Issue and Case Analysis: Company Acquisitions
Question 1: Merge the acquired company into your company. The result of this strategy will be one company containing the elements of both companies.
Since 1990s, there has been an accelerated pace of global mergers and acquisitions as companies use them as a tool for competitiveness and to expand to global markets. A strategic manager must carefully look into both the pre-acquisition phase and the post-acquisition phase to execute a successful acquisition (Lasserre, 2003).
When the value of operational synergies of the companies operating in similar business contexts is expected, the absorption mode is appropriate. This enables necessary consolidation and rationalization necessary, to occur in the soonest time possible. The company is able to evaluate the best business practices to be adopted and find sources of savings by absorbing the competencies and competitive products of the other company (David, 2012). The challenge in absorption occurs when there’s rationalization by the company being acquired hindering the process due to resistance to change and difference in culture. A SWOT analysis of the new merger would help to identify the areas to strengthen and areas of potential threats that may hinder successful acquisition (Lasserre, 2003).
Question 2: Operate the acquired company as a separate business entity. The result of this strategy will be two separate companies under one senior management “umbrella” (the senior management team that is responsible for running both companies).
Where the company is allowed to operate as a separate business entity, Preservation Mode, is when very few operational synergies can be gained. This is important when large autonomy of decision making in the acquired business is required. The existing management is kept in place while the parent company learns the ‘rules of the game’ of the new business. The benefits accrued include enlargement of products and markets and also the transfer of new competencies or resources. The disadvantage is the acquired company could behave opportunistically by ‘siphoning off’ resources of acquirer if there’s ‘weak’ management (Hitt, Ireland & Hoskisson, 2011). A balanced scorecard could be used to measure the acquisition in terms of customers’ opinions and views, financial position and advantages, improvement and value creation through growth and learning among others.
According to David (2012), research shows twenty percent of all mergers and acquisitions are successful, approximately sixty percent produce disappointing results, and the last twenty percent are clear failures. Continuous evaluation and correction after acquisition is a critical factor to avoid the pitfalls that result in failure of acquisition (Lasserre, 2003).
David, F. R. (2012). Strategic Management: A Competitive Advantage Approach, Concepts and Cases (14th Ed.). South Carolina: Pearson Prentice Hall
Lasserre, P. (2003). Global mergers and acquisitions. Global strategic management. New York, N.Y: Palgrave Macmillan.
Hitt, M. A., Ireland, R. D. & Hoskisson, R. E. (2011). Concepts-strategic management: competitive & globalization (9th Ed.). Natorp Boulevard Mason, USA: South-Western Cengage Learning