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The Handbook of Mergers and Acquisitions$

David Faulkner, Satu Teerikangas, and Richard J. Joseph

Print publication date: 2012

Print ISBN-13: 9780199601462

Published to Oxford Scholarship Online: September 2012

DOI: 10.1093/acprof:oso/9780199601462.001.0001

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Introduction

Introduction

Chapter:
(p.1) Chapter 1 Introduction
Source:
The Handbook of Mergers and Acquisitions
Author(s):

David Faulkner

Satu Teerikangas

Richard J. Joseph

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199601462.003.0001

Abstract and Keywords

Despite decades of experience and research, many results in mergers and acquisitions (M&A) research remain contested and inconclusive; this introductory chapter argues that the field is in need of a re-rooting. It posits the need to bridge the strategic, financial, and sociocultural lenses in the study and practice of M&A. It posits four shortcomings underlying present-day M&A activity that is seen as stemming from this unbridged divide: egotistic drivers of M&A activity, M&A as victims of myopic growth, a “Tayloristic” view that omits the human element, and a prevailing short-term focus. As a means of moving beyond the seeming lack of interdisciplinarity in the study and practice of M&A, this chapter proposes a three-dimensional model of M&A management consisting of the strategic, financial, and sociocultural dimensions of M&A activity. This three-fold conceptualization provides the background for the Handbook’s structure and syntheses.

Keywords:   mergers and acquisitions, finance, strategy, management

A Call for Re-Rooting the Study and Practice of M&A

With its inception at the end of the 19th century as a means of consolidation and reorganization, mergers and acquisitions (M&A) have since become quasi-institutionalized as one of the primary strategic options for organizations, as they seek to secure their position in an ever more competitive, and globalizing market place (see Chapter 2). M&A is often used as a vehicle for growth (Trautwein 1990). In such instances, within-sector horizontal or vertical integration, diversification to new sectors (Lynch 2006), gaining technological know-how, or geographical roll-out to cover more markets (Bower 2001) count among the sought aims. Alternatively, M&A can be regarded as a form of “co-operation strategy,” with the aim of co-operating with other players within or outside one's industry (Lynch 2006); or of buying out a competitor. Over the years, M&A activity has shifted from the domain of corporations across industrial and professional sectors to also being practiced by public sector organizations, as in e.g. health care or higher education.

Despite the optimism surrounding M&A as strategic moves, research on post-merger company performance provides a bleaker image of the reality behind this phenomenon. A meta-analysis (King et al. 2004), as well as several recent studies (Schoenberg 2006; Zollo and Meier 2008; Papadakis and Thanos 2010; Chapters 4, 5, and 8), reconfirm that most firms engaging in M&A activity do not achieve the sought-after performance targets be it soon or in the years following the deal. The only winner would seem to be the selling side, i.e. the target firm and/or its shareholders (King et al. 2004; Chapters 2, 4 and 5). This leads one to ask—what is it that drives M&A activity when research results do not support the performance expectations of these undertakings? Alternatively, have M&A scholars got it all wrong in the way that M&A performance is measured? Is the topic too complex, enduring, and multifaceted to study? Or are M&A undertaken for reasons other than improved short-term performance?

(p.2) Faced with this seeming conundrum, M&A scholars and practitioners have increasingly expressed the need to enhance the state of the art of M&A research. In this respect, calls for better methodologies for the study of M&A have been made (Cartwright et al. 2010; Meglio and Risberg 2010). The need for more theory-building in the study of M&A has been recognized (Greenwood et al. 1994; Schweiger and Goulet 2000). A social network analysis of the M&A research community highlighted the scarcity of collaboration not only amongst M&A researchers, but also between this research field and others, be they distant or related (Mirc et al. 2010). This might explain why a recent review of the literature highlighted the need for better integration between the various disciplines in its study (Haleblian et al. 2009). This Handbook constitutes a response to these calls.

We argue that the field of M&A is in need of a re-rooting. With this term, we mean patiently stepping back and critically reviewing what has been done, whilst withholding opportunities for seeing the field afresh, and revisiting some of the fundamental assumptions that the work has come to be based upon.

Beyond Disciplinary Silos: Bridging Strategic, Financial, and Sociocultural Approaches to M&A

In this section, we argue that a key issue that has prevented efforts in the practice and study of M&A from achieving dynamic synthesis has been the disciplinary gulf separating strategy, finance, and human relations schools.

