Mergers and Acquisitions
Table of Contents
According to many types of research, the base of Merger & Acquisitions is on strategic and financial motives with the goal of creating value that will not emerge or come out if two companies started to act individually (Bower, 2001; McCarthy & Dolfsma, 2013; Schweiger & Very, 2003; Seth, Song, & Pettit, 2000). Hitt, Hokisson, Duane and Harrison stated in (2001) that synergy is the essence of value creation. Hence, it is essential for the acquiring companies to recognize factors for creation of synergy while looking for acquisition objects. Jameson and Haspeslagh (2006a) came to know that synergies basically depend on organizational and strategic fit between acquiring organization and acquiring company. Reasons for the acquisitions are the aim of reaching the new markets, increasing the efficiency of present resources or gaining the new resources (Bower, 2001; Haspeslagh & Jemison, 1991; Hubbard, 2001; Schweiger & Very, 2003).
Bower (2001) made outlines different activities of strategies that he proposed as the basis for the engagement of companies in mergers and acquisitions. The 5 strategies which he identified were:
- The geographic roll-up M&A
- The overcapacity M&A
- The M&A as R&D
- The market or product extension M&A
- The convergence of industry M&A
The extended explanation of these objectives came in 2001 from Hubbard which related strategic motives to strengthened position of the market and future growth. The objectives of acquisition were sorted further into 6 categories:
- Market penetration
- Financial synergies
- Vertical expansion
- Horizontal acquisition / Synergy or asset potential
- Market entry
- Economies of scale
Very and Schweiger took a similar approach in 2003 to objectives for the undertaking acquisition that, combined with the explanation of Hubbard (2001), gave rise following description in acquisition objectives:
The meaning of market penetration is the acquisition that is made with the intent of gaining market share and market power. Financial synergies do come from acquisitions that are made with the intent of improving earnings through enhanced facility ownership, enhanced terms of finance, and accounting variations. Vertical Integration means acquisitions that are made with the intent to enhance control over the resources, the distribution channels, or technology by the acquiring companies which have similar characteristics. Horizontal acquisitions which are also known as asset potential are made with the intent of optimizing the use of assets of the acquired company. Market entry acquisitions are developed to enter new regions, industries or unrelated or related markets for enhancing market coverage. Economies of scale mean acquisitions with the intent of integrating fragments or entire acquired companies for optimizing the earning abilities (Hubbard, 2001; Schweiger & Very, 2003).
The acquisition value depends on the ability of management to deal acquisition process regardless of strategic objectives which an organization has (Cartwright & Schoenberg, 2006; Gomes et al., 2013; Haspeslagh & Jemison, 1991 and; Jemison & Sitkin, 2006b). The theory of acquisition process mainly throws light on process of acquisition. It proposes that final acquisition outcome is determined by factors and activities in acquisition process (Jemison & Sitkin, 2006b). Moreover, acquisition process is used for understanding of creating the value in acquisition instead of determining company value (Haspeslagh & Jemison, 1991).
The process of acquisition is seen basically as two underlying major sub processes, that are pre-acquisition and post-acquisition process (Gomes et al., 2013; Lasserre, 2003; Hubbard, 2001; Haspeslagh & Jemison, 1991 and; Jemison & Sitkin 2006b). Pre-acquisition process consists of decision-making issues with regard to acquisition, that includes rationales for justified acquisition like analyzing, screening and strategically evaluating prospects of acquisition (Haspeslagh & Jemison, 1991). Post-acquisition process contains implementation phase of acquired company like products, cultures, values and integrating processes which are the capabilities that play part to value of acquisition (Haspeslagh & Jemison, 1991; Pablo et al., 1996).
Haspeslagh and Jemison (1991) came to know the perspective of acquisition process in 1991 that was being explained by researchers through decades. It is a linear process that starts with pre-acquisition and ends in the post-acquisition process. (See Figure Summarized Acquisition process model adapted from Haspeslagh and Jemison (1991), Lasserre (2003), and Gomes et al., (2013).
The process of pre-acquisition is described by a set of the strategic motives for undertaking acquisition and evaluation of various targets of acquisition to notice which target creates good synergies for the acquirer (Hubbard, 2001; Lasserre, 2003). Mainly, the process is evaluated by a strategic fit which is the identification of the contribution that an acquisition makes and after that it determines if the proposed target of acquisition fulfills strategic contributions. For example, in the terms of products or new customers which contribute to an increase in non-financial or financial goals (Jemison and Sitkin, 2006b).
Organizational fit mainly is being used to a lower extent for the identification of possible problems which can lead to interruption in process of value creation (Bing and Wingrove, 2012). The process of post-acquisition is characterized by an integration of the acquired company and transition to new standards and cultures too as a business operation that is supposed to produce enhanced value is transferred (Lasserre, 2003). This process takes into consideration the organizational fit as organizational differences sometimes cause issues that lessen the probability of succeeding with extracting operational and financial gains (Gomes et al., 2013). The other aspect in which the acquiring organization sometimes faces problems is a willingness to do fast or quick endorsement of the acquisition process. So, the chance of ignoring important organizational fit and strategic issues is more and it can disturb the transition from two individual entities into one acquisition (Gomes et al., 2013; Jemison and Sitkin, 2006a).
Mergers and Acquisitions have become an integral part of the corporate strategy which is a combination of the buying and selling of business corporations or assets with the aim of promoting the growth of the business in its respective sector. The amalgamation of two corporations can result in increased financial power, business activity as well as market share (). In addition to this, this offers opportunities to synergize through efficiencies gained by economies of scale. According to the figures released by Statista (2017) the total value of international M&A deals amounts to approximately 4.74 trillion U.S. dollars however, the rate of merger and acquisition failures is somewhere between 70% to 90% (Statista, 2017).
The primary cause of this rate of failure are varied however, it will not be unfair to say that the entire failure of the deal starts with flawed decision-making criteria. In simple terms, a haphazard process of decision-making tends to generate haphazard results. When a haphazard decision-making process is involved in the target screening and selection process it will definitely result in a failure. Moreover, this result can have a long-lasting and detrimental impact on the acquirer. Having the fact that mergers and acquisitions will increase in the next few years, most businesses are moving toward eradicating haphazard decision-making processes from their M&A approach so as to improve the overall M&A decisions.
The task of screening as well as management of target companies is a very classic challenge of portfolio management.it involves considering various factors, the alternatives for evaluation along with the decisions that should be made. Emphasis should be on over-analyzing available data along with engaging all internal stakeholders for leveraging their insights, experiences and decisions. This situation can be best controlled by developing one or more decision models so as to enable a multi-criterion decision-making process. Decision models comprise of goals, measures, weighted criteria along with an associated rating scales. These models help decision-makers to consistently and comprehensively evaluate and rate the value of the business of the alternatives that effectively contribute toward the decision objective (Sahu et al., 2013).
Decision models offer distinct advantages which include:
- Assuring a comprehensive analysis of every possible alternative
- Balancing of multiple qualitative and quantitative factors
- Improved justification for business decisions
- Promoting cost vs. benefits assessment
- Enabling fast reprioritization in response to the ever-changing business conditions.
Criteria for evaluating potential and screening acquisition targets present the benchmarks against that for the evaluation of a company (Srivastava and Datta, 2002). In this part overview of the strategic financial, industry, organizational and business environment related decision criteria which is used by the corporates acquirers in process of selection of candidate.
The main aim of strategic screening is to search whether characteristics of target match with objectives of acquisition of acquirer and whether there are strategic risks linked with firm (Becker, 2016, p. 303). In strategic screening, decision makers have a look whether any of potential synergistic gains have chance to be realized (Eschen and Bresser, 2005; Jemison and Sitkin, 1986).
Criteria of strategic decision implemented by decision makers during strategic screening process are usually derived from acquisition strategy (Lucks and Meckl, 2015, p. 123) and capture that which of the “white spots” in firm’s strategic positioning must be closed with acquisition (Becker, 2016, p. 302). These gaps of strategies may link to dimensions like product portfolio, market shares, customer segment, business or technology models and geographical markets (Becker, 2016, p. 302). Therefore, it relates to target characteristics which determine whether “strategic fit” is found between acquirer and the target. Strategic fit can be defined as degree to that target company complements or augments parent’s strategy and by doing so makes known contributions to both financial as well as non-financial goals of the parent company (Bettinazzi and Zollo, 2017;). The main argument of discussion is the loss or gain from acquisition are dependent on strategic fit between acquiring company and target (Lubatkin, 2003). The higher is the probability of a strategic fit of the acquirer and the target, the more gains can be expected from the deal (Calipha et al., 2010). The table given below provides an overview of the literature on criteria of strategic decision.
