Global Acquisitions

Acquisitions and mergers¹ are about growth — often rapid growth. Of the three major routes (see Figure 1.1) a firm can choose if it wants to grow quickly, the growth-through-acquisitions route offers the greatest possibilities. Organic growth can be slow: market penetration can be difficult against established competitors and it can take many years for a company to reach any appreciable size. Growth through innovation can be costly: it carries a high risk of technical failure, and at the time of making the capital investment there is no certainty of demand for the capacity created.

The human factor is a broad term and it is important to clarify what it is intended to cover. This chapter goes into detail on how the term is used here and also explains some of the thinking that lies behind the book. It should not be skipped even though it is conceptual. It goes straight to the heart of the current critique of strategy.

What do we mean when we say an acquisition underperforms? Most managers have come across the statistic on acquisition performance — half to three-quarters fail. But what does it really tell us? Apart from acting as a warning to would-be acquirers, by itself it says very little. If the statistic is to have any practical value, we need to know more about how it has been arrived at. In particular we need to know the following: These are highly complex questions. Teams of researchers throughout the world have been investigating them for decades and have not come up with a consistent set of answers. But they have given us the next best thing — clusters of answers which reflect the researchers’ academic disciplines. Each of the disciplines (mainly finance, economics and strategy) acts like a lens illuminating different aspects of the acquisition process. When these different perspectives and findings are put together, a composite picture emerges about acquisition performance which makes for uneasy reading.

The three fields of scholarship we have looked at — finance, economics and strategy — have provided some highly persuasive justifications for takeover activity. But they have shed little light on why some deals turn out successful and the majority do not.

Now there is a change of emphasis — less on analysis and more on action. The remaining chapters are written mostly from the perspective of an integration manager who — as best practice dictates — is incorporated early into the acquisition planning team. The chapters explore some of the major issues an integration manager is likely to confront and how to think about them, and they also suggest some models and frameworks to guide action.

Many integration managers, given their background and expertise, may not be able to evaluate the specific content of acquisition strategy (especially if in a highly specialised or knowledge field). In fact, they may not be fully familiar with the strategic thinking behind a prospective acquisition or the real intentions behind it. But probing the mindsets that generate strategy and questioning the processes and assumptions that lead to perceptions of value is an expertise they can bring to acquisition planning.

Financial, legal and commercial audits have always been at the very heart of the diligence process. In part because they are a legal necessity (although it is worth noting that what is mandatory varies with the legislation in each country). In part because managers believe they are the most important investigations prior to any deal. However, these are not our concern here. The procedures are well documented and there are armies of experts in every country who can offer whatever advice and assistance is required when going global.

Getting the controls in place has various meanings in an acquisition context. It can mean hard controls like budgets and financial controls and IT systems and procedures. It can mean human controls like getting key people in charge on each side. Or it can have a softer connotation like management styles or the invisible control exercised by an organisation’s culture.

Deciding on the structural relationship between the acquiring and the target companies is the first critical consideration in integration planning. It is the organisation design question:

How best to design one new organisation out of two different organisations to achieve acquisition goals?

This is a complex social engineering question with enormous implications. How the question is answered impacts upon almost everything else — the changes that are to happen, the controls needed, the reactions to the merger, the commitment to the new owners, the degree of culture clash, and much more besides. Ultimately it determines the cost of integration.

Many of the behaviours outlined in the previous chapter are unavoidable in acquisitions and mergers. They are natural and stem from the human condition — in particular from two basic emotions: fear and greed. Fear occurring mostly on the target side and greed (or the urge to own and control) on the acquiring side. These emotions are always present in mergers. They cannot be avoided — but a good HR strategy should be able to minimise their destructive consequences.

Winning over acquired employees in the early weeks is necessary, but not sufficient. Commitment and morale have to be sustained during the many months (and sometimes years) it can take to bring two companies together. This in turn hinges on how acquirers handle the implementation — how they manage acquired staff and how they manage what, in horizontal mergers, can be a long and tortuous process of organisational change.

Culture is one of the loosest terms in the management vocabulary. It is a word that rolls off the tongue — but definitions stick in the throat. People use culture in a wide variety of ways to capture different aspects of organisational and national life, often with little in common. That’s one reason why the C-word has not been used much in earlier chapters.

The introductory notes to culture in the previous chapter are perhaps longer and more detailed than usual. However, with such a slippery concept as ‘culture’, detail is important — as much for clarifying how the term is being used here as for benchmarking how other writers use the term. Certainly, when we dip into the merger literature, culture understanding can be — shall we say — somewhat elastic! Box 15.1 provides a not untypical example.

In one sense, foreign acquisitions are no different from national acquisitions. Everything that has been covered in earlier chapters applies to the global scene — the detailed planning; the need for skilled integration managers; the careful bringing together of people, structures, controls and cultures; the linking of integration to acquisition strategy. Merger planning and merger implementation on all five continents follow exactly the same principles — and in practice are subject to the same mindset blocks and practical misfortunes.

Finally, we come back to base, to people — to the managers who make organisations ‘happen’ and make acquisitions ‘happen’. The concepts and frameworks in the previous chapters can be useful — very useful — for thinking about what is involved in integration and for planning purposes. But they are just what they are — abstractions. They’ve got to come alive, be made to ‘happen’, and it’s managers who do that — spanning across a country or between countries. In global mega-mergers, managers literally have to span the world.