The factors influencing the success of takeovers and mergers

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Takeovers and mergers are a way in which a business can expand rapidly, as a result of this, many problems could occur such as having a lack of knowledge of the target company because of inability to conduct due diligence accurately. More problems could be difficulty of integrating businesses successfully because of the different cultures and the possible power conflict between management. These issues could affect the overall performance of the business by impacting the morale of employees thus reducing their productivity and impact sales and consequently lowering profit.

One factor that could influence the success of a takeover/merger is the firm’s ability to recognise cultural differences. Culture refers to the way a business does things and a set of values, beliefs and assumptions shared by members. Each company has their own cultures therefore when they merge/takeover, they need to be aware of these differences and in order to be successful, they need to find ways of integrating both companies. One example that integrated cultures successfully is Tata and Jaguar/Land Rover. Tata is an Indian based company that operates globally whereas Jaguar/Land Rover is a British company. As these are two different cultures, there will inevitably be similarities and differences in working practices therefore this will allow any difficulties to be dealt with quickly and effectively. Tata bought Land Rover /Jaguar for £1.1bn from Ford and with this has boosted global sales by 26% to 244,000 vehicles. Their ability to gain these sales implies that the two companies would have incorporated culture effectively in order to be so successful. Ways in which this could happen may be a result of the business utilising effective strategies such as Kotter’s 8-step change model, for example, establishing a vision for change. The impact of this allows people from both businesses to integrate concepts and ideas therefore overall, they will be more open to surrendering their culture and adapting to the others. To do this, communication is essential and needs to be open and honest therefore morale levels such as concern and anxieties would be lowered thus making employees more productive that will lead to increased sales and profits. However this also depends on the style of leadership that top management utilise, for example, evidence behind how quickly and effectively the integration began may suggest their leadership style is autocratic as autocratic style enforce strict obedience and have a clear hierarchy with a clear chain of command that allow decisions to made rapidly. This style is evidently effective as there were few disruptions with the takeover.

Another aspect that can influence the success of a business is their ability to plan effectively. Due diligence is the act of investigating into the target business which will allow the acquiring company to establish the other company is worth acquiring and appropriately priced. Certain investigation may involve evaluation of financial accounts, competitive position and whether the two companies would be compatible in terms of products, markets, culture, management style and corporate structure. One company that did this well was Kraft when they acquired Cadbury. Due diligence was conducted thoroughly and this is reinforced by the idea that Kraft and Cadbury are still performing together and have not gone into administration despite not improving profits significantly but rather making a loss to previous years such as the net profit for the fourth quarter falling 24% to $540m due to integration costs rather than a loss of sales.

In conclusion there are many factors influencing the success of a business, some more than others such as conducting due diligence and an organisations ability to recognise cultural differences. Statistics show that the main problem, up to 80% behind the failure of takeovers/mergers is due to lack of planning and investigation into the target business. The impact of this means that cultural audits are recommended in order to find out useful information about the two companies that help evaluate the similarities and differences in working practices.