On one hand, this criterion relates to the concept of the organizational fit while on the other hand it relates to the characteristics describing capabilities of target and resources which can be considered important for the acquirer. Scholars have evaluated organizational fit in the terms of the various dimensions. For example, these include the Top Management Team compatibility in the terms of cultural differences among top management teams (Chatterjee et al., 2007; Datta, 2002), the fit similarity or compatibility of the management style (Larsson and Finkelstein, 2010; Rao et al., 1991), various functional backgrounds (Haspeslagh and Jemison, 1991; Krishnan et al., 2007; Wiersema and Bantel, 2002) control and reward system (Datta, 2002). Moreover, Dollinger and Saxton have operationalized the organizational fit as scale which reflects similarities in information system, human resources, organizational structure, culture among two companies and information and accounting system. A dimension which is discussed very frequently of organizational fit concept in both M&A literature as well as amongst practitioners, is cultural compatibility, cultural fit or degree of relatedness of culture among acquirer and target in the terms of national and organizational cultures (Ahammad and Glaister, 2013; Bauer et al., 2016; Marks and Mirvis, 2001; Stahl and Voigt, 2008; Tarba et al., 2017; Weber, 2018).
Second, the firms engage in the acquisition to reach critical resources of organization which can be valuable and which may be particularly lacking (Granata and Chirico, 2010). These resources can be tangible (e.g., physical and final assets) and intangible (capabilities of TMT, corporate reputation, human capitals and brands). Prior research of M&A suggests that comprehensive screening of target acquisition and the evaluation process should include assessment of target’s both tangible as well as intangible resources and assets (Harvey and Lusch, 1995; Hitt and Pisano, 2003). It is for this purpose that the resource-based view of firm gives suitable perspective for investigating the acquirer’s target screening processes. It is because the profile of target can be regarded as the combination of intangible and tangible resources. Specifically, during organizational screening, the acquirer commonly investigates the firm specific capabilities and knowledge like market, industry, production, technical know-how (Hitt et al., 2000) and R&D, which are important competitive assets that the firm has (Grant, 1996). This type of firm specific knowledge is often found in human capital, in particular firm’s TMT and the senior managers. Henceforth, organizational screening involves the evaluation of target’s capabilities of the top managers and key executives (Hitt et al., 2000; Kiessling and Harvey, 2006; Marks and Mirvis, 2001). Most of the times, the top manager’s implicit knowledge about the industry, the corporate strategy along with the strengths and weaknesses of the organization along with maintaining of interpersonal networks of external and internal relationship which is very crucial for the business activities (Kiessling et al., 2008; Kiessling and Harvey, 2008). Further, information-based assets and resources which are sometimes evaluated in the corporate acquisitions are the intellectual brands, the reputation of target among customers or suppliers and property rights (Capron and Shen, 2007; Hitt et al., 2000; Hitt and Pisano, 2003; Kiessling and Harvey, 2006; Mahajan et al., 2014; Rao et al., 1991; Saxton and Dollinger, 2004).
This is the third step in evaluation of “financial fit”. In early pre acquisition screening, financial fit’s assessment does not include the detailed valuation of company and assessment of the thing whether expected price of purchase lies below or above this value (Lucks and Meckl, 2015, p. 128). Financial screening on this stage consists of initial assessment of transaction’s financial feasibility and evaluation of consequences which are possible for annual profit and other main performance indicators like debt ratio or profit per share (Becker, 2016, p. 303; Lucks and Meckl, 2015, p. 128). Decision makers can easily have a rough estimate about deal’s affordability by calculating price range for expected price of acquisition. It is done by usage of valuation multiples like EBIT(DA) of the companies in close group of them (Lucks and Meckl, 2015, p. 128). The acquiring firm can get some useful ideas about the acquisition premium by determining expected price range of acquisition. It tells about how much the acquisition is ready to pay for target firm (Laamanen, 2007; Reuer et al., 2012). It also includes assessment of financial situation by the study of historical statement of income of target. It can also be done by studying the financial forecasts and balance sheet. By using the data available at this point, the decision makers evaluate and calculate the key performance and its range (Henn et al., 2018; Hitt et al., 2000; Hitt and Tyler, 1991; Kim and Finkelstein, 2009; Very and Schweiger, 2001, p. 13). With help of balance sheet products, financial analysis includes consideration of target’s intangible (like brands, patent, reputation, human capital) and tangible assets (like financial and physical) and liabilities (Kiessling and Harvey, 2008). Accounting valuation can differ in different regions because of unsafe conditions (Harvey and Lusch, 1999). Financial assessments can provide the foundation for making of forecasts on cost, future revenues, profit scenarios for target and financing requirements (Harvey and Lusch, 1995; Very and Schweiger, 2001).
This is the final step in process of target screening. Prior researches have shown that the attractiveness of company is determined usually by industry’s structural effectiveness and competitive strength within its industry (Porter, 2008). Scholars have therefor suggested that screening activity must incorporate assessment in terms of dimensions (Rajagopalan et al., 2013). Resources of firm depends on environment type of industry where resources are usually employed (Heeley et al., 2006). Environmental factors can have an impact on the value and performance of firm. PEST analysis includes thorough and rigorous environmental screening with four dimensions: economic, socio-cultural, political and technological aspects (Gupta, 2013; Sammut-Bonnici and Galea, 2015). PEST analysis can guide environmental assessment and support acquirers. This type of analysis is important for cross-border deals or transactions. When assessing the potential target of acquisition, the acquirers should look at industry context too (Anand, 2005; Anand and Delios, 2002; Bauer and Matzler, 2014). Normally, attractiveness of industry in which target operates actually depends on structure of industry (Porter, 2008), which on other hand, drives the competition among firms (Porter, 2008). Five forces model is important for attractiveness of industry (Porter, 2008). This model involves qualitative and quantitative assessment of other competitors and direct competitors force stemming from suppliers, new industry, substitute products and customers. According to literature, two common quantitative measures are average profitability and growth of industry (Dawson, 2011). It is important to consider the industry’s growth because it can allow the ability of target to increase the revenues in future (Wright et al., 2001).
When you come to know that one company is acquiring other, it sounds like the process is done in a blink of eye. You hear about the merging of two companies for example ABC Co. has announced the plan to merge with or acquire XYZ Corp for $20M stock and then occurs the transaction and you think “this is what I heard about and they were doing it”.
But in actual the process of acquisition is longer than the blink of eye. You will notice that whenever there is a news about acquisition, there is always a word used “plan”. It is because a lot of hard work is done in process to bring this so far. The critical steps involved in planning process of the target screening.
Acquiring companies which are very successful are pro-active. They are not waiting for some bankers for investment deals, instead, they have acquirers as hunters. Acquiring companies are actually keen hunters, they are passionate about the acquiring targets. In the start, they need to identify the potential targets which make sense overall business goals of company (Canila, 2009).
The companies don’t merge or acquire company because of acquiring purpose. Instead, they look for places where chances of success are high. They go with the theory of economic function of acquisition, reason of business transaction and relationship resulted between merging entities. As a result, acquisition strategy is created where assiduity has identified most promising segment of market for growth and points out financial and commercial hurdles for the potential deals. An acquisition thus can result into new market exposure, growth, enhanced efficiencies by addition of more synergies and growth. To do it all, acquisition team should know about the strategy, profile of acquisition target and their company inside and out (Chen and Liang, 2011).
When the clear and clean acquisition strategy is ready, next important step in process of planning is to form a list of those companies which are potential target. Acquiring company should select industry or company it is targeting and then compile list of those companies which match to their acquisition strategy to some extent (DePamphilis, 2010).
Development in target list goes on with increased number of information lists of the targets. It can come from working with M&A experts, market, institutional learning and research in market segment where the acquisitions can create value. They will find potential segment and perform complete examination of value chain of industry and ecosystem. By this research, it is easy to identify potential sources of profit with disruptive and emerging technologies, important part of competitive advantage and customer buying pattern. Once, the initial list is developed, then they will refine list by setting criteria for the target companies. By doing so, initial list is developed which is based on descriptive screening criteria (Gaughan, 2010).
When the initial list of the potential targets is formed by screening criteria, then acquisition team of company can reduce list to further those potential targets who are at priority. Availability of assets in market, potential for the value creating synergies and parenting strategy are basis for culling of potential targets to categorized list (Gomes et al., 2013).
With refined lists of the targets, acquiring company contacts with sellers. Maximum work on this stage is about to gather data about potential target and data should be maximum. If the acquiring company fails to do so, then it will have to make request to target for initial data. This information can help the acquiring company to know that either forward motion in M&A process is good from both points i.e., financial and strategic standpoint. Due diligence on this point in target screening process appears to be quite critical. Formation of the acquisition strategy is critical step for acquisition process. Explaining detailed criteria to the screen- potential target can become point where acquiring company is sure about its choice (Kim et al., 2011).
M&A are probably driven over considerations of being strategically fit. Both the qualitative and quantitative factors can be closely considered with the screening process based upon the strategic fit aspects. Those targets that pass from the initial as well as subsequent evaluations and filters needs to be compared as well as prioritized based upon a consistent criterion. A good example can be the development of a strategic fit assessment matrix. This matrix can comprise of assessing the competitive position of the target including competitor retaliation, distribution channels and the risk associated with substitutes along with the power relation with the suppliers including supply chain, economies of scale and supply contingencies and proposition to buyers including pricing, quality and portfolio (Holland et al., 2003).
Apart from a strategic fit, companies that were selected in the target screening process should be supported through profiles so as to better evaluate and assess their potential of value integration.