The prevalence of this silo effect across decades, despite increasing M&A activity, deserves to be highlighted and questioned. Critically speaking, what the enduring and persisting presence of such human-created, discipline-based silos points toward is that there would seem to be either an innate tendency for individuals to position themselves in light of existing disciplinary and topical structures, i.e. to limit their focus to specific disciplines, without a priori questioning the existence and influence of the latter approach. This would seem to be paralleled by the tendency to disregard systemic, holistic treatment of phenomena, such as M&A, be it in the domain of practice or of science. It would seem that we join existing structures without a priori questioning their “raison d’être.”

In the domain of M&A, whereas the strategic decision to acquire is made by some, finance's expertise lies primarily in addressing pre-acquisition deal- and finance-related activities, whereas sociocultural concerns relate particularly to the post-acquisition phase, and to some extent this role extends into the pre-acquisition phase. Roughly put, the making of the contractual deal in a merger or acquisition seems, still today, to mark a defining line in both scholarship and practice. This division of work would not matter, were it not for the fact that scholars and practicing managers find difficulty in addressing M&A in a way that would align both lenses.

As a result of this largely silo-based outlook on M&A, integrative views combining M&A–critical disciplines are lacking. The practice, teaching, and study of M&A would (p.3) thus seem to be wrought with partial understandings owing to each side's viewing the phenomenon from a somewhat narrow focus, disregarding others. Critically speaking, it would seem that the present state of our understanding, knowledge, and practice on M&A rests on a collection of individual perspectives that at worst might not be relevant and moreover, fail to reflect the entire picture.

This is the gap that needs to be bridged if the practice and study of M&A are to move forward toward more meaningful results. Through this Handbook, we aim to help practitioners and academics break free of the existing silos as they approach the study and practice of M&A.

Toward this end, we have brought together a set of prominent and emerging scholars and practitioners engaged in the study of M&A. Throughout the Handbook, as we return to some of the basics in the study of M&A through a series of extensive, mostly conceptual review papers that explore M&A through a variety of lenses, our objectives are twofold: (1) to elaborate on the strategic, financial, and sociocultural dimensions of M&A, or more appropriately, summarize key findings in the current M&A literature, and (2) to explore ways in which these lenses can be reconciled or “synthesized”?

As perhaps one of the first books to combine the thus far unrelated disciplines of strategy, finance, and human relations in the study and practice of M&A, we provide both scholars and practitioners with an appreciation of the ways in which M&A is viewed across disciplines, as well as identifying linkages and gaps that have hitherto been invisible in siloed paradigm and practice structures. All the while, we adopt a systemic view of M&A, highlighting unexplored dimensions, unidentified assumptions relating to the study and practice of M&A, and in so doing, engage the reader in a deeper-reaching reflection and exploration of the phenomenon of M&A; in short, to break down the silo mentality.

As a means of launching this reflection, throughout the following sections, we proceed to critically expounding on four shortcomings in the current practical and academic approaches to M&A. These shortcomings are considered to result from the prevailing disconnect between the financial and managerial approaches to M&A. By way of a provocative style, we aim to initiate the reader's reflection process on the key issues facing M&A practitioners and academics at the dawn of the third millennium: what are M&A, actually? What makes M&A succeed? How to combine disciplines in such an effort? Why do M&A occur? What does successful M&A execution consist in?

The Silo Effect and the Resulting Shortcomings in M&A Activity

The ongoing disconnect between the strategic, financial, and sociocultural views has led to a set of shortcomings marking the M&A literature. These shortcomings relate to: (1) egotistic drivers of M&A activity, (2) M&A as victims of myopic growth, (p.4) (3) a “Tayloristic” view that omits the human element, and (4) a prevailing short-term focus. It is our hope that, by bridging disciplinary silos, this Handbook will shed further light on these central concerns.

Egotistic Drivers of M&A Activity

The conduct of M&A results in the perceived growth of the acquiring firm in terms of assets, resources, people, and financial status. It has been argued that an underlying, or possibly the underlying, driver behind M&A activity is hubris and overconfidence, the ego of the involved senior managers or chief executives (see Chapter 8), i.e. the vainglory and overwhelming pride involved in undertaking corporate expansion through M&A. The size and competitive industry ranking of a corporation can be regarded as paralleling the importance of the involved managers.

We would further argue that an underlying reason behind the ego-boosting of corporate managers engaged in active M&A activity is fear. Fear of losing out, fear of not being important. Fear of not daring to run one's company in a way different from other companies, and hence being lulled into a global craze for more and more deals. Has a machine been set that cannot be stopped?

