WK 8 questions
Thomas1122
Global3e_ch12_ppt_slides.pptxChapter 12
Forging Cross-Border Mergers and Acquisitions
12-2
The Globalization of CEMEX
For CEMEX, acquisitions were the main vehicle for global growth
The M&A route was seen as an opportunity to create value by implementing more efficient processes - the CEMEX Way
Post-merger integration has focused on promoting best practices and learning from past experience
Instilling new management behavior was an important outcome of the integration process
Can CEMEX continue to pursue an aggressive acquisition strategy when the global economy faces turbulence?
12-3
Trends in Global Mergers and Acquisitions
Source: Announced global M&A volumes reported yearly by Thomson Reuter. Approximate figures.
12-4
Drivers of Cross-Border Acquisition
| Achieving economies of scale and scope |
| Increasing market share by adding capacity, brands, or distribution channels |
| Reducing overcapacity and cost by consolidating operations with competitors |
| Gaining quick entry to new markets |
| Accessing invisible assets—talent or technology |
12-5
Go alone (greenfield)...
Pros
Working with familiar people and resources
Fast decision making
Full control
Can exploit existing competitive advantages
Cons
May be risky
May be too slow
May need help
Form an alliance...
Pros
Risk sharing
Economies of scale
Quick access to resources and skills
Political necessity
Learning opportunity
Cons
May be difficult to manage well
Long-term instability
Implement M&A…
Pros
Achieve major change quickly
Full control
Synergy and leverage
Cons
Expensive
Integration may be difficult
Mostly irreversible
Alternative International Growth Strategies
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12-6
The International M&A Story…
Some evidence that cross-border acquisitions have a better track record.
Why?
Greater complementarities between parties
International M&A’s are usually in a related industry
Strong core capabilities – weak players don’t go global
Early recognition of cultural and people issues
Challenges more visible = less hubris & more focus on execution
12-7
Four Types of Acquisition Integration
Source: Adapted from Killing, 2003
Low
High
Low
High
Transformation
Best of Both
Absorption
Stand Alone
Integration Challenge
Degree of Change in Acquiring Company’s Culture and Practices
12-8
Which Approach to Choose?
There is a difference between absorption and integration
Absorption: Make the acquired company just like the purchaser (GE Capital, ExxonMobil)
Integration: Create new identity, share strength while maintaining separate identities (Renault/Nissan, AstraZeneca)
Learning from Experience
Stand-alone does not last
Absorption (assimilation) tends to work best – most of the time…
Decisions on what is “best of both” are painful
Transformations are difficult
…but all acquisitions require at least some degree of integration!
Integration is always about people
12-9
Human Resource Due Diligence Checklist
Compensation/benefits:
Executive compensation
General compensation
Incentive compensation - Bonus eligibility
- Stock plans
Pension plan - Coverage
- Assets and liabilities
Non-monetary rewards
DUE DILIGENCE TEAM
HR policies:
Hiring procedure
Employment documents
Job descriptions
Work rules - Vacation policy
- Discipline
Performance management
Early retirement
Termination/severance
Organization and management:
Organization charts
- Job title hierarchy
Management committee
Succession plans
Employment contracts
Retention agreements
Labor relations
Union status
Litigations and claims
HRIS
Employee records
Workforce demographics
12-10
The Human Capital Audit
Human capital audit questions:
What are the unique organizational capabilities of the target firm?
What competencies do the employees have and how do they compare to the buyer?
What are the source firm’s sources of talent?
What is the target firm’s compensation philosophy?
What influences the social relationships in the target firm?
What will happen if certain managers leave?
12-11
Cultural Due Diligence
Questions to ask:
What are their core beliefs?
What drives their strategy?
Is the company long- or short-term oriented?
Is the company results or process oriented?
How do they approach external partners?
Who are their most important stakeholders?
