Impacts of Management on Mergers and Acquisition.
In today’s complex and competitive global business environment, organizations must adapt to changing environmental conditions by continuously initiating changes in order to remain competitive and profitable. These changes occurs when organizations undertake such changes as implementation new technologies, mergers or acquisition, downsizing, restructuring operations, and outsourcing. During these changes if companies implement programmes like six-sigma or business process improvement then according to Hayes(2002), these changes are usually prompted by a need to maintain or improve an organization effectiveness where effectiveness relates to the organizations ability to use recourse efficiently to achieve immediate goals as well as embracing the need to changing conditions to be to remain efficient over the long term (Carnell, 1999). According to France, Harrington and Marguire (1987), improving an organization effectiveness has important consequences for its overall corporate performance. Despite the available of a number of models to aid the successful diagnosis and implementation of change effort, Beer and Nohria (2000,p.88) claims that 70% of all changes initiates fail because managers immerse themselves in an ‘alphabet soup of initiatives’ without fully understanding the nature and process of corporate change. Therefore there is organization growth is very much important to understand how changes occur so that they can better manage the change process to improve their organizational effectiveness.
Rationale of Research
The benefits of this importance of this research help us to understand the impact of change management. Merger and acquisition are very much frequent nowadays. Everyone passes Merger and acquisition either themselves working in an organization or someone who is working or owning shares in the firm or merged with another organization. When firms merges between two organizations under takes changes. This change can be in positive or may be the other side of suffering. This motives has been studies previously in the financial sectors, however it frequently linked with the acquisition and merging process. Based on a literature review it has been said that there are two main types of motives for mergers and acquisition.
First motive reason is the financial reason, such as increasing the overall performance and creating value for shareholder.
Second reason is the non value maximizing managerially based motive.
Recently due the economic situation, cross borders Mergers and Acquisition activities have risen significantly. Countries in the Europe are very much involved in the Mergers and Acquisition market.
The acquisition motive is therefore often linked to acquisition and integration strategies and outcome in the research. Hence it is important to know and understand the process of acquisitions and help to make it more effective in order to gain extra benefits arising of it. Mainly to review the different kinds of product and processes these two companies has and find the positives for a final decision. This research explains the impact of project management merging & acquisition between GE Money and Banco Santander. This comparison review answers the importance of integration process in making the acquisition more effective.
Limitation of Research
When analysis the Acquisition project we need to remember one key fact that the process actually is long drawn out and can take months or years to be completed. The organizational change takes places and this can be sure when the change will be effective for the organizations. Hence due to time constraints, it was not possible for this study to look at any particular Acquisition deal across its lifecycle. To analyse this research I have relied on information got through sources like, management team meeting, financial books and reports.
AIMS AND OBJECTIVES
The aim of the research to find out the impact of project management on mergers and acquisitions. This aim is to organize and review the relevant literature on organizational change.
To study the impact of Project management on Mergers and Acquisitions.
To understand the importance of Project management on Mergers and Acquisition.
To understand the importance of the integration in the Acquisition.
To study the importance and need of Project management tools and techniques on the process of Integration.
To analyse the success on implementation of Project management approach in mergers and acquisitions.
OUTLINE OF RESEARCH
3.1 Definition of Mergers and Acquisition
Many authors have explained and written several definitions about merging and acquisitions, some of them are mentioned below.
According to Joseph (2008), Change management is a loosely defined term that refers to a broad array of activities and initiatives that occurs in the workplace. As such in order of effective, a change management program must integrate those programs elements that address any of the variety of elements, communication, training, testing, program planning, market analysis and implementation of new policies and procedures.
According to Gaughan (1996), “A merger is a combination of two corporations in which only one corporation survives and the merged corporation goes out of existence”. (1). He explained that according to merger the acquiring company assumes the assets and liabilities of the merged company. A statutory merger differs from a subsidiary merger, which is a merger of two companies in which the target company becomes a subsidiary or part of a subsidiary of the parent company.
Gaughan also states that a merger differs from a consolidation which is a business combination where two or more company joins to form a new company. In this all combining companies get dissolved and new company is formed. For E.g.: There are two companies. Company A and Company B, where B is merged with A. In a consolidation (Company A + Company B = Company C). In this Company C is entirely a new company. There are differences between the terms merger and acquisition, however many terms between mergers and acquisition are interchangeable.
According to Sudarsanam (2003), “In a merger, the corporations come together to combine and share their resources to achieve common objectives. The shareholders of the combining firms often remain as joint owners of the combined entity.” (2)
Pearson (1989), An acquisition profile is a written documentation of description of the importance features required in a company to be acquired. This profile is a valuable aid and should be signed off by the senior management team (Board of Directors), to authorise work to proceed. Both the companies are adequate to give a description which will focus the search for the suitable companies, which means that the company which fall out of the acquisition profile will be rejected with a minimum of time and effort. (3)
According to Sudarsanam (2003), “An acquisition resembles more of an arm’s length deal, with one firm purchasing the assets or shares of another, and with the acquired firm’s shareholders ceasing to be owners of that firm.”