M&A as Victims of Myopic Growth

Another flawed characteristic of M&A activity is a seeming “growth myopia” (see Chapter 13; also Levitt 1975 on “marketing myopia”). As a result of the increasing pressures to remain competitive on a global scale, the corporate arena can be regarded as having moved into a systemic state, wherein M&A transactions are ritualistically carried out, even to the extent of corporate myopia. Taking a critical stance, it can be argued that these transactions have become so commonplace that the corporate arena has come to believe in their effectiveness, despite strong evidence of potential adverse performance effects, not to mention the long-term managerial and organizational hurdles involved in operating merged organizations (King et al. 2004; Barkema and Schijven 2008). Critically speaking, is the recurring M&A activity a sign that corporations have fallen victim to a self-fulfilling growth prophecy, partly unmatched by results?

A look at the numbers would seem to support this argument. The significance of M&A has increased dramatically over the last century, whether measured in terms of the number and value of deals conducted, the financial capital involved, the human toll, or the impact on surrounding societies. If we consider globalization as having begun its explosive growth since the 19th century following the industrial revolution and subsequent speedy technological progress, the shift toward a capitalism-based economy, the increase in international, inter- and intra-continental trade (Burnes 2009), then M&A can be regarded as having become a vehicle that has paralleled, resulted from, and fed (p.5) into this ongoing spiral and cycle of globalization (Chapter 2). M&A, in essence, can be regarded as both a cause and consequence of the fast-paced spiral of globalization.

Global change continued throughout the 20th century, fueled by the liberalization of trade and rapid spread of technology. In tune with this, M&A activity has occurred in “waves” since the end of the 19th century, the most recent wave having culminated in the financial crisis of late-2008 and constituting one of the most powerful M&A waves ever witnessed (see Chapter 10). Whether set in a historical, present, or forward-looking context, M&A represent an important, significant, and consequent societal and corporate phenomenon.

The trouble with the current literature is that despite the seeming popularity of M&A transactions in the minds of corporate managers, scientific evidence relating to the value-adding potential of M&A for the merging parties remains mixed (King et al. 2004). That there exists a positive rationale for M&A activity remains dubious (see Chapters 4 and 5). One key finding is that on average, M&A transactions tend to be more financially favorable for the selling vs. the buying firm (Porter 1987; King et al. 2004). Moreover, post-merger financial performance may improve the longer the time period of the study (Biggadike 1979; Quah and Young 2005: Chakrabarti et al. 2009). This would seem to point to the critical importance of patiently awaiting the long-term results of corporate integration measures and actions.

The ongoing focus on failed M&A transactions overlooks the 30–50% declared successes. Seen from this perspective, some acquirers seem to have developed core competences in acquisition management and some do not. We will explore the characteristics of serial acquirers, the impact of experience, and the emerging notion of M&A capability in Chapter 6 of this Handbook (see also Chapters 4, 5, and 8). Moreover, the notions of serendipity (Graebner 2004), pure luck, or of having the right persons involved in that particular deal are always important.

We wish to ask, then, what explains the frenzy of M&A activity, if many M&A transactions fail to produce the desired results; if, further, our scientific-reasoning-based research does not support the claim that M&A performance has been beneficial. Could it be argued that, at worst, M&A has become part of a global machine aimed at growth regardless of the costs involved, a story that we have all so well swallowed and internalized that we have forgotten to question its underlying assumptions (see Chapters 13, 23)? Are M&A transactions just a route to power? Or alternatively, have researchers got it all wrong—are researchers measuring M&A performance through an erroneous lens? Are M&A, actually, carried out for reasons, in ways, and with outcomes that have not been captured by academic research?

A “Tayloristic” View Omitting the Human Element

A third shortcoming characteristic of the M&A literature relates to an underlying underestimation of the human hurdles involved in the merging or acquiring of organizations (Napier 1989; Cartwright and Cooper 1990, 1992). This is a well-known argument (see (p.6) e.g. Buono et al. 1985). Indeed, since the early 1980s, academic researchers and consultants have pointed to the human, cultural, and managerial challenges inherent in M&A (Marks 1982; Buono and Bowditch 1989).

Yet, a deep rift would still seem to divide corporate managers and financial analysts on the one hand, and consultants and human resource professionals on the other hand regarding the extent to which the human side of M&A should be weighted. Whilst the former seem to see only the good in M&A from strategic, rational, and financial standpoints, the latter are more skeptical. They have difficulties in having their voices heard as regards the hurdles in making M&A work. The “human element” of M&A activity is frequently neglected, an issue raised already in 1995 by Cartwright and Cooper in their article “Organizational marriage: hard vs. soft issues.”

