HR Practices: Mergers and Acquisitions
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Published: Tue, 02 Jan 2018
The purpose of this research is to recapitulate and discuss whether the contribution of a HR is effective in the success of cross-border Mergers and Acquisitions. This paper will discuss the common reasons for the success and failures of mergers and acquisitions, HR practices critical to successful combination and their role. Mergers and Acquisitions have become an unaccountable fact in recent years and it is a part of big business.
In the early years, mergers and acquisitions researches are focussed on the financial and strategic issues. But the recent literature focuses on the Human Resources aspect of mergers and acquisitions. Merger can be defined as the combination of two or more companies merge or forming a new company. Whereas, Acquisitions are the process of purchasing one or more companies with no new companies are formed.
This proposal will focus on a particular question (i.e.) whether the HR role is an effective tool for a company in cross-border mergers and acquisitions. The earlier research paper which focussed on this topic has marked their fulfilment. HR function is becoming a strategic player in business.
2. LITERATURE REVIEW:
The Human Resources issues are handled in a unique way during the acquisition process which is essential for the successful outcome. In more, the management of the acquiring companies realizes the early need for incorporating human resources in their acquisition strategy. Making mergers and acquisitions in other countries is one way in which firms can absorb expertise and new practices, but many firms are not successfully tapping the diversity of practice that international mergers and acquisitions bring. This has a clear implication on the performance of organizations growing in this way. The Conference Board (1997) report states “failure to recognize that HR issues are capable of derailing alliances that have all the prospects of financial success”.
In cross-border mergers and acquisitions, information regarding the merging or acquiring company is imposed and their impact on employees is more urgent for the acquired firm in order to understand the goals or ideas and the philosophy of the foreign acquiring company. Moreover, for the acquiring or merging company, should understand the local workforce, work conditions, national and organizational cultures and customs which is important in managing the integration process more effectively. In one cross-border merger or acquisition, the employees are not used in communication from top management, and consequently, communication after the merging or acquisition is an indication of weakness on the part of the acquiring company [Schweiger et al (1993, p.64)]. Therefore, in cross-border mergers and acquisitions the management team has an additional difficulty of understanding cultural issues, customs and incorporating them in the design of the integration process.
Nowadays, mergers and acquisitions are a growing trend, and analysts in this field don’t see any downturn over the next 10 years. Therefore, the need is to look at how human resources professionals can be effective in the success of an acquisition or merger. In the long run successful mergers and acquisitions occur when both sides are open to new possibilities. Merger and Acquisition activity presents a different and unique set of challenge for the human resource managers in both acquiring and acquired firms. This activity is found to have serious impact on the performance of the employees during the period of transition. The different practices in human resources, cultural differences, and differ
Certain key issues that HR needs to address if the chances of success are to be effective includes: understanding, prior situation on acquisition, the strategic rationale underpinning the deal, opportunities to identify the cultural differences prior to a deal, so that effective integration programmes can be implemented immediately post-deal, the appointment of new management teams at all levels in the business, and exercising caution in estimating both the timeframe and the potential cost of redundancies and the costs of ‘pragmatism’ are factored into the deal establishing early a flexible project management process, and ensuring that it has the necessary time, resources and processes to manage the transition communicating consistently, truthfully and when necessary.
This proposal is to deliver the importance and need of human resources practices in mergers and acquisitions. In the early business the knowledge of human resources are very low and hence there is no chance of using it. But nowadays, it has been viewed a dramatic development among the organizations. Thus its essential to use these human resources professionals to be much more successful in mergers and acquisitions especially in cross-borders. This research proposal also showcase the handling of HR issues during international mergers and acquisitions is highly political which means that a lot of key issues reflect the competing interests of different groups within the merged firm. Hence, lot of issues are resolved in the way of negotiations and compromises between the two parties of the merger.