12-12
The Post-Merger Integration Process
12-13
Managing the Merger Syndrome
Most of the actual creation (or destruction) of shareholder value happens during the post-merger integration phase
A systematic, explicit integration (change) process is at the heart of most successful acquisitions
The ability to focus on the few key value drivers is a critical part of the integration process - no ambiguity about the vision
“Merger syndrome” is difficult to avoid; Involvement and inspiration are needed – plan quick wins
12-14
The Role of HR
The M&A Integration Agenda
Anticipate leadership and people issues
Put transnational teams in place on day 1
Decide who will stay and who will go
Develop employee trust
Use the “Four I” framework
12-15
The “Four I” Framework – for the first 100 days
Insight – helping employees to understand the stress of change
Information – one cannot do enough to satisfy employee’s thirst for information, especially in distant locations
Inspiration – building positive expectations for the future at the earliest stage
Involvement – face-to-face contact is the best tool for breaking down feelings of winners and losers
12-16
Integration Starts at the Top
Strong leadership at the top is not enough, but …
Credible new vision for the organization
Visible sense of urgency
Effective two-way communication
… are all required ingredients of M&A success
Stability in the leadership team, trust and mutual respect facilitate effective integration
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12-17
The Role of the Integration Manager
Facilitates and manages integration activities
Align practices with new standards
Communicate key messages
Identify and implement new value-adding functions
Help the acquired business to understand the new owner’s capabilities
Assist the new company in taking advantage of existing resources
Educating new management team about common processes
Interpreting new language, culture and customs
Help the new owner understand the acquired business
Manage the information “gate”
Brief the new owner on how things work
12-18
The Role of the Integration Team
Facilitate and manages integration activities
Help to create shared vision and objectives
Align practices with new standards
Communicate and “safeguard” key messages
Use feedback to accelerate the integration process
Measure progress against business goals
Help the businesses to understand each other’s capabilities
Help to diffuse new language, culture and customs
Assist businesses in taking advantage of existing resources
Identify and implement new opportunities for business synergy
Facilitate personnel exchange and communication
12-19
Moving With Speed
In most cases speed is advisable. Many companies report that faster integration would have been better
Size and experience matter! “Serial” acquirers prefer quick integration
Do not confuse integration and restructuring – if restructuring is necessary, it should be done early, fast and only once
Optimal speed depends on the strategic intent behind the acquisition
Even if integration is deliberately slow, strategic direction should be clear from the beginning
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12-20
Key HRM Issues: Communication
In cross-border acquisitions, distance and cultural differences may intensify tensions due to misunderstandings
Need for clear vision and strategy for the way forward
Need for consistency
Need for open communication – play it straight
Effective communication during integration is a two-way process
Effective communication requires personal engagement
Avoiding “merger syndrome” – creating positive energy
20
12-21
Key HRM Issues: Retaining Talent
Retention and mobilization of talent should be a key priority
Do you know where the good people are?
Confront difficult staffing decisions early in the process
The best will exit first!
Fast communication is the first line of defence
Retention strategies
Mentorship and development opportunities
Accountability and retention incentives for supervisors
Employment agreements with key staff
Top management involvement is essential
Start before closing
12-22
Key HRM Issues: Building the New Culture
Cultural integration will always take longer than changing the operating system
A focus on performance culture seems to be a unifying theme in most successful acquisitions
Post-merger cultural change is difficult to manage without continuous reinforcement of values and norms
Values and norms have to be translated into action
A new culture can take hold fast when it is seen as beneficial to employees
12-23
Measuring M&A Success
• Integration goals: Reorganizing and restructuring targets in terms of schedule and cost, including breakdowns for specific business units or geographical areas.
• Integration of key HR systems: Tracking integration objectives in combining systems for human resource information, compensation, talent development, and performance management according to established schedule and budgets.
• Retention of talent: Retention of acquired talent, success rates for different retention tools, retention rates for specific business units and functions, and cost-effectiveness indicators such as retention/replacement expenses.
• Best practices: Shared and adopted practices compared across organizational units, including estimation of the impact on revenues, cost, or other performance indicators such as customer satisfaction.
• Employee feedback data: These include attitude surveys and data from exit interviews.
12-24
Building Learning Capability
Acquisition capability is essential for the success of many multinationals
Reflecting on and codifying M&A experience improves performance
Acquisition tools should provide more than “best practice” roadmaps – most international acquisitions are one of a kind:
Issues and questions to be addressed
Broad guidelines on what to consider
Simple and concise instruments
Sources of advice
Being proactive in M&A learning is a prerequisite for HR professionals to be involved in the next round
12-25
The Wheel of Fortune at GE