Examples of this gulf abound. Despite years of M&A activity, most pre-deal valuation activity conducted by bankers still does not account for the human side of these corporate encounters. Cultural fit is rarely thoroughly considered, if at all. The issue has been raised (Kissin and Herrera 1990; Greenwood et al. 1994; Cartwright 1998).

In addition to unimpressive financial performance records, M&A boast worrying human and societal effects as well. The amount of emotional stress and uncertainty caused by M&A to the employees of the firms involved, in the years immediately following the deal (Napier 1989; Cartwright and Cooper 1990), as well as in the corporate reorganizations that are likely to follow in the years thereafter, are substantial (Barkema and Schijven 2008). What is the link to ineffective time spent at work (see Chapter 15), unexplained absences from work, illnesses? What about the societal effects of cross-border M&A in particular, whereby the corporate governance of a previously locally run factory in the middle of France is shifted to a far-away country? Once the direct managerial link to a local site is lost, the burden of making difficult decisions vis-à-vis foreign sites becomes significantly lighter. As a vector of globalization, M&A has played a critical role in changing the modern societal landscape.

These examples lead us again to ask the question—why engage in M&A activity, if it is the long-term cause of such human and societal distress and, further, is questionable from a financial value-adding perspective? We find this underlying misalignment between the two perspectives to reflect a certain one-sidedness and deafness, even, toward the human challenges involved. In a worldwide business logic based on growth to increase shareholder returns (see Chapter 13), the capital-related human outcome in M&A would not seem to matter, nor be seriously entertained. Yet, an organizational change is ultimately about people willing to change and working toward making changes operational. It is as though nothing had changed in managerial thinking since the time of Taylor in the early 20th century. Are we running our businesses at the dawn of the third millennium with the same logic that was routinely applied in Fordist times? In an era that boasts of the significance of human capital and innovation-intensiveness (Kanter 1989, 1997; Nonaka 1991), critically speaking, the disregard of the human element in M&A is particularly troublesome. Is there an opportunity to view M&A activity afresh? (p.7)

A Short-Term Focus

This leads us to the final and fourth shortcoming in the current M&A literature: the seemingly short-term outlook and responsibility vis-à-vis merging or acquiring.

This short-term focus materializes and is well exemplified in the way that performance is measured in scientific research: a lot of research captures changes in the market value of either the acquiring or the target firm in the days preceding vs. following the deal, whilst some research attempts to analyze the post-merger performance using accounting-based measures in the year, possibly years after the deal (for an overview, see Chapter 5). Rare is evidence of M&A performance beyond three years following a deal. Academics taking longer-term views increasingly note the need to discuss the time effect of M&A performance (Chapter 5).

Likewise, in the corporate arena, acquired businesses are expected to have been absorbed into the acquiring firm's operations at the end of the formal integration process, often set at a time between three months to a year following the deal. What both of these short-term measures ignore is the possibility that M&As have long-term effects and consequences. All the while, qualitative studies on M&A integration point to the long-term nature of integration, with figures between five to twelve years raised (Birkinshaw et al. 2000; Barkema and Schijven 2008). Would a study of M&A performance twenty years following a deal highlight results different than those produced by a short-term study? Moreover, would the former study enable us to better capture the long-term human and societal consequences of the deal on the organizations, people, and local communities involved? Likewise, in the corporate world, would a view to post-acquisition or post-merger integration spanning ten to twenty years following a deal allow for a different appreciation of the implementation challenges and the results?

It seems that the prevailing short-term horizon has severe shortcomings. It ignores the long-term consequences of M&A on those involved and affected by the deal. In so doing, it encourages managers to continue engaging in M&A activity in a seemingly short-sighted manner, disregarding the long-term consequences of their actions. If M&A is to remain a much-used strategy to thrive in a globalizing competitive landscape, then this strategy should take into consideration the longer-term financial, organizational, human, and societal consequences thereof. In a world facing sustainability crises, is a logic of continuous growth sustainable? Further, where does this logic draw from (Chapter 13)?

