Role of Mergers and Acquisitions in Organizational Change - Case Study Example

Role of Mergers &Acquisitions in Organizational Change Contents Contents 2 2 Thesis 3 Introduction 3 Definition 3 Takeover 4 Nature of acquisitions 4 Implications of acquisitions and mergers 5 References 11 Abstract Mergers and acquisitions play a major role in organizational change. This change aims at increasing the profitability of an organization. There are various forms of acquisitions. Some are hostile while others are based on mutual understanding and negotiations. A merger can be public or private. Mergers and acquisitions apply when a company rethinks its strategy in doing business. It happens when an organization wants to enter into a new market or wants to lower the cost of production. Other organizations use this method to increase their market share in the market. This report demonstrates the crucial role played by the merger and acquisition in organizational change. Thesis Mergers and acquisitions play a vital role in the organizational change. This role can be developed if it is highlighted and addressed adequately. Introduction Definition Organizational change is the process by which a company or organization goes through change with an aim of remaining more relevant and achieve its goals within the right time, (Cassiman & Colombo, 2006). This change occurs when there is a change in business strategy, when an organization wants to rebrand or when there is a major change in parts the entire organization. These changes are important for an organization to remain relevant in the dynamic market field. The process of organizational change involves making bold changes and it may also involve expansion of the organization. Mergers and acquisitions play a major role in the process of organizational change. The issue of acquisition and mergers involves having a corporate strategy in matter to do with buying, selling and division of companies, (DePamphilis, 2008). This involves companies with similar entities coming together in the process of merger and agreeing on terms and condition of operation. A merger is slightly different from an acquisition. Takeover Acquisition is also known as take over. This process involves buying of the entire business entity. This may end up expanding the company that has bought the business entity, (Finkelstein 2010). Nature of acquisitions The term consolidation refers to a union of two or more companies to form a new joint business initiative. This means that none of the tow companies can survive independent of each other. It is also know n as merger of companies. We have both private and public acquisitions. The key point here is that acquisition and merger are done as part of the company’s strategy either in venturing into a new market of remaining relevant and expansion of the organization. If the target company has been listed in the stock exchange then it’s not a public acquisition acquisitions can either be public or private, (Mikael & Jani, 2011). Acquisitions can also be classified as hostile or friendly. The process of acquisition is very detailed and involves many steps. This is why studies show that 50 per cent of the acquisitions done are successful while others are not. In other words, acquisitions are difficult to achieve. The acquisition is perceived either as friendly or hostile depending on how the idea of buying the target company is communicated. In friendly cases, the negotiations are done in private that every deal is based on mutual agreement with the companies involved. In case of the hostile acquisitions the target company’s boards of directors are caught unawares. The company is sold without their knowledge, (Mikael & Jani, 2011). Hostile acquisitions can end up being friendly acquisitions with time. This happens due to improved terms of agreement after the procurement process. When we talk about acquisition, we are referring to a large company or organization procuring a small company. There are instances where the smaller company acquires the control of larger company but chooses to retain the name of the company. In such cases, the process is referred to as reverse takeover. In the case of a reverse merger acquisition, a privately owned company joins the public list in a relatively short time. This happens when a private company buys a publicly listed company, (Cassiman & Colombo, 2006). The private company becomes the more ambitious company with bigger prospects. Implications of acquisitions and mergers The process of acquisition can leave the customers thinking that the new brand is superior and therefore can be trusted. When most of these processes are supposed to be private in nature, the customers end up knowing. Therefore they can perceive the process to be a loss or a profit based on their understanding of the e companies involved and how he process was conducted, (Phene & Tallman, 2012). There are cases where foreign companies buy local companies and that ends up creating a sense of resentment from the local consumers. This is because in some markets, customers want to be loyal to the domestic industry. There are instances where renowned brands acquire new