Task 1
Mergers and acquisitions (M&A) represent two major areas of strategic business planning and decision-making. M&A decisions occur within wider business and regulatory environments and each decision to merge or buy carries with it significant opportunities and risks.
a) Using relevant examples, evaluate current laws and policy governing Mergers and Acquisitions in the UK.
b) Research and analyse the acquisitions of BHS with specific reference to the opportunities and risks associated with this type of business planning.
Task 2
A business exists and operates within environments. Each environment consists of different factors of varying type, risk and ability to control.
Apply the following environmental analysis tools to the business factors, risks, controls and impacts that you think are relevant to BHS:
a) Internal environment: use McKinsey 7S.
b) Industry competition: use Porter’s Five Forces Analysis.
C) Macro environment: use PESTEL Analysis.
Mergers and acquisitions are a crucial part of corporate restructuring. It play important role in the growth of many leading organizations. It provides several financial and economic benefits like risk diversification, economies of scale, ability to compete internationally and locally (Carnmarata, McArthur and Steeb 2014). In case of national economy, mergers and acquisitions bring about structural adjustment that enables lot of economic sources to move more quickly for the development of the organization. In the present competitive business environment, organizations have to employ several new and updated technologies in order to remain competitive in the market. However, it increases the administration cost of the organization that eventually induces to employ mergers and acquisitions strategy.
In this assignment, the focus will be on a case study highlighted an organization namely BHS departmental store. The case study highlighted the fact that BHS departmental store founded in 1928 and operates in varieties of clothing and other household items. The company has successfully able to maintain its position in the market until the period of 2015. However, BHS departmental store is facing lot of challenges in the present time in order to run the business effectively. The case study highlighted that BHS departmental store facing challenges in maintaining its administration that increases the doubt of the employees regarding uncertain future. In this assignment, in-depth analysis of business strategic planning and strategies will be made to identify risk and opportunity for the BHS departmental store.
UK company law has a subsection regarding mergers and acquisitions that focuses on the process through which one organization combine or consume with another organization (Dixon 2014). Therefore, it is crucial to implement strong laws so that every organization can get fair treatment. It also represents a significant part of the corporate finance. Since, most of the organizations acquire or merge with another company in order to expand its business even further by reaching close to the new potential customers (Griffiths, Knight and Mahudin 2013). As per the UK Insolvency Act 1986, organizations have to follow specific mechanism at the time of merging with another organization. Section 110 of this act highlighted that an organization that is voluntarily winding up may sell or transfer the part or the entire business property to another organization. Therefore, it authorizes organization to receive varieties of properties including share policies, cash and other asset. The UK Insolvency Act also highlighted that it is allowed for any organization under liquidation to authorize the liquidator (Wilensky 2015). Here, liquidation reflects a process that occurs in accordance with the request of shareholders. In case of voluntary liquidation, the liquidators derive it power from the liquidation committee or court. In this case, merger process cannot be implemented as long as assurance of a special resolution from the assembly authorizing the liquidator to transfer organizational asset to another company.
The UK Companies Act 2006 monitors most of the acquisition activities in UK. Furthermore, section 979 of this act describes a takeover bidder is someone who has already acquired more than 90% shares of an organization. As per the article by Canary, Blevins and Ghorbani (2015) acquisition may occur by means of easy method of one organization acquiring entire or whole of the shares of another organization. From the UK legislation perspective, economic reason is the prime factor that induces one organization to acquire another organization. The act highlighted three ways including bail out takeovers, friendly takeovers and hostile takeovers by which one-organization takeovers another. Thus, BHP departmental store have to implement one of the three processes in order to implement merger and acquisition process effectively.