In this Handbook, we wish to raise the fundamental question—at the beginning of third millennium, in Western terms—is it time to rethink the prevailing approach and mindset with regard to M&A? Is it possible to move to a view of M&A that is long-term, sustainable, and takes into account the interests of relevant corporate, societal, local, and within-firm stakeholders? A view, moreover, wherein M&A is carried out on a responsible basis inspired by sound business strategy, as opposed to unconscious managerial hubris or set in a myopia of systemic growth and increasing shareholder returns? An approach to M&A where most of the value destroyed would not result from a mismanagement of the human capital therein. It is with these questions and this critical mindset that we reiterate our call for “re-rooting” the study of M&A by bridging the disciplines involved. (p.8)

Overview of the Handbook: A Three-Dimensional Approach to M&A

In order to address the prevailing silo effect in the practice and study of M&A and to capture the multidimensionality of the M&A phenomenon, throughout the Handbook we approach M&A management from a three-dimensional perspective with the aim of linking the strategic, financial, and sociocultural dimensions of M&A activity (see Figure 1.1). This threefold approach provides the backdrop for the structure of the Handbook, as well as for the forthcoming syntheses (see Chapter 27).

Following this threefold approach, in the forthcoming chapters, eminent and emerging M&A academics and practitioners explore the M&A phenomenon. The Handbook's first three parts explore the strategic, financial, and sociocultural dimensions of M&A. In an effort to broaden our understanding of the diversity in M&A execution, the fourth part presents M&A across sectors, industries, and countries. Part V concludes by critically reviewing the current state of the art of M&A, and by also proposing a set of dynamic syntheses of the hitherto separate disciplinary perspectives on M&A.

A Strategic Lens for M&A

The first part of the Handbook focuses on a strategic perspective to M&A. In Chapter 2, Kalin Kolev, Jerayr Haleblian, and Gerry McNamara provide an overview of the M&A phenomenon since the end of the 19th century. They attempt to explain what has led to the numerous M&A waves since the end of the 1890s, whilst also highlighting the differences in and rationales for the types of deals conducted over time, as well as their performance. In

                   Introduction

Fig. 1.1 Three-dimensional approach to M&A management

(p.9) order to make sense of the array of approaches and frameworks to M&A since the 1960s, in Chapter 3 Duncan Angwin portrays the historical development of M&A strategy, pre-deal, and post-deal typologies. The chapter notes how each typology captures part of the M&A phenomenon, and deplores the fact that more recent typologies have not been empirically validated.

In order to understand why and how M&A deals are conducted, and to appreciate the complexity therein, in Chapter 4 Michael Hitt, David King, Hema Krishnan, Marianna Makri, Mario Schijven, Katsuhiko Shimizu, and Hong Zhu provide an extensive overview of value creation in M&A. Through their review of academic work on M&A performance from 1983 to 2008, the authors identify the “top five” most used independent variables to study M&A performance: diversification, relative size, experience, method of payment, and pre-deal performance. Whilst the variables have remained surprisingly consistent over the years, the latter two have more recently gained in importance. In a second part of the chapter, the authors discuss five distinct value creation mechanisms in M&A: premium paid, divesting acquired businesses, capability building in acquisitions, technological learning in acquisitions, and undertaking cross-border acquisitions. The authors call for research on M&A to use a common set of independent variables in order to gradually reach consensus on this manifold phenomenon.

Chapter 5 continues with an in-depth review of the ways in which performance has been measured in the management literature on M&A since 1980. In their review, Ioannis Thanos and Vassilis Papadakis identify seven approaches that have been used to measure M&A performance: short-term financial performance, accounting-based performance, long-term financial performance, key informants’ retrospective assessments, divestiture, integration process performance, and innovation. The chapter thereafter proceeds to propose priorities that need to be addressed if we are to gain more rounded perspectives on M&A performance.

As most medium-to-large size firms today have grown through acquisitions, the notions of “acquisition experience” and “acquisition capability” have gained currency. Organizations frequently involved in M&A activity, so-called “serial acquirers,” have adopted acquisition programs to manage this activity not only at the level of series of acquisitions, but at the level of acquisitions series. In Chapter 5, Thomas Keil, Tomi Laamanen, and Aino Mäkisalo provide an overview of this emerging perspective to the study and practice of M&A, calling for more research into this promising avenue.

A Financial Lens for M&A

The second part of the Handbook turns to the financial aspects of M&A activity. Its first three chapters discuss activities occurring in the pre-deal phase. In Chapter 7, Brendan McSweeney and Elina Happonen present an overview of pre-deal activities. They explain that M&A transactions proceed in successive phases—from systematic search and screening, to strategy formulation, company valuation, due diligence, preliminary and final negotiations, deal structuring, acquisition financing, documentation, and closing. (p.10) They emphasize that each of these phases is interrelated and interdependent. Pre-merger planning and execution invariably shape post-merger integration.

