About the author
Mariia Opritova is the Product Owner at Yandex, leading the product team and managing several key areas within advertising, including Yandex Direct, Russia’s largest advertising platform.
Introduction
M&A transactions are an important part of business development, especially during periods of economic growth, both internal and external. If a company is an active market participant, it is critical to understand what consolidation opportunities exist and what problems can be solved through M&A transactions.
M&A, or Mergers & Acquisitions, includes two major types of transactions: buying/acquiring a business or a portion of it, and merging several companies. Naturally, the merging process is much more complex, as it involves not only the acquired benefits but also new challenges such as redistribution and coordination of areas of responsibility, changes to corporate culture, and the integration of new employees.
So, an acquisition is a transaction in which one company takes control of another by purchasing more than 30% of its charter capital. An acquisition can be friendly, with the acquired company’s consent, or hostile, without it.
A merger occurs when two or more companies purposefully join forces. Their goal is mutual benefit: business and capital growth. As a result of the merger, a new company is formed, inheriting all of the joint assets.
M&A Strategies
A company chooses a suitable strategy based on its objectives and market situation and then uses it to guide its action plan. M&A integrations can be horizontal, vertical, or conglomerate, with financial acquisitions occasionally distinguished.
Strategy
Goal
Example
Horizontal deals, which occur when competitors with the same type of activity merge.
Increased market share, reduced production resource requirements, and decreased competition.
Merger of Fiat and Chrysler.
Vertical deals, which are made between organizations with different types of activities that are not direct competitors but operate in the same industry. Most often, these are transactions between a supplier and a buyer. For example, one company produces raw materials or equipment, and the other – products.
More control over production, lower costs, and increased efficiency.
Apple’s acquisition of Intel’s semiconductor manufacturer.
Conglomerate deals, which unite companies from different industries, whose products are not related.
Diversification of business to reduce risks and dependence on specific markets.
An example is the activity of Berkshire Hathaway, which combines many companies in very different industries, from insurance to manufacturing.
M&A Transaction Stages
The merging and acquisition process begins with a detailed self-analysis of the company and research of the industry it belongs to and ends with carefully planned integration. Typically, companies aim to complete the merger as quickly as possible to start recovering the acquisition premium paid. One of the most universal models for transactions is the Watson Wyatt Deal Flow model.
Based on this simple initial model, a modified unique plan can be developed for each specific case.
Note that although the formal Watson Wyatt model has five stages and they are presented sequentially, in practice these steps are often carried out in parallel, timely providing the necessary information base for making informed decisions in the M&A transaction process.
Integration
Post-merger integration management requires special care. It must complete several critical tasks to ensure successful integration.
To begin, it is critical to overcome external pressures imposed by company management. This requires substantiating the transaction and presenting it to key clients while maintaining contact with all stakeholders.
Second, a new business model must be established. It begins with determining a unified development strategy and creating an operational model. Then, set goals, create a reporting structure, and implement a new motivation system.
Additionally, the merger process often comes with great uncertainty, leading to conflicts and tension within the new team. To overcome these challenges, it’s essential to determine the leadership composition of the newly formed company as soon as possible and begin establishing contact with all employee groups.
The success of integration depends on how quickly all these actions are performed. Since integration affects financial, human, and intangible resources (such as business reputation, brand, and corporate culture), it’s necessary to be prepared for a challenging process that requires thorough preparation and significant effort. This work must be completed within a very short time frame and with a high level of uncertainty.
Many companies engage integration planning experts to accompany the entire process and help navigate it smoothly. Consultants with successful experience in similar integration projects can also be involved.
Corporate Adaptation
Next, we’ll look at perhaps the main issue arising in the post-merger period – the problem of integrating corporate cultures.
When several companies merge, one corporate culture may clash with another, inevitably leading to conflicts. The reasons for differences in corporate cultures can vary. Mergers with foreign companies reveal national differences. Corporate cultures may also significantly diverge due to the organizational and functional characteristics of the original companies. It’s worth mentioning that sometimes there’s an element of competition and rivalry between teams.
Formal staff integration, corporate events, and team-building activities alone will not solve these problems. It is necessary to establish a new unified information space. During the merger process, it is critical to analyze existing corporate structures, identify their major differences, and devise strategies to smooth them out.
It’s also necessary to determine what we would like to preserve from each team, identify which of their features will benefit the new organization, and then create the foundation for a new corporate culture, in which a leader always plays a crucial role, as it is they who tune the team to the right wavelength.
Be prepared that in any company, there will always be employees who find change difficult, but there will also be those who will embrace the idea of unification and carry it forward, understanding that an M&A deal is always an opportunity for growth. These employees should be relied upon and supported. Seminars, corporate culture courses, and opportunities for learning and growth well support engagement and motivation.
Additionally, there is no reason to keep the entire company unchanged. It is critical to establish a small pool of employees who share the required attitudes and values. The remaining employees will either leave on their own or face dismissal. However, first and foremost, it is critical to identify who will form the core of the new team.
In conclusion, it should be emphasized that management should not only protect the interests of their former team, those who have come from the previous company. After the M&A transaction, it is critical to shift one’s perspective and recognize that there is no longer a division between “us” and “them,” but rather equal employees from whom a unified team must be formed.
| Strategy | Goal | Example |
| Horizontal deals, which occur when competitors with the same type of activity merge. | Increased market share, reduced production resource requirements, and decreased competition. | Merger of Fiat and Chrysler. |
| Vertical deals, which are made between organizations with different types of activities that are not direct competitors but operate in the same industry. Most often, these are transactions between a supplier and a buyer. For example, one company produces raw materials or equipment, and the other – products. | More control over production, lower costs, and increased efficiency. | Apple’s acquisition of Intel’s semiconductor manufacturer. |
| Conglomerate deals, which unite companies from different industries, whose products are not related. | Diversification of business to reduce risks and dependence on specific markets. | An example is the activity of Berkshire Hathaway, which combines many companies in very different industries, from insurance to manufacturing. |
