So, how do we measure the success of business integrations? In fact, the success of mergers, acquisitions and takeovers depends on several factors.
Firstly, a clear reason for conducting an integration in the first place should be explained, and what goals the company is trying to achieve. There must be a fair amount of planning involved. Also, having a list of clear benefits of the merger, acquisition or takeover is crucial. All of the above need to be communicated to key stakeholder groups in the organization as well as in the target organization to win their approval and support.
Secondly, the success of business integrations also depends on both aptitudes (skills to do something) and attitudes (feelings towards something) of the senior leadership in the two firms involved. They need to be comfortable with negotiating various things at different stages of the integration process as added pressures and responsibilities will emerge along the way. As there will be a lot of conflict and change involved, senior managers need to be ready to face difficulties that may easily lead to the demise of mergers, acquisitions and takeovers, if not properly managed.
Thirdly, handling government relations is extremely important for the success of integrations. Otherwise, regulatory problems can present a barrier. It is because the government will surely step in to prevent any merger, acquisition or takeover from taking place, if one single business ends up with too much market power. By default, the government acts in the best interest of the general public (all citizens).
Achieving the success at Mergers, Acquisitions and Takeovers
Synergy is the key for business integrations.
Synergy means that the larger business after the merger, acquisition of takeover is more successful than what the separate businesses were before the integration had happened.
In business, synergy means that the combined power of a group of businesses when working together is greater than the total power achieved by each business working separately. The power will mainly come from resource sharing, e.g. sharing research facilities or pooling ideas.
The larger business will be more effective in achieving business aims and business objectives, more efficient in using scare resources and more profitable than the two separate companies. Thanks to internal economies of scale of operating a larger business, there will be significant cost saving advantages, e.g. buying raw materials in bulk or lower distribution costs by using the same sales outlets.
After the integration, the business will also have more market share, more customers and better brand recognition.
Not achieving the success at Mergers, Acquisitions and Takeovers
In case real synergy is not achieved, a merger, acquisition or takeover fails leaving shareholders without any benefits – the value for shareholders was not increased.
Maximizing shareholder value means two things:
- Higher dividends. Dividends paid to shareholders are increased being paid from higher free cash flow.
- Higher share price. The company share price on the stock market is increased resulting from healthy growth so capital gains can be achieved. Â
If after the integration the business is too big to manage effectively, internal diseconomies of scale will erase the benefits of synergy. There may be little mutual benefits from shared resources, marketing and distribution systems. So, the average cost of production will not be minimized which will then lower profits.
Additionally, corporate culture, attitudes towards business ethics and Corporate Social Responsibility (CSR), or management styles might be so different that the two sets of managers and workers may find it impossible to work effectively and cooperatively together. Therefore, the company will not grow in the long-term.
So, in the end, the shareholder value will not be increased.