The dynamics of cross-border mergers and acquisitions are relatively similar to those of domestic M&As. But, due to their international nature, they also involve typical challenges, as countries have different economic and cultural structures. Cross-border merger and acquisitions can be used to access nw markets, as well as expand the market for a firm’s current goods.
THEORETICAL PERSPECTIVES ON CROSS-BORDER M&AS AS A DYNAMIC LEARNING PROCESS:
- *The due diligence process in cross-border M&A:
To identify appropriate acquisition targets and to negotiate and effectively complete acquisitions requires a thorough due diligence process. This process has features similar to the due diligence for domestic M&As. However, it is complicated by a few elements such as different institutional environments between the two firms and their two different cultures that appear even more crucial in cross-border M&As (Angwin, 2001).
- * The negotiation process in cross-border M&A:
Once the target firm has been selected and the initial due diligence process has been completed, the acquiring firm often has to settle the transaction to conclude the deal. Thus, the negotiation process becomes important.
- * The integration process in cross-border M&A:
The integration process is highly critical and important process for the success of the most acquisitions whether it is a domestic or international. While research on post M&A integration, especially in cross-border M&A, is very limited.
DIFFRERNT METHODS OR APPROCHES IN M&A:
- *Three Phase Approach:
The human resource issues in the mergers and acquisitions (M&A) can be classified in three phases. The literature source [e.g. Jansen 2000; Haspeslagh/Jemison 1991] provides ample evidence of difference in between the human resource activities in the two stages: the Pre-M&A phase and Post M&A phase.
The first stage consists of preparation phase and transaction phase and the second stage has integration phase. The preparation phase diagram explains the need for a merger or acquisitions, which have been given by the companies’ objectives. There are many Human Resource issues along with other issues in the first phase. The preparation phase involves in the valuation of the cultural and organizational differences, which will include the organizational cultures, role of leaders in the organization, life cycle of the organization, and the management styles. The mergers often prove to be awful for the employees of acquired firms and their impact can range from anger to depression.
The Transaction phase includes the search for an appropriate target company, the valuation, legal and financial negotiation. The last phase, integration, consists of fusing the two companies into one. The main idea for the merger and acquisition are similar, e.g. a respond to revolutionary change in the industry, the asset of funds to spare, the increase of shareholder value, the exploitation of economy of scale and scope [Haspeslagh/Jemison 1991; Gerpott 1993; von Krogh, et al. 1994].
- *Multistage Approach:
Factors affecting pre-merger planning and cross-border M&A implementation processes are due diligence processes, and ultimately premium paid, influence the post-acquisition integration approach choice, speed of implementation process, transition management structure and cross-border M&A.
- *Multidisciplinary Studies:
The influence of strategic factors vary in M&A in different countries, industries (high-tech vs. traditional). Insights can perspectives from strategy, organisational behaviour, international management, psychology, sociology, anthropology and other disciplines provide to our understanding of the nature, antecedents and cross-border merger and acquisition.
- *Multilevel Approach:
This approach explains about the influence of the strategic factors, such as related vs. unrelated M&A, which affect individuals’ stress, attitudes, and turnover in cross-border merger and acquisitions. Various human resources practices influence the effectiveness of post-acquisition integration and finally the overall merger and acquisition performance measures in cross-border M&A.
Mergers and Acquisitions are always involved in a wide range of questions. When two companies are merging with each other, a mismatch between them can sometimes lead to very serious problems such as when one firm invests heavily on the labour and another firm focuses on share holders and customers. In cross-border Mergers and Acquisitions these issues can happen because of their cultural and legal differences. In the case of such differences, the human resources professionals of merging companies should fight with the differences and indentify the fair sets of issues between them and what help them to build a cohesive organization with a single set of ethical standards.
The specific aim of this research proposal is to review the current literature and some research by very reputable researchers to identify a best practise for human resource professionals in the cross-border mergers and acquisitions. The earlier research also suggests that up to 65% of mergers and acquisitions are failed due to the ‘human resources’ which results n poor productivity. This proposal will deeply concentrate on the cultural and legal differences in the cross border mergers and acquisitions which can be solved by the effective human resources.