The BHP departmental store loaned cash to a man linked with a convicted fraudster. Therefore, many questions have arisen regarding the stewardship of the departmental store chain. When the organization collapsed into administration, it risks the future of almost 11,000 employees. The company was acquired by a consortium Retail Acquisitions that directed by Dominic Chappell. The consortium Retail Acquisition lent cash to Colin Sutton who was the director of the organizations run by Paul Sutton. BHS departmental store has faced a pension deficit around £571 million. However, many complains have arises towards Phillip Green that he generated millions of pounds from the retailers before selling it. The Retail Acquisitions have received around £25 million of payments from BHS departmental store. The land registry documents of the company elaborates that the Sunbury-on-Thames house was purchased by the organization for around £850,000. In addition, Retail Acquisitions was found as a lender of that particular property.
The Pension protection fund is develop on a levy on UK pension schemes and its insurance against probable pension black holes in the event of an insolvency, as it happens in the case of BHS. Under the provision of Pensions Act 2004, the pension protection fund has been left holding a bill for £276 million. For that reason, the Pensions Regulator has been criticized heavily for having lesser control over the organization BHS departmental store. It also has been identified that Pension Regulator knows about the fact that the organization might be soled. However, it could not able to identify the BHS departmental store has already been acquired by Retail Acquisition. Thus, it highlighted several risk factors that organization has to consider at the time of developing business plan (Stephens and Ford 2016). However, BHS departmental store is in the business for almost 90 years. Therefore, the company has able to develop strong customer base. This provides huge opportunity for the organization to expand the business further. BHS departmental store has more than 250 outlets that allow organization to penetrate different segment of the market in a much more effective way.
The McKinsey’s 7S framework has seven independent factors that are divided into soft and hard categories. The soft factors include shared values, style, skills and staffs and hard factor includes structure, strategy and system (Shiri Anvari and Soltani 2015). However, both categories are equally important for the success of the organization. The analysis of the factors is as follows:
Shared values:
It describes the behaviour, traits and characteristics that organization believes and promoted in order to conduct the business properly. BHS departmental store deals with varieties of clothing and household products. Therefore, the companies shared values will have to be focus on satisfying the customers (Du and Boateng 2015). The company also have to develop an atmosphere where employees can give their best in the workplace. However, BHS departmental store has several administration issues. Therefore, employees have become uncertain about their future. As a result, the company have faces lot of difficulties in maintain their position in the market.
Strategy:
The prime objective of mergers and acquisitions is to enhance the business of the organization. However, BHS was facing huge amount of difficulties in maintain its business processes. In fact, the company also have several management issues that eventually reduce the business of the organization (Graham, Harvey and Puri 2015). After the foundation of the BHS, the company has able to grow its business in an effective manner. However, the management structure of BHS started to fall apart during the end of 2015. Thus, it highlighted the fact that the company has not able to implement its strategy in an effective manner.
Structure:
It describes functional structure of the organization. It plays a crucial role in the success of the organization. Since, well-structured organization can implement several plans much more effectively (Cummings and Worley 2014). As a result, it enhances the operational process of the organization. However, BHS departmental store’s major issue was lies in the management. Therefore, the company has not able to maintain its organizational structure effectively. In fact, employees of BHS departmental store have raise several complaints against the owners of the company. This has reduces the effectiveness of the organization effectively.
System:
In order to improve the internal operational process of the organization, BHS departmental store can implement several systems for the development of the organization. For instance, the company can provide training to their employees, share clear information regarding the present status of the organization so that they can able to assess their future in an effective way (Osibanjo, Adeniji and Abiodun 2013). However, BHS does not have able to implement the process effectively, as the management of the organization has not able to administrate the operational issue in an effective way.
Staff:
Employees are one of the most important internal factors that organization have utilize in order to maintain the operational process of the organization (Alshaher 2013). Therefore, the companies have to provide proper benefits to the employees so that they can able to perform their responsibilities in an appropriate way. However, the management of BHS is not up to the expected mark. As a result, the company not only have to go through ineffective operational process but also increases the doubt among the employees regarding their future in the organization. Furthermore, performance level of the employees depends highly on the work environment of the organization (Rothaermel 2015). Thus, negative work environment has affected the performance level of the employees that eventually leads the organization to acquire by another organization.