The profiles need to incorporate product lines, and business segment, manufacturing sites, manufacturing sites and recovery, recent company news, selected history of transactions as well a potential risk.
Whilst the fact that investigation of every target firm fits within the acquisition strategy of the company, it still holds key importance in the screening and selection process. Screening targets for assessing strategic fit also involves avoiding any issues or potential pitfalls at an earlier stage, prior to having a huge amount of money and time involved.
When strategically fit companies have been screened down, the list of options that are viable for the deal is further reduced. This is the time when more in-depth value-analysis can be applied: a typical way pf assessing the strategic fit of a target company include:
- Application of subjective screens inclusive of various challenges like integration challenges, product for, etc.
- Determining how each target will effectively contribute towards M&A strategy.
- Identification of unique challenges as well as red flag s for every target and potential acquisition.
Many organizations consider M&A as a beneficial opportunity for the business. They do so when there is an attractive target or when they are mentally prepared to increase the cash available to them (Christensen et al., 2011). But value cannot be created by using acquisition opportunistically. Finding the right target for acquisition has no shortcuts. Using a comprehensive method for acquisition tells about where to look for the target in first place. It is called “where to play”. It is not right to see the reviews of good candidates directly. Instead, there is a whole process which starts with exploration of industry ecosystem. It means the environment in that acquirer works and interacts with customers, suppliers and partners. Then, there is analysis of potential-opportunity portion or segment. It means the segment where there are attractive companies to purchase. It ends with long list where there is a long list of potential candidates (Haberberg and Rieple, 2008).
Analyzing Industry Ecosystem
The underlying reason is to challenge the acquirer to create a defensible rationale of acquisition. The business should be able to explain that how this deal will proceed and it will create good value. Whether the purchase will be helpful for the core growth of acquirer or not. Will there be any change in technology, will it prove a game changer and will it be attractive for customers? It should properly tell that how acquisition will help to strengthen position of acquirer and create nice value for all shareholders.
This stage does not only look at the recent factors which will influence industry but it also looks at the future progress of industry in future. For example, in the retail sector, analysis can consider the speed of recent multichannel sales-activities along with determining the new waves of mechanization which will be there in future such as grocery will be delivered by drones (King et al., 2008).
Defining Opportunity Segments
After the identification of the generic industry sectors, the next step is the identification of opportunity segments which are specific. For every search direction, we have summarized the results of analysis in scoring matrix. It looks at 2 dimensions:
- The strategic fit should be strong with acquirer (in the terms of attractiveness of business model, technological suitability and customer perspective)
- This segment should be attractive (in the terms of margin potential, competitive intensity and growth).
Those segments which have good scores in both dimensions are opportunity segments.
Creating Long List
Within the opportunity segment, the search starts for the discrete targets. Each potential acquirer may start its search by using SIC codes and databases that are obtained from them. But this search does not throw light on all sides of acquisition universe. Some companies have data or tools to do so. It is not simple to identify target universe. It is done by involving functional experts.
Source: BCG, (2011)
The previous step helped in identification of relevant industries and this step helps in focusing the specific industries. Now, it is time to mark those companies which are best for the acquisition candidate. It is important to keep in mind that it will not happen in blink of eye but it will take time. Real discipline is required in this process. There is a process called robust gate stage which helps in identification of right companies. At this point, the financial position of the target matters a lot for the acquirer. But sometimes this type of approach may fall short. Strong performers are not always attractive. For sure, the financial strength can be seen acquisition price. Long term success cannot be promised just by having a look at the past performance of company but it is important to have a look at their ability to create value and realize synergies in future. Might possible that a company which is financially distressed blooms by reconstructing efforts of acquirer and then become a good acquisition target. The acquirer can identify the target it must pursue by having a look at two dimensions: strategic fit among potential candidates & acquirer, and feasibility of deal (Bruner, 2004a).
Assessing the strategic fit
It is not about the attractiveness of company but it is about the fit of company. Its suppliers, geographical footprints, set of the customers and operations should be complementary to those of acquirer. It also matters that how much significant cost particular purchase can generate (Collan and Kinnunen, 2009).
Assessing Feasibility of deal
The thing you should know first about company is that it is available or not. Conventional approaches are sometimes not clear and it causes the wastage of time of the acquirer. For assessment of deal feasibility, there are two levels: market intelligence on chance of sale and ownership structure. Ownership structure is first level and it gives important information. For example, it is noticed from history that companies which have shareholders or which have family relations are least interested in opportunities of M&A, while companies which are owned by the financial investors are more interested in this idea. Second level supports first one. Market intelligence process means that company will be first one to know either the target company is interested in M&A or not (Harding et al., 2004).
Source: BCG, (2001)
Asset’s financial performance is also under consideration in this process. As already described, financial performance is not the key or main criterion for giving priority to target. Financial performance can dictate premium & have effect on acquisition price to some extent. But it cannot be used as distinction between unattractiveness and attractiveness (Smit et al., 2005).
Defining watch list and action list
When you have the score list of every target on basis of deal feasibility, financial performance and strategic fit, then it is easy to choose a target by summarizing the results. If there are some companies which are not on high priority and they are available, then it is not important to pay attention to them. those companies which have strong strategic fit and are on list are divided into two classes.
- Action list: It includes companies with good strategic fit & deal feasibility. According to experience, these companies are mostly available for opportunity.
- Watch list: It includes companies which have high strategic fit with less deal feasibility. An acquisition on proper time seems difficult. So, it is better to keep them on availability changes.
Source: Krishnamurti and Vishwanath, (2008)
But it is not good to rely on watch list or action list. There should be a proper research for this purpose which can tell either the target is good or not.
By doing all above step, the acquirer can short list some very attractive companies. Now, their M&A team should come in action and start working hard.
For every action list target, teams must start collecting target’s cost upsides and revenue. The experts have enough experience to do work properly so that much of information can be collected. This information can help team to add shareholder value to potential target. The acquirer team should have a solid reason of buying target so that target can agree with acquirer.
There is a process for continuous monitoring of targets that are on this list. This process is established by BCG. These processes are used for many companies. Aim is to have mechanism which can alerts acquirer to anything that can lead to change in the availability. Continuous monitoring is required in this process. To work with them, it is possible to do regular monitoring so that you don’t miss any chance or alert.
Source: Krishnamurti and Vishwanath, (2008)
After moving till Step 3, almost everyone is clear about desired target. But the thing is that only acquirer is not the only who will be interested in acquisition, there will be other options too. And here, due diligence can start.
Due diligence has 4 phases: having a close-up picture of each target’s attractiveness, examination of synergies of potential deal, reviewing feasibility of deal and digging in business plan of target. Even after following the four stages, the due-diligence projects never become same. A well-defined methodology of due diligence, documentation and the standardized processes are applied for giving predictable look and feel to results (Walker, 2000). There are some firms which are providing services and are positioned really well in due diligence to create the value. Their network is present all around the globe and that is why they deserve appreciation. The experts are present which have information about strategies, plans and the conditions. They help the acquirer to get proper information about target. They help to prioritize and identify the key issues which are unique to target by identifying relevant markets of target into all dimensions- the growth drivers, its forecast demand and segmentation logic. The clear picture of target’s environment is built up. The success factors & comparative performance is also kept in front so that it is easier to make decision. Potential of target for value creation is studied briefly and sensitivities are also told. Hence, a close analysis is provided which is helpful for acquirer to assess business case completely. Result is realistic and professional which allows a good decision (Walker, 2000).
The purpose behind this type of study is to know that how strategic fit & organizational fit and acquisition can be dealt for facilitation of successful acquisition. In this section, the report will seek empirical and theoretical findings and how data have been gathered & then interpreted. Different choices are made during study and they are motivated. In it, case company used in study is described and various interviewees that were interviewed also included.
Mayer (2009) said that it is useful to classify the research methods if underlying philosophical assumptions are distinguished that guide the research. He stated that all types of researches whether it is qualitative or quantitative relies on some underlying assumptions. Along with which research is valid and what methods being the appropriate (Myers, 2009, p. 35). Hence, it becomes important to know about these assumptions.
Most famous forms of the research philosophies in management & business disciplines are interpretivism and positivism. In positivism, the assumption is that the reality is an objective and it can be described by the quantifiable characteristics, irrespective of the researcher and the research instruments. In positivism, sometimes theory undergoes tests and then a statement is formed which tries to tell about dependent and independent variables according to researched subject & relationship among them (Myers, 2009).
There is an assumption about access to reality by social structures like instruments, consciousness and language in interpretivism. Within this approach, independent and dependent variables are not specified by researches. Instead of it, they go with interpretation which is done by information what people give them by their experiences. It is very important to understand the context. Generalizations from the subjects which are extracted depends on researcher & method used (Myers, 2009).
The interpretive approach is the author’s choice because characteristics of this study matches with purpose of study that is to see how to handle the strategic fit, organizational fit and acquisition process to get a successful acquisition.
