Before M&A, companies either do not carefully analyze the potential costs and benefits of the target company and acquire it too hastily, and as a result, they are unable to manage the acquired company reasonably; or they overestimate the attractiveness of the industry where the M&A target is located and their own ability to manage the acquired company, thus overestimating the potential economic benefits brought by the M&A, and as a result, they also failed.

Improper strategy may also be manifested by an excessive preference for financial rather than strategic M&A decisions. Financial M&A is value transfer-oriented and pursues short-term financial goals, especially cash goals, without the intention of operating the business in the long term, and therefore has no intention of integrating the acquired company's resources, technology and production processes as part of itself. On the contrary, strategic M&A is aimed at value creation, where both parties continue to strengthen their main business within a moderate scope by optimizing the allocation of resources based on their respective core competencies, generating integration synergies and creating new value that is greater than the sum of their independent values.

Godfred Yaw Koi-Akrofi (2016) mentions that “Shareholders in merged companies typically exchange their shares for shares in the new company.”, while in an acquisition, “the target company is usually acquired as a going business and its shares are transferred to the shareholders of the acquiring company for cash or debt”. Therefore whether the shareholders and directors are utilitarian or not can directly affect the growth of the post-merger company. According to Drucker(1995), acquisitions should be based on business strategy, not on financial strategy, and "acquisitions based on financial strategy will more or less invite failure.” 

Therefore, if the potential costs and benefits of the target company are fully considered before the acquisition, and there is a correct assessment of the attractiveness of the industry in which the target company is located and of its own management capabilities, then when the acquisition takes place, there will be reasonable management, as well as economic benefits within expectations. In addition to this, if a company's M&A objectives are more strategic, it will be more responsible for the assets and liabilities of the acquired company and will reallocate the resources of such a brand new company in the pursuit of creating sustainable value. If a company tends to focus too much on financial objectives, it usually does not want to make substantial changes to the product structure, organizational structure and corporate culture of the acquired company after the acquisition, resulting in a difficult restructuring process and a decline in efficiency after the acquisition, which is what we will talk about next.

 

The second point is that the enterprise cannot integrate well after the M&A. Effective post-merger integration measures can make up for and save the lack and deficiency of the pre-merger strategy and decision-making process, so that the enterprise can "digest" the acquired enterprise and produce the effect of 1+1>2. On the contrary, the lack of post-merger integration often leads to "indigestion" and makes the target company a burden to itself. This is a common mistake that companies make in M&A. Often, they take the M&A process seriously in the early stages and plan it carefully, but afterwards they take it lightly and ignore the post-merger integration, making M&A failure inevitable.

After the completion of M&A, enterprises face the integration of strategy, organization, system, business and culture. The end of M&A is only half of the success, the integration after M&A will ultimately determine whether the implementation of M&A strategy is beneficial to the development of the enterprise.

The company's strategy, organization, system and business are the most immediate and significant issues to consider after the M&A. Sometimes even an M&A event occurs in two companies with different businesses, because the acquired company is seen as a market expansion or an investment. Then the new strategic objectives, management system, and business direction become matters that managers urgently need to determine. If the direction and management are not correct, the so-called "new company" can be very costly for the shareholders, employees, customers and directors, which is the importance of management during the integration phase.

The integration of corporate culture is the most basic, the most core, and the most difficult work. If we use the NBA as an example, the coach of a team is more about managing the relationship between people in the team, how to keep the old players and how to get the new players to play for you. It is the same reason that culture clashes between M&A companies may make the original psychological contract unbalanced. Enterprise mergers and acquisitions make the original different quality of corporate culture mingled together, in the same time and space, then this is bound to go through a contact, conflict and adaptation of the interactive process. If not handled well, the enterprise will often be full of conflicts, resulting in internal conflicts. Once the psychological contract is broken, a large number of employee behaviors that are not conducive to M&A integration and normal business operations will appear in the organization, causing huge operational losses and an increase in overall resource costs to the company. At the same time, these behaviors, in turn, aggravate the breach of the contract, thus forming a vicious circle.

