As per the world, Sri Lanka is also now
trending with mergers and acquisitions. As examples very recently Hutch and
Etisalat - two prominent service providers in the telecommunication industry
merged (Business Times, 2018) and one of the Global Giant in the Insurance
sector, Allianz acquired 100% stake in Janashakthi who is ranked #3 in General
Insurance sector in Sri Lanka (Wettasinghe, 2018)
Mergers and acquisitions (M&A) is a
general term that refers to the consolidation of companies or assets
(Investopedia.com, 2018). M&A can include a number of different
transactions, such as mergers, acquisitions, consolidations, tender offers,
purchase of assets and management acquisitions (Investopedia.com, 2018). In all
cases, two companies are involved (Investopedia.com, 2018).
However M&A are not the same terminologies but often it is used
interchangeably. In acquisitions, one organization
will purchase full or a part of another organization. While in merger two or
more than two organizations form one organization (Alao 2010). Merger is the
legal activity in which two or more organizations combine and only one firm
survive as a legal entity (Horne and John 2004).
The benefits arising from M&A are
extended or addition of products, services or technologies, increase its
capabilities and service offerings, improve cash flows or increased
opportunities often arise from acquiring new skills and technologies that
enhance current products (Stahl and Mendenhall,2005).
In 2017, USA M&A volume was
expected to reach its highest level since its last cyclical peak in 2007.
However, total closed M&A deals, measured in $ value are projected to drop
year over year, which signals that the market experiencing fewer M&As in
2017 (watermarkadvisors.com, 2017)
Figure 1.0: Transaction Volume of
Mergers & Acquisitions over the last 30 years.
(Source: Thomson Financial, Institute
for Mergers, Acquisitions and Alliances,2017)
Mergers and acquisitions are used by
companies to fortify and preserve their place in the market place. Human
resources assist in managing any complications or challenges linked to people
in the companies as the merger or acquisition process takes place (Stahl
and Mendenhall,2005), and an estimated 70 percent to 90 percent of all
M&As fail to achieve their anticipated strategic and financial objectives
(Christensen et al,2011). This rate of failure is often
attributed to various HR-related factors, such as incompatible cultures, management
styles, poor motivation, loss of key talent, lack of communication, diminished
trust and uncertainty of long-term goals (Christensen et al, 2011).
However many researches on successful and failed M&As have proved that
involving HR at the very early stages of any merger or acquisition is
important (Love,2000). Hence, at the beginning of any merger or
acquisition procedure, heads of the companies ideally need to reflect on
questions such as how to bring into line the cultures of the organisations, how
to converse, and how to generate sustainable staff assignation as these are
often vital to implementing the transition effectively at a very early stage of
the M&A (Lilliot,2018).
Company Culture
The clash between the cultures of the
combining organizations has received growing attention by both practitioners
and academics (Porter, 1985). Stahl and Mendenhall, (2005) states that human
resources essentially should have a steady grip on the culture of the company
for which they work and must be thorough with the culture of the other
organization prior to making such a determination. Cultural differences may
comprise of how the two organizations describe and measure accomplishment
within the organization; employee benefits (personal time and insurance), how issues
within the company are handled; the management methods of the two companies;
and the overall attitude of the employees towards business functions and the
trade in which they work.
Employee Benefit Schemes
Management team of the purchasing
company evaluate whether the M&A makes strategic and financial sense. Human
resources of the purchasing company explicitly weigh the employee benefits
schemes of the other company to discover any probable glitches, such as a
pension plan running low on funds or a health insurance package that will cost
a substantial amount for the company (Patrick,2015).
Employee Concerns
People habitually fear change, and a
merger or acquisition generates ambiguity and transformation for employees both
of the purchasing company and the purchased company. Human resources in
both companies help even out the transition for employees, helping calm any
uncertainties as well as answering questions about how the merger or
acquisition affects each employee. If the employees of both companies do
not have considerable fear over the transformation, productivity is more likely
to remain as previous. Human resources can detect and address any rumours
about redundancies, office relocation or other changes employees fear, giving
feedback to management about employee worries (Patrick,2015).