companies and receive overwhelming support just because of their standing reputation. It’s rare for customers to care to know the details of the negotiations and what really transpired in the entire process, (Cassiman & Colombo, 2006). Perceptions influence the customer reactions. To this extent, hostile acquisitions are not always good. Strategic mergers in most cases means holding of the target company after a long-term strategy. This process targets at having synergies and increased market share. This ends up increasing the customer base and renewing the corporate strength of doing business. Increased market share is the essence of any form of marketing, (Schoenberg & Schoenberg, 2006). The reason why organizational change is instigated to enable an organization asserts itself in the face of still competition among other needs. Some of these organizational changes are only settled after a successful accusation and/or merger. There are times when the acquirer pays a premium offer to the target company in view of the synergy created after the entire merger and acquisition process is completed, (Mikael & Jani, 2011). Mergers and accusations in many instances generate brand problems. The company that is formed after the merger and the details of how to harmonize the competing brands is a sensitive issue. This is because is poor decision can affect how customers view the new look company, (Cassiman & Colombo, 2006). The company has to look very convincing after the merger and demonstrate that it better than it used to be. The leadership of the organization has to decide what brand to write off and what to retain. This issue can be delicate depending on the intended outcome and the customer perception, (Cassiman & Colombo, 2006). Every time two companies come together with an aim of merging, the new and joint company stands to benefit from cost efficiency. That is itself is a positive role of mergers and acquisitions. This happens when the process of merger and acquisition generates the scaling of resources which in turn proves to be cost effective to the running of the company. Some of the gains means that production starts being done on a large scale. Which increased output production, and then the cost of production tends to decrease. This plays a major role in the strategic change of a production company. The entire process of cost efficiency is supposed to be foreseen and addressed through the procedural process of merging and acquiring of the new business entity, (Mikael & Jani, 2011). This is especially so because the process of merging and acquisition leads to cost effectiveness or economics of scale. With increased production come increased operations of the new firm. Mergers and acquisitions are very important when a company wants to enter into a new market, (Cassiman & Colombo, 2006). This is because understanding market needs is a bridge to achieving the intentions of any company or organization. Any market has got its own systems of production that work within it. One of the ways of knowing a market is by understanding how it responds to its local companies. It therefore becomes essential that when a major brand wants to launch into a new market, the easier way out is to acquire a renowned brand, (Phene & Tallman, 2012). This comes with many advantages. In case of a bank foe example, acquisition means that customer will not have to change the venue of the banking hall. To the customers, it just might seem to be business as usual. This smooth flow during transition is very necessary to the customers, (Cassiman & Colombo, 2006). Before a customer opts to change his bank to another more established bank, the brand shall have spent a lot of resources marketing. Therefore, it becomes easier to procure a firm while venturing into a new market. The entire process of mergers and acquisitions also becomes necessary when a company wants to introduce new products in the market. Customers tend to trust the brand they are used to, compared to new companies, (Schoenberg & Schoenberg, 2006). When customers associate a new product to a very renowned brand, then the customers extend their brand loyalty to the new product. This makes it easier to market for the new product and the company can avoid unnecessary losses. A large r company can also acquire a small company which has renowned expertise in a particular field. This means that the expertise shall now be shared by both companies. For instance, a small company can have a very good record when it comes to research and technology, (Finkelstein 2010). This can cause the larger company (acquirer) to buy the smaller company to that it can reinvent its research and technology department. The expected results are increased efficiency and production in the long run. This is absolutely vital in the organizational change. The reason being organizational change is supposed to address the future of an organization in terms of relevance of effectiveness. The other major aim of organizational change is increased market share for an organization. This leads to more sales and increased production, (Cassiman & Colombo, 2006). The company with the largest market share tends to