ASSIGNMENT

Mergers and acquisitions are common occurrences in any economic environment. Whether the markets are up or down, or the deals are friendly or hostile, M&A can be a key element of your companys strategy to create additional value and maximize sustainable competitive advantage.A number of factors including strong corporate balance sheets, cash-rich companies looking to consolidate their industry positions, and low interest rates that allow for greater leverage are driving high levels of M&A activity in todays marketplace.

M&A is here to stay

Every company and working professional should expect to be involved in a merger or acquisition at some point in time. However, despite the potential downsides and general uncertainty typically associated with mergers and acquisitions, this shouldnt necessarily be cause for concern. Well-conceived and executed transactions can dramatically alter the competitive landscape, giving companies a sudden and distinct advantage over their rivals. Smart deals also allow companies to rapidly accelerate their growth and development in ways they often could not have achieved by organic means alone.At the same time even assuming the perfect confluence of elements the success or failure of a particular deal ultimately lies with the implementation. Combining product and service lines, employees, functions, locations and brands are but a few of the challenges that must be overcome to realize a transactions full potential.Each of these potential integration stumbling blocks raises important human capital issues that must be addressed from the announcement day through to the formal close of the transaction and beyond. The marketing, legal, human resources, accounting and finance departments are certainly no exception and will have its own set of integration issues to manage.

Be prepared

One of the primary issues to overcome is the uncertainty created, particularly among employees and customers your companys most valuable assets. Employees will be justifiably concerned about job stability. This is certainly true for various functional areas including marketing, legal, human resources, accounting and financedepartments where there are likely to be talent overlaps. Additionally, customers will be on alert to potential changes in product/service offerings or pricing. Depending on the degree of interaction between employees and customers, this can pose a significant risk.

Create standby plans.

While you may not receive advance notice of a merger or acquisition given the confidentiality involved this doesnt mean you will be completely unprepared. Regardless of whether your company is the acquirer or the acquired, there is a fairly standard set of steps necessary to complete a deal and begin the integration.

Address all constituents.

In almost every case despite rampant use of the term merger one company is typically dominant and the other subordinate. Since deals arent legally consummated until the formal close, both companies need to prepare communications plans for the announcement day through the pre-close period. Acquiring companies will need plans that extend further to include the deal close and the beginning of the integration. Among the primary, core audiences for your company to address through M&A communications plans are senior managers, rank-and-file employees, customers, shareholders, partner companies and key suppliers.Begin by drawing up a list of appropriate company spokespeople for each audience and list the preferred communications channels to reach each audience. Then, create a simulated calendar of activities beginning with the day of the announcement and continuing approximately 90 days to a proposed close date.

Staff communication is the key

Of course, until the deal closes, there is very little a company can share about specific plans for the integration. Compensate by increasing the frequency of communications specifically to employees on issues large and small. By nature, accounting andfinance departments communicate throughout the day on a range of issues. Capitalize on that internal traffic by providing small but meaningful reassurances to employees at each level.Designing an inside-out approach to communications that starts with employees will begin to temper some of the uneasiness caused by the deal announcement. At the same time, such a campaign will provide employees with key messages to amplify and extend to external audiences.

Identify key assets

Deals announced to great fanfare that create high expectations among core audiences often wind up actually negatively impacting the value created independently by the two companies. Key metrics such as stock price, return on equity and return on assets commonly lag below pre-announcement levels long after the deal is completed.

Merger failure

Whats the cause? For one, integrating two companies takes resources away from day-to-day operations. Second, the upheaval caused by mergers and acquisitions creates problems specifically in the areas of employee retention and customer attrition. Finally, and somewhat incredibly, acquiring companies often conduct poor or incomplete due diligence. As a result, companies can find themselves the owner of something quite different than expected.Job number one during the pre-close period is to avert any disruption that might cause the other party to re-evaluate the initial terms of the deal or scuttle the agreement completely. If one or both companies are publicly traded, this applies to the shareholder base(s), which can actively oppose a deal.

Preserve your top performers

From a human capital perspective, every good manager can instantly cite a list of productive and prized employees. Compile that information to identify valuable individuals across the entire organization.Clearly establish what assets need and deserve protection during the pre-close period and integration process. Create formal action plans to secure critical employees and customer relationships. Establish formal and informal channels to collect feedback. As much as possible, eliminate unnecessary distractions. And finally, aggressively work to maintain productivity at all levels.

Focus on the integration

Agreeing to terms on a mutually acceptable deal is a difficult and daunting task. The urge to relax once the terms are agreed upon must be resisted. Actually melding operations and corporate cultures is where theory meets practice and the hard work begins.

The big picture is the key, but dont lose sight of critical business tasks

Mergers often fail not because of faulty vision or a bad fit, but poor communication and execution. The integration effort diverts resources and attentions from key day-to-day activities like financial planning, budgeting and month-end close all of which must continue seamlessly. In addition to regular duties, employees are tasked with new projects and other activities related to the effort.Before beginning the process, its important to recognize that no two companies are alike. Different organizations have different processes and protocols that have evolved over time and work specifically for them. Two companies that, from all outward appearances seem alike may not even share the same perspective on the marketplace.

