Abstract
Mergers and acquisitions remains an important business strategy. The paper discusses the reasons for the engagement in mergers and acquisitions as well as its overall consequence to business firms and specific consequences in various areas of operation. The first chapter provides an introduction of the research investigation. This explains mergers and acquisitions, and their importance in strategic management. The second chapter provides a review of existing literature on the causes and consequences of mergers and acquisitions in terms of strategic and operational issues. The third chapter discusses the approaches and methods of the research process including the investigative approach, data requirements, data collection methods, and data analysis techniques.
1. Introduction
Mergers and acquisitions are frequently used as a method in achieving growth. Hitt, Ireland and Harrison (2001) defined acquisitions as situations when one business firm buys another firm and mergers as the integration of resources, operations and processes with the effect of creating another company. These strategies for growth offer the potential for firms to have a bigger market share or a diversified market. Gaughan (2002) further explained that the determinant of successful mergers and acquisitions is if the strategic decision increased the value of the combined businesses. This implies that mergers and acquisitions are not absolute solutions since the extent of value creation justifies the acquisition of or merger with another business firm. Nevertheless, Carey (2001) added that mergers and acquisitions, when effectively made, have the ability to support competition and consumer empowerment by enabling firms to develop efficiency that in turn leads to cost-effectiveness and responsiveness to market measured through sales and profit while at the same time ensuring quality or high value products and services for consumers. A deeper understanding of the causes and consequences of mergers and acquisitions is important to clarify the role of mergers and acquisitions in addressing contemporary strategic and operational issues.
2. Review of Relevant Literature
Existing literature provides a recognised conceptualisation and definition of mergers and acquisitions to provide a uniform understanding of these business strategy concepts. This also led to the focus of studies on the various areas of research on mergers and acquisitions. Hitt, Ireland and Harrison (2001) conceptualised mergers and acquisitions as the term conveying the strategic intention of creating stakeholder value that exceeds the value generated by two firms operating individually. This means that it is not enough to create value since the value created should exceed the value created by the business firms operating individually. As Sudarsanam (1995) pointed out, the rationale for mergers and acquisitions is that two firms creating greater value by working together than operating individually.
Apart from clarifying mergers and acquisitions as business concepts, relevant resources also explained mergers and acquisitions as processes constituting the two methods in implementing diversification strategies, intended to enhance efficiency of operations and competitiveness. Carey (2001) explained that mergers and acquisitions could constitute horizontal amalgamation of two direct competitors to create a larger firm and enhance overall competitiveness. The combination could also be concentric when done by two firms offering similar goods and using similar marketing practices to a similar customer base using the similar distribution channels. Another combination could also be vertical with a business firm combining with its supplier and/or distributor. These different modes of business amalgamation coincide with different objectives and outcomes. Gaughan (2002) adds conglomeration as also another form of merger and acquisition with the merging of two firms offering different products and services to tap into a wider market segment. The best mode of amalgamation for the firm is that which aligns objectives with intended outcomes.
The causes of mergers and acquisitions are diverse. Initially, studies dealt with value creation as the motivation for mergers and acquisitions because of the need to find an encompassing justification for these business strategies and determine a place for these strategies in long-term planning. Sudarsanam (1995) explained that mergers and acquisitions are pursued because of enhanced value creation from synergy, which results to efficiency and effectiveness of the combined firms. However, there are differences in perspective on the extent of value creation. On one hand, Weston et al. (2004) agreed with Sudarsanam (1995) that that mergers and acquisitions provide synergistic value creation expressed through the benefits to the business and consumers. On the other hand, Jensen (1986) contend that mergers and acquisitions give rise to agency problems leading to lower optimisation of results so that overall effect may not be as optimistic. The difference in perception leads to the need to clarify the extent of value creation of mergers and acquisitions to recognise the need to address issues in mergers and acquisitions to achieve the intended level of value creation.