control the market, (Mikael & Jani, 2011). For customers to join an organization or have confidence in a particular brand, they have to be given enough reasons why that are good for them. It therefore becomes important for a company to merge or acquire one or more brands as a means of increasing its market share. With all the experience and research that goes together with merging and acquisition process, the new joint company is in a position to come up with a superior brand that shall be appealing to the market, (Phene & Tallman, 2012). Increased market share leads to increased competition. The assumption is that other players in the market are not stagnant. They keep reinventing themselves with an aim of remaining on top. Any organizational change that makes the company more competitive is very important. This means that the brand has its own customers who have confidence in its brand. Mergers and acquisition also occur when an organization wants to increase and achieve its administrative benefits. This means that a company shall have a stronger say in the running of the organization. Through the administration, the organizations then are able to project their strategic interests within the market, (DePamphilis, 2008). In cases where large and established organizations acquire smaller organizations, the small organizations end up increasing their market share after the process, (Schoenberg & Schoenberg, 2006). All this helps in the positioning of the company in the market. The idea of merging and acquisition is done with the customer in mind. It is necessitated when the company realizes the need to unfreeze, (DePamphilis, 2008). This is when a company identifies a problem that needs to be addressed. There are successful organizations which acquire other firms at the helm of their success. There are others which merge as a result of a crises and the need for survival. Both of these moves involve repositioning a company or organization so that it can remain relevant in the market. When two or more organizations merge, major changes happen. These changes end up changing the culture of the organization, the style of management, the direction of doing business and many operation procedures become affected. The fact is, only the people who are flexible remain in the new company, (Cassiman & Colombo, 2006). This in itself gives chance for the human resource/human capital to be streamlined or to go through a general overhaul. This gives room for the management to keep those who are effective and competent and many others are dismissed. This process, in most instances it not as smooth. Every organization must overcome its own internal politics during the process of streamlining and making radical changes to human capital. This is part of organizational change during the process of merger and acquisition. In conclusion, mergers and acquisitions play a vital role in the organizational change. This role can be developed if it is highlighted and addressed adequately. The role of mergers and acquisition to organizational change, aims at increased profitability. This profitability should be institutionalized so that it can be sustainable. Mergers lead to increased market share and reduction in the cost of production. All this increases the profitability of the company. It makes it easy for the company to achieve its goals and objectives. It’s worth noting that, customers are keen during the presentation of the annual financial statements of these organizations. That becomes a form of marketing on its own. Increased turnover caused shareholders to have confidence with the company. It also causes prospective customers to imagine that the company is well manages. The process of merger and acquisition should be done with a lot of caution so that the intended results are achieved, (Cassiman & Colombo, 2006). When this process is done in the right way, it leads to increased market share, increased operations and production at low cost and general expansion of the organization. References Cassiman, , B., & Colombo, M. G. (2006). Mergers & Acquisitions: The Innovation Impact (1st ed.). Retrieved from http://books.google.co.ke/books?id=KH8zpajEYssC&dq=mergers+and+acquisition&source=gbs_navlinks_s. DePamphilis, D. (2008). Mergers, Acquisitions, and Other Restructuring Activities (2nd ed.). Retrieved from http://www.amazon.com/Mergers-Acquisitions-Restructuring-Activities-Edition/dp/0122095529. Finkelstein, S. (2010). Advances in Mergers and Acquisitions (1st ed.). Retrieved from http://books.google.co.ke/books?id=CHYB85ip1d4C&dq=mergers+and+acquisition&source=gbs_navlinks_s. Mikael, C., & Jani, K. (2011). A Procedure for the Rapid Pre-acquisition Screening of Target Companies Using the Pay-off Method for Real Option Valuation". Journal of Real Options and Strategy, 4(1), 117-141. Phene, , A., Almeida, P., & Tallman, S. (2012). Mergers and Acquisitions. journal of management, 753-783. doi:10.1177/0149206310369939. Schoenberg, R., & Schoenberg, S. (2006). Thirty Years of Mergers and Acquisitions Research: Recent Advances and Future Opportunities. British Journal of Management, 17(1), s1-s5. doi:10.1111/j.1467-8551.2006.00475.x.. Read More