The following chapters delve further into pre-deal activities. In Chapter 8, Sudi Sudarsanam explores pre-acquisition valuation. Valuation needs to be driven by healthy strategic considerations regarding the deal. The author argues that creating value from an acquisition is a necessary condition for conferring shareholder benefits. It is not, however, a sufficient condition. For shareholders to benefit from the acquisition, the acquirer must effectively “appropriate” this value. Value appropriation, in turn, is influenced by e.g. the relative bargaining strengths of the acquirer and the target, bid strategies, acquisition tactics, and how the deal is structured. The author provides an extensive overview of the variety of available valuation models, whilst also highlighting their inherent weaknesses. Further, the behavioral dynamics shaping the pre-deal phase and the decision to acquire are critically discussed. We note the shaky ground upon which acquisition decisions can be based, despite the seemingly rational image of the pre-deal phase.

On deal structuring, in Chapter 9 Richard Joseph and Bill Ryan highlight factors that influence M&A transactional form, including tax law, securities regulations, target asset values, statutory procedures, target liabilities, and cultural synergies. They elaborate on a key principle that influences economic substance in the universe of US transactions: continuity of interest. They note that in the American market, deals structured with voting stock as consideration essentially “continue” stakeholder interests and are non-taxable. By contrast, deals structured with cash or other assets as consideration effectively liquidate stakeholder interests and are taxable. They further highlight the inherent limitations in the methods of accounting used in pre-deal valuation and pricing. In particular, the inability of current accounting practices to cater for the intangible or human element in M&A is highlighted, and more accurate means for accounting for intangibles are called for.

The following three chapters identify novel forms of M&A that have emerged since the 1980s.

In Chapter 10, Scott Moeller and Maria Carapeto explain that an acquisition is one of three routes to corporate restructuring, the others being reorganization and liquidation. They observe that acquisitions of distressed and bankrupt firms have become more frequent over the years, and such deals generally proceed at a pace faster than takeovers of financially healthy companies. They conclude that these types of acquisitions are counter-cyclical, in that distressed and bankrupt M&A activity generally coincides with downswings in financial markets; yet bankrupt deals are more numerous than distressed deals. The authors note the relative paucity of research on this deal type.

Within the pre-merger phase, the formulation and execution of strategy is critical to the post-merger outcome. In Chapter 11, Brendan McSweeney explores key aspects of this strategy: takeover approaches and defensive tactics. He notes that legal, institutional, and other factors have shaped the frequency, scale, and type of takeovers within and between countries. They have also influenced the variety and effectiveness of the defense tactics adopted by target-firm management. He concludes with the admonition that (p.11) the contrast between pre-bid expectations and the often dull, and sometimes disastrous, outcomes demonstrates the importance of sober and effective pre-bid management.

In Chapter 12, Viktoria Dalko discusses the characteristics of a particular type of transaction: the leveraged buyout (LBO). She points out that the availability of acquisition financing has been a major catalyst in the cyclical surges of M&A activity over the past few decades. She observes that historically, LBO activity has been propelled by an abundance of credit, particularly in the form of bank loans and high yield bonds. In recent years, however, such activity has been fueled by an abundance of equity capital, particularly as regards amounts contributed by private equity firms (PE), hedge funds, and company managers. She predicts that this trend will accelerate in the future. The author explains the characteristics of LBO acquisitions and their performance consequences. More research efforts on this scarcely studied topic are called for.

On a rhetorical note, in Chapter 13 Bill Ryan questions whether growth through M&A creates significant shareholder value. The author provides a historical overview of the factors that have led to the prevailing shareholder value-driven business logic. He argues that maximizing growth does not necessarily maximize shareholder value; furthermore, that growth should not be the main objective of strategic planning, but rather an incidental outcome of a sound investment strategy. This is the context in which M&A activity needs to be placed, argues the author. Consequently, executives should beware of conducting M&A in a systemic growth logic; rather, M&A should be carefully considered as a possible strategic option.

A Sociocultural Lens for M&A

In the third part of the Handbook, the focus shifts to the sociocultural dimensions of M&A activity. In Chapter 14, Satu Teerikangas and Richard Joseph provide an overview of the state of the art of knowledge on post-acquisition integration management. Whilst early pointers to the difficulty of this phase in M&A date to the 1960s, it was only the 1980s that saw the advent of more concerted efforts to approach integration. The chapter provides an overview of this development toward a “process perspective” to M&A management (Haspeslagh and Jemison 1991). Aspects that have been identified as critical to M&A integration success are presented, ranging from integration management, involved individuals, best practices, integration strategy, organizational fit, and post-deal integration processes. The chapter ends with a case study of a recent university merger, and discusses recent insights on the ways in which integration might affect M&A performance. More research efforts on integration dynamics and its performance consequences are called for.

