An organisation grows externally by adopting a strategy of merger. The merger typically happens between two organisations which are equal. For this reason the merger is often approved by the board of the organisations. The board of the merged organisation is likely to be equally represented by both organisations. On the flip-side a merger is not always likely to lead to a shared appreciation for both the companies. This is because mergers also suffer from the same problem of acquisitions, The intended benefits of mergers are often overestimated and the real costs make the merger a costly exercise. Also integration of the two organisations is a difficult task.
Differences between Mergers and Acquisitions
| Bases or Differences | Mergers | Acquisitions |
| Nature | The purchase deal is considered a merger when the management of both companies decide that the merger is in the best interests of the shareholders. | When the purchase deal is unfriendly and the takeover is hostile, it will always be considered an acquisition. |
| Existence | The companies may or may not lose their identities after the merger. | Except in the case Of back nip takeovers, it is always the acquiring company which exists. |
| Equality | Merger is a transaction between equals. | It is generally amongst the unequal with the stronger company acquiring the weaker one. |
| Financing | Merger financing takes place by way of stock Swap. Both the managements surrender their shares and swap for shares of the new entity. Both managements get equivalent share. | The acquirer company takes over the target company. The shares Of the acquired company are traded. purchase is done by cash, debt or shares. |
Human Side of Mergers and Acquisitions
In some of the past decades, there has been a improvement in the merger and acquisition (M&A) activity internationally. For the purpose of development of the organisation and to achieve higher return from the shareholders, various important strategic plans are accomplished by mergers and acquisition transactions. Not only economic, financial, legal and political success of an organisation but also the Human Resource (HR) is greatly influenced by these transactions. A lot of focus is diverted toward legal, financial, and operational aspects of mergers and acquisitions. But the manager who has witnessed the merger activities now think that in the present economy, the main aspect of maximising the worth of the deal is closely related to the manpower management. The focus of the top management seems to ignore the human resource management aspect of activity which depends on the M&A’S rite of failure. Most of the mergers are not able to create the expected shareholders’ value. The most common factor for this failure can be seen as the combination of cultural variations and impractical human resource integration strategy. In fact, it is found in the researches that the problems related to individual manifest at different step or levels of process. The issues related to people will be consists of the following during the integration stage of mergers and acquisition:
- Sustaining the vital talent;
- Communications;
- Retaining potential managers; and
- Incorporation of corporate cultures.
Through this movement, a number of comprehensive problems related to the people have emerged. For example, assessing and selecting the duplicate managerial talent to find out who will continue and who would leave, after the merger and acquisition. During the process of integration of corporate culture, human resource policies and practice implemented in both the organisations may undergo assessment, amendment or substitution. Although the human resource issues are quite vital in the entire world during the M&A process, but depending on the nature of M&A combination the significance of these will change. For example, in case of an acquisition that will result in the departure of the acquired company, it may result in lesser assessment, selection and substitution decisions in comparison to the acquisition yields the comprehensive combing of the two organisation. The lesser the integration Of organisation, the requirement to reduce manpower size will also be lesser. Apart from these problem related to the people in the interaction phase of activity, there are number of more problems which are quite possible in the phase prior to after the integration. By managing mergers and acquisition activity model, it is possible to manage these effectively and prominently.
Three-Stage Model of Mergers and Acquisition
A model of M&A activity consisting of three stages is derived from the organisational experience in the merger and acquisition process:
- Pre-combination;
- Combination – integration of the partners; and
- Solidification and advancement – the new entity.
Although, a large number of business activities such as business strategy, finance, marketing, distribution, IT, manufacturing, etc. are included in all these three stages. The main problems arise here are commonly related with human resource management. Thus, to focus more intensively and to facilitate greater dimensions of these Human Resources (HR) issues in activity, the attempts are made to identify HR consequences and actions for the varied issues. These HR issues and implications are explained below:
Stage l- Pre-Combination
The first step of process includes a number Of human resources issues. When we notice this, the differences related to merger in place of acquisition are identified. Due to a huge range of possible merger and acquisitions, it is not possible to provide the comprehensive details of these differences. Table 1 indicates about the most critical HR issues and their precise consequences and actions for M&A activity. First of all, the description of HR issues is provided and then HR consequences and action are detailed. Several HR issues and their implications are explained below:
Table 1: Stage – 1 Pre-combination
| HR Issues | HR Implications and Actions |
| Look for the factors leading to M&A. | Acquaintance and consider the requirement distribution. |
| Constitute M&A team/leader. | Substitution of the leadership is required. |
| Look for potential partners. | Configuration of team influences success. |
| Plan to take some lessons from the process. | It is important to have a systematic and extensive pre-selection and selection. |
| Managing and planning for M&A process. | It is important to perform functions with due diligence in various fields. |
| Choose a partner. | Cultural valuation. |
| Make plan for combinations and after that reduce problems. | |
| Developing activities for learning and knowledge transfer. |
Stage 2 — Combination-Integrating the Companies
On the second stage of M&A activity, it is important to address the foundation which has been developed by the processes in the first Step. For example, in order to make the second Stage effective, it is important that in the first step the planning for the integration processes has to be done with expertise. It is found that almost 80 percent merger and acquisition activities have failed due to lack of integration planning. Table 2 indicates the large number of activities which are included in the second step. Usually, integration is mainly the activity in which two organisations are clubbed together once a merger or an acquisition is declared and all the pre-integration processes are carried out.
Table 2: Stage 2— Combination-Integrating the Companies
| HR Issues | HR Implications and Actions |
| Choose integration managers. | Choose the suitable candidate. |
| Formulate or execute transition teams. | It is important to develop team design and selection for having a successful transition and integration. |
| Formation of structure/strategies/leadership | It is important to communicate. |
| Sustaining important employees. | Deciding the retention and layoffs. |
| Handling the change procedure. | It is important to develop a new culture, structure and HR policies and practices. |
| Interact and get the participation of stakeholders. | |
| Formation of new policies and practices. |
Stage 3 — Solidification and Advancement – The New Entity
In this Stage, a well-defined and certain new entity Will be developed. A number of HR issues have to be managed by this new entity or new organisation, Table includes various HR issues and their consequences:
Table 3: Stage 3 — Solidification and Advancement – The New Entity
| HR Issues | HR Implications and Actions |
| Establishes leadership and staffing. | The main focus is on the leadership and staffing of the new entry. |
| Evaluates new strategies and structures. | Developing and accessing the new structure. |
| Evaluates the new culture. | Merging of two cultures requires revision and evaluation. |
| Take lessons from the activities. | It is important to fulfil and satisfy the concerns of the stakeholders. |
| Modified whenever it is required. | It is vital for the new entry to learn. |
| Evaluates the stakeholder’s concerns. |