Research Proposal on the Strategies Used by Business Leaders To Conduct Effective Merger and Acquisition Processes

Problem or purpose

Today, one of the primary methods that commercial leaders are using to enlarge and grow their businesses is mergers and acquisitions. Mergers and acquisitions have become common approaches of growing the size as well as the value of organizations in modern business times. As such, mergers and acquisitions are seen as a vital approach with substantial effects for any organization’s success and development. In contrast to the earlier system of growing value through organic growth, the merger and acquisition approach is quicker and, in most cases, cheaper. Despite the vital role played by M&As, 70-90% of them fail to produce the anticipated values to the acquirers. Business leaders need to identify the challenges that make this approach not achieve its entire goals. One of the major challenges experienced by the merger and acquisition approach has continuously been ascertaining the corporate area in which an organization should take part to exploit its long-term productivity. Business leaders are persistently looking for means to grow their businesses in size, market share, product line as well as profitability. In using the M&As approach, organizations’ leaders have the chance to grow new markets rapidly. Additionally, they get the opportunity to seek technology transfer and invention to maintain speed with business globalization.

In the past years, there has been a growing trend of large businesses that have been vigorously engaged in merger and acquisition activities to chase business growth. Still, the majority of this approach fails to give the desired worth to the acquirers. The increasing trend of using this investment approach worldwide has brought the need for business leaders to find ways to enhance the approach’s success rate. In the past, few types of research have been conducted to examine the reason behind M&As failure. In most of these researches, there has been no definite conclusion or direction on improving the approach’s success rate using tactics that proved to be effective. Business leaders worldwide need to make choices while they encounter indefinite situations during the merger and acquisition process. It would be important to embrace the right meaning of corporate strategy that aids in acknowledging subjects in mergers and acquisitions. Hax and Maljuf (1996), consider corporate strategy as a means of creating an organizational drive in its long-term goals, action programs as well as resource allocations. It is considered an important art, and there is no definite scientific method of reaching at the best approach. There are various meanings of corporate strategy depending on the specific field of study. However, the common point in corporate strategy is that a business formulates an approach to have a benefit over different opponents in a specified environment.

One of the vital features influencing corporate strategy is the environment in which an organization is working. In the pursuit of appropriate reactions to that environment, a business understands whether it has the necessary strengths required or the needed time to grow those strengths because the chance might be lost. Additionally, in the pursuit of that environment, a business may search and identify another business with suitable capabilities and competencies to merge or acquire. This approach of seeking a suitable environment fits appropriately with Pike & Neale’s definition of a merger as the combination of two businesses into a new enterprise necessitating the agreement by both stakeholders. Organizations will thus search for that strategic place that will offer them the supreme control on the external environment, internal assets, competencies, expectations as well as the stakeholders’ influence. According to (Johnson & Scholes, 2008), mergers and acquisition approaches are used by organizations in strategic positioning. As of 1986, Jemison and Sitkin realized the significance of mergers and acquisitions in redirecting and reshaping corporate strategy.

It is important at this point to distinguish between the two terms (mergers and acquisitions). A merger refers to an agreement that unites two companies of about equal size into one new enterprise. From its description, it can be construed that mergers comprise friendly restructuring of each organization’s assets as well as resources into a new company. Most majors are mutual and are endorsed by the directors as well as the shareholders of both organizations. On the other hand, an acquisition refers to a situation where one organization purchases most or all of another organization’s shares to earn control of it. The purchase may be in exchange for money, ordinary shares, loan stock, or a mixture of this. The raider earns control of the stocks and ejects the existing management. In an acquisition, the acquiring organization normally joins forces with the primary shareholders, or buys stock on the open market, or solicits proxies. According to experts, the individuals directly involved in the acquisition process usually point to influential forces past managerial control that increase the transaction’s speed (Tamosiuniene & Duksaite, 2009). Additionally, researchers and financial experts frequently describe M&A strategies as calculated acts.

Since most mergers and acquisitions’ transactions fail to give the anticipated worth to the acquirers, it is important to establish ways to improve their success rates. The improvement of this approach is necessary to foster stability in businesses, create more job opportunities, and hasten new technologies through innovation as well as the introduction of new products. As few pieces of research have been conducted to establish the reason behind M&A failures, it is important to assess this further. The purpose of this research is to recommend ways to establish and explore the approaches business leaders would use to conduct effective mergers and acquisitions.