In present competitive business environment, skill level of the employees is extremely important. Since, it allows organizations to improve the operational process. Over the years, organizations implemented several strategies to enhance the skill level of the organization. However, BHS departmental store does not provide too much importance in enhancing the skills of the employees. As a result, employees fail to provide additional input for the success of the organization. Therefore, BHS departmental store cannot able to maintain its position in the market.
Style:
It reflects the leadership or management style of the organization. McKinsey included this factor, as it can have serious impact on the operational process of the organization. (Singh 2013) Most of the organization focuses on the implementation of the management style that can give employees the opportunity to share their views and perspective. However, BHS departmental store’s management style has not focused on the well-being of the management. In fact, management of the organization have not provided limited information to the employees regarding the merger and acquisition process of the company.
As per the article by Li, Qiu and Shen (2014), Porter five force analysis is a framework that organizations utilize in order to analyze business strategies of a particular industry. It helps to evaluate the competitive intensity in the industry. The five forces are as follows:
Competitive rivalry with an industry:
BHS deals in the household product and varieties of clothing segment industry. Therefore, the company has to face immense competition from other organization. As a result, BHS have to spend more money on the promotional campaign. It also induces the organization to implement several innovative strategies in order to gain competitive advantage in the market.
Threats from new entrants:
Every industry has to face this challenge in order to sustain its position in the market. Since, profitable market often influences new organization to enter into the new industry (Weber and Yedidia Tarba 2012). Therefore, BHS have to implement several innovative business strategies that can help the organization counter the threat of new entrants. For instance, many organizations have utilized business strategies like merger and acquisition in order to capture new entrants with high growth potential.
Bargaining power of buyers:
The bargaining power of buyers describes the ability of the customers to put any organization under pressure at the time of setting price for a particular product. As per the article by Rossi, Yedidia Tarba and Raviv (2013), bargaining power of buyer is positively correlated with the increases amount of competition in the market. Since, BHS works in an extremely competitive industry, buyers’ holds high level of bargaining power. Thus, it is expected that the organization will face difficulties in setting high prices for any products.
Threats of substitutes:
In present competitive business environment, every organization has to face the threat of substitute product. Since, substitute product provides more options for the customers from which they can select a particular product. Thus, it increases the competition among the organizations. Therefore, BHS have to introduce innovative products in order to grab the attention of the customers.
Bargaining power of suppliers:
The bargaining power of suppliers depends on the availability of the market input including raw materials, labour, components and expertise services. Since, BHS operates in the clothing and household product industry, it is expected that the company have to face lot of difficulties at the time of bargaining with the suppliers. Therefore, BHS need to adjust its business strategy in order to bargain with the customers in an effective way.
PESTEL analysis is an analysis that consists of six macro level factors that can analyze the impact of the business. According to Holburn and Vanden Bergh (2014), organizations need to follow each and every factor in order to gain competitive advantage in the market. The factors are as follows:
Political factor:
Since, BHS operates in various types of clothing and household products; it had to follow several political factors in order to conduct business properly. For instance, the company has to provide proper pay and benefit for all the employees. The company also have to provide minimum rate to the suppliers in order avoid any political issue in conducting the business.
Economical factor:
Government plays a crucial role in the economy, as it has impact on both demand and supply of the organization. In many cases, organizations have to change its operational process in order to adjust with the increase level of demand (Cartwright and Cooper 2014). However, BHS has faced huge amount of challenges in order to penetrate in the market successfully. Therefore, BHS have to focus on the factors like employee turnover rate, stabilization rate to conduct the business successfully.
Social factor:
BHS also have to focus on the social factors, as it can have serious impact on the overall operational process of the organization. Therefore, BHS have to maintain continues improvement process in order to satisfy the external stakeholders. For instance, BHS have to introduce more variation in their clothing department so that people of all ages can be satisfied properly.
Technological factor:
In present time, technology is one of the most important factors that organizations have to consider at the time of conducting business. BHS also have to utilize updated technology so that it can able to get competitive advantage in the market. For instance, the company can utilize social networking sites to get close to the potential customers.
