer synergies. In cases where the acquisition id in the field of an unrelated or related transaction, a broader strategy should be considered, and then succeeding strategies are developed such that other plans blend with the primary goal. Since an entity ought to consider synergy across similar processes or resources, one needs to be careful since these homogeneities might not be synergistic. Most failing mergers do so due to the anticipated synergies that are exceptionally overvalued. Dao, Strobl, Bauer, and Tarba (2017, p. 201) gave the example of a banking firm that assessed more than a dozen comparable deals on various regions to make a precise assessment of comprehended synergies. An explained pre-assessment could provide an accurate demonstration than a simple projection of synergies. The insufficiency of information and interacting could lead to the overestimation of synergies and lead to the failure of the merger.

Due Diligence

For an M&A to ensure strategic fitness, an objective analysis of the two entities, the ability becomes essential. The process of due diligence examines the objectives of the company. It comprises of an investigation into different areas of a target company such as monetary structures and performance product portfolio, clientele base, and the distribution structure. A holistic risk assessment ought to be conducted and quantified (Kiesel, Ries, and Tielmann, 2017, p. 785). The process of due diligence will help in the identification of synergies that could be derived and the projected amount to acquire the company. Even so, in some cases, synergies could not be verified even in cases where they are expected.

A study by Aristos, Georgios, Miltiadis, and Grigorios (2018) showed that about half of acquiring entities continue to incur more costs for their acquisition than the real value of the targeted company. Hence, a thorough evaluation during the due diligence stage is an essential step to make sure that the objectives of the M&A are pre-determined. In the event where anticipated synergies do not happen, there ought to be an alternate strategy to handle such a situation. Entities ought to be prepared for eventualities that could lead to a thorough risk management framework.

Contrary to popular opinion, due diligence does not imply getting bogged down by the costs at the first stage. After agreeing that a specific deal is worth making, the entity could identify some must-haves in the target company and perceive if they exist and then establish a relationship that would assist the whole process. As long as the connection has been established, the details could be analysed keenly. If the particulars indicate an element that the purchaser is not comfortable with, then the whole deal ought to be retracted. In such a situation, the time and effort could be wasted for both parties. Yaghoubi, Yaghoubi, Locke, and Gibb (2016, p. 443) stated that deals that are retracted at the due diligence stage are justifiable. Despite the hard facets that could be premeditated during the investigation, some other elements might need to be assessed more, which are

Goodwill

Goodwill refers to the excess amount paid off the book value. The same premium is paid for several facets like the company’s culture, quality of management, the vivacity of the company, and the relationship with the market. It is essential to deliberate all these elements and comprehend where the strengths and shortfalls of the targeted company. The lack of comprehension could lead to an acquirer to overestimate the target entity management abilities or workforce commitment, which could lead to devastating outcomes after merging.

Disparity

This facet explains how diverse or similar the business frameworks of the two companies are. The approaches of M&A and integration for the entity will have to be different depending on the disparity levels (Howson 2017). The earlier discussion on strategic fit looked at the quantum of integration that two bodies should look at depending on various disparities.

Integration of Information Technology

A study by Renneboog and Vansteenkiste (2019, p. 663) revealed that businesses that have prioritised the use of technology are 40 % more likely to be successful in comparison to those that have not embraced this practice. Liu, Patton, and Kenney (2018, p. 101) stated that around 50-60% of all the business is proposed to capture various synergies in the process of M&A and are somehow connected to the information systems. The computer system of both entities should be assessed, and the acquirers should always consider the expenses that could be incurred when integrating these systems. Businesses can resolve to retain their legacy systems and integrate the needed data or improve their system entirely depending on how well the goal is attained. Hoberg and Phillips (2016) purported that if the driving approach is to achieve an enhanced manufacturing ability, it could be essential to retain both the prevailing systems. If the aim is to obtain a product portfolio and intellectual capital, a comprehensive integration could be more valuable. Once the acquirers have evaluated the strategies of the two companies and deemed them fit, then M&A can be established. Furthermore, managers must act in the capacity of stakeholders while undertaking any M&A.