Research questions and objectives

In recent years, there has been a rising trend of businesses using the merger and acquisition approach to attain business growth. However, most of these efforts have fallen short of the expected value. The rising trend in the use of merger and acquisition methods throughout the world calls for the need to assess ways of improving the method’s success rate. This is because the little research lacks definite conclusions on how this approach can become successful in businesses.

Questions

1. What factors necessitate mergers and acquisitions in businesses?
2. What causes failures in business mergers and acquisitions?

Objectives

1. Identify the process of mergers and acquisition
2. Establish strategies that business leaders can use to conduct effective merger and acquisition procedures.

Research methodology

This methodology explains the research inquiry as well as the reason why the inquiry is imperative. This research will use the qualitative methodology. The qualitative methodology is suitable for this kind of research as it is applicable to exploring a precise and compound phenomenon within its real-world setting. A qualitative study will be performed to establish and examine business leaders’ approaches to execute successful merger and acquisition processes. In qualitative studies, formulated interview questions are considered as one of the effective research instruments. The interview questions will be formulated to collect information to answer the listed research questions. Additionally, the interview questions should also collect enough information leading to the objectives of the study. The study’s reliability will be attained by ensuring consistency in data gathering method, organization as well as analysis methods in the entire research. Each interview will be performed through an interview protocol, transcription and initial summary. This will include the interpretations earned from the interview responses, and a member of the research team checking with the interview participants to improve the results’ dependability. According to (Lub, 2015), qualitative researchers need to have skills, tact, and sensitivity to collect accurate information from a study’s participants. This is because the researchers talk to individuals and observe them closely.

A qualitative single-case study design will be used to assess as well as explore organizational leaders’ strategies utilized to perform effective M&A processes. This design is suitable because it best fits this study’s structure. The telecommunications industry is this study’s industry of choice as it is active and requires state-of-the-art products as well as services to meet the persistent demand of its consumers. The chosen target for this study is eight business leaders from different telecommunication companies, some that have been effective in executing M&As and others that have faced challenges. The selected business leaders should be willing to take part in the interview and share what caused their success and failure. The leaders will be from distinct companies that have successfully executed the merger and acquisition process and others from a company that faced challenges in doing so. The business leaders will be grouped into two groups of four people each. The interview questions will be developed to allow appropriate data collection and sensitivity in gathering the data. This will enable data reliability and validity. Additionally, handwritten notes will be taken, used to transcribe and create the interview responses’ summary. The summary will describe the interpretations earned from the interview answers and will be sent to every interviewee for review and remarks. After getting the participants’ feedback and confirming that they concur with the researcher’s explanations, the information will manually be entered into Microsoft Word and Microsoft Excel. This will be the first step of the coding analysis. The data results will be analyzed, and conclusions will be made on the best strategies business frontrunners use to undertake effective M&A processes.

Literature Review

Mergers and acquisitions are used as important growth strategies for organizations that intend to grow their market share as well as revenues. For example, after World War II, most M&As between US and European companies targeted to grow the businesses in volume and size (Ansoff &McDonnell, 1990). A company can improve its performance by investing in its internal resources through innovation as well as new product development. This is called organic growth and has the advantage of better control of a company’s project timeline, deliverables, and resources. This is because organic growth is controlled by the organization’s personnel and according to the company’s procedures. Organizations can also improve their performance and development by investing outside through methods like the execution of mergers and acquisitions. This approach can give the organization new clients, shorten marketing time, and provide immediate actions and incomes to the acquired organization (SINGH, 2017). In the United States, there has been an increasing trend of telecommunication companies’ merging and acquisitions in the past decades. Today, the telecommunication industry has become one of the most gainful and quickly growing industries around the globe. The industry is considered a crucial component of the global utility and services sector. Universally, the aim of bringing the competition benefits, including fair prices, higher quality as well as greater innovation to telecommunications customers, has caused the removal of numerous blockades to entry into the telecommunications industry. As a result, businesses in this sector find it advantageous to go into new markets by merging with or acquiring other companies. However, the companies are facing the challenges of development, convergence, business change, technological change as well as regulatory pressures.