TIMEFRAME and FEASIBLITY:
There are three stages or elements of cross-border acquisition process anywhere around the world are Identification and valuation stage, Settlement of the transaction stage, Post acquisition management.
- *Identification and Valuation:
To identify the target firm by entering a highly developed market which offers the widest choice of publicly traded firms with relatively well-defined markets. Once the identification of target firm is finished then the valuation process starts immediately. In today’s global business a variety of valuation techniques are used with its relative merits.
- *Settlement of the transaction:
Once the acquisition target company has been identified and valued, there comes the settlement stage which is time consuming and complex. This stage has three steps such as, tender process, regulatory approval, compensation settlement.
Post acquisition management is the most critical of the three stages in determining an acquisition’s success or failure. An acquiring firm can pay too little or too much, but if the post transaction is not managed effectively, the entire return on the investment is wasted. In this stage the motivations for the transaction must be realized.
4. RESEARCH CONTEXT:
The purpose of this research is to recapitulate and discuss whether the contribution of a HR is effective in the success of cross-border Mergers and Acquisitions. In the early years, mergers and acquisitions researches are focussed on the financial and strategic issues. But the recent literature focuses on the Human Resources aspect of mergers and acquisitions. Merger can be defined as the combination of two or more companies merge or forming a new company. Whereas, Acquisitions are the process of purchasing one or more companies with no new companies are formed.
The specific aim of this research proposal is to review the current literature and some research by very reputable researchers to identify a best practise for human resource professionals in the cross-border mergers and acquisitions. Previous research paper from CIPD had demonstrated the way these issues are handled is strongly conditioned by the national systems. One feature of this is that the nationality of the dominant firm in a merger or acquisition leads to a ‘country of origin’ effect, while another feature is the unique institutions and the culture of each national system that creates a ‘host country’ effect.
In cross-border mergers and acquisitions, information regarding the merging or acquiring company is imposed and their impact on employees is more urgent for the acquired firm in order to understand the goals or ideas and the philosophy of the foreign acquiring company. Merger and Acquisition activity presents a different and unique set of challenge for the human resource managers in both acquiring and acquired firms. This activity is found to have serious impact on the performance of the employees during the period of transition. Research on post-acquisition activities is limited and the study of post-acquisition and merger change has been rather fragmented.
Human Resources role in Merger and Acquisition transactions can have a critical impact on deal outcomes. Factors such as the success and failure rates of Merger and Acquisition, motives of merger and merger types and provide significant insight into the reasoning for the exceptional role of HR in M&A deals. In spite of the literature supporting the critical importance of Human Resources involvement in all phases of a transaction for the execution of successful M&A, the empirical evidence suggests that there is little actual participation of Human Resources at the strategic level.
The overall findings of a study conducted by the London School of Business (Hunt et al 1987) found that the Human Resources function is a theory or hypothesis to have a minimal, if any, role to play in the Merger and Acquisition process [http://airaanz.econ.usyd.edu.au/papers/Bennett.pdf]. Across the globe these finding results, are considered to be the whole Merger and Acquisition process or particular stages of the transaction such as identifying a target, negotiation, planning, implementation.
The challenges of HR is becoming much more difficult when it is compared with others in the business. Nowadays, HR functions are growing along with firms undergoing mergers and acquisitions. This proposal is the first stage of an ongoing research project. It has served two main purposes. The first has been to provide an authoritative picture of the nature of Cross-border Mergers and Acquisitions which shedding light on the nature of the HR function, the characteristics of HR policies and the process of organisational learning. The key to managing many integration issues successfully is an effective communication. This highlights the comprehensive communications strategy and implementing it with care and diligence. Thus the effective contribution of the Human Resources in the cross-border mergers and acquisitions are discussed and the key factors have been explained. Becoming an effective HR player adds the measurable economic value to firms in Cross-Border M&A.
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