Quantitative and qualitative are the two different forms of research approach. Qualitative approach is characterized as constructive, inductivistic and inpertivistic whereas, the quantitative approach emphasizes over quantification and is depicted as dedudistic and objectivistic. According to Bryman and Bell (2011) an inductive approach is usually associated with qualitative research whereas, the deductive reasoning can be linked with quantitative research methods. The nature of this study is subjective as a large extent of the research is based upon interviews which associates the research method to be of qualitative nature. However, the method of algorithm-based approach was also constructed which is categorized as the quantitative research method.
According to Carr, Babin, Griffin & Zikmund (2010), there are 2 types of the data collection; primary and secondary data. Secondary data is the data that is assembled & recorded for reasons and prior to than research purpose. Primary data is that that is generated & obtained by researchers for some specific purpose.
The collection of primary data of author consists of the semi structured interviews with the main persons of management at different organizations. The purpose behind this collection was to know how organizational fit, strategic fit and acquisition process can easily be handled for facilitation of successful acquisition.
Patton (2002) and Saunders et al., (2009) had an argument that two main methods are present there: qualitative and quantitative. In qualitative method, non-numerical data like interviews or open-ended data is used for creating through by environment studies (Patton, 2002). In quantitative method, statistical or numerical data is used for testing explanations or theories with statistical validation of the hypotheses or questions.
Strategy for case study was presented earlier that how organizational fit, strategic fit and acquisition process can be dealt with facility of successful acquisition. It is aim for qualitative research to collect huge amount of information for research (Patton, 2002; Saunders et al., 2009).
Qualitative method is useful creation of understanding because examination is done with openness, in depth & focus on details (Patton, 2002). Qualitative method is better to use than quantitative method when research is being done with perspective of understanding (Saunders et al., 2009).
Method which is used is in-depth interviews. It is for those questions which have open ended character because it provides in depth responses about opinion, knowledge and experiences (Patton, 2002). Yin (2003, p. 89) further said that case study can be done properly when source of information is interview. Exploring questions will be better to ask as they’ll give developed answers (Saunders et al., 2009). Authors do know that it is difficult to analyze the open-ended qualitative questions because there is lack of the standardization (Patton, 2002). Advantage of the understanding phenomenon by respondents POV is argued so that lack of the standardization can overcome and that is why qualitative methods get used (Patton, 2002).
According to Saunders et al., (2009) and Myers (2009), there are 3 kinds of interviews.
- Structured Interviews: Interviews where strict, pre formulated and regulated questions are used to make sure the consistency among several interviews.
- Semi-Structured Interviews: interviews where some pre formulated questions are used but it offers room to the improvisation for pursuing new inquiry which emerge during interview.
- Unstructured Interviews: interviews where no pre formulated questions are used and the interviewee speaks freely by mind.
In this thesis, author selected semi structural interviews according to the Myers (2009) because it is beneficial and it offers room to person for speaking by mind or show some insights.
If you want an honest interview where the purpose can be studied easily then there should be no pressure of time limit (Myers, 2009).
Myers (2009) suggested that the interviews with people who are on different positions should be conducted so that great understanding of phenomenon can be obtained. He also said that open ended questions are preferable because they increase the validity. So, author interviewed 4 people which were on various positions: CEO, the Vice CEO, HR responsible and CFO. But the HR has no influence on process of acquisition and that is why not present in thesis’s findings.
The first participant of the research is working at the position of CEO and started his career in 1997. In 2004 he was Vice President in the company and has been a part of more than 20 acquisitions in executive group.
The second participant is also the CEO and was employed in 2003, he was Vice President in 2008. He has been a part of almost 15 acquisition deals since his career within executive groups.
Another participant is the CFO is controller in an organization since 2003, he joined group of management in 2013. He has been part of more than 20 acquisitions.
Another research participant is an HR management member and is part of management group since 2013. He has not participated in any of acquisition.
During interview, questions were open-ended and semi structured so that the depth of the inquiry can be easy to obtain. There were different devices to record interviews so that there is no technical fault. The interviews are given here:
Interviews with CEO
Location: AB Headquarter, Time: 13.30 – 14.21, January, 2022
Setting: The office of the CEO, together with the HR responsible, quiet surroundings, behind shut doors and no risk for overhearing or interruption.
Immediate impressions of the interview: Openhearted answers to the questions asked, about company culture, structure, acquisition process and the organization’s ways of thinking. A good connection and relationship between the authors and the interviewee were established and a feeling of trust was present, which enabled the authors to gain deeper knowledge.
An additional meeting with the CEO was conducted, since the possibility to get confirmation and additional information arose.
Location: AB Headquarter, Time: 12.50 – 13.07, February – 2022
Setting: Lunchroom with some noise in the surroundings, the two interviewers and the CEO eating lunch together.
Immediate impressions of the interview: Rapid interview, trying to gain as much knowledge as possible over a quick lunch. Since the person has been involved in the acquisitions and knew what we are writing about he could provide us with useful information. Some stress was felt but was understandable; the interview was a reschedule due to unforeseen circum- stances for the CEO.
Interview with CFO
Location: EFG Headquarter, Time: 13.00 – 13.45, February – 2022
Setting: Quiet meeting room with a good setting for a relaxed interview and no risk for overhearing or interruption.
Immediate impressions of the interview: Slow start, required some efforts from the inter- viewers to explain the questions and our intentions. After some minutes of getting into the right context the interview went on in a highly qualitative manner. The interviewee answered the questions with details and good elaborations on the answers. It became evident that he had been a part of many acquisitions as he could develop how they thought and worked in the acquisition processes and how they evaluated the fit.
Interview with Vice CEO
Location: SBS Headquarter, Time: 10.00 – 12.10, March – 2022
Setting: The office of the Vice President, quiet surroundings, behind shut doors and no risk for overhearing or interruption.
Immediate impressions of the interview: This was a very unstructured interview with a lot of explaining through stories and anecdotes. If one question was asked, then the person being interview mentioned a lot and went on with his own thoughts instead of making sure he answered the right questions. A long meeting, which was appreciated by the interviewers, in which detailed information was given due to the fact that the person who was being interviewed had been deeply involved in over 20 acquisitions.
The Vice CEO was Swedish hence the interview was held in Swedish which was translated into English when transcribed. Due to the semi-structured nature of the questions the interviews contained information unrelated to the actual research. As proposed by Saunders et al., (2009) the interviews are not presented to full length but instead the information appropriate for this thesis. This was done to reduce irrelevant data and instead provide the reader relevant information for coming analysis.
The interview material was sorted into a matrix where data from all interview objects were categorized into themes in order to create common frames for the empirical findings. As the interviews were of different characteristics, i.e., in the number of probing questions and the authors need to direct the conversations, the matrix structure enabled the authors to extract similarities in their answers to enhance the empirical uniformity.
Authors have already decided to go with open ended questions which were related to theoretical aspects. Following are questions and themes.
Jemison and Sitkin (2006b), Haspeslagh and Jeminson (1991) and Lasserre (2003) threw light that how much important it is to find the right acquisition target in pre-acquisition part of process. Basis are some specific motives. The questions that were created to theme are given below:
- What are your motives for acquisition?
- Why do you want to go with acquisition?
It is essential to find a good acquisition target and then evaluation and analysis of target (Haspeslagh & Jemison, 1991; Jemison & Sitkin, 1986b; Lasserre, 2003). Question related to theme are
- What is action in pre-acquisition process?
- How to look for target of acquisition?
Lasserre (2003) suggests about how important it is to have a look at financial performance of target because it tells about what price of acquisition should be settled down. The information that had been gathered is very useful as it helps in decision making and valuation (Hubbard, 2001). Theme is given below with questions
- How determination of value of target organization is done at the company?
Process of due diligence is important because possible best deal is usually pursued here. The analysis of acquisition & searches for synergies are done here. This step is hard and time consuming while no time is used for aspects of soft organization (Bing & Wingrove, 2012). Question related to theme are:
- Describe the working of process of due diligence at the organization?
Integration is part where two companies come in contact with each other. in this step, value creation depends on ability of understanding (Haspeslagh & Jemison, 1991). Question related to theme are:
- How integration of acquired companies can be done?
- Organization issues, practices, management and cultural considerations
Datta (1991, p. 281) emphasized on influence which organizational fit can have if 2 organizations are at ease after acquisition. Differences in organizational system and management style are important for post-acquisition integration. Question related to theme are
- Do you consider process of post-acquisition in pre-acquisition process?
This phase is linked with emerging problems and uncertainties when acquiring organization is preparing for value creation and capability transfer (Haspeslagh & Jemison, 1991; Lasserre, 2003). Questions related to theme are:
- How can you approach transition phase?
- What are the important things you need to focus on during transition?
Harrison, et al., (2000) said that the synergy is essence for value creation. So, it is important to recognize synergy creating factors for acquiring organizations while looking for acquisition objects. The acquisition depends upon the way management deals with process of acquisition (Cartwright & Schoenberg, 2006; Gomes et al., 2013; Haspeslagh & Jemison, 1991; Jemison & Sitkin, 2006b). Theme is:
- What will be your act in facilitation of synergies which are identified in pre-acquisition process?