The Relations and Abilities of the Management

An internal analysis of the abilities of managers and the target management abilities is needed. If the management of the targeted company is efficient, then there will be no need for change in the managerial structure. Therefore, the company should concentrate on retaining the individuals who are needed for the success of the organisation. In cases where the management of the acquired company is not as efficient as required, allowing external contractors could be a viable option. This option is even more crucial when dealing with a cross-cultural background. Harvey (2015) argues that using external consultants who are seasoned merger managers or turnaround managers could assist the companies in moving faster and acting decisively. It is through similar strategies that Ghosn (a Brazilian manager) steered the positive outcomes in Nissan and managed to turn the company into a profit-making entity within a year. Outsourcing external managers should be done with utmost caution. El Zuhairy, Taher, and Shafei (2015) opined that the acquired company’s executive could sometimes have an adverse reaction towards a merger. Such adverse responses can be experienced through the defensive retreat, which in most cases, involves a strategy of non-compliance and several other traits that symbolise the resistance of the overtures of the lead company. This could result in the management of the acquired entity to feel subdued and to defend their interests or control their fate.

The fact that most entities go through a series of M&A, the process redefines the approach of the company or even in some cases the whole industry. Most prominent acquires like Cisco, use their past experiences when purchasing another entity. Every company acquired adds to the vastness of experience and knowledge to the process of M&A. An in-depth analysis of a failed deal ought to be postponed by at least one month to provide a fresh perspective to the process instead of looking for someone to blame (Bereskin, Byun, Officer, and Oh 2018, p. 2021). Prior Acquisitions could sometimes not help in case of a new acquisition. The fact that most companies have different structures, even if they could be in the same industry, could not give sufficient experience for another merger. An acquirer might need a general skill to appreciate a variety of acquisition opportunities when a prior acquisition has been similar to each other, and the previous purchase is profoundly different from the other.

A company’s experience in M&A could have the advantage of having some systems and structures in place. It could also integrate a team of people who have specialised in several aspects such as mediation and the management of other staff. These elements can give the experienced entities an edge over other entities when it comes to the process of mergers. However, this experience cannot be substituted for other elements such as the assessment of the cultural fitness of an organisation, and the process of due diligence. A study by Alhenawi and Stilwell (2017, p. 1051) revealed that seasoned acquirers like ICI and Hanson record similar rates of failure and success as other entities. Therefore, experience seems to be essential, although it is not enough for the success of a merger.

References

Alhenawi, Y. and Stilwell, M., 2017. Value creation and the probability of success in merger and acquisition transactions. Review of Quantitative Finance and Accounting, 49(4), pp.1041-1085.

Amel-Zadeh, A., and Meeks, G., 2019. Bidder earnings forecasts in mergers and acquisitions. Journal of Corporate Finance.

Angwin, D.N., and Meadows, M., 2015. New integration strategies for post-acquisition management. Long Range Planning, 48(4), pp.235-251.

Aristos, D., Georgios, S., Miltiadis, C., and Grigorios, K., 2018. The Impact of Mergers and Acquisitions on Corporate Culture and Employees: The Case of Aegean & Olympic Air. Academy of Strategic Management Journal.

Banerjee, T., and Nayak, A., 2015. Comparing domestic and cross-border mergers and acquisitions in the pharmaceutical industry. Atlantic Economic Journal, 43(4), pp.489-499.

Bari, M.W., Fanchen, M., and Baloch, M.A., 2016. Management practices and performance of mergers and acquisitions in Pakistan: the mediating role of the psychological contract. SpringerPlus, 5(1), p.1527.

Bassi, P., and Gupta, V., 2015. A study on the impact of the announcement of merger and acquisition on the valuation of the companies (With particular reference to Banks). Asia Pacific Journal of Research Vol: I Issue XXI.

Bereskin, F., Byun, S.K., Officer, M.S., and Oh, J.M., 2018. The effect of cultural similarity on mergers and acquisitions: Evidence from corporate social responsibility. Journal of Financial and Quantitative Analysis, 53(5), pp.1995-2039.

Chondrakis, G., 2016. Unique synergies in technology acquisitions. Research Policy, 45(9), pp.1873-1889.

Cooke, F.L., 2016. Human resource management in the context of mergers and acquisitions. In Mergers and Acquisitions in Practice (pp. 136-151). Routledge.

Daepp, M.I., Hamilton, M.J., West, G.B. and Bettencourt, L.M., 2015. The mortality of companies. Journal of The Royal Society Interface, 12(106), p.20150120.

Dao, M.A., Strobl, A., Bauer, F., and Tarba, S.Y., 2017. Triggering innovation through mergers and acquisitions: the role of shared mental models. Group & Organization Management, 42(2), pp.195-236.

El Zuhairy, H., Taher, A. and Shafei, I., 2015. Post-mergers and acquisitions: the motives, success factors, and key success indicators. Eurasian Journal of Business and Management, 3(2), pp.1-11.