Various factors motivate companies to merge or acquire one another. One reason why companies merge or acquire each other is synergies. Most companies in the same industry combine their business activities to increase their overall performance and efficiency. When businesses combine activities, the across-the-board costs tend to incline because each organization leverages off of the other organization’s strengths. At most times, the company acquiring the other tends to be stronger than the one being acquired. Firms sometimes search the under-developed, weak, and vulnerable companies since all they see is the unrecognized potential. A company can move competencies in management, marketing and form competitive positions for the newly created business. Mergers and acquisitions also help in the growth of market share. Mergers can provide the acquiring organization the chance to grow market share without doing the substantial, heavy lifting. Instead, acquirers purchase a competitor’s business for a set price, in what is called a horizontal merger. For instance, a bigger company may choose to buy a smaller one and enable it to produce more products and multiply its sales to brand-loyal customers. Mergers and acquisitions also happen to maximize supply-chain pricing power. By buying one of its suppliers or distributors, a company can remove a whole tier of costs. Precisely, buying out a supplier, called a vertical merger, lets an organization save on the margins the supplier was initially adding to its costs. Additionally, by buying a distributor, an organization can gain the power to ship out its products at a lesser cost. Again in business, mergers and acquisitions let the acquirer to remove future competition and earn a bigger market share. However, a huge premium is normally required to convince the target organization’s stakeholders to take the deal.

For many companies in the United States, mergers and acquisitions are a desirable entry style when the business being ventured is well developed. The incumbent businesses enjoy substantial protection from blockades to entry. Entry barriers result from issues like; product differentiation, economies of scale, brand devotion as well as total cost advantage. Over the past years, telecommunications executives have faced major stumbling blocks after merger and acquisitions deals became consummated. When engaging in these deals, telecom companies in the US mostly focus on the positives, be it multiplying sales, rising share prices, inventing new products, or growing their market shares. In March 2011, AT&T announced its intentions to acquire T-Mobile at the cost of $39 billion. AT&T claimed that the tie-up would bring cost synergies that surpassed the hefty sticker price. In the end, the acquisition failed to get federal regulators’ approval causing a costly failure. Similarly, Comcast wasted one year and two months, hundreds of millions of dollars, and a reputation of its name in its botched $45.2 billion effort to acquire Time Warner Cable. The deal was first proposed in February 2014and fell apart in the regulator process when the Justice Department and the FCC convinced Comcast to decline the deal in April 2015. The two bodies told Comcast that they would fight against the acquisition and delay the whole approval for several years to come. These are notable examples of M&A failures in the country’s telecommunication industry. One of the main reasons of failure in mergers and acquisitions is limited owner involvement and misevaluation (Sedlacek & Valouch, 2018). M&A advisors play a crucial role but a limited one until the deal is done. Owners of the two companies in the merger and acquisition deal should be involved from the deal’s start to its end. Additionally, misevaluation can cause the failure of a merger and acquisition deal because the numbers and assets that seem good on paper may be the wrong winning factors after the deal is over. Cultural integration issues are the other evident factor in the failure of many mergers and acquisitions. A proper strategy should be applied in M&A deals to keep off cultural differences aside. Again, a good deal purposing to expand an organization requires an assessment of the company’s current capacity to integrate as well as build upon the bigger organization. External factors are other major reasons why mergers and acquisitions topple. When executing M&A deals, issues of overpaying for acquisition are rampant (Vazirani, 2012). These cases lead to monetary losses and failures of the deal. A merger and acquisition deal may also fail due to a lack of proper communication as the process is lengthy and may take many months or longer. Communication starts with how every organization is represented to buyers during introductions. It then becomes more intense during negotiations and at the closure stage. Maintaining consistent and transparent communication throughout the diligence process supports a smoother experience. The communication should be maintained with a good representation and by knowledgeable advisors to allow comfort.