Together with the challenges of integrating the two firms post-deal, the human issues are considered as paramount in succeeding in M&A. In Chapter 15, Susan Cartwright explains how M&A research has been dominated by a finance discourse, the human side having emerged only in the 1980s. The chapter provides an overview of the behavioral and emotional causes that explain why M&A can be stressful to those involved. The (p.12) people strain in M&A has been found to hold across personality types. The issues of M&A dynamics, executive turnover, as well as leadership and merger management are discussed. Successful M&A are ones where change management and leadership have been catered for, Cartwright concludes, and warns against the need to develop a single framework to approach M&A, as all deals have their unique aspects.

In Chapter 16, Satu Teerikangas and Philippe Véry provide a review of the literature on culture in M&A. The chapter provides a chronological overview of the study of culture in M&A since the 1980s, and in so doing, notes how most studies have approached culture only at the organizational and national levels of analysis, whilst our knowledge from organization theory and sociology, amongst others, point to the cultural encounter in M&A as being more complex. An overview of the effect of culture on performance is provided, together with an overview of the dynamics of the cultural encounter in M&A. Overall, organizational culture tends to have negative performance effects, regardless of the measures used, whereas the effect of national culture can be positive. More fine-tuned research efforts are called for that cope with the complexity of the cultural encounter and study its unfolding dynamics in cross-border settings.

The topic of culture continues in Chapter 17, where David Faulkner, Robert Pitkethly, and John Child present their empirical findings on country-specific integration strategies. Based on their study of multinational acquirers in the UK market, Chapter 17 identifies integration strategies as depending on the country of origin of the buying firm. All the while, in certain areas, all acquirers, regardless of nationality would seem to share similar integration characteristics, this pointing to a certain degree of “universality” in (Western) firms’ integration approaches. Also, the integration approach of acquirers from some countries was not found to befit the country's stereotype, this pointing to the need for caution when adapting existing culture models to business situations as in M&A.

In Chapter 18, Sajjad Jasimuddin discusses the state of the art on knowledge management in M&A. Whilst knowledge enhancement rationales underlie an increasing number of M&A, Sajjad Jasimuddin notes that the domain of knowledge management in M&A has received, relatively speaking, lesser attention. Based on the available insights, the challenges and best practices in knowledge transfer following M&A are presented.

In Chapter 19, the focus shifts to identity formation following M&A, a more recent area of interest. Steffen Giessner, Johannes Ullrich, and Rolf van Dick apply a social identity theory lens to post-merger identification, discussing the challenges and opportunities therein. This approach shows that the adoption of a post-merger identity results in pro-merger behaviors. Yet, pre-merger identities tend to prevail post-deal, hindering the development of post-merger identities. All the while, members from acquiring and acquired organizations will follow differing identification processes depending on the relative pre- and post-merger status of both organizations. Post-merger identification can be furthered by establishing its distinctiveness, providing members with a sense of continuity, thorough communications, and a fair approach. Leaders with a background in the pre-merger organization tend to be most trustworthy in this process. The authors conclude by noting that, despite their significance, these human-related success factors are often neglected in M&A execution.

(p.13) A discussion on power and politics in M&A follows in Chapter 20. Janne Tienari and Eero Vaara provide an overview of the approaches to power in the literature on organizations. Moving on to M&A, they note the seeming absence of an overt and active discussion on the power and political dimensions of M&A activity; both themes have been implicitly explored. They identify the implicit presence of these themes in M&A research as regards work on motives and performance, employee concerns, cultures and cultural politics, identities and identification, institutions, legitimation and discursive struggles, and marginalization and exclusion. As a result, the authors call for more critical studies on M&A.

In synthesis, the third part ends with a look at the “silent forces” shaping the performance of cross-border acquisitions, Chapter 21. Based on a large-scale qualitative case-based study, Satu Teerikangas provides an overview of the cross-border acquisition process, and the factors leading to its success. The chapter introduces the notion of “silent forces” to identify those managerial, human, and cultural dimensions of M&A activity that rarely make it to the practicing managers’ attention span, in contrast to the strategic, structural, and financial ones that tend to dominate it. This would matter little were it not for the consequences that this lack of attention has on the outcome of M&A, as regards the extent to which strategic objectives have been met, the deal's financial performance, and the degrees of cultural change, and organizational identification achieved.