Fiorentino, R. and Garzella, S., 2015. Synergy management pitfalls in mergers and acquisitions. Management Decision, 53(7), pp.1469-1503.

Fujiki, K., Niino, H., and Fukuda, S., Denso Corp, 2018. Merging assistance device and merging assistance method. U.S. Patent Application 10/106,163.

Gomes, E., Mellahi, K., Sahadev, S., and Harvey, A., 2017. Perceptions of justice and organisational commitment in international mergers and acquisitions. International Marketing Review, 34(5), pp.582-605.

Gornall, W., and Strebulaev, I.A., 2015. The economic impact of venture capital: Evidence from public companies.

Harvey, S.K., 2015. The Role of Mergers and Acquisitions in Firm Performance: A Ghanaian Case Study. Journal of Applied Business & Economics, 17(1).

Hoberg, G., and Phillips, G., 2016. Merger integration and merger success. Mimeo.

Howson, P., 2017. Due diligence: The critical stage in mergers and acquisitions. Routledge.

Kiesel, F., Ries, J.M., and Tielmann, A., 2017. The impact of mergers and acquisitions on shareholders' wealth in the logistics service industry. International Journal of Production Economics, 193, pp.781-797.

Kling, L.R., Nugent, E., and Van Dyke, B., 2019. Negotiated acquisitions of companies, subsidiaries, and divisions. Law Journal Press.

Koi-Akrofi, G.Y., 2016. Mergers and acquisitions failure rates and perspectives on why they fail. International Journal of Innovation and Applied Studies, 17(1), p.150.

Liu, Q., Patton, D., and Kenney, M., 2018. Do university mergers create academic synergy? Evidence from China and the Nordic Countries. Research Policy, 47(1), pp.98-107.

Meglio, O., King, D.R., and Risberg, A., 2017. Speed in acquisitions: A managerial framework. Business Horizons, 60(3), pp.415-425.

Nahavandi, A., and Malekzadeh, A.R., 1988. Acculturation in mergers and acquisitions. Academy of management review, 13(1), pp.79-90.

Öberg, C., and Holtström, J., 2006. Are mergers and acquisitions contagious? Journal of Business Research, 59(12), pp.1267-1275.

Renneboog, L., and Vansteenkiste, C., 2019. Failure and success in mergers and acquisitions. Journal of Corporate Finance, 58, pp.650-699.

Režňáková, M., and Pěta, J., 2016. The efficiency of mergers of mechanical engineering companies in the Czech Republic. Review of Economic Perspectives, 16(4), pp.361-374.

Rottig, D., 2017. Meta-analyses of culture’s consequences for acquisition performance: an examination of statistical artefacts, methodological moderators, and the context of emerging markets. International Journal of Emerging Markets, 12(1), pp.8-37.

Sorensen, D.E., 2000. Characteristics of merging firms. Journal of Economics and Business, 52(5), pp.423-433.

Srivastava, R.K., 2018. Managing mergers and acquisitions in health care: A case study in the pharmaceutical sector. International Journal of Healthcare Management, pp.1-13.

Teerikangas, S., Stahl, G.K., Björkmann, I., and Mendenhall, E., 2015. IHRM issues in mergers and acquisitions. The Routledge companion to international human resource management, pp.423-456.

Thompson, P., Wallace, T., and Flecker, J., 1992. The urge to merge: organisational change in the merger and acquisition process in Europe. International Journal of Human Resource Management, 3(2), pp.285-306.

Yaghoubi, R., Yaghoubi, M., Locke, S., and Gibb, J., 2016. Mergers and acquisitions: a review (part 2). Studies in Economics and Finance, 33(3), pp.437-464.

Zaremba, A., and Płotnicki, M., 2016. Mergers and acquisitions: Evidence on post-announcement performance from CEE stock markets. Journal of Business Economics and Management, 17(2), pp.251-266.

most cases create the primary channel in which entities provide returns to their shareholders and owners. In a typical case, M&A would favour big companies to grow faster as compared to their competitors and ensure that weaker entities are acquired. The pace M&A has increased in recent years, leading to researchers contemplating the reasons behind this trend. Schuler and Jackson (2001, p.247) explained that the increase in the numbers of M&A could be due to various factors such as the rising stock market, deregulation, and low inflation. The rise in M&A activities has mainly been observed in industries such as information technology, medicine, educational infrastructures and well as traditional industries such as the food industry, consumer products and manufacturing. Naturally, one would ascribe the increase in M&A patterns to the fact that this practice leads to more success in the industry. The subject of whether the rise in M&A is positively correlated to the perceived success among these entities will be a future discussion. However, this study will focus on spotting the critical characteristics of M&A. Therefore, the subsequent section will highlight various aspects of winning M&A.

