Merger and Acquistition: A Strategic move towards Change and HR Challenges

Merger and Acquisition : A Strategic Move towards Change and HR Challenges 90
1. Research Scholar, University of Kota, Kota
2. Head, PG Department of Management, Government JDB Girls College, Kota
Merger and Acquisition : A Strategic Move towards
Change and HR Challenges
Shehla Sayeed1
Dr. Kapil Dev Sharma2
Abstract
In a dynamic economy, business structures and company structures are in a state of
constant flux. This leads to several forms of re-organisation. Thus, in the wake of economic
reforms, enhanced competition and globalisation of businesses; industries have started
restructuring and growing their operations around their core business activities either
by internal expansion or by external expansion. In the case of internal expansion,
a firm grows gradually over time in the normal course of the business, through acquisition
of new assets, replacement of the technologically obsolete equipments and the
establishment of new lines of products. But in external expansion, a firm acquires
a running business and grows overnight through corporate combinations. These
combinations are in the form of mergers, acquisitions, amalgamations and takeovers;
which have now become important features of corporate restructuring because of the
increasing exposure to competition both domestically and internationally. Although
successful organisations are often marked by a modest, continuous level of change,
the past few years have been marked by significant business and talent survival tactics
in response to challenging economic conditions. Moreover, the effects of these multiple
and ongoing changes produce complex and often ambivalent results. Employees are
the hardest hit by M&As and may take a long time to recover. Employees want to
see and hear from their senior leaders to help understand where the new organisation
is going, and how this change influences their jobs and the organisation as a whole.
Keywords: HR Challenges, Merger and Acquisition, Reorganisation.
Introduction
n their quest for efficiency and competitiveness, business and companies keep re-organising
themselves. Mergers and acquisitions have become an imperative part of the financial
world. Mergers and acquisitions (abbreviated M&A) is an aspect of corporate strategy,I

Merger and Acquisition : A Strategic Move towards Change and HR Challenges
Professional Panorama : An International Journal of Applied Management & Technology
91
corporate finance and management dealing with the buying, selling, dividing and combining
of different companies and similar entities that can help an enterprise grow rapidly in its
sector or location of origin, or a new field or new location. Mergers and acquisitions are
two different words but mostly use as synonyms for each other. The distinction between
a merger and and acquisition has become increasingly blurred in various respects (particularly
in terms of the ultimate economic outcome), although it has not completely disappeared
in all situations.
Glenlake and Fitzroy Dearborn have defined M&A as; ‘A merger can refer to any takeover
of one company by another, when the businesses of each company are brought together
as one’ and ‘An acquisition or takeover occurs when one company acquires from another
company either controlling interest in the company’s stock or a business operation and its
assets.’
Andrew J. Sherman and Milledge A. Hart described mergers and acquisitions in the following
way. ‘Merger is a combination of two or more companies in which assets and liabilities
of the selling firm(s) are absorbed by the buying firm. Although, the buying firm may be
a considerably different organization after the merger, it retains its original identity’. ‘Acquisition
is the purchase of an asset such as plant, a division, or even entire company’.
There are many types of mergers and acquisitions that redefine the business world with
new strategic alliances and improved corporate philosophies. From the business structure
perspective, some of the most common and significant types of mergers and acquisitions
are listed below:
l When merger is between two companies that are into the same products or services,
it is called a horizontal merger.
l In a vertical merger, the companies are in different points in the value chain. For
example, a supplier and customer.
l A conglomerate or diagonal merger is one where the merging companies are neither
into the same products or services, nor in the same business. It may be part of
the diversification strategy of the amalgamated company.
l Co-generic merger is a kind in which two or more companies in association are some
way or the other related to the production processes, business markets, or basic required
technologies. It includes the extension of the product line or acquiring components
that are all the way required in the daily operations.
l Normally, in a merger, a smaller or weaker company merges into a larger or healthier
company. When the reverse happens viz. a larger or healthier company merges into
a smaller or weaker company, it is called a reverse merger.
l De-merger / Hive-off / Spin off are the reverse of a merger. The company transfers
one or more businesses into a separate company. The company doing the transfer

