Last Updated 05 Jul 2021

Shareholder Value Creation And Importance Of Organization Fit

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The business environment in present times has become extremely competitive as well as complex in the last 20 years. The reasons for this are both due to rapid development in technology as well as the increase focus on globalization. Businesses have to find ways to survive in the business and also grow in terms of size as well as profit. One of the main methods that many of the companies worldwide have employed to increase their global reach as well as to increase their market share is through mergers and acquisitions M&As, both in the domestic as well as the international market.

In fact in a publication by the Bureau of Census on mergers and acquisitions of about 41 industries for the year 1998, the number of cases of US companies acquiring other US companies were 3882. The same publication also indicated that there were another 483 cases where foreign companies acquired US companies involving transactions amounting to US $ 233 billion, and 746 cases where US companies acquired foreign companies involving transactions amounting to US $128 billion (Chin, Brown and Hu, 2007:50-51).

However, despite the fact the mergers and acquisitions have a significant role in the present day business world, there are a large number of failed M&As that demonstrate that such transactions are not an easy alternative. In fact 50-70% of mergers and acquisitions either perform poorly or fail outright. Hence, such transactions must be approached with considerable caution, expertise and due diligence (Vaughn, 2008:36).

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In addition to the obvious due diligence of the organizations’ compatibility, the actual worth and other strategic decisions based on products and market requirements, the success of any organizational merger depends on the organization fit, most of which is commonly influenced by cultural compatibility. The concept of cultural compatibility includes concepts such as general procedures and practices followed in the companies, their organizational culture, and people (Cartwright and Cooper, 1995:32).

This paper aims to analyze various successful and unsuccessful mergers and acquisitions based on all the above factors to come up with which factors are critical to the success of M&As in general and hence be in a position to provide recommendations about appropriate strategies that an organization can employ while considering mergers and acquisitions.

Aims and objectives of research

Because of the importance of mergers in business, there have been many researchers conducted in this field.

Though the methodology of research, fields of operations of the researched companies, motivations behind M&A etc. differ in each study and hence the conclusions, most researchers agree that that M&As are just as likely to destroy value for shareholders just as likely they are to create it. Most of the organizations underestimate the importance of M&A which accounts for the large failure rate of the activity. While many such organizations do not manage to achieve their objectives of either market share or revenue enhancements or cost saving, many also fail for reasons way beyond such basic business issues.

In fact the failure rates of M&A are as high as between 65 and 80% depending on the different agencies conducting the studies and their corresponding criteria for failure. Regardless of these distressing figures, however, the number of mergers and acquisitions are on an all time high, with every company trying to at least give a serious thought to the possibility. The only conclusion that can be drawn from this curious trend is that M&As have become a necessary strategic option for the business world, regardless of the risky proposition they provide, one which the industry players cannot afford to overlook.

This has necessitated a thorough study into various mergers and acquisitions, so that the reasons for their success and failure are analyzed in order to come up with a general set of guidelines, which is the aim of the present study. The specific objectives of the dissertation are as below:

  • To gain an understanding of the success or non-success of Mergers and Acquisitions in terms of value creation for the company and the shareholders.
  • To provide an understanding of the importance of a balance between ‘strategic’ and ‘organizational’ fit in Mergers and Acquisitions.
  • To provide a focus on the critical success factors that makes Mergers and Acquisitions viable in the context of value creation for the shareholders.
  • To provide recommendations as to the appropriate strategies that an organization should employ when considering Mergers and Acquisitions.

 Overview of the dissertation

The dissertation is divided into chapters starting with the literature review where the basics of mergers and acquisitions, advantages & disadvantages and previously conducted researched would be discussed, that provide a foundation for the dissertation.

The next chapter describes the methodology of the research in detail and the methods used for analyzing the observations. Since the data used is secondary data, the researches analyzed have already been conducted. Hence, the chapter also includes the description of each case study and the reason why it was chosen to be included. This chapter will be followed by the finding of the present research, where the results of the analysis will be described.

This chapter also presents the results of the original result, and will compare the present deductions with the original ones. This chapter will be followed by the conclusions and recommendations chapter, where a summary of the research would be presented, along with the set of guidelines for the companies to follow while conducting a merger or acquisition. The dissertation will end with a reflection chapter, where the experiences of the researcher are given along with the specific learning objectives that have been accomplished.

Literature review

Overview of chapter

This chapter presents the theoretical aspects of mergers and acquisitions. It is necessary to understand the concepts of mergers and acquisitions in depth before making a comparative analysis of different M&As in detail, as is the aim of this dissertations. The chapter starts with the basics of mergers and acquisitions, its various aspects, and the different types of mergers and acquisitions. After this the chapter explains the potential advantages and disadvantages of mergers and acquisitions.

In order to ensure that the analysis of mergers and acquisitions to be done in this dissertation is complete and correct, it is also necessary to understand how other researchers have approached the problem. With this aim in mind, the next part of this chapter analyses the different researchers already conducted on mergers and acquisitions. This part of the chapter takes data from various books and journals on the topic, as well as looks into the KPMG research and corresponding finding. At the end of the chapter, a clear idea will emerge as to how the researcher expects to approach the research, and the various issues to be taken care of.

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