Telecommunication business leaders have to follow each step in the process to conduct successful mergers and acquisitions. The first step involves determining growth markets or services. Business leaders should kick off the acquisition evaluation process by examining growth chances in business, markets served, or a combination of the two (Weber & Tarba, 2012). Crucial information like business demographics and client’s origins should be availed. The second crucial step in the process involves identifying merger and acquisition candidates. This is an important step as leaders acknowledge the candidates that can properly meet their strategic financial growth goals in selected markets or service lines. From this step, business leaders are required to evaluate the strategic financial position of the acquirer. Leaders need to note the likely gains of the transaction with its acquisition target, the risks involved, and how the target compares to the other targeted opportunities. It is at this stage where the financial position and credit position of the target is comprehensively evaluated. The assessment at this stage concentrates on volume, revenue, cost as well as balance sheet considerations. After this step, leaders make a go or no go decision. They must determine the probable benefits as well as drawbacks of the proposed acquisition or merger. This should be done according to the questions conversed earlier, and then high-quality decisions are made. The merger and acquisition process then follows the conduct valuation step. This involves assessing the target’s value, finding substitutes for structuring the process’s transactions, and choosing the structure that would properly enable the company to attain its objectives, and developing an offer. Afterwards, leaders perform due diligence, discuss a final consensus and affect the transaction. During transaction execution, the buyer should check the acquisition or merger to guarantee that the discussed deal proceeds to attain its objectives and aims. Lastly, leaders implement transactions and monitor their ongoing performance.

Merger and acquisition is a vital process used by business leaders to grow businesses. Leaders who utilize this approach can grow new markets or pursue technological transfer and innovation to maintain speed with the current globalization in the business field. However, many mergers and acquisitions fail to give the anticipated worth to the acquirers. In the United States, business leaders in the telecommunication industry then have invented various principles to deal with these unknown situations. Apart from following the necessary M&A process, business leaders that conduct successful merger and acquisition processes follow certain six themes. These include; leadership emphasis, value creation, integration plan, the review procedure, relationship development as well as organizational governance. Those leaders who follow these themes improve merger and acquisition outcomes through better planning and the creation of an operative strategy that enables collaboration, trust, as well as transparency.

Interview Questions

The following research questions will be used in the exploration, description, explanation, and identification of the approaches that commercial leaders use to perform effectively M&A.

1. What approaches have you utilized to conduct effective M&As?
2. What processes did you change and institute for framing the M&As approaches that you utilized?
3. Please share your business’s essential learning that may have inclined, informed, and otherwise changed the M&As policy.
4. What vital difficulties did your business face concerning the approaches utilized to perform effective M&As?
5. How did your business handle the vital challenges to executing the effective tactics for M&As?
6. How did your business examine the success of its approaches for enhancing the victory of its M&A processes to enhance the M&As results?
7. What else would you like to share that we did not handle on your business’s approaches and processes for developing and executing effective M&As

References

Ansoffl.H and McDonald E.J, 1990, Implanting Strategic Management, Second Edition, Prentice Hall Europe.

Hax, A. C., & Majluf, N. S. (1996). The strategy concept and process: a pragmatic approach (Vol. 2, pp. 360-375). Upper Saddle River, NJ: Prentice Hall.

Jemison, D. B., & Sitkin, S. B. (1986). Acquisitions-the process can be a problem. Harvard Business Review, 64(2), 107-116.

Johnson, G., Scholes, K., & Whittington, R. (2008). Exploring corporate strategy: Text and cases. Pearson education.

Lub, V. (2015). Validity in qualitative evaluation: Linking purposes, paradigms, and perspectives. International journal of qualitative methods, 14(5), 1609406915621406.

Sedlacek, J., & Valouch, P. (2018). Mergers of Trading Companies and Causes of Their failure. Engineering Economics, 29(4), 397-404.

SINGH, A. P. (2017). Merge or Acquire-A Strategic Framework. Annals of the University Dunarea de Jos of Galati: Fascicle: I, Economics & Applied Informatics, 23(3).

Tamosiuniene, R., & Duksaite, E. (2009). The importance of mergers and acquisitions in today’s economy. KSI Transactions on Knowledge Society, 2(4), 11-15.

Vazirani, N. (2012). Mergers and Acquisitions Performance Evaluation-A Literature Review. SIES Journal of Management, 8(2).

Weber, Y., & Tarba, S. Y. (2012). Mergers and acquisitions process: The use of corporate culture analysis. Cross Cultural Management: An International Journal.