A Comprehensive Guide to Mergers & Acquisitions

Yaakov Weber, Ph.D. is a professor of management at the School of Business Administration, College of Management, Rishon Lezion, Israel, and president of the strategic management consulting firm Strategy, Implementation, Results. He has practiced as a strategic management consultant for more than 25 years and has assisted executives of numerous companies in successfully managing various stages of domestic and international mergers and acquisitions, including planning, negotiation, and integration. He lectures at various universities in the United States, Western and Eastern Europe, and China, in graduate schools of business administration as well as executive programs. He has conducted numerous workshops to top executives in many countries. Dr. Weber’s studies have been published in top international academic and practitioner journals, and his papers have received more than 2,000 citations in leading journals and books. He is the winner of the 2010 Outstanding Author Contribution Award. Professor Weber is co-founder and co-president of the EuroMed Research Business Institute (www.emrbi.com), the EuroMed Academy of Business, and the EuroMed Research Centre. EMRBI performs a variety of international academic and business activities (conferences, business research, teaching, training programs, and so on) that involve businesses and consultants in, and related to, the EuroMed region.   Shlomo Y. Tarba, Ph.D. is a lecturer in Strategic Management and Global Strategic Partnerships at the Management School, The University of Sheffield, UK. He received his Ph.D. from Ben-Gurion University and master’s degree in biotechnology at the Hebrew University of Jerusalem, Israel. His research papers has been published in journals such as Academy of Management Perspectives, International Studies of Management & Organization, Thunderbird International Business Review, International Journal of Cross- Cultural Management, Human Resource Management Review, Advances in Mergers and Acquisitions, and others. Dr. Tarba has served as a guest editor for the special issues on Strategic Agility at California Management Review; Organizational Ambidexterity at Human Resource Management; Maturing Born-Global Knowledge Intensive Firms at Management International Review; Emotions, Culture, and Stress in the Interorganizational Encounters at International Business Review; and others. He was granted the 2010 Outstanding Author Contribution Award by Emerald Publishing. His consulting experience includes biotechnological and telecom companies, as well as industry associations such as The Israeli Rubber and Plastic Industry Association and The U.S.–Israel Chamber of Commerce.   Christina Öberg, Ph.D. is an associate professor at the Department of Industrial Management and Logistics, Lund University. She currently conducts research at the Centre for Innovation and Service Research, University of Exeter. She received her Ph.D. in industrial marketing from Linköping University. She has an industry background in which she held such positions as financial manager and head accountant. Her research interests include mergers and acquisitions, brands and identities, customer relationships, and innovation management. She has previously been published in journals such as Journal of Business Research, Construction Management and Economics, International Journal of Innovation Management, European Journal of Marketing, The Service Industries Journal, Journal of Business-to-Business Marketing, Scandinavian Journal of Management, Thunderbird International Business Review, and Industrial Marketing Management.  

Preface xvi

Part I  Value Creation Model for Mergers and Acquisitions 1

Chapter  1  The M&A Paradox: Factors of Success and Failure in Mergers and Acquisitions 3

Finance and the Capital Market 5

Strategic Management 7

Organizational Behavior 9

References 11

Chapter  2  An Integrated Model for Value Creation in Mergers and Acquisitions 13

Overview 13

Different Disciplines, Different Stages, No Interrelationships 14

An Integrated Model for Value Creation in M&A 17

Stage I: Planning and Strategic Management 18

1 Strategic Management, Goals, and M&A Strategy 18

2 Searching, Screening, and Selection 19

3 Financial and Strategic Estimate, Including Synergy Analysis and Corporate Culture Differences 19

4 Integration Planning 20

Stage II: Negotiation, Due Diligence, and Agreement 20

1 The Negotiation Processes 20

2 Assessment of Due Diligence 21

Stage III: Integrating the Organizations 22

1 Approaches to Integration, Cultural Differences, and Human Capital Integration 22

2 Leadership and Integration Infrastructure 23

3 Stress and Tension 23

4 Communication Strategy 24

5 Cultural Assessment and Cultural Integration 24

6 Integration Approaches 25

7 Evaluation, Control, and Feedback 26

Conclusion 26

References 27

Chapter  3  Strategic Motives and Considerations 29

Introduction 29

Strategic Motives for an M&A 29

Synergy 30

Market Power 31

Diversification 31

Financial and Tax Issues 32

Valuation Ratio 32

Agency Theory 32

The Strategic Management of M&As as Part of Corporate and

Competitive Strategies 33

References 36

Chapter  4  M&A Strategic Decisions .37

Decision 1: Should the M&A be Part of the Current Strategy? 37

Decision 2: Choice of the Appropriate Partner for the M&A:

Strategic Fit and Post-Merger Integration (PMI) 40

Diversification: Two Main Types of M&As 41

Entering into a New Industry 41

Unrelated Diversification: New Business 42

Related Diversification 43

Joint Ventures 47

Strategic Outsourcing 48

Reference 49

Part II  Analysis Tools for Key Success Factors 51

Chapter  5  Synergy Potential and Realization 53

Introduction 53

Sources of Synergies 53

Sharing Resources 54

Knowledge, Skills, and Capabilities Transfer 54

Types of Knowledge 55

Knowledge Transfer Process 56

Issues of Knowledge Transfer 57

Enable Knowledge Transfer 58

Knowledge Transfer in Technology and Innovation-Intensive Acquisitions 59

Knowledge Transfer of General Management Skills and Capabilities 60

Other Benefits of the M&A 60

Analysis of Synergy Potential 61

Horizontal Mergers 61

Vertical Integration 62

Saving on Expenses 63

Assurance of Supply or Demand 64

Improvement of Competitive Advantage 64

Disadvantages of Vertical Integration 65

References 68

Chapter  6  Culture and Cultural Differences Analysis 69

Introduction 69

The Importance and Advantages of Evaluation and Measurement of Differences of Management Culture 70

What Is Organizational Culture? 71

Dimensions of Organizational Culture 72

1 Approach to Innovation and Activity 73

2 Approach to Risk-Taking 73

3 Lateral Interdependence: Horizontal Relationship 73

4 Top Management Contact: Vertical-Hierarchical Contact 74

5 Autonomy and Decision Making 74

6 Approach to Performances 74

7 Approach to Rewards 75

Measurement and Evaluation of Cultural Differences 76

Using Cultural Differences Analysis in All M&A Stages 79

Conclusion 81

References 81

Chapter  7  Searching, Screening, and Selection of M&A Alternatives 83

The Process of Search and Identification 83

Establishment of a Business Development Unit 84

Determination of Criteria for the Search and Screening 86

Determination of Search Strategy 92

Independent Search Plan 92

Search through Agents 93

Approaching the Target Company 94

Friendly Approach 95

Making-the-Most-of-the-Opportunity Approach 95

Hostile Approach 95

References 97

Part III  Negotiation 99

Chapter  8  Selection of Target and Negotiation Process 101

Choice of Partner 102

Sources of Information 105

Evaluation of the Target 107

Price Valuation 109

Negotiation 110

References 123

Chapter  9  Extended Due Diligence Examination and Summative Evaluation for M&As 127

The Process and Goals of Due Diligence 127

Extension of the Due Diligence Examination 128

Topics for the Examination of Due Diligence 129

Legal Topics 130

Business and Operational Topics 132

Due Diligence Examination of Organizational Culture 136

Evaluations Regarding Synergy Potential and Realization 137

Chapter  10  Agreements 141

Letter of Intention (LOI) or Memorandum of Understanding (MOU) 141

The Acquisition Agreement 145

How to Be Helped by Lawyers 147

Part IV  Post-Merger Integration and Implementation 149

Chapter  11  Management of Culture Clash 151

Culture Clash Evolution and Stages 151

I Perceived Differences 152

II Magnified Differences 152

III Stereotypes 153

IV Putdowns 153

Managing the Culture Clash 153

Planning Stage 153

Negotiation Stage 154

PMI Stage 154

References 156

Chapter  12  Communication 157

Introduction 157

Communications with All Stakeholders 157

Communicating with External Parties 158

Communicating with Internal Parties 160

Managing Communication 163

Methods and Channels of Communication 165

References 166

Chapter  13  Integration Approaches 167

Introduction 167

Integration and Culture Clash 167

Trade-Off Between Integration and Synergy Exploitation 168

Cultural Differences and Levels of Integration 169

M&A Performance and Integration Approaches 170

A Framework for Integration Approach Choice 172

References 174

Chapter  14  Human Capital Issues and Practices 177

The Human Factor 177

The Effects of Cultural Differences and Level of Integration on

Behavior in an M&A 178

Culture Clash Effects on Behavior 178

Level of Integration Effects on Behavior 179

Nature of Contact 180

HR Issues, Implications, and Actions at M&A Stages 181

Planning Stage 182

Negotiation Stage 183

Implementation Stage 184

HR Practices 185

Training 186

References 187

Chapter  15  M&A Leadership 189

Introduction 189

Leadership Challenges During an M&A 189

The Roles and Skills of Leadership in an M&A 190

Leadership Teams 191

Leadership Skills 192

References 198

Chapter  16  Trust Formation and Change in M&A 201

Introduction 201

Trust in the M&A 201

The Nature of Trust 202

Prior Relationships 203

Negotiation Process 204

Partner Abilities and Competencies 204

Cultural Differences 204

Leadership 204

Process Dynamic and Learning 205

Communication 205

Autonomy Removal 206

Perceived Benefits 206

Consequences of the M&A and Trust 206

References 207

Index 209