Aligning the corporate cultures

Start by identifying the primary obstacles to integrating the companies and realizing the full value of the combination. For the accounting and financedepartment, documentation maintained on internal processes and controls for compliance can serve as a useful tool for the re-engineering of functions and employees.From a cultural perspective, put your knowledge of your own company both the good and the not so good to productive use. From the first interactions, take notes on the substantive differences in the two companies outlook, processes and styles. Be agnostic when evaluating best practices. In particular, resist wherever possible simply adopting the processes of the dominant company.

Communicate (relentlessly)

Tensions among senior management and employees on both sides will run high from the outset. Since eliminating redundancies provides immediate cost savings, those most at risk following a merger include employees working in duplicated roles and those whose value to the organization isnt immediately apparent. Organizational changes, major and minor, are certain.During the pre-close phase its important to constantly communicate to internal audiences, even when there is little new information to report. Leaving a communications void in such an environment will only increase the sense of uneasiness among employees and allow negativity to creep in.As mentioned, once the deal is finalized, the senior management team must be fullyinvested in making the new venture work. The first challenge for the combined entity is to mesh the communication style of the two companies. While specific details of the integration are under consideration, begin to communicate in one voice the process by which decisions will be made.

Energize and motivate your new staff

In advance of the reorganization announcement, utilize key managers to assess mood and morale. Prepare answers to the tough questions so employees understand how the management team arrived at its conclusions. In the event job cuts are necessary, make them swift. Following the announcement, schedule presentations by senior management to all remaining employees on the specific plans for the combined entity to compete in the marketplace.Typically, theres a strong sense of relief among the remaining employees that can be energizing. An effective communications program can help generate momentum among employees moving forward.

Proactive management is your best tool

Mergers and acquisitions are a common occurrence, presenting companies large and small with uncommon challenges. Aside from the operational aspects of combining the assets of two companies, there are significant human capital issues to address beginning with the initial announcement, all the way through the integration.Complicating matters are the personal and professional uncertainties individuals face during such a deal from senior management to rank-and-file employees. In order to realize the full potential of a deal, your company must anticipate and actively manage these issues at every step.

CASE STUDY

BMW AG. The Rover Company

The Rover Company was a British Car manufacturing company founded in 1878 as Starley & Sutton Co. of Coventry and originally produced bicycles and motorbikes. It produced its first car in 1904 under its now famous marque of the Viking Longship. After a string of mergers, nationalisation and takeovers, it became a part of the British Leyland Motor Corporation in 1968. The group was sold to British Aerospace in 1988 and in 1994; the control of the group was passed to BMW of Germany.BMW AG is a German automobile, engine and motorcycle manufacturing company which began life as an aircraft engine company in the early 1900s. In 1923, it began manufacturing its first motorcycles and started car production in the 1928 after acquiring the Eisenach vehicle factory. BMW acquired the Rover Company in 1994 for 800mn. After investing about 2bn and getting no synergies, it sold the company in 2000 to Phoenix Consortium for 10.The Acquisition

BMW had a number of motives behind the acquisition of the Rover Company. The primary among them was to grow. BMW wanted to increase their market spread while achieving a greater volume spread. They saw Rover, which came up for sale at the right time as the perfect deal at that time. Rover had acquired significant cost advantages due to its association with Japanese production methods. They also had the front-wheel driving and the 4 x 4 technology that BMW wanted to acquire. The price BMW paid was deemed to be a bargain as the cost to develop the technology and the production methods from scratch were significantly more.Another major factor in the acquisition was the low level of cost in the British manufacturing sector compared to the costs in Germany. These costs, which were 60% lesser in Britain, had the ability to substantially reduce BMW costs. Rover also has in its repository brands such as Mini and MG Rover, which offered BMW the chance to exploit new markets and segments.Analysis

Behind the acquisition of Rover by BMW, there was certainly a strategic motive and proper plans of gaining synergies. However, the acquisition was unsuccessful because they didnt plan the entire process well. Palmer quotes both Kloss and Boorn in describing how the strategic plan got stuck in the upper echelons of the hierarchy due to lack of communication and coordination. BMWs integration plan suggested a three phase process in which the initial two years were wasted in just providing financial help without any integration of the two companies. Another important problem for this deal was the linguistic differences between the two companies. Although BMWs top management could do business in English, the engineers and the middle managers were unable to do so. This created a lack of communication problem which eventually delayed the integration process. There were also substantial differences between the business culture of BMW and Rover.Sirower suggested that it is incorrect to judge the soundness of an acquisition based on what it would have cost to develop that business from scratch. For this case, it seems to be this same problem as BMWs decision was partly based on the substantial cost difference between developing the technologies in house and buying it from Rover. BMW didnt achieve the synergies and ended up spending 2bn and sold the company off to Phoenix Consortium for a token sum of 10.