Leadership

Jeris, Johnson, and Anthony (2002) contended that in certain circumstances, M&A needs further direction from the top management, and this is the only way that leadership may initiate change in an M&A. Leadership is among the essential elements that influence various outcomes of mergers and acquisitions. Schraeder and Self (2003) described the best practices among leaders that revolve around preparation, strategy, implementation and learning abilities. The essential virtues among leaders include visionaries, the ability to spot and take advantage of great deals, the capacity to determine whether an agreement is worth undertaking or not, and articulating their promises to clients, workers, and shareholders. Halpern (1983, p. 297) describes these leaders as “irrepressible cheerleaders for the investors and other stakeholders, as well as for the teams that will face the hard task of integrating the two companies.” A successful leader that will help in driving the success of an M&A ought to focus on delivering the deal. Acquires should, therefore, start familiarising themselves with low-risk deals, establish the right organisational capacity, create a feedback process that would help them to learn from their mistakes. Through the time when companies refine their systems and process, they can improve to more massive deals and move into opportunities adjacent to the main objectives of the business.

The common perception is that most mergers fail because of financial factors such as limited profitability, reduced sales, or huge debts. When one of the factors that lead to business failure, the first thing that comes to mind is financial factors. In most cases, leadership traits are mostly associated with improving human resource outcomes such as employee, performance, employee motivation, improving communication, and teamwork. However, the study on M&A success factors has proven that leadership traits can directly enhance financial outcomes in M&A. Therefore, a successful leader in any organisation/acquirer can directly lead to the commercial success of any organisation. In fact, from the empirical evidence given above, it is clear that useful leadership traits can turn a failing business into a successful one by taking advantage of the information asymmetry in the market while an ineffective leader has the potential of making a business entity fail, even if the organisation has enough resources.

Another study by Drowley, Lewis, and Brooks (2013, p. 201) assessed the outcomes in employees who have been involved in the process of M&A, and recorded their perspectives and experienced on how leadership traits could have contributed to their retention even after the company merged. The reporter stated that preservation is essential in sustaining intellectual capital for newly found organisations since, according to reports, 25% of top-performing employees are likely to leave an organisation within 90 days when the mergers are still undergoing organisational restructuring or the acquisition process. The study demonstrated that behaviours and traits of different leaders and actions majorly involve staff involvement, communication, vital staff identification, retention of key employees, and identifying the diverse cultures of the two organisations and establishing a plan on how they can be merged. Therefore, one lesson learned is that leadership traits are essential considerations when looking towards the success of an M&A.

Culture

Basically, in the commercial arena, organisational culture is a set of shared assumptions and values that the members of a group are likely to use when providing a basis for their behaviour. Culture influences various aspects of an organisation such as employee retention, the success rate of managers, productivity, and innovation among other facets. Giffords and Dina (2003, p. 67) perceived culture as a process versus a state of mind and culture about being versus ambitions. The study emphasised on the cultural integration when companies are merging and perceived the two merging companies as engaged in different conflicts on social identity and self-description. As per the results of this study, various efforts to attain cultural immunity does not necessarily lead to improved cooperation. However, the cultural behaviour towards the merger contributes to the success or failure of the M&A process.

Rhoades (1998, p. 281) gave a computational framework, gave more insights in respect to the social and cultural dynamics of acquisitions and mergers. The researcher assessed the relationship between the level of similarities between the integrating companies, their willingness to relinquish their autonomy, their knowledge on formalisation, and the strength of institutionalisation. The results from this study demonstrated that organisational similarities does not reduce resistance but are essential in the case of tactic knowledge; limiting regulatory autonomy can positively affect performance of mergers, but only in the fact where the parent entity is justified, the strength of the process of institutionalisation augments the impacts of similarities and dissimilarities irrespective of whether they are positive or negative. This is also another non-financial factor that hugely affects the success of an M&A. In other words, acquirers might easily overlook the role of non-financial factors in the success of an M&A; however, in real sense, these facets look insignificant yet very important in terms of determining the success of the company.

