Mergers And Acquisitions (M&A) Literature Review

The Importance of M&A in Gaining a Competitive Advantage

Discuss about the Mergers and Acquisitions (M&A) Literature Review.

A merger results from 2 distinct companies combining forces for the creation of novel, joint organization. Acquisition results from takeover of a single firm by another company. No new company results from acquisition instead smaller one is usually eaten and halts to exist with its assets converted to part of larger firm. Lawfully, a merger needs 2 firms to consolidate into a novel one with novel possession and structure for management. Acquisition occurs legally where one firm takes over every operational management decisions of another. The projected difference is whether the purchase is hostile (acquisition) or friendly (merger) (Friedman et al., 2016).   

Mergers and Acquisition (M&A) refers to buying; selling as well as combining of diverse companies which can assist a growing firm in a particular industry quickly without having to establish another business entity. Exploiting economies of scale and scope traditionally or taking an advantage of the imperfections in the market has remained a dominant mechanism through which firms gain competitive advantage. The roles played by non-profit sector is also playing substantial player in the South Africa economy. The non-profit sector is a significant player in local economies (Swilling & Russel, 2002).

Nevertheless, as economies increasingly become extremely integrated as a result of globalization forces, there is increasing realization that such mechanisms of competition provide restrained profitability for the companies. Accordingly, M&A have become increasingly prominent as firms pursue higher returns along with dominant market position in the international market.

M&A provides conduits via which expertise, products and technology are acquired. Over the previous 2 decades, M&A have shifted to being global phenomenon as well as profound strategic choice for the firms’ growth along with enlargement. Even though M&A’s popularity is on a steady rise, surprisingly, performance of M&A has never been satisfactory. Available literature on M&A indicates that 2/3 of large M&A deals fall short of creating the value for the stakeholders. M&A fail to meet the expected goals as the literature has pointed it out that M&A failure rate range between 55-and 70%. Such failed M&A constitute a waste of both financial and human resources.

Provided the prominence of this alternative, string need is inevitable to learn the manner through which M&A can be managed better to ensure they are more successful. Several research have been quick to highlight various reasons for the above noted poor M&A’s performance (Von Kalinowski et al., 2016). Specifically, the literature asserts that lack of strategic fit as well as poor management of integrative process seem to be the principal cause of unsatisfactory M&A’s performance. The obviously observable elements that trigger poor performance include finance, legal and stock market issues. These issues have been identified as salient causes and most sensitive parts for M&A.

Reasons for Popularity of M&A

As a result of escalating failure rates of M&A, both business analysts along with researcher have recognized that bad performance of M&A does not solely has its origin in financial and operational matters or other legal conflicts. Studies have subsequently been sub-divided to scrutinize cultural and human elements of M&A. The outcome indicated that the salient problem is never financial but deficiency of intercultural synergy between the organizations.

The issues relating to organizational culture establish communication breakdown. Thus, acting as a barricade for the successful integration of the 2 organizations. The financial and supplementary strategic benefits anticipated from M&A are undermined by increasing cultural conflicts. Organizations that speak to cultural issues effectively in the course of M&A have experienced satisfactory outcomes vis-à-vis organization neglecting this critical aspect. Accordingly, it is inevitable to consider cultural issues as crucial in the course of M&A and speak to the effectively.

Cultural issues are, therefore, potential threats for the M&A’s success. It has been highlighted that cultural issues remain the foremost among every other likely causes affecting the M&A’s performance. The cultural issues have direct influence on M&A’s performance and hence, a main driver and threat to M&A at the same time.  

Growth remains key aspect of the success of an organization. It stays as something for which various companies strive for in their operations. It is a shared noted observation that small firms wish to expand big and big and firms wish to grow bigger. In fact, companies must grow and the rationale being this wish remains alike across the organization. Nevertheless, distinct companies embrace diverse strategies for same purposes. The foremost suitable strategy is that which supports the progressive movement of the company towards the achievement of its projected goalmouth.