Studies on the drivers of cross border mergers and acquisitions proliferated in the 1990s as many economies participated in the liberalisation of markets leading to greater opportunities for expansion into other markets, especially with the impending saturation of domestic markets. This accorded greater importance to mergers and acquisitions as the means of successfully entering the international market. These drivers comprise the causes of cross border mergers and acquisitions that experienced importance as globalisation created incentives for business firms to expand to the international market. Barba-Navaretti and Venables (2004) added internationalisation as a cause of mergers and acquisitions. Cross border mergers and acquisitions serve as the means of entry to new markets. Ahammad and Glaister (2008) further discussed internationalisation in terms of the drivers for cross border mergers and acquisitions. Technological change is one driver of cross border mergers and acquisitions with the expectation of technology transfers from one firm to another or integration of technological capabilities as consequence of the amalgamation. Kang and Johansson (2000) further explained that technological change could also create new markets for the firm. However, the benefits of technological change to the business firms have to be mutual with the benefit to one, especially the source of technology, not necessarily technological. Ahammad and Glaister (2008) added political environment as another driver of cross border mergers and acquisitions since the political situation creates favourable conditions for the amalgamation of firms. Child et al. (2001) specified the adoption of liberalisation policies by states as the political factor that opened many markets to international business expansion. Kang and Johansson (2000) also further explained the drivers of cross border mergers and acquisitions in terms of macro drivers, especially economic growth as an incentive for business firms to combine with other firms operating in international markets. Childs et al. (2001) discussed micro drivers as the market factors that draw business firms to engage in cross border mergers and acquisitions such as widespread common demand among consumers or the emergence of the global market. Moreover, Kang and Johansson (2000) also considered the drivers of cross border mergers and acquisitions in terms of industry and firm level drivers distinguished by the scope of the intended benefit and the parties involved. Industry drivers include competitive benefits through mergers and acquisitions within a sector or industry while firm level drivers refer to the benefits derived from sharing exclusive resources or competencies falling under the collective term intangible assets according to Morck and Yeung (1999) that are of value to other firms. Although literature classifies the different kinds of drivers according to scope and parties, these drivers can co-occur as the aggregate cause of the engagement of business firms in mergers and acquisitions. Understanding the role of mergers and acquisitions in business internationalisation is through the drivers propelling business firms to operate globally. These drivers especially technological incentives, remain an important motivation for business firms considering the fast pace of innovations in technological competencies and skills especially in information technology and e-business.
Mergers and acquisitions lead to diverse consequences. Studies on the consequences or outcomes of mergers and acquisitions focus on various advantages and disadvantages to imply that while mergers and acquisitions can benefit the firm, there are also issues requiring resolution to experience the benefits.
The benefits of mergers and acquisitions are based on various perspectives. Hagedoorn and Duysters (2002) propounded the resource-based perspective and explained that the benefits of mergers and acquisitions encompass tangible resources and non-tangible resources such as knowledge and skills from larger more experienced and high capital business firms to less experienced smaller business firms encompassing not only physical resources such as machinery or money but also intangible resources such as knowledge, experience and skills. Hagedoorn and Dusyters (2002) also explained another resource-based benefit of mergers and acquisition as enhanced efficiency in various areas. Walter and Barney (1990) discussed another benefit of mergers and acquisitions as efficiency in logistics and supply chain management. This has links to vertical mergers and acquisitions that involve the amalgamation of a firm with suppliers and/or distribution channels. The closer relationship facilitates enhanced efficiency. Sudarsanam (1995) added that efficiency in marketing practices also constitute another benefit of mergers and acquisitions due to enhanced tools and wider venues in marketing products as well as the possible pooling of the markets of the amalgamated firms. Larsson (1999) discussed efficiency in human resource management as a benefit of mergers and acquisitions when improvements in human resource policies and practice emerge as a condition of the amalgamation or via joint efforts to enhanced human resource management. Carey (2001) and Gaughan (2002) expounded on the value-based perspective and explained that effectiveness in enhancing greater value to consumers via better products, services and processes is also a benefit of mergers and acquisitions as it is also cause of mergers and acquisitions. Vanconcellos and Kish (1998) explored another perspective and discussed cross-border expansion of international firms as another benefit of mergers and acquisitions as it is also a cause.