Environmental factor:
BHS will have to utilize techniques like recycling of raw material, minimize the waste of raw materials so that environmental factor remains at the desired level. Furthermore, BHS can focus on reducing amount energy and water consumption in order to create positive impact on the business.
Legal factor:
BHS will have to maintain employment law of UK to avoid any legal issues in the operational process. Furthermore, organization will have to focus on the health and safety regulations in order to ensure proper working environment for the employees (Chakrabarti and Mitchell 2013). BHS can also focus on the consumer protection, as it can increase the satisfaction level of the customers.
From the above analysis, it can be assess that several factors can have impact on the operational process of an organization. Therefore, every organization has to be very careful at the time of implementing any operational strategies or plans, as it can affect the overall business process. The study also highlighted the fact that management has to play a crucial role in maintain an appropriate business process. Otherwise, organizations have to face several difficulties in maintain its position in the market.
References:
Alshaher, A.A.F., 2013. The mckinsey 7S model framework for e-learning system readiness assessment. International Journal of Advances in Engineering & Technology, 6(5), p.1948.
Canary, H.E., Blevins, M. and Ghorbani, S.S., 2015. Organizational policy communication research: Challenges, discoveries, and future directions.Communication Reports, 28(1), pp.48-64.
Carnmarata, S., McArthur, D. and Steeb, R., 2014. STRATEGIES OF COOPERATION IN DISTRIBUTED PROBLEM SOLVING!. Readings in Distributed Artificial Intelligence, p.102.
Cartwright, S. and Cooper, C.L., 2014. Mergers and acquisitions: The human factor. Butterworth-Heinemann.
Chakrabarti, A. and Mitchell, W., 2013. The persistent effect of geographic distance in acquisition target selection. Organization Science, 24(6), pp.1805-1826.
Cummings, T.G. and Worley, C.G., 2014. Organization development and change. Cengage learning.
Dixon, T.S., 2014. Assessing an animal humane society using McKinsey’s 7s framework to make recommendations for organizational improvement(Doctoral dissertation, PURDUE UNIVERSITY).
Du, M. and Boateng, A., 2015. State ownership, institutional effects and value creation in cross-border mergers & acquisitions by Chinese firms.International Business Review, 24(3), pp.430-442.
Graham, J.R., Harvey, C.R. and Puri, M., 2015. Capital allocation and delegation of decision-making authority within firms. Journal of Financial Economics, 115(3), pp.449-470.
Griffiths, A., Knight, A. and Mahudin, D.M., 2013. The relationship between work design and retirement: implications for organizational policy. In The fulfilling workplace: the organization’s role in achieving individual and organizational health. Gower Publishing, Farnham.
Holburn, G.L. and Vanden Bergh, R.G., 2014. Integrated market and nonmarket strategies: Political campaign contributions around merger and acquisition events in the energy sector. Strategic Management Journal,35(3), pp.450-460.
Li, K., Qiu, B. and Shen, R., 2014. Organization capital and mergers and acquisitions. Available at SSRN 2511675.
Osibanjo, O.A., Adeniji, A.A. and Abiodun, J.A., 2013. Organizational change and human resource management interventions: an investigation of the Nigerian banking industry. Serbian Journal of Management, 8(2), pp.139-154.
Rossi, M., Yedidia Tarba, S. and Raviv, A., 2013. Mergers and acquisitions in the hightech industry: a literature review. International Journal of Organizational Analysis, 21(1), pp.66-82.
Rothaermel, F.T., 2015. Strategic management. McGraw-Hill.
Shiri, S., Anvari, A. and Soltani, H., 2015. Identifying and prioritizing of readiness factors for implementing ERP based on agility (extension of McKinsey 7S model). European Online Journal of Natural and Social Sciences, 4(1 (s)), p.56.
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Wilensky, H.L., 2015. Organizational intelligence: Knowledge and policy in government and industry (Vol. 19). Quid Pro Books.
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