The eventual objective of many firms is profit, thus, whichever strategy is embraced including M&A, profits stays at the heart. For example such business like Efficient Group has concluded 2 acquisitions linked to Vital Consult Wealth Management and Vital Consult National Holdings while Adcock Ingram is also ready to acquire Virtual logistics.  Despite growth being regarded as one of the critical points of references or measures of business success by analysts, it has as well been mandated by investors. Nevertheless, researchers have fronted arguments that despite, growth being necessary for companies, each growth strategy is never successful with regards to the creation of value (Saunders & Cornett, 2014).

Not all strategies for growth add value, which might culminate to an enhanced performance of the firm. It has also been argued that it the long lung basis performance of the company which determines the growth strategy sustainability implemented initially. Firms select growth strategies that are best suitable to them in market and competitors framework. The best strategy for growth differs on the basis of market as well as nature of the business (Holburn & Vanden Bergh, 2014).

Problems Arising from Deficient Intercultural Synergy

M&A are influenced severely by issues relating to organizational culture as witnessed in various studies conducted on culture and people as drivers of failure of merger and acquisition. The outcomes have indicated that about 65% of failed M&A are as a result of cultural along with people issues. Intercultural variations cause communication breakdown that influence the productivity of the entire organization (Phillips & Zhdanov, 2013).

The above course of reasoning has been backed by other scholars who have suggested that incompatibility of cultures stays top of the causes of M&A collapse. Scholars have regarded cultural issues as reason for bad success rates and subsequently posited that financial benefits anticipated by the firms from M&A remain often unrealized due to incompatibility of organizational cultures of the organization that merge (Cartwright & Cooper, 2014).

The deficiency of intercultural synergy remains at the heart of failures of M&A. Cultural fit remains as significant as structural fit in the examination and evaluation of prospective partners (Boschma & Hartog, 2014). Poor cultural fit is attributable to failure of various M&A that seemed to be appropriate strategic affiliates. Firms can only be successfully integrated in case of a cultural compatibility between the two affiliates. Cultural incompatibility remains consistently ranked as the single most known obstacle to M&A’s success.

There has been five major merger waves occurring in patters. These are times of intense merger undertakings that have been succeeded by the intervening times of fewer mergers. M&A specialist and historians have recognized 5 merger waves in history of US. The waves have occurred between 1897 to 1907, 1916 to 1929, 1965 to 1969, 1981 to 1989 and finally 1993 to 2000. These waves have been executed for both short-and long term financial gains. The 1993 to 2000 major stressed on long term business strategies (Swilling & Russel, 2002).

References

Boschma, R., & Hartog, M. (2014). Merger and acquisition activity as driver of spatial clustering: The spatial evolution of the Dutch banking industry, 1850–1993. Economic Geography, 90(3), 247-266.

Cartwright, S., & Cooper, C. L. (2014). Mergers and acquisitions: The human factor. Butterworth-Heinemann.

Friedman, Y., Carmeli, A., Tishler, A., & Shimizu, K. (2016). Untangling micro-behavioral sources of failure in mergers and acquisitions: a theoretical integration and extension. The International Journal of Human Resource Management, 27(20), 2339-2369.

Holburn, G. L., & 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), 450-460.

Phillips, G. M., & Zhdanov, A. (2013). R&D and the Incentives from Merger and Acquisition Activity. Review of Financial Studies, 26(1), 34-78.

Saunders, A., & Cornett, M. M. (2014). Financial institutions management. McGraw-Hill Education,.

Swilling, M., & Russel, B. (2002). Scope and Size of the Non-Profit Sector in South Africa. Centre for Civil Society. Durban. Online verfügbar unter https://www. sustainabilityinstitute. net/newsdocs/documentdownloads/doc_download/227-scope-and-size-of-the-non-profit-sector-in-southafrica, zuletzt geprüft am, 2, 2013.

Von Kalinowski, J. O., Sullivan, P., McGuirl, M., Folsom, R., & Fine, F. (2016). Determining Legality and Defenses (Vol. 2). Antitrust Laws and Trade Regulation, Second Edition.