According to the arguments of Manas (2011) acquisitions work best when the plan's fundamental rationale is cost reduction and the purchase of merchandizes and technologies instead of the addition of entities. Fle-nisher and Vinci (2008) stated that M&A are primary strategic tools that help in the establishment and growth of new markets in the economy. Mergers influence crucial factors in the overall economy and that comprehending how these entities work should be an interest to everyone who is involved in the field. Even so, the factors that lead to merger success vary from one market to the other. Mendenhall (2005) gives a full list of close to 35 factors that influence the success of mergers and acquisitions. Some of the factors the researchers listed included measuring the success of M&A based on the establishment of competitive advantage and value of real shareholders, pass acquisition in the non-related business, project and focus on the significant decisions of M&A.

Measuring the success of M&A is founded on the establishment of competitive advantage and shareholder value, have the necessary insights of the industry and future trends before sealing a deal, comprehend the M&A process and establish owners, and drive every facet of M&A deal.

From the analysis above, it is clear that entities that drive their way via successful acquisition keep their eyes focused m such opportunities in the future, as to perceive such moves as growth opportunities in their policy. A failed transaction, in most cases, is always established by poor leadership and lack of discipline. Malatesta (1983, p. 161) advises that before undertaking any M&A process, the acquirers should do as much research as possible compared to when they are starting a new venture. In the M&A area, having a ‘sit-back and-wait’ framework does not work as an effective corporate strategy. Therefore, acquirers and leaders that concentrate on and a sit-back approach are likely to lose on the market.

It is not right for any company to use short-cuts when dealing with mergers and acquisitions. Therefore, there is a need for due diligence in this process. The acquirer’s leadership system should majorly practice due diligence. In this case, due diligence does not only mean assessing the financial records of the other company; it refers to a complex and holistic process. It involves assessing the tax diligence of the other company, technology, risk management, and human resource. For instance, the sales team of a targeted business that an acquirer is targeting gives an overestimated picture of 15 diversified clients. Still, upon further assessment, research and scrutiny, the acquirer might find that seven customers are always coming up annually. Therefore the most fundamental question to ask in such a case is, “will the merger lead to the loss of these clients. ”

Transition

The organisation culture and leadership will either help in reducing the risks associated with the transition. In some cases, it is advised that entities should hire an external consultant to examine the legal, environmental, and tax, among other issues. The acquirers should also concentrate on creating contracts that will protect then both in the process of acquisition and in the future. All things must be planned and coordinated right from the start. A successful merger requires lots of dedication from the leader of the company.

Conclusion

Various lessons should be learned from the process of acquiring mergers and successfully running them to become profitable entities. The success of a merger is not dependent on the amount of capital injected; rather, it depends on other non-financial factors such as culture and organizational leadership.

References

Drowley, M.J., Lewis, D., and Brooks, S., 2013. Merger in higher education: Learning from experiences. Higher Education Quarterly, 67(2), pp.201-214.

Duncan, C., and Mtar, M., 2006. Determinants of International Acquisition Success:: Lessons from FirstGroup in North America. European Management Journal, 24(6), pp.396-410.

Giffords, E.D., and Dina, R.P., 2003. Changing organisational cultures: The challenge in forging successful mergers. Administration in Social Work, 27(1), pp.69-81.

Halpern, P., 1983. Corporate acquisitions: A theory of special cases? A review of event studies applied to acquisitions. The Journal of Finance, 38(2), pp.297-317.

Jeris, L.S., Johnson, J.R., and Anthony, C.C., 2002. HRD involvement in merger and acquisition decisions and strategy development: four organizational portraits. International Journal of Training and development, 6(1), pp.2-12.

Lovejoy, F.H., Nathan, D.G., Zuckerman, B.S., Pizzo, P.A., Fleisher, G.R., and Vinci, R.J., 2008. The merger of two pediatric residency programs: lessons learned. The Journal of paediatrics, 153(6), pp.731-732.

Malatesta, P.H., 1983. The wealth effect of merger activity and the objective functions of merging firms. Journal of financial economics, 11(1-4), pp.155-181.

Manas, J.S., 2011. Lessons learned in mergers and acquisitions — frontiers of health services management, 27(4), pp.19-24.

Mendenhall, M.E., 2005. Mergers and acquisitions: Managing culture and human resources. Stanford University Press.

Rhoades, S.A., 1998. The efficiency effects of bank mergers: An overview of case studies of nine mergers. Journal of Banking & Finance, 22(3), pp.273-291.

Schraeder, M. and Self, D.R., 2003. Enhancing the success of mergers and acquisitions: an organisational culture perspective. Management Decision, 41(5), pp.511-522.

Schuler, R. and Jackson, S., 2001. HR issues and activities in mergers and acquisitions. European management journal, 19(3), pp.239-253.

Looking for further insights on Trends and Challenges in the UK Banking Industry? Click here.