Acquisition Integration Approaches

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Mergers and Acquisitions. Explanation of Acquisition Integration Approaches of Philippe Haspeslagh and David Jemison. ('90)

The Acquisition Integration Approaches model of Philippe Haspeslagh and David Jemison provides insight and guidance in Mergers and Acquisitions on choosing the optimal integration approach.

In Mergers and Acquisitions, the motto often traditionally was: "Make them like us". Or relatively simple criteria were used to choose an approach. Such as the size and quality of the acquired firm.

Haspeslagh and Jemison (1990) have stated that the approach, which a company should take towards integration, should be understood by considering two (additional) criteria:

1. The need for strategic interdependence.
2. The need for organizational autonomy.

Four Types of value creation in Mergers and Acquisitions

Obviously, the goal and central task in any acquisition is to create the value that is enabled when the two organizations are combined. There are four types of value creation:

1. Resource sharing. Value is created by combining the companies at the operating level.
2. Functional skills transfer. Value is created by moving certain people or sharing information, knowledge and know-how.
3. Transfer of general management skills. Value is created through improved insight, coordination or control.
4. Combination benefits. Value is created by leveraging cash resources, by borrowing capacity, by increased purchasing power or by greater market power.

Organizational Autonomy

Haspeslagh and Jemison warn that managers must not lose sight of the fact that the strategic task of an acquisition is to create value. Furthermore they must not grant autonomy too quickly, although obviously people are important and should be treated fairly and with dignity. The need for organizational autonomy can be answered using three questions:

1. Is autonomy essential to preserving the strategic capability we have bought?
2. If the answer to question 1 is positive, how much autonomy should be allowed?
3. In which specific areas is autonomy important?

The Preferred Mergers and Acquisitions model

Depending on the score on the above two factors (see graph), the preferred Acquisition Integration Approaches are:

• Absorption. Management should be courageous to ensure that this vision for the acquisition is carried out.
• Preservation. Management focus is: to keep the source of the acquired benefits intact, "nurturing".
• Symbiosis. Management must ensure simultaneous boundary preservation and boundary permeability, gradual process.
• Holding. No intention of integrating and value is created only by financial transfers, risk-sharing or general management capability.

Acquisition Integration Approaches Special Interest Group

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Acquisition Integration Approaches Forum

- India

Global Number of Mergers & Acquisitions

"How many company M&As are done annually across the globe?"

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Kim-Anh Le - Vietnam

The right Leader during M&A

"The role of HR in M&A is important, but the role of the future Country or Regional Leader is critical. If that Leader is not "neutral", it is hard to have the right new and effective top management: this person can destroy the shared values."

4

Arnaud - France

Culture Clashes in M&A

"Many studies report that up to 80% of M&A are failing to create value and this is mainly due to culture clashes during the integration phase. Some authors have suggested that like financial and operational, a Cultural Due Diligence should be executed to identify cultural problems and shared values (according to McKinsey model). This process is also called Bicultural Audit and can be developed in 3 steps: 1- Culture Gaps Identification 2- Culture Gap Analysis 3- Culture Bridging. "

2

Tom C. - US

Increase the role of HR in M&A

"Many mergers and acquisitions fail to deliver on their initial promises partly because of cultural/people issues. The role of HR in M&A should be increased to avoid this, especially in early stages. In this way potential culture clashes can be identified and prevented."

2

Vincent - NL

Postmerger Leadership

"In McKinsey Quarterly 2006/4 is an article on the art of postmerger leadership. McKinsey mention 5 challenges for postmerger leaders: 1- Create a new and effective top-management team early on 2- Develop a credible and inspiring corporate "Story" 3- Shape a strong performance culture 4- Champion the interests of key external stakeholders 5- Balance speed with time to reflect and learn."

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Vincent - NL

M&A is not a Strategy

"Note that M&A is just a tool to achieve something; it is not a strategy by itself. Some companies seem to be acquiring merely for the sake of top-line growth. However there should always be an underlying strategy, and any merger or acquisition should be aimed at increasing the long term bottom-line or reaching other strategic targets."

13

Mutumba Abbey - Uganda

Horizontal Integration

"Smaller actors in the merger integration might be at a loss to market leader especially in developing countries"

2

Marc Jensen - USA

Mergers & Acquisitions

"Acquisition Integration is also called: Post-Merger Integration"

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