3.2 Types of Mergers
Merger and Acquisition is depends on the particular company to which it target company is acquired. An organization or company will try to merge or acquire only when it has come to a stage of expand its operation to make it growth internal strength. The company aims to have its position stabilized under business growth, finance, and be a leader in the market. According to Neirinckx (1999) he explains this in detail three types of mergers and acquisition.
3.2.1 Horizontal Mergers & Acquisition
The best acquisition of this type tends to be companies, which have a high quality product line and are trading in market where the acquirer is also present. The horizontal acquisition allows rationalism and thus allows an improved cash flow. Horizontal acquisition are however not a guarantee for success.
One of the variables which need to be considered whether one major acquisition is desirable or whether a series of smaller ones is preferred. Sequential acquisition of smaller companies tend to be more successful because the digestion of a very large acquisition is complex and entails a lot of dangers, such as integrating two potential different cultures into one.
The main reason of these mergers in to obtain economy in sales production. These mergers results in reduce of firms in an industry, due to which such mergers types becomes easier for the industry to join together for monopoly gain or profit.
Example: In 1998 Merging and acquisition which took place Exxon and Mobil which can be considered as a typical example for horizontal mergers and acquisition
3.2.2 Vertical Mergers & Acquisition
A company proceed in a vertical merger when it’s usually seeks to merger with another company to takeover another company especially to expand its operations by the process of integration.
Organizations integrate vertically between different stages due to reasons like improves planning for inventory and production, technological economies, reconciliation of divergent interests of parties to a transaction, elimination of transaction costs, etc.
Vertical acquisition have a very bad reputation and while many companies are actually reducing their vertical integration.
Example: In 1993 a Merging and acquisition took place between Merck and Medco in the pharmaceutical Industry.
3.2.3 Concentric Mergers & Acquisition
According to Neirinckx, “Typically this means the acquisition of companies in business areas which are connected to the core business.” This happens when the company feels strong in its basis of technologies distribution or marketing.
Companies engage in concentric merging and acquisition tends to make a limited line of products and are very strong in one of the business segments. This happens in slow growing firms and is being used by companies which occupy a rather narrow segment of a widely spread firm and took for higher profit margin in other firms.
3.2.4 Conglomerate Mergers & Acquisition
“Conglomerates are group of companies that operate in widely diverse industry.” (Coyle, 2000 p 22). According to John C. Narver “The definitions of conglomerate mergers in the report referred to little or no discernible relationship between acquiring and acquired firm.” According Guaghan (1996 p. 7), “A conglomerate merger occurs when the companies are not competitors and do not have a buyer- seller relationship.”
This conglomerate mergers & Acquisition can be distinguished between two types.
3.3 Motives of Mergers
According to Hilda, (2000), the motives behind mergers are complex. Freidrich Trautwein was one of the researchers to attempt to make sense of the various theories extended to explain the allure of mergers. Freidrich Trautwein identified seven theories and looking at examples of organizations espousing that motive, investigated evidence of that motive and plausibility of the theory.
The theories Freidrich Trautwein examined were:-
Stephen Wernet and Sandra Jones suggest that there is a difference in motive between for profit and non- profit companies. In the profit sector mergers are understood from the perspective of the purchaser not the acquired firm, and occur as a strategy for growth and expansion. In the nonprofit sector, resource scarcity and environmental uncertainty motivate mergers.
3.4 Defining an Acquisition Profile
Acquisition profile needs to be described with quantitative and qualitative features which are very much important to the acquiring company.
Pearson (1989) explains the content of an acquisition profile must have a description of the acquisition project. The profile has been explained below according to him. (4)
3.2.1 Market segment, Product and Services
3.2.2 Commercial Rationale
3.2.3 Maximum Cash Available For Acquisition
3.2.4 Maximum Total Purchase consideration
3.2.5 Minimum Size
3.2.6 Minimum Profitability
3.2.7 Management Style
3.2.9 Key Requirements for Success
3.2.10 Financial Returns to be achieved
3.5 Overseas Acquisition
Overseas acquisition is not as normal as acquisition of companies within the same countries. Lets study the more about overseas acquisition.
Pearson, (1989). “Acquiring a company overseas needs proper research and analysis at the outset. It could prove to be an expensive ego trip. An overseas acquisition should be demonstrably relevant to defined corporate objectives and strategy”.
If there is a depression in the home market, however the same business may find growth in the overseas market. Overseas growth may provide the opportunity to develop the business. According to Pearson, Politically a business which is multinational is less vulnerable to threats such as nationalization. There are risks involved the overseas acquisition such as customer resistance to overseas owned companies, different culture, language difficulties and local regulation rule. It is important that the acquiring company need to examine where to extend it business and also selecting the country under business development and profitability.