Changing Roles and Structure
When one company merges with or
acquires another, some adjustments to both organizations may happen, such as
removing redundant positions or combining teams and departments. The process of
changing the two organizations they work together as one can take some time to
complete and human resources plays an important role in the changes (Stahl
and Mendenhall,2005). Employee engagement is key in this situation as they
may share their experience each other and work towards one common goal. Human
resources should communicates to employees the changes
in who they report to, what work group or team employees are
assigned to as well as any changes to different positions’ roles in the
organization (Stahl and Mendenhall,2005). Human resources may work
along with the management and to alter the job descriptions of employees in
various positions, ensuring everyone understands his role in the newly
transformed organization (Armstrong,2010). The pressures on organisations
to change will increase over the next decades and methods managers have used in
attempt to transform their companies into stronger competitors using methods
such as total quality management, reengineering, right sizing, restructuring,
and cultural change mostly fail, because they fail to alter behaviour of
employees (Kotter,1996).
Once the organisations have merged,
assessment of the staff is vital. Effectiveness leadership can vary
considerably in relation to integration, specifically the process to ensure
that employees feel equipped and empowered to talk about the M&A with
clients (Andrew1998). When
Janashakthi Insurance acquired AIA General Insurance in 2016, some of the
unsatisfied call center employees of AIA have given destructive impression on
the acquisition where it had a negative impact in retaining the AIA customers
with Janashakthi.
Therefore in conclusion it is vital for
the success of any M&A to keep employees satisfied and make them feel
secured. According to Stahl and Mendenhall (2005) several studies have
been carried out to evaluate whether Mergers and Acquisitions have been
value enhancing or destructive for organizations, and the
results are mixed. The outcome of these studies emphasise that Change will
always cause uncertainty in an organisation but, by managing that change and
ensuring good communication with employees, companies can avoid unnecessary
risk of a M&A failure. Therefore a professional Human Resource Management
System is an essential and integral part of a successful Merger or an
Acquisition for the new venture’s strong foundation (Stahl and
Mendenhall,2005).
References:
Alao, R. O. (2010). Mergers and
Acquisitions (M&As) in the Nigerian Banking Industry: An Advocate of three
Mega Banks. European Journal of Social Sciences, 15(4), 554-563.
Andrew, J.S. (1998) Mergers and
Acquisitions from A to Z: Strategic and Practical Guidance for Buyers and
Sellers.1st ed. New York, AMACOM
Armstrong, M. (2010). Armstrong’s
essential human resource management practice. London, Kogan Page.
Business Times (2018) Hutch, Etisalat
merge Sri Lanka mobile ops. Sunday Times [online] 29 April
2018, available at http://www.sundaytimes.lk/180429/business-times/hutch-etisalat-merge-sri-lanka-mobile-ops-291937.html. [Accessed on 26 May 2018].
Christensen, C.M., Alton, R., Rising,
C., & Waldeck, A. (2011, March). The Big Idea: The New M&A
Playbook. Harvard Business Review.
Horne, J. C. V., & John M.
Wachowicz, J. (2004). Fundamentals of Financial Management (12th ed.): Prentice
Hall.
Kotter, J. P. (1996) Leading
Change. Boston: Harvard Business School Press.
Lilliot, L. (2018), Mergers &
acquisitions. Harvard Law School Library. available at <https://guides.library.harvard.edu/mergers#s-lg-page-section-2070046>. [Accessed on 22nd May 2018].
Love, C. (2000), Mergers and
Acquisitions: The Role of HRM in Success, Ontario: Industrial Relations
Centre.
Merger and Acquisitions - M&A
INVESTOPEDIA [Online]. Available at <https://www.investopedia.com/terms/m/mergersandacquisitions.asp>. [Accessed on 5th May 2018].
Patrick A.G. (2015). Mergers,
Acquisitions, and Corporate Restructurings. 6th ed.
New Jersey, John Willey & Sons.
Porter, M. E. Competitive
analysis. New York: Fee Press, 1985
Stahl, G.K. and Mendenhall, M. E.
(2005) Mergers and Acquisitions: Managing Culture and Human Resources. California,
Stanford University Press.
Watermark Advisors (July, 2017) Q2 2017
M&A Market Report. Watermark Advisors [Online]. Available
at https://watermarkadvisors.com/news/q2-2017-ma-market-report/. {Accessed on 5th May 2018].
Webber, Y. (1996) Corporate Cultural Fit and Performance in Mergers and Acquisitions. Human Relations, 49(9) pp.1181-1202.
Wettasinghe, C. (2018) Germany’s
Allianz acquires Janashakthi’s general business for Rs. 16.4bn. Daily
Mirror [online] 3 February 2018, Available at <https://daily
mirror.lk/article/Germany-s-Allianz-acquires-Janashakthi-s-general-insurance-business-for-Rs-bn-145144.html>. [Accessed on 26 May 2018).