There are inter-linkages among the causes and benefits of mergers and acquisitions as there are also links among the benefits. This means that understanding the causes and consequences of mergers and acquisitions involve not the consideration of various motivations and intended outcomes as a justification of engaging in these strategies.
However, mergers and acquisitions also involve operational and strategic issues, comprising the disadvantages of these strategies. Schuler and Jackson (2001) explained that a merger or acquisition could receive friendly or hostile recognition from stakeholders. Friendly amalgamation results from the common recognition of the mutual benefit for both firms while hostile takeovers involve resistance from one firm. Cartwright and Schoenberg (2006) explained risk involved in mergers and acquisitions as another issue. Galpin and Herndon (2000) and Bryson (2003) explained the source of these issues and risks as problems in human resource management and cultural barriers. Eckbo (1996), Banerjee and Eckard (1998) and Fridolfsson and Stennek (2005) also discussed an issue in mergers and acquisitions as the failure to actualise the benefits of mergers and acquisition due to stagnating effects from lack of control of the amalgamation process. These issues and problems imply that not all attempts succeed or become effective because if factors such as the firms paying too much, selection of the wrong partners, clashes in corporate cultures, inaccurate assumptions of outcomes and stakeholder response, and inability to take control. When these issues arise and become too much for the merged business firm, then this could overshadow the benefits.
3. Research Question
The research seeks to answer the question on the causes and consequences of mergers and acquisitions in the contemporary business environment. Answers to this question would clarify what constitutes mergers and acquisitions, why business firms engage in these strategies and what are the consequences of using these strategies.
4. Methodology
4.1 Research Approach & Perspective
The approach of the research process is positivism because the intention of the study is to derive explanatory knowledge of a phenomenon through an analytical process. The mode of inquiry also assumes an objective reality. (Saunders, Lewis & Thornhill 2003) This fit the aim of study of investigation the causes and consequences of mergers and acquisitions as an objective reality. The perspective of the study follows an inductive to deductive perspective. The deductive perspective occurs in the early part of the study by considering general principles or theories to derive a framework and implications for the primary data collection. The inductive perspective emerges in the latter part of the study as conclusions and generalisation are derived from the results of the survey.
4.2 Types of Data to be used
The types of data to be used in the study include both and combine quantitative and qualitative data. Qualitative data refers to written or verbal accounts and descriptions of a phenomena or situation (Gill & Johnson 1997; Creswell 2003). Qualitative data supports investigations that deal with all the types of questions including the how and why. This type of data supports the objectives of the study to derive an in-depth understanding of the causes and consequences of mergers and acquisitions. Quantitative data refers to the information subject to quantification or measurement (Kervin 1992; Gill & Johnson 1997) to answer what, who, when , where and how much but limited in providing answers to how and why. In addition, the research would also involve statistical data in determining connections of variables in the study as well as comparing the answers of respondents.
4.3 Data Requirements
To seek answers to the research question on the causes and consequences of mergers and acquisitions, secondary and primary data would be collected. Secondary data have been used for the purpose in which it was collected and presented in books, journal studies, articles, papers and commentaries. Secondary data provides the framework for the study by pointing to business issues that require investigation and concepts or theories to start-off empirical studies. Primary data comes from data collection methods conducted for the original purpose of the study. This type of data gives direct answers to the research question. Considering secondary and primary data together would yield conclusions on the issue studied and support generalisations on the implications for business firms and practice.
4.4 Research Methods
There are two data collection methods in the study. One is secondary research or desk research to support the derivation of secondary data and the other is survey guided by a semi-structured questionnaire to derive primary data.
Desk research is a method of collecting data that relies on secondary sources to answer the research questions and achieve the research objectives. This is done by consulting a wide range of studies already done on the subject being studied and analysing as well as integrating data collected to achieve the purpose of the study. This applies in investigations involving a well-researched area of study but is limited in studies involving new phenomena or research gaps. (Saunders et al. 2003) The study utilises secondary research in collecting background information to provide a framework for the study.