Strategic & Organizational Fit
It is important to see the degree to which acquiring organization fits (Haspeslagh & Jemison, 1991; Jemison & Sitkin, 2006b; Lasserre, 2003). Strategic fit means degree to which target firm complements parent’s strategy. It adds value to non financial and financial goals of parent (Jemison & Sitkin, 2006b, p. 146). Jemison and Sitkin (2006b). So, theme is
- What are roles of fit in pre-acquisition process?
- How identification of strategic and organizational contribution is done?
- Tell about objectives you are looking for?
Because of the economic significance of the ability to anticipate corporate mergers and acquisitions, this domain ahs managed to attract considerable attention towards research aspects. There have been applied a wide range of methodological approaches so as to uncover the common characteristics towards merger targets along with forecasting targets inclusive of univariate analysis (Rege, 1984), MDA (Barnes, 1998 and; Stevens, 1973), probit / logit analysis (Meador et al., 1996, Castagna and Matolcsy, 1985), and multi-layer perceptrons (MLPs) (Cheh et al., 1999). These classification models have exhibited varying degrees of success that ranges from below 50% to around 70% out of sample.
Most of the studies that forecast merger or acquisition targets are heavily relied over company accounting data which is supported by market data like share prices as the modelling input data. Using accounting data has a long foresight in the domains of corporate failures (Altman, 1968 and; Altman, 1993).
Biologically Inspired Algorithms
In the previous decade, the range of computational technologies used by modellers have expanded significantly. With this, there have emerged a series of biologically-inspired methods that have a wide range of classification and prediction problems in business and finance (Brabazon and O’Neill, 2006). This methodology includes genetic algorithms, MLPs (Mitchell, 1996), grammatical evolution (O’Neill and Ryan, 2003) and genetic programming (Koza, 1992).
For this reason, this research applies a self-organizing map (SOM). Up till now, the main applications of SOM have been in the aspect of corporate failure prediction (Serrano-Cina, 1996 and, Kiviluoto and, 1998). No previous application of SOMs for the reason of categorizing corporations as merger and acquisition targets has been noted by the authors. Hence, the aim of the study is to contribute in two ways. The first is the presentation of the description of SOM so as to disseminate knowledge related to this research method. Secondly, to assess the potential of SOM for anticipating whether the companies will be corporate mergers or acquisition targets.
Discussed data concludes the outputs obtained from 200 UD firms and is gathered in the time period of 1 January 2000 to the 31st December 2002. To collect all the needed data, Compustat database was used. Information technology data was taken into account to make sure that all the firms under data collection were free of financial difference (GICS Sector code of 45). Discussed data of 100 US firms (group 1) was gathered successfully (both merging firms and firms which were taken-over) in the above-mentioned time period 2000-2002 while the other 100 US firms data (group 2) was gathered for a separate group and in this group where the included firms were not either taking over their targets or merging in the time period 2000-2002 understudy.
The relation between both groups was made on the basis of merger acquisition year and GICS sector code in such a way that group 1 and group 2 firms were allowed to present in the mentioned time period. Dataset includes test data (50 companies) and randomized data (150 companies) collected over 5 recruits.
- Selection of input variables
The review of literature (Belkaoui, 1978, Cheh, 1999, Castagna and Matolcsy, 1985 and; Esphabodi and Esphabodi, 2001) helped in identifying 17 parameters for the initial study process. All of these 17 parameters were based on below given ratio classifications.
- Activity / Efficiency
- Dividend payout
- Firm size
In the initial statistical approaches, it was made sure that any variable which is not showing any significant changes in its mean value for both groups is not further included. After initial review, 7 parameters were eliminated and 10 were left included (see table I). These above-mentioned ratios were also studied for the cross-correlation coefficients which led to the elimination of two more ratios (cash/total assets and the growth ratio) due to their relating market/book value ratios and working capital to total assets due to which these two ratios were not included further.
- SOM Model Construction
For an SOM classifier development, below given tasks hold prime importance:
- Training of the SOM
- Determining the clusters on the SOM
- Using the SOM to predict out-of-sample
Firstly, normalization was taken into account to deal with possible occurring of different magnitudes in individual data elements.
To obtain SOM, modeler was needed to build many of the map parameters and mapping layer node numbers. Enhanced node quantity results in enhanced details of mapping. In next step, the mapping layer was set at a suitable size of 1000 nodes based on the trial and error process. To obtain the clusters, different clustering algorithms were made use of. In the start, every node was assigned one distinctive cluster. Then in each step, clusters were reduced in number by combining the most relating clusters. The granulity of the modeler and the set parameters play a vital role in deciding how many clusters will be left at the end. Our parameters were designed in a manner to make sure that final clusters will be 7. In next step, these clusters were divided and labelled in merged or non-merged groups by using simple voting mechanism using the state of the training data vectors. To label out of sample data vectors were labelled as clusters while the nearest layer node was kept.
In this part, empirical findings that are obtained from different interviews are presented & analyzed for sake of easy interpretation. The structure of this chapter is same as that of interview themes and theoretical framework. Acquisition process is not moving from pre-acquisition towards post acquisition.
It is seen from researches that the basis of M&As are strategic and financial motives along with value creation goal. Value creation is not possible if two organizations carry on to work separately (Bower, 2001; McCarthy & Dolfsma, 2013; Schweiger & Very, 2003; Seth et al., 2000). Harrison et al., (2001) said that synergy is essential for creation of value. Lasserre (2003) said that there should be few reasons behind acquisition. There is a need for organizational contributions and analyzing possible strategies which are possible to assess from acquisition (Jemison & Sitkin, 2006b).
During the interview with four people at different positions, it is described that how an organizational strategy can be formed for long term growth by keeping other things in mind too. Vice CEO has said that they want to look for companies which will be of their match (Interviewee 1, 2022-01).
CFO said that there are different motives and they change with strategic conditions. Company has strategy that customer should be close to ITAB and it is essential (Interviewee 3, 2022-03). He also said that there should be a complementary target for acquisition. If a company has nice shop fitting and is competitive but it does not have good lighting, then it is good for value creation to go with a company which has nice lighting business (Interviewee, 7, 2022-03).
It is important to see that in what way acquired company can help organization to grow because growth is based on 3 pillars which are geographical spread, concept platform and customer portfolio (Interviewee 2, 2022-04). Lasserre (2003) had also said that value creation is important for acquisition and growth. The analysis of organizational and strategic contribution of businesses relates to what Hubbard (2001) and Sitkin and Jameson (2006b) said. The purpose of acquisition is necessary to understand.
Lasserre (2003) emphasized on finding a target for acquisition that is good for strategy creation and for financial value. Acquiring organization must enlist the benefits & problems or either acquisition is according to justice or not (Lasserre, 2003).
There are some common factors which can help to estimate the organizational and strategic fit (Gomes et al., 2013; Hubbard, 2001; Jemison & Sitkin, 2006b). only two factors which are involved are facilitation of objective of acquisition and creation of understanding (Hubbard, 2001).
The company wants from all acquisitions to cause an increase in growth so that organization can move forward. CEO says that you know really well about us but still we don’t go with acquisition until we are sure that this strategy can cause growth and development (Interviewee 4, 2022-03).
CFO says that we make acquisition with those about whom we are sure that they are right people and they will fit well with us in strategies and mental compatibility. So, it is important to talk to each other to know about each other more by meetings (Interviewee 5, 2022-01).
There are similarities and differences in target organization and acquisition so they should talk about it earlier.
Analysis of Target selection
Lasserre (2003) stated that target should be of good value creation and the organization agrees with it. This is the operational strategy. When it is specified that which company can cause great value creation, then it will look for potential target among all which are available. It prefers to go with those who are clear in their objective and do have nice strategies. Organizational fit is must to examine when potential target organizations come with same strategic fit. In this case, organizational fit can deceive. Flexibility, key personnel and culture also matter. It is exactly what Gomes et al., (2013), Hubbard’s (2001) and Jemison and Sitkin’s (2006b) statement had in common.
The company prefers to know what key personnel in target company works and thinks. It is accomplished through informal and formal meetings, dinners etc.
Valuation and Due Diligence
According to theory of M&A, due diligence has a great role in process of pre acquisition so that best deal can be obtained and possible synergies can be identified by keeping eyes on financial performance (Bing & Wingrove, 2012).
Due diligence of the business is done in process of post-acquisition when acquirer and seller are agreed on deal. Vice CEO says that due diligence is the time taking step and a lot of energy is utilized in this step. So why to complete it in pre-acquisition if both organizations don’t agree later on. Then it is completely time wastage. So, it is good to conduct it in process of post-acquisition when the deal is confirmed and we are able to use our time (Interviewee 3, 2022-02). Jemison and Sitkin (2006b) and Lasserre (2003) threw light on financial valuation’s importance. There should be a set value of price of target.
CEO of AB company says that acquisition is just not opportunity. There are some good things about it and some risks are also there. So, when you are making a deal you should be ready for risks too. if you have thinking that price is bit high but it is acceptable, you are not in position to take all those risks (Interviewee 1, 2022-02).
CFO explains in way that it is essential to understand agenda of company. It is needed to be attentive and it is must to know that sellers want from you and it will help you in negotiation (Interviewee 3, 2022-03).