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is called ‘demerged company’. The separate company into which the businesses are
transferred is called ‘resulting company’.
History of Merger and Acquisition in India
The concept of merger and acquisition in India was not popular until the year 1988. During
that period a very small percentage of businesses in the country used to come together,
mostly into a friendly acquisition with a negotiated deal. The key factor contributing to
fewer companies involved in the merger is the regulatory and prohibitory provisions of MRTP
Act, 1969. According to this Act, a company or a firm has to follow a pressurised and
burdensome procedure to get approval for merger and acquisitions.
The year 1988 witnessed one of the oldest business acquisitions or company mergers in
India. It is the well-known ineffective unfriendly takeover bid by Swaraj Paul to overpower
DCM Ltd. and Escorts Ltd. Further to that many other Non-Residents Indians had put
in their efforts to take control over various companies through their stock exchange portfolio.
The liberalisation programme started in 1991 has significantly contributed to the increase
in the mergers and acquisitions activity in India. Further, during the last three decades or
so, the global industrial landscape had been completely redrawn by the forces of globalisation,
deregulation and unprecedented technological developments which have put additional pressure
on the corporate enterprises to adopt merger and acquisition strategy for growth and expansion.
Volume is tremendously increasing with an estimated deal of worth more than $ 100 billions
in the year 2007. This is known to be two times more than that of 2006 and four times
more than that of the deal in 2006. Further to that, the percentage is continuously increasing
with high end success in business operations.
As for now the scenario has completely changed with increasing competition and globalisation
of business. It is believed that at present India has now emerged as one of the top countries
entering into merger and acquisitions.
Benefits of Re-organisation
Companies going for a merger or an acquisition can potentially gain in a number of ways
(Arora J and Abraham S., 2011):
l Economies of scale
l Diversification
l Managing family split
l Enhancing market position
l Enhancing resource mobilisation capability
l Access to newer markets / customers

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l Access to newer technology
l Access to a wider product range
l Weakening or eliminating a competitor
l Tax benefits
l Encashment of value of brands or other intangible assets
l Reviving a weak or sick company
Merger and Acquisitions have a significant impact on the industries in India and around
the world. In enhancing the growth and overcoming competition, mergers and acquisitions
have become a favoured strategy that is used by most firms to ensure rapid penetration
of new markets while lowering entry risks and costs. M&As are used by firms to strengthen
and maintain their position in the market place. The introduction of market-driven business
reforms in many developing economies have seen the emergence of growth-drivers that
includes the search for new markets, increasing competition in local markets, new investors’
interest in emerging markets, and hence the desire for firms to merge. When this happens,
there are likely changes in roles which may result in role ambiguity, increased workloads
and confusion in the newly formed organisation (Sanda M.A and Benin P.A., 2011). The
impact of the M&A processes on the employees is similar irrespective of the geography
and location of the merger activity. As a result, many employees may experience numerous
psychological effects of mergers and acquisitions. This often have negative impact on employee’s
behaviour resulting in absenteeism, low morale and job dissatisfaction (Islam S, Sengupta
P.P, Ghosh S, Saha M and Basu S.C., 2012).
M&As are increasingly seen by firms as a relatively fast and efficient way to expand into
new markets, to acquire new competences, to create economies of scale, to globalise, to
spread the risk or even to dominate existing markets (Bhatnagar A and Sinha N, 2012). Apart
from these benefits some potential drawbacks associated with M&As can be listed as:
l M&As involve important decisions regarding the displacement and re-engagement of
employees. Job re-assignments and negotiations impact substantially on the organisational
climate and subsequently on employees’ attitudes and behaviours.
l As a result of M&As, employees perceive their new job characteristics and job
environments to be worse than their previous jobs and feel uncertain and anxious
about their new tasks and responsibilities. Teams tend to breakdown and become
less effective.
l When employees develop negative perceptions about merger-induced organisational
changes, their job satisfaction and commitments are negatively affected and consequently
the productivity and organisational performance gets lowered.
l Employees that are affected by M&As are likely to undergo a period of instability

94
and uncertainty. Regular, accurate and open communication becomes an important
way to alleviate any work-related stress or anxiety (Gulati R and Teo D, 2008; &
Krug J.A and Hegarty W.H. 2001).
HR Challenges
Mergers are failing to meet their objectives. In the last decade, mergers and acquisitions
have become a worldwide growth story, despite the high risks attached, and the information
that over 85% of them have failed during the process of integration. It has been determined
that most cases of failures have been because of employees not being able to adjust to
the new environment, and/or many good employees leaving the organisations during the
process of the integration. Despite a well planned strategy acquisitions have found to be
a failure, and the main reason attributed for the failure is the challenges faced in managing
people related issues.
People are the key to making a merger work, and it is the people-related problems like,
culture clashes, management disputes, loss of talent and the inability to manage change,
which are the basic reasons why mergers fail. The top seven obstacles to achieving success
with a merger or acquisition are:
1. An inability to sustain financial performance
2. Loss of productivity
3. Incompatible cultures
4. Loss of key talent
5. A clash of management styles
6. An inability to manage / implement change
7. Objectives / synergies not being well understood
The success level is thus directly proportional to the effective handling of the integration
of human resources. The needs that clearly emerge are:-
l Strong need to manage the human assets to realise the full benefit of the merger.
l Need to communicate the vision and business plans as early as possible to the employees
of both the companies.
l Need to involve HR in due diligence stage - to understand the cultural factors that
could impact the work force integration, and also to estimate the costs of integration.
l Need to develop the new business goals and the organisation structure to meet them.
Further, it is essential to map the competencies of the people and integrating the
findings to the organisation structure.
l A dedicated team to handle mergers would be beneficial in the process of integration,