3.6 Selecting the Country
The country for acquisition must be chosen before an acquisition profile. This involves in market research and some key factors. According to Pearson, there are five key factors for selecting the country for acquisition. The key factors are mention and explained below in detail.
3.6.1 Political Stability
3.6.2 Cultural and Social Background
3.6.3 Economic Environment
3.6.4 Legal Requirement
3.6.5 Taxation and Repatriation of Funds
3.6.1 Political Stability
The political stability depends on the payback time for an overseas investment. This is like setting up a company in the rented premises and then the packback period would be less than two years. For an acquisition the time period is much longer.
There are political instability like civil unrest, national strike and local wars. Political stability for many countries will be ruled out on this factor.
3.6.2 Cultural and Social Background
Pearson, (1989), “It is important that the country accepts overseas ownership of business, a ownership the implications of capitalism involved”. Foreign investors are treated differently than home investors. In some countries they offer valuable incentives where as other side discriminate against foreign ownership. The education standard, communication and services need to be adequate to support the business and management style.
The health and safety hazard need to checked. In some countries, it’s not safe for executives and family lifestyle due to many kidnapping and unacceptable threat of violence. Precautions and insurance for personal safety may be required.
Business culture and ethics varies from country to country. In some countries it may be not possible to run the business effectively without paying bride to get things approved.
3.6.3 Economic Environment
According to Pearson, the ideal country will combine the prospect of good growth in the relevant market sector and acceptable levels of inflation with a relatively stable currency. The economic growth in some country may be poor, however in some markets will still open doors for attractive investment opportunity.
3.6.4 Legal Requirements
Government approval is required to complete an acquisition. Anti trust and monopoly issues legislation may exist. Local advisers are needed to complete a course to meet the legal requirement of the country. In acquisition there will be need to meet the local requirements and these are known as outset. Adding to Anti trust rules and regulations there will be exchange control regulation, Law of employment and other legal laws which is required.
3.6.5 Taxation and Repatriation of Funds
Investment in an overseas acquisition need to be evaluated for net of taxes. Taxation rate, tariff, incentives double taxation agreement and withhold taxation must be taken in to account. Fund that are invested in the net of taxation, it is not necessary to achieve an acceptable rate of return. The rule for repatriation of profits and capital should provide adequate scope for funds movements.
As per the above factor a satisfactory country should always be possible. It is very much important to check that enough suitable potential acquisition companies exist and the purchase price, company expectations are to be acceptable.
3.7 Reason for Merging and Acquisition
According to Gaughan, there are several reasons and motives that firm might engage in merging and acquisition. Out of all motives and reason one of the main motives is expansion. Acquiring a company in a business line or geographic area where the company may want to expand can be quicker than internal expansion. Acquisition of a company may provide certain synergistic benefits for the acquirer, such as two lines of business complement one another. An acquisition can also be a part of diversification process that allows the company to move into a different line of business. When firms get engaged in merging and acquisition for the motive of expansion, the cite potential gain as one of the reason for the transaction.
Financial factor motivates some merging and acquisition. For E.g., An acquirer’s financial analysis may reveal that the target is undervalued, which is the value of the buyer may be significantly in excess of the market value of the target. Even when a premium that is normally associated with changes in control is always added to the acquisition price. Apart from this tax motivation also plays a major role in acquisition.
3.8 Definition of Project Management
According to James P Lewis, he defines project management as “application of knowledge skills tools and techniques to project activities to meet project requirement”. Project management is accomplished through the application and integration of the project management processes of initiating, planning , executing, monitoring, controlling and closing.
According to Timothy J. Kloppenborg, Arthur Shriberg, Jayashree Venkatraman, “A project is a temporaray endeavor undertaken to create a unique product or service”. Project management is the application of skills, tools and techniques to project activities to meet project requirements, which in turns requires project management to understand to project objectives, limitations, lifecycle and roles of the participants.
3.9 What is Project Management?
Project management is a set of principles, method, and techniques that people use to effectively plan and control project work. It established a sound basis for effective planning, scheduling, resourcing, decision-making, controlling and replanning.
Project management principle and techniques help complete projects on scheduled, within budget and in full accordance with project specifications. At the same time, they help achieve the other goals of the organization, such as productivity, quality and cost effectiveness.
The objective of project management is to optimize project cost, time and quality.
3.10 Importance of Project Management
In this world many people become project with knowing the meaning of projects. Someone assign them to manage a project because of their areas of expertise, not because they have received any by accident, it will become a disaster. Learning project management skills can help you complete projects on time, on budgets and on targets. The discipline of project management includes proven strategies for clarifying projects objectives, avoiding serious errors of omissions and eliminating costly mistakes. It also addresses the necessary people skills for getting the cooperation, support and resource to get the job done.