Analysis of Due diligence and valuation
Lasserre (2003) and Jemison and Sitkin (2006b) stated that the due diligence takes place in pre-acquisition but the CEO thinks on opposite side. The Due diligence is less time taking when it takes place in post-acquisition process. There should be a mutual trust between the acquirer and seller because the information obtained from seller is fundamental. Things will go wrong if the information of seller is wrong or misleading.
Jemison and Sitkin (2006b) and Lasserre (2003) acquisition price comprise of financial values with strategic and organizational fit. It gives business a possibility to see either risk degree and strategic value match with financial valuation. Financial valuation can affect decision that they are in mood of acquisition or not. Acquiring businesses prefers to know the strategies before so that it can become easy to know what they want to do. If the strategic fit is good, then there is less risk and ambiguity. It is important to have understanding with agenda of seller for the organization. Hence, the business can prove to be a right buyer by reaching suitable price and it creates understanding.
The section is dedicated to identify differences between the businesses way of formulating the acquisition procedure with that of the generic theoretical process perspective with the focus over evaluating how the acquisition process is handled for facilitating successful acquisitions.
A study carried out by Gomes et al., (2003) and Lasserre (2003), the acquisition process is the same for from decades. What has been identified by the authors is the potential explanation as to how the acquisition process can be handled in a more efficient manner through three aspects.
Simplification Of the Acquisition Process
The viewpoint of organizational acquisitions can be easily compared with a simple purchase of one item from another. Interviewee 1 states that ‘Sitting down and talking about potential acquisitions, face-to-face discussions with each other, the seller and the buyer and this is how the process should be done’. Businesses prefer not to make the process complicated than this. Previous researchers indicates that the process of acquisition is both time and resource-consuming as per a pre-set pattern. Businesses prefer sticking to a usual approach having same key personnel each time. CEO of businesses mentioned that they have been part of acquisition for more than 10 years which gives additional experience and confidence in acquisition deals.
Conducting of due-diligence in the post-acquisition process
The fact that most companies carry out due diligence in its post-acquisition phase is another aspect which tends to facilitate successful acquisitions (Lasserre, 2003). As per the interview with Vice CEO of AB company, this phase commonly sabotages the acquisition mainly because of the fact that most of the sellers and buyers hesitates in seeking advice from the brokers and auditors when they seek an advantageous deal for the client. Experts involved in the acquisition process considers due-diligence to be a part of post-acquisition process which is the time at which the deal has been agreed upon and contracts have been signed. To get this done, companies, emphasizes over the relationship between the acquirer and the seller and invests in a great deal of effort to determine the motives and agenda of the seller. Through the aim of gaining mutual trust, the dal can be carried on by trusting the information of each other regarding the important aspect of the acquisition process. Many companies also use guarantees in the due-diligence process which makes a deal with the seller without having time consuming and expensive in-depth analysis carried out by different specialists.
Considering organizational fit throughout the entire process
In the theory of acquisition, organizational fit is used for determining whether the target company is a good fit for the acquiring organization and it is not until the phase of post-acquisition where this transition is emphasized on part of the management (Bower, 2001 and; Gomes et al., 2013). According to the analysis of the interviews, authors have determined that businesses consider organizational fit to be a criterion for acquisition in the target selection phase. Unless, a proper fit for the organization is identified, in terms of cultural and managerial values, it is less likely that the acquisition will be conducted. Moreover, depending upon the degree of organizational fit, the business starts considering probable issues that may incur in the pre-acquisition process and highlights various strategies over aligning the deal. Through the identification of factors that may incur issues, businesses prepare over how to foster mutual understanding in the deal.
Quantitative Analysis Results
Table II shows the results of our experiments and the mean classification value of insample (out-of-sample) accuracy of 94.80% (95.20) % is obtained. Press’s Q statistic (Hair, Anderson, Tatham and Black, 1998) was calculated to obtain insample accuracy along with null hypothesis stating that the out-of-sample classification accuracy does not yield a preferred output than the individual output and faces a 5% rejection level.
To check the sensitivity of gathered data and results, node number were changed (between 500 and 2000 nodes), along with the number of clusters (between five and nine clusters) which helped in map detailing. For in and out-of-sample data results, accuracies were undisturbed by changes in clusters or number of nodes.
SOM created clusters were further evaluated for better understanding and the analysis of “typical” ratio analysis of different map clusters was done (Figure 2 illustrates the final SOM corresponding to the third data recut). In Table III, the average value obtained for all the models relative to the merged firms and clusters is given along with non-merged ones. On 3rd recruit, the SOM gave enhanced in and out of sample accuracy and clusters gave smaller means than the overall data cluster means. The data given in Table I and III, leads to few common conclusions regarding “typical” takeover targets or mergers. It is observed that the target firms have a pattern of less debts, increased liquidity, less profitability and are small as compared to the non-target firms.
There are several researches over mergers and acquisitions as it is very crucial for the success of a business. The research concludes that a successful merger and acquisition deal involves two phases – pre-acquisition and post-acquisition process. However, it has also been identified that the more dynamic a procedure the more is the probability of a successful acquisitions. The overall view of the entire process of merger and acquisition instead of focusing over step-wise progression facilitating the ability of assessing strategic and organizational fit in every phase for enhanced ability so as to reduce the probability of misunderstandings and problems.
Another good way to deal with the acquisition process is to conduct due-diligence in the post-acquisition process. This can be possible when there is a mutual trust between the two parties as the agreement can be created on the words of the seller and can be supported with clauses and guarantees. Additionally, mutual trust is also crucial for understanding what can be acquired along with understanding how a company can be approached in the process of acquisition. Moreover, keeping the pre-acquisition process as concise and efficient is considered to be beneficial as fewer resources will be involved. This can be made possible when the same set of experts are involved in the process which will also augment expertise as well as experience from previous acquisitions.
- Ahammad, M.F. and Glaister, K.W. (2013), “The pre-acquisition evaluation of target firms and cross border acquisition performance”, International Business Review, Vol. 22 No. 5, pp. 894–904.
- Altman, E. (1968). Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy, Journal of Finance, 23:589-609.
- Altman, E. (1993). Corporate Financial Distress and Bankruptcy, New York: John Wiley and Sons Inc.
- Anand, J. (2005), “M&A strategies in mature and declining industries: theoretical perspectives and implications”, in Cooper, C.L. and Finkelstein, S. (Eds.), Advances in Mergers and Acquisitions, Vol. 4, Elsevier JAI, Amsterdam, Oxford, pp. 163–179.
- Anand, J. and Delios, A. (2002), “Absolute and relative resources as determinants of international acquisitions”, Strategic Management Journal, Vol. 23 No. 2, pp. 119–134.
- Barnes, P. (1998) Can takeover targets be identified by statistical techniques?: Some UK evidence, The Statistician, 47(4):573-591
- Bauer, F., Dao, M.A., Matzler, K. and Tarba, S.Y. (2017), “How industry lifecycle sets boundary conditions for M&A integration”, Long Range Planning, Vol. 50 No. 4, pp. 501–517.
- Bauer, F., Matzler, K. and Wolf, S. (2016), “M&A and innovation: The role of integration and cultural differences – A central European targets perspective”, International Business Review, Vol. 25 No. 1, pp. 76–86.
- Becker, U. (2016), “Planung und Vorbereitung als Erfolgsfaktoren für M&A”, in Müller-Stewens, G., Kunisch, S. and Binder, A. (Eds.), Mergers & Acquisitions: Handbuch Für Strategen, Analysten, Berater Und Juristen, Schäffer-Poeschel Verlag, Stuttgart, pp. 301–311.
- Belkaoui, A. (1978). Financial Ratios as Predictors of Canadian Takeovers, Journal of Business Finance & Accounting, 5(5): 93-108
- Bettinazzi, E.L.M. and Zollo, M. (2017), “Stakeholder orientation and acquisition performance”, Strategic Management Journal, Vol. 38 No. 12, pp. 2465–2485.
- Bing, C. M., & Wingrove, C. (2012). Mergers and Acquisitions: Increasing the Speed of Change. Employments Relations Today, 43-50.
- Bower, J. L. (2001). Not All M&As Are Alike – and That Matters. Harvard Business Review, 79(3, March), 93-101.
- Brabazon, A. and O’Neill. M. (2006). Biologically-inspired algorithms for financial modelling, Berlin: Springer.
- Bruner, R. (2004a). Applied Mergers and Applications. John Wiley & Sons, NewYork.
- Bryman, A., Bell, E. (2011) Business Research Methods. 3rd edition. Oxford University Press
- Calipha, R., Tarba, S. and Brock, D. (2010), “Mergers and acquisitions: A review of phases, motives, and success factors”, in Cooper, C. and Finkelstein, S. (Eds.), Advances in Mergers and Acquisitions, Emerald Group Publishing Limited, pp. 1–24
- Canila, L. (2009). Examining Mergers and Acquisitions. New York: Cornell Hospitality Quarterly.
- Capron, L. and Shen, J.C. (2007), “Acquisitions of private vs. public firms: Private information, target selection, and acquirer returns”, Strategic Management Journal, Vol. 28 No. 9, pp. 891–911
- Cartwright, S., & Schoenberg, R. (2006). Thirty Years of Mergers and Acquisitions Research: Recent Advances and Future Opportunities. British Journal of Management, 17, S1-S5.