Survey, which is commonly used in business research, enables the researcher to gather large volumes of information from many sources or resource persons. The survey method constitutes a descriptive, non-experimental investigative method used in gathering data about a certain phenomenon. This research method applies in investigations interested in determining or assessing the nature and degree of influence that one variable has over the other research variables. (Saunders, Lewis & Thornhill 2003) Surveys support the collection of information on what, who, where, when and how many but has a weakness on how and why questions or questions of a qualitative character (de Leeuw, Hox & Dillman 2008). Since the study seeks to also focus on the how and why questions on mergers and acquisition and the reasons for these actions, the investigation adopts qualitative survey method, which emerged as a research method in development projects. This method extends the scope of the survey method to allow in-depth qualitative questions during the data collection process. (Chambers 2003; Pretty et al. 1995) By using the qualitative survey method, the researcher is able to collect comprehensive data of a certain degree of depth necessary to draw answers to the how and why questions required by the investigation.
4.5 Rationale for Using Questionnaire
Semi-structured survey questionnaire is the method to support the derivation of primary data. This method involves the interaction between the research and the respondent in answering questions with choice answers and questions without answers to choose from. This method offers the benefit of allowing comprehensive data collection to derive an understanding and knowledge of the phenomenon studied. Moreover, this method also involves a significant degree of structure to ensure a survey directed at the research question and objectives but allowing enough room for the researcher to follow-up on answers and respondents to explain their answers. (Saunders et al. 2003) Although applying this takes more time than a plain survey and limits the depth of data when compared to in-depth interviews, this allows the researcher to derive enough depth of information to answer the research question.
The questionnaire below (See Appendix) is divided into four sections. The first section covers the preliminary information on the respondents. The second and third sections cover the benefits and consequences of mergers and acquisitions with the answers determining the causes and consequences of mergers and acquisition experienced by business firms as well as the extent of importance accorded to these causes and consequences. The last section covers issues and problems and future direction of the firm in terms of mergers and acquisitions. The first and fourth sections comprise open-ended questions while the second and third sections contain Likert-type closed questions.
4.6 Sampling Method & Respondents
The sampling method for the primary data collection is purposive sampling, which involves the researcher exercising personal judgment in selecting the participants of the qualitative survey to choose only those perceived to be the best source of information because of their position or direct experience of the subject of the study. This type of sampling method applies when there is only a small sample and there is necessity to select only the informative respondents. The selection of the respondents uses criteria. (Saunders et al. 2003) This method applies in the current research by selecting respondents based on the following criteria: 1) being part of a business firm that is or has been involved in mergers and acquisitions 2) holding a position that allowed access to information on the mergers and acquisitions engaged in by the firm.
The sample size depends on the result of a preliminary survey of companies involved in mergers and acquisitions in the contemporary contexts. As much as possible, different contexts should be included by industry and type of merger or acquisition. The number of companies selected then determines the number of survey respondents and the identification of the actual respondents.
The response rate should be 100 percent because of the prior coordination of the survey to draw the willingness of the respondents to participate in the study as well as the scheduling of the actual survey sessions based on their schedule. In addition, all the respondents selected through purposive sampling have the credibility and access to information to answer all the questions. Moreover, the surveys are personally made ensuring that all questions are answered satisfactorily.
4.7 Methods of Data Analysis
Results of the secondary research and the qualitative survey would be presented and analysed together. Answers to the closed questions would be ranked from 1 to 5 with 1 representing Strongly Disagree and 5 representing Strongly Agree. The higher the total value, the more that the firm not only encountered but also accorded importance to these causes and consequences. To support the results, the answers to the open-ended questions would be transcribed and classified into themes based on the context of the firm before being compared to determine similarities and differences in the issues or problems experiences with mergers and acquisitions and the future direction of the company in relation to these strategies. These would then serve as support for conclusions on the research question, generalisations for mergers and acquisitions as a strategy, and recommendations for future research.