Project management is not just for project managers. Team members need to know how carry out their parts of the project and business executive need to understand how to support project management efforts in the organization.
3.11 Project Management Role
According to Gary Heerkens, project success will depends on personality traits like honesty, tolerance for ambiguity and openness. However skills required to make a process to go smooth. Paying constant attention to communication, making sure that, the project sponsor and the team members are clear on boundaries and expectation, documenting the project process (task, responsibilities, and relationships) and understanding customer and business needs. There are three main project management skills which are mandatory to have to lead or be a part of a project.
3.11.1 Develop Process Management Skill
Learn tools for coordinating the work of many people. Get comfortable dealing with managers on issues of expectations, cost, scheduled and resources.
3.11.2 Build Your Interpersonal Skill
Project management is all about getting things done through other people. Work on written and oral communication skills. Learn how to negotiate and influence. Become a coach and mentor to your project members.
3.11.3 Build a Project Network
In all likelihood, your project will involve issues that are beyond your own area expertise. You should educate yourself as much as possible about the work your organization does, but it also helps to make contacts with people from diverse areas of your company.
RESEARCH PLAN AND METHOD
The methodology part specify details about the research method & design, which indicates the action plan which has been followed to carry out the research to find the impact of project management on mergers and acquisitions. The amount of information which are collected, along with the techniques are used for sampling the data collection method. This also includes the data collected by primary and secondary resource. Data analysis process or method and limitation of the research that impacts the study are also explained.
4.2 Research Design
This research will help us to understand the impact of project management for mergers and acquisitions. It has become clear that several ways of doing things may have to be melded and compared before the aims can be fully met. Researches will need to be conducted on the impact on mergers and acquisition firms. We need to evaluate reliability and efficiency under real world conditions using various techniques. This data would be helpful in determine what steps does the organization takes when it comes to change between the organization in terms of mergers and acquisitions. This research will follow the methods of qualitative, inductive, deductive, experimental and empirical research methods. The chapter begins with the introduction, rationale of research, literature review followed by the aims and objectives of the research. Then the research approach, research design, data collection, survey design, data analysis and questionnaire design are discussed. The chapter ends with the outcomes and limitations of the research.
This research will be followed as per the below step.
Primary and Secondary Data Collection
Data Analysis & Calculation
This research was designed to achieve the objectives mentioned above. The below mention are the tool used for data collection.
Data collection method, Sampling size, frame and technique.
4.3 Data Analysis
The data is collected from the actual respondents, the next step in the research process is data analysis. The purpose of this analysis is to interpret and draw conclusions from the collected date. Here a four-step procedure is followed for data analysis.
4.4 Research Planning
First 2 weeks of February 2011 – Collection of Literature
Last 2 weeks of February 2011 – Preparation of research methodology and preparation of questionnaire
In First 2 weeks of March 2010 – Collection of primary/secondary data
Last two weeks of March 2011 – Critical analysis of data
Last week of March 2011 – Drawing a conclusion
First weeks of April 2011 – Drafting the final report
Second weeks of April 2011 – Final report documentation
Graphical Representation for Research Planning –
This presentation shows that for the first two weeks will be required to collect the primary data. During this process it ensures that the researcher is equipped or has received the sufficient knowledge about the topic under research. This gained knowledge would help the researcher in his further course of the research. This is based on this literature review where the statement of the problem is explained. Based on statement of the problem, the exact research methodology is taken out and the questionnaire for primary data will be designed. After this the primary data collection begins, which takes longer time to complete about 3 weeks. At this stage the researcher (I) has to make sure that he receive the maximum or highest number of respondents. This process takes close to two weeks. Followed by this we have the most critical part of the research, which is the analysis of primary data and secondary data. To complete this analysis process it takes about two weeks. Once this analysis is completed accurately the researcher needs another week for writing the conclusion and result from the analysis, followed by another week for drafting and finalizing the report
Based on the resources given, in terms of knowledge or skill of the researcher, and the time available for conducting the research with access to a wide range of relevant or accurate data and information, the above plan is the most feasible one for successfully conducting the research and obtaining results.
The conclusion of this research would give a clear picture of the successful acquisition and integration process and how Santander continues to grow in this business.
This topic which I have chosen is an acquisition project between GE and Santander, with regards to the integration of product and processes of the two organizations. The content was taken from newspapers, journals, articles, internet, internal email and interviews. There will be few interviews taken under this topic, with the senior directors and manager in the organizations. I being an employee for Santander UK, and a lead member of an integration and migration project in the New Business Department, getting information will be easy as I have an authorization from my manager. During this research I have referred to many books, meeting with the senior management team, discussion with all required departments to deliver the integration with values. I hereby will confirm that the all information which will be taken will very much be mention as references and index on the final dissertation.
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