- Castagna, A.D., & Matolcsy, Z.P. (1985) Accounting Ratios and Models of Takeover Target Screens: Some Empirical Evidence, Australian Journal of Management, 10(1):1-15.
- Castagna, A.D., & Matolcsy, Z.P. (1985) Accounting Ratios and Models of Takeover Target Screens: Some Empirical Evidence, Australian Journal of Management, 10(1):1-15.
- Chatterjee, S., Lubatkin, M.H., Schweiger, D.M., Weber, Y. and Jun, N. (2007), “Cultural differences and shareholder value in related mergers : Linking equity and human capital”, Strategic Management Journal, Vol. 13 No. 5, pp. 319–334.
- Cheh, J.J., Weinberg, A., Yook, K.C., (1999) An Application Of an Artificial Neural Network Investment System To Predict Takeover Targets, The Journal of Applied Business Research, 15(4):33-44.
- Chen, D.-N., & Liang, T.-P. (2011). Knowledge evolution strategies and organizational performance: A strategic fit analysis. Electronic Commerce Research and Applications 10 ,75-84.
- , C. M., Alton, R., Rising, C., & Waldeck, A. (2011). The Big Idea: The New M&A Playbook. Harvard Business Review, 89(3, March), 48-57.
- Christensen, C.M., Alton, R., Rising, C. and Waldeck, A. (2011), “The big idea: The new M&A playbook”, Harvard Business Review.
- Collan, M. and Kinnunen, J. (2009). ’Acquisition Strategy and Real Options’. Icfai University Journal of Business Strategy, 6, 45–65
- Datta, D. K. (2002). Organizational Fit And Acquisition Performance: Effects of Post-Acquisition Integration. Strategic Management Journal, 12(4), 281-297.
- Dawson, A. (2011), “Private equity investment decisions in family firms: The role of human resources and agency costs”, Journal of Business Venturing, Vol. 26 No. 2, pp. 189–199.
- , D. (2010). Mergers and Acquisitions Basics: All You Need to Know. Saint Louis: Elsevier Science & Technology.
- Dubois, A., & Gadde, L.-E. (2002). Systematic combining: an abductive approach to case research. Journal of Business Research, 55(7), 553-560
- Eschen, E. and Bresser, R.K.F. (2005), “Closing resource gaps: toward a resource-based theory of advantageous mergers and acquisitions”, European Management Review, Vol. 2 No. 3, pp. 167–178.
- Esphabodi, H., & Esphabodi, P. (2001). Predicting Corporate Takeovers, The Journal of Business Forecasting Methods & Systems, 20(3):25-28.
- , P. A. (2010). Mergers, Acquisitions, and Corporate Restructurings (5th Edition). Hoboken: Wiley.
- Gomes, E., Angwin, D. N., Weber, Y., & Tarba, S. Y. (2013). Critical Success Factors through the Mergers and Acquisitions Process: Revealing Pre- and Post-M&A Connections for Improved Performance. Thunderbird International Business Review, 55(1), 13-35.
- Granata, D. and Chirico, F. (2010), “Measures of value in acquisitions: Family versus nonfamily firms”, Family Business Review, Vol. 23 No. 4, pp. 341–354.
- Grant, R.M. (1996), “Toward a knowledge-based theory of the firm”, Strategic Management Journal, Vol. 17 No. S2, pp. 109–122
- Gupta, A. (2013), “Environment & PEST analysis: An approach to external business environment”, International Journal of Modern Social Sciences, Vol. 2 No. 1, pp. 34–43.
- , A., & Rieple, A. (2008). Strategic Management: Theory and Application. Oxford: Oxford University Press.
- Hair, J., Anderson, R., Tatham, R. and Black, W. (1998). Multivariate Data Analysis, Upper Saddle River, New Jersey: Prentice Hall.
- Haleblian, J.J., Pfarrer, M.D. and Kiley, J.T. (2017), “High-reputation firms and their differential acquisition behaviors”, Strategic Management Journal, Vol. 38 No. 11, pp. 2237–2254.
- , D., Rovit, S. and Corbett, A. (2004). Avoid merger meltdown: Lessons from mergers and acquisitions leaders. Strategy and Innovation, 3–5
- Harrison, J. S., Hitt, M. A., Hoskisson, R. E., & Ireland, D. R. (2001). Synergies and Post-Acquisitions Performance: Differences versus Similarities in Resource Allocations. Journal of Management, 17(1), 173-190.
- Harrison, J. S., O’Neill, H. M., & Hoskisson, R. E. (Eds.). (2000). Acquisition Strategy and Target Resistance: A Theory of Countervailing Effects of Pre-Merger Bidding and Post-Merger Integration (Vol. 1). Bingley, U.K: Emerald Group Publishing Limited.
- Harvey, M.G. and Lusch, R. (1995), “Expanding the nature and scope of due diligence”, Journal of Business Venturing, Vol. 10 No. 1, pp. 5–21.
- Haspeslagh, P. C., & Jemison, D. B. (1991). Managing acquisitions: Creating value through corporate renewal. New York: Free Press.
- Haspeslagh, P.C. and Jemison, D.B. (1991), Managing Acquisitions: Creating Value through Corporate Renewal, 3rd ed., Free Press, New York.
- Heeley, M.B., King, D.R. and Covin, J.G. (2006), “Effects of firm R&D investment and environment on acquisition likelihood”, Journal of Management Studies, Vol. 43 No. 7, pp. 1515–1535.
- Henn, M., Hueck, J., Marcel, H. and Lutz, E. (2018), “Family First, Business Second? Investment Decisions of Family Firms in Mergers & Acquisitions”, Working paper presented at the EURAM 2018 (European Academy of Management) Conference.
- Henn, M., Hueck, J., Marcel, H. and Lutz, E. (2018), “Family First, Business Second? Investment Decisions of Family Firms in Mergers & Acquisitions”, Working paper presented at the EURAM 2018 (European Academy of Management) Conference
- Hitt, M.A. and Pisano, V. (2003), “The cross‐border merger and acquisition strategy: A research perspective”, Management Research, Vol. 1 No. 2, pp. 133–144
- Hitt, M.A., Dacin, M.T., Levitas, E., Arregle, J.-L. and Borza, A. (2000), “Partner selection in emerging and developed market contexts: Resource-based and organizational learning perspectives”, Academy of Management Journal, Vol. 43 No. 3, pp. 449–467.
- Holland, W., Salama, A. & Vinten, G. (2003). Challenges and opportunities in mergers and acquisitions: three international case studies – Deutsche Bank – Bankers Trust; British Petroleum – Amoco; Ford – Volvo. Journal of European Industrial Training, 27(6), 313-321.
- Hubbard, N. (2001). Acquisition – Strategy and Implementation (Revised edition 2001 ed.). Ney York: PALGRAVE
- Järvensivu, T., & Törnroos, J.-Å. (2010). Case study research with moderate constructionism: Conceptualization and practical illustration. Industrial Marketing Management, 39(1), 100-108.
- Jemison, D. and Sitkin, S. (1986), “Corporate acquisitions: A process perspective”, Academy of Management Review, Vol. 11 No. 1, pp. 145–163
- Jemison, D. B., & Sitkin, S. B. (2006a). Acquisitions: The process can be a problem. Harvard Business Review, 64(March-April), 107(110).
- Jemison, D. B., & Sitkin, S. B. (2006b). Corporate Acquisitions: A Process Perspective. The Academy of Management Review, 11(1), 145-163.
- Kiessling, T. and Harvey, M. (2006), “The human resource management issues during an acquisition: the target firm’s top management team and key managers”, The International Journal of Human Resource Management, Vol. 17 No. 7, pp. 1307–1320.
- Kiessling, T., Harvey, M. and Heames, J.T. (2008), “Acquisition issues: Operational changes to the acquired firm’s top management team and subsequent organizational performance”, Journal of Leadership and Organizational Studies, Vol. 14 No. 4, pp. 287–302
- Kim, J., Halebliam, J., & Finkelstein, S. (2011). When Firms are Desperate to Grow via Acquisition: The Effect of Growth Patterns and Acquisition Experience on Acquisition Premiums. Administrative Science Quarterly , 26-60.
- King, D. R., Slotegraaf, R. J., & Kesner, I. (2008). Performance Implications of Firm Resource Interactions in the Acquisition of R&D-Intensive Firms. Organization Science, 19(2, March-April), 327-340.
- Kiviluoto, K. and Bergius, P. (1998). Maps for analysing failures of small and medium-sized enterprises, in Visual Explorations in Finance with self-organizing maps, edited by Deboeck, G. and Kohonen, T., p. 59-71, Berlin: SpringerVerlag
- Koza, J. (1992). Genetic Programming, Massachusetts: MIT Press.
- , C. and Vishwanath, S. R. (2008). Mergers, Acquisitions and Corporate Restructuring. Sage Publications, Los Angeles
- Krishnan, H., Hitt, M. and Park, D. (2007), “Acquisition premiums, subsequent workforce reductions and post-acquisition performance”, Journal of Management Studies, Vol. 44 No. 5, pp. 709–732.
