The paper examines the challenges faced by organization during mergers and acquisitions. It explains the challenges of merging the HR processes of the two organizations and suggests implementation strategies to prevent risks and delays. Mergers and acquisitions are preferred by companies in an increasingly competitive environment to acquire economies of scale and critical mass. Mergers and acquisitions result in complete change in the way the business is running and there are no other events in any organization which can be more difficult and challenging. According to Jensen & Ruback (1983) mergers and acquisitions benefit companies as it provides synergy, tax saving, ...view middle of the document...
The revenues of the companies should be merged to achieve a high revenue generating company.
2. The expenses of the two companies should merge to achieve a low expense operation.
3. The cost of capital of the two companies should be combined which will reduce the overall cost of capital.
The cost saving is archived through the removal of repetitive process in the two companies for which the merger is required at various level.
Integration can happen in full functional area of the companies; for example - human resource, accounting, information technology, marketing, finance and operations. The new company will be working on best practices of the two companies and certain key factors will be merged together to have a modern age merger and acquisition. Minimal merge will be adopted by personnel and it will involve reducing redundancies.
The best ways of mergers are when the two companies come together to exploit the best of other. This method is called positioning and it happens when the two companies position by taking advantage of the trends in the market. Gap filing refers to the condition when the two companies have major weaknesses, which is reduced due to the merger. The company having strength becomes an advantage for the other company and both the companies are benefited.
Mergers can happen for business reasons; for example in bargain purchases where the company can be acquired at a low cost and this helps both the companies. Mergers can also provide the method of diversification which is needed for improving the earnings and to achieve higher opportunities and growth in business. The companies can get further growth through mergers and there are certain mergers which can provide short term growth to the company.
The acquisition of two companies should be optimistic and bad decisions should be eliminated from the processes of merger and acquisition. Three specific examples of challenges of major challenges faced by the companies during M & A in the last five years are:
1. Merging the Finance Policies
One of the most important factors in merger and acquisition is the accounting principles which involve purchase, pooling of interest and methods for accounting. For example- In a recent merger the executives who was authorized to approve expenses up to $5 million was restricted to the level of $50,000. Hence, it created unintended consequences.
The issues which can result in calling off of merger or acquisition are:
• Understatement of the allowance, liabilities, pension and bad debts
• Hidden liabilities which are not recognized at the time of acquisition and merger
• The low quality assets which are overvalued
• The receivables can be overstated
• If the target companies are having marketable security which are not properly valued, it can be an issue for the company acquiring
2. Merging the Employees and Culture
Many executives associated to organization have claimed that they never expected the issue of human resource...