On the contrary, an M&A activity can be said to be largely complete and successful if the company has appropriate plans and responses to the strategic, organizational, institutional, business and cultural aspects of the integration that it faces. This means not only that the merger will be profitable for all parties, but also that it will provide a stable foundation and favorable conditions for the subsequent development of the company. This is especially true for the management of the corporate culture, the ability to get along with the people, and the ability to retain talent, as the operation of the company depends on the people at all levels, which is what we will discuss next..

 

The third point is that human resource conflicts lead to M&A failure. Due to the limited number of positions in the company, both parties to the merger and acquisition want to maintain their positions or authority. If not handled properly, it will cause the loss of key personnel, including senior managers, in the acquired company. The loss of key personnel not only directly damages the company's capabilities, but can also cause adverse reactions among those who remain, including concerns about future prospects. At the same time, M&A can also have a negative impact on employee psychology and behavior, such as lack of trust in management and lack of enthusiasm for work. This is a potential risk to the success of the M&A, and if ignored, may lead to the failure of the M&A.

This is an extremely difficult issue to deal with because it is a process of dealing with people in the M&A, including some of the stages of potential problems mentioned above, and it is up to people to make decisions and manage them, and it is equally important to manage lower level employees in addition to management. Of course, if human resources issues, such as the hierarchical relationship between the two sides of the merged company and the management of the personnel of the acquiring company, are properly managed, then the final challenge of the M&A will be solved.

In today's context of such fierce competition in various industries, many companies will choose some other ways to continue to survive. Mergers and acquisitions are one of the most common ways. Mergers and acquisitions are defined as the merger of two or more independent businesses, companies to form a single enterprise, usually with one dominant company absorbing one or more companies. Perhaps all parties benefit after a merger or acquisition, but I agree with this to a small extent. In other word, I do not think that M&A is always a beneficial strategy. This essay will discuss the reasons why corporate mergers and acquisitions fail and do not produce benefits in three ways: poor decision making, failure in the integration phase, and human resource conflict.

 

Companies may make incorrect decisions prior to an M&A, including poor analysis, overestimating the target company, and favoring financial over strategic M&A decisions.

If the potential costs and benefits of the target company are fully analyzed before the M&A, and there is a proper assessment of the attractiveness of the target company's industry and its own management capabilities, then when the M&A occurs, it will be reasonably managed and economically beneficial within expectations. In addition to this, if the company's M&A objectives are more strategic, it will be more responsible for the assets and liabilities of the acquired company and will reallocate the resources of such a completely new company in the pursuit of creating sustainable value.

However, when an M&A occurs, companies either do not carefully analyze the potential costs and benefits of the target company and acquire it too hastily, with the result that they cannot reasonably manage the acquired company; or they overestimate the potential economic benefits of the M&A by overestimating the attractiveness of the M&A target's industry and their own ability to manage the acquired companyIn addition, an inappropriate strategy may be manifested by an excessive preference for financial rather than strategic M&A decisions. According to Drucker (1995), M&A should be based on business strategy, not financial strategy, and "M&A based on financial strategy will more or less invite failure". This is because the purpose of strategic M&A is to create value, where both parties continue to strengthen their main business by optimizing the allocation of resources based on their core competencies to a moderate extent, creating integration synergies and creating new value that is greater than the sum of the independent values. Godfred Yaw Koi-Akrofi (2016) mentions that "shareholders of the merged company usually exchange their shares for the new company's shares.”, while in an acquisition, "the target company is usually acquired as a going concern and its shares are transferred to the shareholders of the acquiring company in exchange for cash or debt." This is where the interest lies, so if the company is overly inclined to focus on financial objectives financial M&A is oriented towards value transfer, pursues short-term financial objectives, especially cash objectives, and does not intend to run the business in the long term, with no intention of integrating the acquired company's resources, technology and production processes as part of its own, it can lead to a difficult and inefficient post-acquisition restructuring process.

Therefore, incorrect decisions, such as poor analysis, overestimating the target company, and favoring financial over strategic M&A decisions, can affect a company's M&A and make it beneficial only to a small extent.

 

After the M&A, enterprise cannot integrate well will also influence the result. 