4.8 Organisation of Results
Organisation of the study is through sections and sub-sections reflecting the inductive to deductive flow of the study. Outcomes of the primary data collection will be presented in tables, graphs and charts to facilitate clarity and readability.
4.9 Ethical Issues to be observed
Ethical issues arise in most studies (Saunders et al. 2003). Ethical issues in the research arise in the primary data collection process, particularly the confidentiality of information and the privacy or secrecy of data and respondents. To ensure confidentiality and draw the willing participation of the respondents, informing respondents of the purpose of the study and the extent of participation required from them together with assurances that data would be treated with confidence is one necessary move. Seeking permission from the respondents to use the data collected and possibly cite them as the authority or source is another move. Coordinating with the companies and the respondents for the schedule of the survey and providing them with a copy of the questionnaire beforehand also supports the willingness of respondents to participate in representing the perspective and experiences of the firm with mergers and acquisitions.
4.10 Limitations of your Research
The research is limited only to the number of companies that the period of research would allow so that a continuation of the study may be necessary. Nevertheless, qualitative survey enables the collection of a wide-range of information to support and understanding of contemporary mergers and acquisitions. Another concurrent limitation of the research is tight budget, limited time, and lack of other people to help in the data collection process. However, by working within a schedule and research plan, the research process can succeed.
5. Conclusion
Research is a complex process that requires rational justification and planning by identifying research approaches and methods, preparing the data collection instrument, and identifying the data analysis methods. These constitute necessary preparations for the actual research process. Planning involves the consideration of a number of factors. One is the purpose and rationale of the study, which is the clarification and investigation of the causes and benefits of mergers and acquisitions in the contemporary competitive environment. Another consideration is the framework of the study provided by a review of related literature. Still another consideration is the research approach and methods that have been covered in detail. As such, these support the viability of commencing or continuing the investigative process.
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Appendix
Survey Questionnaire
Questionnaire
I. Preliminary Information
Name:
Position in the Company:
Years of Employment:
Instructions: Please place a check mark on your answer based on the experiences of the company with mergers and acquisitions.
II. Benefit of Mergers and Acquisitions
Strongly Disagree
Disagree
Neutral
Agree
Strongly Agree
1. Mergers and acquisitions create value for the stakeholders of the firms involved.
2. Mergers and acquisitions result in the sharing and transfer of physical or tangible resources.
3. Mergers and acquisitions result in the sharing and transfer of intangible resources
4. Mergers and acquisitions enhance efficiency of operations (i.e. production, revenue, profitability).
5. Mergers and acquisitions improve the effectiveness of human resource management practices.
6. Mergers and acquisitions improve the effectiveness of logistics and supply chain management.
7. Mergers and acquisitions improve the effectiveness of marketing practices.
8. Mergers and acquisitions improve products, services and processes.
9. Mergers and acquisitions improve customer relations and customer satisfaction.
10. Mergers and acquisitions support international expansion.
III. Causes of Mergers and Acquisitions
Strongly Disagree
Disagree
Neutral
Agree
Strongly Agree
1. Value creation motivates the mergers and acquisition.
2. Value enhancement motivates the mergers and acquisitions
3. Industry competitive pressures motivates mergers and acquisitions
4. Market demand drives mergers and acquisitions
5. Efficiency problems drives mergers and acquisitions
6. Supply chain linkage problems motivates mergers and acquisitions
7. Cross border expansion motivates mergers and acquisitions
8. Economic growth motivates the mergers and acquisitions
9. Political environment motivate the mergers and acquisitions
10. Technology drives mergers and acquisitions
Instructions: Please provide your answers to the following questions.
IV. Issues in Mergers and Acquisitions
1. How has the company fared in its mergers and acquisitions? Please explain.
2. What problems have the company faced in mergers and acquisitions and what solutions were implemented? Please explain.
3. What position is the company taking in terms of future mergers and acquisitions? Please explain.
Thank you for your time and cooperation!