95
as they can be seen as neutral bias, and working with clear objectives of integration
for the new objectives.
l A process of communicating a clear message quickly, and then continuously stay in
contact, is essential.
l A point of contact must be established for employees to contact for clarifications,
and this person should have access to senior management to be able to respond to
the queries quickly.
l A high priority must be given on managing employees with unique skills, and the
ones who influence customers.
l Engage employees in productive work to manage their commitment levels.
Thus, awareness and taking action on these common mistakes will make merger and acquisition
is much more successful and show the rest of the business just how much of an impact
HR can really have.
Conclusion
Over the years it has become evident through compelling researches that an early involvement
of HR goes a long way in contributing to a subsequent beneficial merger or an
acquisition. Amongst multitude of challenges, people and cultural management can prove to
be a key concern.
These issues take on even greater importance given the role of total rewards and incentives
in helping attract and retain top talent in a tight economy. Today’s mergers involve much
more than just physical and financial assets. The essential difference between M&A activities
in the past 20 years and present is that companies today are highly focused on acquiring
human capital. The challenge, of course is to grow the organisation by motivating and retaining
the brightest employees amid an increasing worldwide talent shortage.
It is important to realise today that a merger or an acquisition is not simply a singular
event; rather it’s an unfolding process which may take a long period, requiring a delicate
balance between the need for a speedy resolution and thoughtful, deliberate action.
References
1. Arora J and Abraham S. (2011) A Study on the Effects of Merger and Acquisitions
in the Indian Banking Industry, International Journal of Research in Computer
Application & Management, Vol.1, Issue 7, pp. 88-96.
2. Bhatnagar A.B and Sinha N. (2012) Strategic Move of ICICI Bank: A Case Study
of Merger of ICICI Bank and Bank of Rajasthan, International Journal of
Multidisciplinary Research, Vol.2, Issue 5, pp.192-207.

96
3. Gulati R and Teo D. (2008), A Study of Employee Attitudes after Merger and Acquisitions:
An Asia Pacific Perspective, Horizons- New perspective on M&A success, Issue
3, pp. 82-93.
4. Islam S, Sengupta P.P, Ghosh S, Saha M and Basu S.C. (2012), The Behavioural
Aspect of Mergers and Acquisitions: A Case Study from India, Global Journal of
Business Research, Vol.6, No.3, pp. 103-112.
5. Krug J.A and Hegarty W.H. (2001), Predicting Who Stays and Leaves After An
Acquisition: A Study of Top Managers in Multinational Firms, Strategic Management
Journal, Vol.22, No.2, pp. 185-196.
6. Mylonakis J. (2006), The Impact of Banks Mergers & Acquisitions on their Staff
Employment & Effectiveness, International Research Journal of Finance and
Economics, Issue 3, pp. 121-137.
7. Sanda M.A and Benin P.A. (2011), How is the Firm Dealing with the Merger? A
Study of Employee Satisfaction with the Change Process, Journal of Management
and Strategy, Vol.2, No.2, pp. 28-37.
Websites
1. http://business.gov.in/growing_business/mergers_acq.php
2. http://shodhganga.inflibnet.ac.in/bitstream/10603/1949/5/05_chapter%202.pdf
3. http://www.ukessays.com/
4. http://www.investopedia.com/university/mergers/mergers1.asp
5. http://www.mergersandacquisitions.in/history-of-merger-and-acquisition-in-india.htm
6. http://www.businessgyan.com/node/5787,(HR Challenges in Mergers and Acquisitions
Sanjay Dugar, Posted 05 Jun 2009)
Other websites refer
1. www.citehr.com
2. http://www.iiste.org/Journals/index.php/EJBM/

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