Leading Through Transition

Implications of Human Resource Management in M&A transactions, especially in the context of the Change Management process

Seminar Paper, 2011

21 Pages, Grade: 1,3



List of Abbreviations

List of Tables

List of Figures

1. Introduction

2. Mergers & Acquisitions
2.1 Definition and Dimensions
2.2 History
2.3 Stages of the M&A Process

3. Human Resources
3.1 The Traditional HR Role versus "Business Partner" Concept
3.2 The Change Agent in the M&A Process
3.3 Need for HR Actions in the M&A Stage Model
3.3.1 Pre-merger Preparation Assist the Strategic Management Identify Defense Strategies Develop Communication Strategies
3.3.2 Post-merger Integration Cultural Assessment Integration

4. HR integration in a Multinational M&A project
4.1 Overview of the Project
4.2 HR Findings
4.3 Developed Integration Methods

5. Conclusion


List of Abbreviations

illustration not visible in this excerpt

List of Tables

Tab. 1: Determinants of Acquisition Integration Level

List of Figures

Fig. 1 Sub-areas of M&A according to US-definition

Fig. 2 The Five M&A Waves in the USA

Fig. 3 Stage Model of the M&A Process

Fig. 4 Classical Ulrich Model

1. Introduction

Within the last few years, globalization and the subsequent increasing competitiveness in the international markets have become a dominant factor to be strategically considered when doing business. This goes along with the importance of Mergers and Acquisitions (M&A). After a continuous growth in the nineties, the global M&A market could register a climax with a transaction volume of two billion USD and 16.000 transactions in the year 2000.1 Despite the slowdown in recent times, the world-economic significance of M&A remains at a high level. Reasons for this sustained interest are diverse: synergy effects, economies of scale, entering new markets or risk reduction in the scope of a turnaround management process.

However, the success rate of M&A activities is quite low. According to the A.T. Kearney Global PMI Survey in 2005, approximately 57% of the interviewed companies recorded a notable deterioration of their profitability by three years after the merger at the latest; 14% do not even register any changes.2 The parade example is the merger of Daimler and Chrysler, and also the purchase of AOL by Time Warner has been undone in 2009 – at least after eight years. Often balance sheets and market shares still have priority to the decision makers – a huge mistake. Because the most important factor that determines the success or failure of an M&A is the employee. At present, transactions proceed internationally and regularly involve various countries. Personnel work in a modern sense thus not only includes the administration and remuneration of employees, it also has to make a strategic contribution. HR responsibilities have to include being informed about different legal conditions, cultural particularities as well as regional markets. Moreover, the actual M&A process is followed by the challenge of post-merger integration (PMI), as "the work begins after the deal is closed".3

In the scope of the present work, the general M&A process will be defined and examined with relation to the respective HR implications. In order to develop adequate cultural and institutional HR integration methods, change management approaches applied in practice will be developed and evaluated.

2. Mergers & Acquisitions

2.1 Definition and Dimensions

Initially including – as the words imply – only mergers and acquisitions, the expression M&A has developed into a universal term that represents much more than that. In literature, the traditional subject of M&A has been expanded to represent "all corporate transactions in which ownership of one company is transferred from one hand to another"4 and which are strategically induced. Deliberately giving space to broad interpretations of this widely used term, also co-operations, company successions, management buy-outs, management buy-ins as well as IPO are part of the M&A spectrum (see fig. 1).5

illustration not visible in this excerpt

M&A transactions can either occur between companies of the same branch (horizontal M&A), offering e.g. a product portfolio expansion possibility; between companies having a purchaser-supplier-relationship (vertical M&A), or between companies that do not have any relationship (conglomerated M&A), for example, where an opening of new business fields is intended.6 Concerning the transition of control the transaction can have impact on corporate disposals and expansions, structural and institutional changes, as well as on governance of a company.7

Mergers and acquisitions are distinguished by the prospective legal status of the target company and the extent of co-determination. A merger is a combination of two companies joining forces to form another company. At first, a respective proposal is prepared by the management boards of bidder and target to the shareholders. After acceptance, the legal entity of one merging company is decided to exist continuously as the other one will become integrated. As a result they form an economic entity in the end. An acquisition on the other hand, is also called takeover; built up as an economic and legal entity as the legal status of the target habitually remains unchanged. An acquisition can be carried out either as a share deal (acquire capital shares) or as an asset deal (acquire entire property).

2.2 History

illustration not visible in this excerpt

Mergers and acquisitions have already been observed and documented since 1985. Up to the present day, five waves with clearly definable targets (see fig. 2) can be identified. 8 The first M&A wave was marked by the industrial revolution and aimed above all at maximizing economies of scales. In the second wave, companies intended to complete the supply chain by buying up - and downstream partners in order to bypass anti-trust legislation. The third wave was characterized by the portfolio-theory of Harry M. Markowitz, which emphasizes the importance of a diversified product portfolio concerning risk allocation and cash flow. The fourth wave was strongly shaped by motives of internationalization and synergy. In addition, the development of the global capital markets represented an important driver as well; e.g. tax benefits for the acquisition of debt capital towards equity led to numerous debt-capital-funded deals.

2.3 Stages of the M&A Process

It is a common misconception that a manager can decide to sell or buy a company within one day, and close the deal within a few weeks. This is rarely the case, because the M&A process is usually complicated and takes months or even years to finalize, unless the transaction value and number of parties involved is small. In addition, regulatory or antitrust approval requirements can make an M&A transaction even more


The M&A process is often subdivided into three process steps (pre-deal, deal and post-deal)9, however, as fig. 3 predicts it is also possible to define four phases:

illustration not visible in this excerpt

The first two phases can be described as pre-merger preparation. Once a potential candidate is found, the seller and buyer will have some internal meetings in order to define the actual objectives of the purchase or sale. The next meetings usually involve a business broker or consultant who will assist in either promoting the firm on the seller's side or finding feasible acquisition targets for the buyer. Very often duties include preparing a letter of intent (LoI) to be used in outlining important items and stating the desire of both parties to proceed to the next step. The LoI is not legally binding; however it serves as a communication tool between the two

parties and ensures that the intentions of both are the same. Otherwise a deal can be stopped in an early stage.

Due diligence is typically the most time-consuming and expensive stage of the M&A process. It is the "360-degree view"10 of the target company and intends to help the buyer understand all inner processes, so that based on a fundamental understanding realistic expectations and a realistic price can be defined. The due diligence process requires that the buyer is given unlimited access to the selling company’s customers, financial and legal records, as well as to its operations, sales, and marketing functions. Of course, the seller only reluctantly reveals sensitive information, and the buyer’s acquisition team is critical at this stage.

Once the due diligence stage is finished, the terms and conditions of the deal will be negotiated. A further common misconception is that the M&A process is finished when the contract is signed. But the contract simply defines the basis for a future relationship between the two companies; only the people can make it work. Personalities, cultures, and technologies must be considered beyond this stage or performance problems will be likely to arise in the future. This is also why the Human Resource process is important throughout the whole M&A transaction and will be explained further in the next chapters.


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Leading Through Transition
Implications of Human Resource Management in M&A transactions, especially in the context of the Change Management process
University of Applied Sciences Essen  (FOM Hochschule für Oekonomie und Management, Stuttgart)
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leading, through, transition, implications, human, resource, management, change, management
Quote paper
Nadine Ghanawi (Author), 2011, Leading Through Transition, Munich, GRIN Verlag, https://www.grin.com/document/175040


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