Effective post-merger integration measures can make up for and save the lack and deficiency of the pre-merger strategy and decision-making process, so that the enterprise can "digest" the acquired enterprise and produce the effect of 1+1>2. An M&A activity can be said to be largely complete and successful if the company has appropriate plans and responses to the strategic, organizational, institutional, business and cultural aspects of the integration that it faces. This means not only that the merger will be profitable for all parties, but also that it will provide a stable foundation and favorable conditions for the subsequent development of the company. This is especially true for the management of the corporate culture, the ability to get along with the people, and the ability to retain talent, as the operation of the company depends on the people at all levels.

On the contrary, after the completion of the M&A, when the company faces the integration of strategy, organization, system, business and culture, if the integration fails, it will mean that the implementation of the M&A strategy is not beneficial to the company.

The company's strategy, organization, system and business are the most immediate and significant issues to consider after the M&A. Sometimes even an M&A event occurs in two companies with different businesses, because the acquired company is seen as a market expansion or an investment. Then the new strategic objectives, management system, and business direction become matters that managers urgently need to determine. If the direction and management are not correct, the so-called "new company" can be very costly for the shareholders, employees, customers and directors, which is the importance of management during the integration phase.

The integration of corporate culture is the most basic, core and difficult work, because it is dealing with people. If we take the NBA as an example, a coach of a team is more about managing the relationships on the team, how to keep old players and how to get new players to play for you." Ninety percent of a head coach's job is dealing with the players" (Kerr, 2022). It is the same reason that culture clashes between M&A companies may make the original psychological contract unbalanced. Enterprise mergers and acquisitions make the original different quality of corporate culture mingled together, in the same time and space, then this is bound to go through a contact, conflict and adaptation of the interactive process. If not handled well, the enterprise will often be full of conflicts, resulting in internal conflicts. Once the psychological contract is broken, a large number of employee behaviors that are not conducive to M&A integration and normal business operations will appear in the organization, causing huge operational losses and an increase in overall resource costs to the company. At the same time, these behaviors, in turn, aggravate the breach of the contract, thus forming a vicious circle.

As a result, the lack of post-merger integration often leads to "indigestion" and makes the target company a burden to itself. This is a common mistake that companies make in M&A. Because of the broad scope of the integration phase, this has a significant impact on M&A and is a central issue in M&A. Therefore, this shows why M&A are only to a small extent beneficial.

 

HR conflicts can still lead to M&A failures after the M&A is essentially closed. This is an extremely difficult issue to deal with because in an M&A is a process of dealing with people, including some of the potential problems of the stages mentioned above, and it is up to the people to make decisions and manage them, and it is equally important to manage the lower-level employees in addition to the management. If human resource issues, such as the hierarchical relationship between the two sides of the acquired company and the management of the acquiring company's personnel, are properly handled, the final challenges of the M&A will be solved.

However, due to the limited number of positions in the company, both parties to the merger want to maintain their position or power. If not handled properly, this can result in the loss of key personnel in the acquired company, including senior management. The loss of key personnel not only directly damages the company's capabilities but can also cause adverse reactions among those left behind, including concerns about future prospects. Also, M&A can have negative psychological and behavioral effects on employees, such as a lack of trust in management and a lack of enthusiasm for their work. This is a potential risk to the success of an M&A, and if ignored, may lead to the failure of the M&A.

Therefore, an M&A can only be said to be successful if it passes through all the preliminary stages smoothly and the HR issues are resolved.

 

In summary, mergers are a common financing activity, but it is debatable whether they are profitable, and if they are, it is a matter of caution. The three areas discussed in this paper, pre-decision, integration, and human resources, are indispensable, and if any of them goes wrong, it can lead to problems or pitfalls before, during and after the merger, and ultimately to an unprofitable M&A strategy. Therefore, M&A is not always a beneficial strategy.

 

Reference list:

1.       Koi-Akrofi, G.Y. “Mergers and Acquisitions Failure Rates and Perspectives on Why They Fail.” Creative Commons Attribution
License, vol. 17, no. 1, July 2016, pp. 150–158.

2.       Drucker, P.F. Managing in a Time of Great
Change. Oxford, Butterworth Heinemann, 1995.

3.       Colett, N. “Partial Utilitarianism as a Suggested Ethical, Framework for Evaluating Corporate Mergers and Acquisitions.” Business Ethics: A European Review, vol .19, no .4,26 Sept .2010, pp .363-378