Company mergers can bolster an ailing company in dire need of a financial assistance. Acquisitions from other companies can augment another companies financial strength, market operations, assets, and target market opportunities. Mergers are necessary for a company’s progress and growth. It has a relative and adverse effect in both the company and its consumers as well. The company’s internal operations are affected as well. Ramifications which generate from mergers are either a good thing or a bad thing.
A myriad of advantages and disadvantages generate from company mergers, which affects the holistice operations of the company. The whole of the organization will always undergo a transition period whenever a merger emergers. The company’s business model and its leadership is always at hand in every merger (Schimdt, 2007).
Potential mergers and acquisitions are always assessed and ascertained through a thorough analysis of a company’s history of financial records. The idea of merger integration is what a company sees whenever its financial assets are experiencing major letdowns. Yet such requisites are ignored and not conveyed in a proper manner. Management strength, manpower, and technological framework are not properly addressed.
With this in mind, valuable and crucial assets are being ignored and are not realized by companies. Appropriate evaluation of financial data along with its potential is a crucial element in the concept of merger integration (Wortman, 2008).
The Importance of a Merger Integration
A probable and potential target company perceived as both an independent entity and as a portion of the merged company is crucial in merger integration. The fundamental concept of a target company as an independent entity is essential in determining the imminent cash flows of the company.
A plethora of methods is utilized in order to derive a feasible basis for cash flows. Yet the prelude entry part should be an initial cashflow forecast. Precise previous financial data is used in ascertaining the future value of the company. Dupont mode factors are considerered such as: Asset efficiency, operating margin, and revenue growth. Previous figures are assessed and applied in order to acquire the company’s free cash flow valuation in due time. Evolution of a target acquisition are assessed in two aspects. These are:
The probability of actually realizing those improvements and the incremental revenue, margin improvements, or asset efficiencies in the target and/or the acquirer. Doing the computations is deemed a simple part. The more complex part of merger evaluation emerges whenever it ascertains the potential forecast for margin growth, revenue increases, and assest capabilities. It essential for a company’s head to understand previous financial performance and a proper comprehension of its industry in order to perform well in succeeding transactions (Wortman, 2008).
Below are important non-financial dimensions which can influence a company’s ability to stabilize and retain its performance in future operations:
· Program delivery – How well does the company optimize and manage its change portfolio? Is there a track record of execution and accountability? (Wortman, 2008).
· Business performance management – How effective is the company at executing core performance management processes? (Wortman, 2008).
· Collaboration – How effective is the company at managing its relationships with key stakeholders, such as customers, suppliers and regulators? (Wortman, 2008).
· Governance – How effective are the company’s top-level decision-making processes? How effective are the controls over the information used to make decisions, and is this information provided to key decision-makers on a timely basis? (Wortman, 2008).
· Operational excellence – How effective is the company at executing core business processes and major changes that occur in the company over time? (Wortman, 2008).
· Talent management – Does the company have key employees that are critical for future results? What steps are taken to help manage and protect these human capital assets? (Wortman, 2008).
· Risk management – How effective is the company at identifying potential risks to achieving future performance? How well are these risks managed through contingency plans? (Wortman, 2008).
· Agility and flexibility – Can the company respond to key changes in the business environment, changes to input prices and technological advancements? (Wortman, 2008).
· Strategic assets – Which strategic assets does the company have, including brand and patents? How well are these intangibles managed and protected?
Microsoft has recently proposed a takeover bid for Yahoo. This proposal emerged due to the notion that neither company can single-handedly overcome the internet search engine behemoth Google. Microsoft announced that it will pay $44.6 billion ($31 per share) for Yahoo. This offer represents a premium of 62% compared to Yahoo’s closing share price in January 31.
The merger would combine the world’s biggest software manufacturer with the owner of the most widely-used internet portal. This will result to a toe-to-toe market share battle with Google in a market for online advertising. The online advertising market is anticipating a $80 billion in revenues by 2010 (Holahan, 2008).
According to Microsoft, it sees the deal as giving it the engineering power to fuel innovations on the web. Both Microsoft and Yahoo have been criticized as innovation-stagnant compared to Google, which continually releases new products, and boasts of giving technical employees one day a week to work on new ideas. This suggests that the Microsoft-Yahoo merger will have an abrupt and favorable impact for both companies.This statement suggests the merger only weeks-old and internet pundits are still skeptic on how this merger will have an impact in the internet market.
Microsoft expects to see earnings per share of break-even or better by the second half of 2008. The anticipation of increased revenues remains to be seen. The merger will also urge Google to devise a counter action plan which will bring the merger’s possible liabilities (Holahan, 2008)
The Advantages and Disadvantages of Merger Integration
In a recent survey conducted by The Society for Human Resources Management, a merger actually benefits from the acquisition of its human resources personnel as well. HR people can ascertain the company’s circulation and its crucial role it plays for the company’s future. The survey suggests that human resources professionals can have a positive effect that can influence company decisions, which will determin the imminent succes and failure that both companies will generate upon merging both their culture and resources (Schimdt, 2007) Below are some factors that contribute to some merger failures:
· clash of management styles/egos
· inability to manage/implement change and
· objectives/synergies not well understood
· incompatible cultures
· loss of key talent
· the inability to sustain financial performance
· loss of productivity
Companies resort to mergers for numerous reasons. An increasing market share is one of the most common reason why some companies propose mergers in order to augment their company’s market value. Acquisitions are made to boost and strengthen a company’s market share. It is crucial for the human resources of each company to create strategies, which will make employees an integral part of any merger. Such objective is to be augmented by its managers and the top management as well.
Company executives are also at the helm of mergers, yet HR experts are their honor guards in this situations. The repercussions and effects of mergers is an important angle in moderating the proper transition of the entirety of an organization (Schimdt, 2007).
Schmidt.(2007). Making Mergers Work: The Strategic Importance of People. Retrieved March 22, 2008, from http://www.dmcny.org/mc/page.do?sitePageId=26305
Wortman. (2008). The Non-Financial Importance of Mergers and Acquisitions. Retrieved March 22, 2008, from http://www.deloitte.com/dtt/article/
Holahan,C. (2008). Microsoft Swoops in on Yahoo. Retrieved March 22, 2008, from