Bachelor Thesis Sources of failures in Mergers and Acquisitions. The effects of employee identity.

Abstract

The main objective of this paper is to consider the potential sources of failures in Mergers and Acquisitions and to determine the dependence of overall performance of the company on social identity of employees. Observation of the Merging and Acquiring companies' motives provide a clear explanation why despite the high risk and probability of failure organizations keep seeking to reach the M&A process. The changes that appear as a result of M&A activity lead either to positive as to the negative results, but this paper is concerned on the unsuccessful performance influenced by the human factor and cultural differences. The use of a Tentative model will show the mechanism of how the culture impact on the overall M&A performance.

Table of Contents

Abstract........................

1. Introduction....................

1.1Literature review

2. Mergers and Acquisitions.

2.1 Theoretical background

2.2 Motives for M&A

2.3 M&A process

3. Why M&A's fail

3.1 Possible reasons of failures in M&A

4. Organizational culture and M&A

4.1 Types of organizational culture

4.2 Social versus personal identity

4.3 A Tentative model

Conclusion

Discussion

List of references

Introduction

During the last few decades the topic on Mergers and acquisitions (M&A) is one of the most discussable. There are a big number of studies have been made by economic and financial researches such as : Cooper C., Weber Y., Stahl G., Kummer C., Nguyen H. They tried to determine the value, that the companies seeks to get while entering into the M&A process and compare it to the degree of the risk.

Mergers and acquisitions (M&A) is the most popular way for corporate renewal. Despite the distinctions in the meaning between the merger and acquisition, in this paper it is treated as one of equals. M&As provide the ability for the companies to reach the growth, through the access to new markets, products and customers (Güntler, Voigt, 2003, p.4). Two companies can create value only if they make an agreement. This task have to be realized by managers, whose role is the most important during the whole process of M&As (Garibaldi de Hilal, p.8).

The popularity of M&A's keeps growing from year to year, that can be proved by statistical data (WilmerHale report, 2015, p.2). This means that big number of firms will face these challenges than before. It can be justified by the strong desire to reach success. Nevertheless success can not be reached without taking a risk. There are many M&As fail on the way to their objectives. It can be explained by the problems involved in integrating process of both acquiring and acquired firms (Sarala, Cooper, 2014, p.2). Cooper and Cartwright argue that the reason for the poor success rate of M&A is incompatibility of cultures (Cartwright,Cooper, 1993, p.59). However, if the distinction between cultures is not high it even may lead to successful integration (MArks and Mirvis ,2011,p 165). But many authors says that culture is the main reason of M&A's failures. Organizational culture plays an important role as well. As Weber says : "When companies are merged, it is possible to transfer a productive line but the organizational culture is difficult to transfer" (Weber, TArba, Oberg, 2013,p.11). Changes in organizational culture in M&As often result on employee identification, that already is a potential risk for M&A performance ( Giessner, Urlich, van Dick,2011, p.9). According to Cartwright and Cooper human elements contribute highly to merger outcome (Cartwright & Cooper, 1993, p.58). If not to pay much attention to these factors, the likeliness to a successful outcome will decrease.

Each company that want to merge or acquire another one have to pass through different stages of M&A process ( WEber ,2012,p.297). This process means adaption of two organizational cultures as an important part of the integration. Some authors blame cultural differences in M&As failures and does not pay much attention that primary reason for wrong functioning of M&As contains in poor management (Steger& Kummer, p.9).

Cultural differences between the merging companies may lead either to positive as negative effects on the performance (Stahl, Voigt, 2008, p160). The model and meta-analysis provided by Stahl and Voigt, helps to measure M&As performance. The main performance measures are: socio-cultural integration outcomes and task integration.

So, the objective of this thesis is to discover possible sources that may cause to unsuccessful performance of M&As, to determine on which stage of M&A process potential risk may arise and also to provide an explanation of the mechanism through which cultural differences influence on M&A performance by taking into account the human factor.

Literature review

It is necessary to determine to which extend one corporation differ from another, to discover its history would be very helpful while making prediction about the possible outcomes. Marks and Mirvis says: "the major factor in failure is underestimation of the difficulties of merging two cultures" (MArks and Mirvis ,2011,p 165).