- Laamanen, T., Brauer, M. and Junna, O. (2014), “Performance of acquirers of divested assets: Evidence from the U.S. software industry”, Strategic Management Journal, Vol. 35 No. 6, pp. 914–925.
- Larsson, R. and Finkelstein, S. (2010), “Integrating strategic, organizational, and human resource perspectives on mergers and acquisitions: A case survey of synergy realization”, Organization Science, Vol. 10 No. 1, pp. 1–26.
- Lasserre, P. (2003). Global Strategic Management. New York: PALGRAVE MACMILLAN
- Lee, K.H., Mauer, D.C. and Xu, E.Q. (2018), “Human capital relatedness and mergers and acquisitions”, Journal of Financial Economics, Vol. 129 No. 1, pp. 111–135.
- Lubatkin, M.H. (2003), “Mergers and the performance of the acquiring firm”, The Academy of Management Review, Vol. 8 No. 2, pp. 218–225.
- Lucks, K. and Meckl, R. (2015), Internationale Mergers & Acquisitions: Der prozessorientierte Ansatz, Springer Gabler, 2nd ed., Vol. 1, Springer-Verlag, Berlin, Heidelberg.
- Mahajan, V., Rao, V.R. and Srivastava, R.K. (2014), “An approach to assess the importance of brand equity in acquisition decisions”, The Journal of Product Innovation Management, Vol. 11 No. 3, pp. 221–235.
- Makri, M., Hitt, M.A. and Lane, P.J. (2010), “Complementary technologies, knowledge relatedness, and invention outcomes in high technology mergers and acquisitions”, Strategic Management Journal, Vol. 31 No. 6, pp. 602–628.
- Markides, C.C. and Williamson, P.J. (1994), “Related diversification, core competences and corporate performance”, Strategic Management Journal, Vol. 15 No. S2, pp. 149–165
- Marks, M.L. and Mirvis, P.H. (2001), “Making mergers and acquisitions work: Strategic and psychological preparation”, Academy of Management Perspectives, Vol. 15 No. 2, pp. 80–92.
- McCarthy, K. J., & Dolfsma, W. (2013). Understanding Mergers and Acquisitions in the 21st Century: A Multidisciplinary Approach. Great Britain: PALGRAVE MACMILLAN.
- Meador, A., Church, P., & Rayburn, L., (1996). Development of Prediction Models for Horizontal and Vertical Mergers, Journal of Financial And Strategic Decisions, 9(1):11-23.
- Miller, D., Breton-Miller, I. Le and Lester, R.H. (2010), “Family ownership and acquisition behavior in publicly-traded companies”, Strategic Management Journal, Vol. 31 No. 2, pp. 201–223.
- Mitchell, M. (1996). An Introduction to Genetic Algorithms, Cambridge, Massachusetts: MIT Press
- Myers, M. D. (2009). Qualitative Research in Business & Management. London, Great Britain: SAGE Publications Ltd.
- N. K. Sahu, S. Datta, S. S. Mahapatra, Decision making for selecting 3PL service provider using three parameter interval grey numbers, International Journal of Logistics Systems and Management 14 (3), 261-297, 2013.
- O’Neill, M. and Ryan, C. (2003). Grammatical Evolution: Evolutionary Automatic Programming in an Arbitrary Language, Boston: Kluwer Academic Publishers
- Pablo, A. L., Sitkin, S. B., & Jemison, D. B. (1996). Acquisition Decision-Making Processes: The Central Role of Risk. Journal of Management, 22(5), 723-746.
- Patton, Q. M. (2002). Qualitative research and evaluation methods (3rd ed.). Thousand Oaks, California: Sage Publications, Inc.
- Pehrsson, A. (2006), “Business relatedness and performance: A study of managerial perceptions”, Strategic Management Journal, Vol. 27 No. 3, pp. 265–282.
- Porter, M.E. (2008), “The five competitive forces that shape strategy”, Harvard Business Review, Vol. 86 No. 1, pp. 78–93.
- Rajagopalan, N., Rasheed, A. and Datta, D.K. (2013), “Strategic decision processes: Critical review and future directions”, Journal of Management, Vol. 19 No. 2, pp. 349–384.
- Rao, V.R., Mahajan, V. and Varaiya, N.P. (1991), “A balance model for evaluating firms for acquisition”, Management Science, Vol. 37 No. 3, pp. 331–349.
- Rege, U., (1984). Accounting Ratios to Locate Take-Over Targets, Journal of Business Finance and Accounting, 11(3):301- 311
- Reuer, J.J., Tong, T.W. and Wu, C.W. (2012), “A Signaling theory of acquisition premiums: Evidence from IPO targets”, Academy of Management Journal, Vol. 55 No. 3, pp. 667–683.
- S. Rosner, (2006) Screening for success: designing and implementing a strategic M&A screening process, Corporate Finance Review, 10(4) 9.
- Sammut-Bonnici, T. and Galea, D. (2015), “PEST analysis”, in Cooper, C.L., McGee, J. and Sammut-Bonnici, T. (Eds.), Wiley Encyclopedia of Management, John Wiley & Sons, Hoboken, pp. 1–7.
- Saunders, M., Lewis, P., & Thornhill, A. (2009). Research methods for business students (5th ed.). Rotolito Lombarda, Italy: Pearson Education Limited
- Saxton, T. and Dollinger, M. (2004), “Target reputation and appropriability: Picking and deploying resources in acquisitions”, Journal of Management, Vol. 30 No. 1, pp. 123–147.
- Schweiger, D. M., & Very, P. (2003). Creating value through merger and acquisition integration. In S. Finkelstein & C. L. Cooper (Eds.), Advances in Mergers and Acquisitions (Vol. 2, pp. 1-26). Bingley, U.K: Emerald Group Publishing Limited.
- Schweiger, D. M., & Very, P. (2003). Creating value through merger and acquisition integration. In S. Finkelstein & C. L. Cooper (Eds.), Advances in Mergers and Acquisitions (Vol. 2, pp. 1-26). Bingley, U.K: Emerald Group Publishing Limited.
- Serrano-Cina, C. (1996). Self organizing neural networks for financial diagnosis, Decision Support Systems, 17:227-238
- Seth, A., Song, K. P., & Pettit, R. (2000). Synergy, Materialism or Hubris? An Empirical Examination of Motives for Foreign Acquisitions of U.S. Firms. Journal of International Business Studies, 31(3), 387-405.
- Smit, H., van den Berg, W. and de Maeseneire, W. (2005). Acquisitions as a real options bidding game. FMA Annual meeting, Chicago
- Sohl, T. and Vroom, G. (2014), “Business model diversification, resource relatedness, and firm performance”, Academy of Management Proceedings, Vol. 2014 No. 1, pp. 10894–10894.
- Sohl, T. and Vroom, G. (2017), “Mergers and acquisitions revisited: The role of business model relatedness”, Advances in Mergers and Acquisitions, Vol. 16, Emerald Publishing, pp. 6–99.
- Stahl, G.K. and Voigt, A. (2008), “Do cultural differences matter in mergers and acquisitions? A tentative model and examination”, Organization Science, Vol. 19 No. 1, pp. 160–176.
- Stevens, D., (1973). Financial Characteristics of Merged Firms: A Multivariate Analysis, Journal of Financial and Quantitative Analysis, 8(2):149-159
- T. Laamanen, and K. Thomas, (2008) Performance of serial acquirers: Toward an acquisition program perspective, Strategic Management Journal 29(6) 663-67
- Tarba, S.Y., Ahammad, M.F., Junni, P., Stokes, P. and Morag, O. (2017), “The impact of organizational culture differences, synergy potential, and autonomy granted to the acquired high-tech firms on the M&A performance”, Group & Organization Management, Vol. 44 No. 3, pp. 483–520
- Walker, M. M. (2000). Corporate takeovers, strategic objectives, and acquiring- ﬁrm shareholder wealth. Financial Management,29, 53–55
- Weber, Y. (2018), “Managerial biases in mergers and acquisitions”, in Vrontis, D., Weber, Y., Thrassou, A., Shams, S.M.R. and Tsoukatos, E. (Eds.), Innovation and Capacity Building. Palgrave Studies in Cross-Disciplinary Business Research, in Association with EuroMed Academy of Business, Palgrave Macmillan, Cham, pp. 255–272.
- Wiersema, M.F. and Bantel, K.A. (2002), “Top management team demography and corporate strategic change”, Academy of Management Journal, Vol. 35 No. 1, pp. 91–121.
- Wright, M., Hoskisson, R.E., Busenitz, L.W. and Dial, J. (2001), “Finance and management buy-outs: agency versus entrepreneurship perspectives.”, Venture Capital, Vol. 3 No. 3, pp. 239–261.
- Yin, R. K. (2003). Case Study Research: Design and Methods (3rd ed.). Thousand Oakes, California: Sage Publications, Inc.
- Zikmund, W. G., Babin, B. J., Carr, J. C., & Griffin, M. (2010). Business Research Methods (J. W. Calhoun Ed. 8th ed.): Cengage Learning.