A Sectorial Lens for M&A

M&A differ in terms of characteristics, challenges, and execution from one industrial sector and geographical region to another. The fourth part in the Handbook focuses on the sectorial, geographical, and industrial differences with regard to M&A activity. The thrust of the section is to highlight the many ways in which M&A transactions can differ in terms of their nature, challenges, and management.

Chapter 22 deals with the characteristics of M&A activity by emerging market multinationals. Prashant Kale and Harbir Singh explain the difference in the integration approach adopted by firms from emerging markets; an approach that they term a “partnering” approach in contrast to a typical “takeover” or “integration” approach adopted by many Western firms. A partnering approach entails providing targets with autonomy, retaining target firm executives, whilst focusing on coordinating core activities, and aligning values and incentives. The authors point to the relative success that firms from emerging markets have enjoyed in their M&A activity, this contradicting results from M&A in more advanced markets. A partnering approach is recommended if the target has unique resources or capabilities, the primary goal of the deal is value creation, the acquiring firm's home market is growing, and the acquiring firm's organizational culture favors collaboration and inclusiveness.

In Chapter 23, the focus shifts to the characteristics of finance sector M&A. Gary Dymski presents the changing nature of M&A in the worldwide finance sector since the 1980s. The author positions M&A activity in the finance sector as having resulted from banking (p.14) firm strategies and structural market conditions. For the latter, changes in microeconomic, macro-structural, and geo-economic factors over the years explain the rise in finance sector M&A. On a critical note, Dymski concludes with the questions surrounding capital markets as a result of the post-2008 financial crisis, and the position of M&A therein.

In Chapter 24, Nicholas and Samantha Fairclough introduce the distinctive features of professional service firms, as regards the nature of their task and resources, organizational form, and governance mode. They then explain the nature of M&A in this sector by providing an extensive overview of the merger wave that swept large-sized professional service firms in the 1990s and 2000s, using the example of a transnational professional industry: accounting. The reasons that led to the consolidation in the industry, “from the big eight to the big five” in the 1980s and 1990s are identified as resulting from regulatory changes that made merging possible, as well as the need to remain big enough to be able to provide products and services across the globe to ever more international customers. These professional suppliers thus followed their customers. Other rationales include bulwarking expanding competitors, remaining viable, spoiling other deals, and access to capital and insurance.

Annette Ranft, Adelaide Wilcox King, and Jennifer Sexton explore technology sector M&A in Chapter 25. Technology acquisitions have increased in prevalence since the 1980s, as companies have sought to gain access to a wider variety of technological expertise. The authors argue that a key challenge in making technology M&A work stems from the ambiguities therein. The chapter proposes a model on ambiguity management in the context of technology acquisitions.

Having introduced the evolution of the biotechnology industry, Lars Schweizer presents the characteristics and management challenges in acquisitions of biotechnology firms in Chapter 26. Acquisitions in this sector have been on the rise since the 1990s, paralleling the rapid emergence and developments in this industry. Two types of biotechnology acquisitions are identified: acquisitions between biotechnology firms, and acquisitions that link a biotechnology start-up with an established pharmaceutical company. Culture-wise, national culture is not an issue in this sector that describes itself as “global,” yet organizational differences become salient in the merging of a small start-up by a larger pharmaceutical player. Whilst retention of talent is critical in these knowledge-based deals, most managers leave in the post-deal years; yet it is the engineers, not the managers, that are most critical in terms of their knowledge. A hybrid approach that simultaneously caters for distinct short- and long-term needs for the acquisition is recommended for the integration of biotechnology firms.

A Critical Overview and Dynamic Syntheses

The last part of the Handbook summarizes the various chapter findings and attempts to integrate the strategic, financial, sociocultural, and sectorial views into a critical overview and sets of dynamic syntheses. In the final Chapter 27, the editors Satu Teerikangas, (p.15) Richard Joseph and David Faulkner discuss the key insights emerging from the wide range of M&A-related topics reviewed throughout the Handbook. First, a critical overview of the study of M&A across disciplines and methodological lenses is provided. Thereafter, the chapter proceeds to synthesizing the emerging understanding as regards: (1) the changing nature of M&A activity over time, (2) the ways in which M&A differ, (3) a contextual framework for M&A management, and (4) a three-dimensional model combining the strategic, financial, and sociocultural lenses to M&A management. Throughout the discussion, the editors identify gaps in the current practice and academic study of M&A, and identify future research directions as means of addressing these gaps.

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