Mergers & Acquisitions are part of strategic management of any business. It involves consolidation of two businesses for increasing market share, competitive advantage, and profits and to an aim to become leader in the industry. Mergers and Acquisitions are complex processes which require preparing, analysis and deliberation.

It’s been observed that the mismatch of work culture leads to dissuade working environment, which in turn ensure the downturn of the organization. Flawed intentions often become the main reason behind the failure of mergers and acquisitions. Companies often go for mergers and acquisitions getting influenced by the booming stock market.

A merger is a corporate strategy of combining different companies into a single company in order to enhance the financial and operational strengths of both organizations; merger creates a new brand. In case of an acquisition, it occurs when one company buys most or all of another company’s shares. If a firm buys more than 50% of a target company’s shares, then it effectively gains control of that company. An acquisition refers to the takeover of one entity by another. It has been observed that an acquisition is often friendly and a takeover can be hostile. A takeover is a particular form of acquisition that occurs when a company takes control of another company without the acquired firm’s agreement.

There are different types of mergers:

 A Horizontal merger happens when two companies exist in the same industry come together to increase their reach. Typically, this type of merger is done between direct competitors. The goal of a horizontal merger is to create a new, larger organization with more market share. Because the merging companies’ business operations may be very similar, there may be opportunities to join certain operations, such as manufacturing, and reduce costs. The best way to think about horizontal mergers is to look at how start-up companies get acquired by larger companies either to absorb their technology, which are used by the larger company to fill a gap they have or because they are posing a threat and have somehow captured part of the market that the bigger company has been trying to figure out.

Times Bank merged with HDFC Bank, Bank of Madura with ICICI Bank, Nedungadi Bank with Punjab National Bank etc. in consumer electronics, acquisition of Electrolux’s Indian operations by Videocon International Ltd.

When a merger between firms that are involved in totally unrelated business activities happens it’s called Conglomerate merger. . There are two types of conglomerate mergers: pure and mixed. Pure conglomerate mergers involve firms with nothing in common, while mixed conglomerate mergers involve firms that are looking for product extensions or market extensions.

An example of conglomerate merger is L&T and Voltas’ ship building arm’s merger. Larsen & Turbo (L&T) is India’s largest engineering company with expertise in wide area like infrastructure, oil and gas, power and process. And Voltas a Tata group company, is a major player in the electro-mechanical Engineering.

A Product extension merger takes place between two business organizations that deal in products that are related to each other and operate in the same market. The product extension merger allows the merging companies to group together their products and get access to a bigger market segment. This ensures that they earn higher profits.

Broadcom Inc. is an American designer, developer, manufacturer and global supplier of a broad range of semiconductor and infrastructure software products, it acquired Mobilink Telecom Inc. is an example of a products extension merger. Mobillink manufactures product designs meant for handsets that are equipped with Global System for Mobil Communications technology. Mobilink’s products complement Broadcom’s products.

A merger between two companies producing different goods or services for one specific finished product. A Vertical merger occurs when two or more firms, operating at different levels within an industry’s supply chain, merge operations. Most often the logic behind the merger is to increase synergies created by merging firms that would be more efficient operating as one.

Trilix Srl is a design and engineering company and design and engineering services in the automotive sector, specifically styling, architecture, packaging, surfacing, macro and micro feasibility, and detailed engineering development. The company is based in Grugliasco, Italy. With a turnover of €4 million and net profit of €2, 50,000, the company offers design and engineering services in the automotive sector. As of September 2010, Trilix Srl has been operating as a subsidiary of Tata Motors Ltd. } Tata Motors Ltd had acquired 80% stake in Trilix Srl, an Italian design and engineering firm for €1.85 million (Rs. 11.29 crore).

What is a takeover? A takeover occurs when one company makes a bid to assume control of or acquire another, often by purchasing a majority stake in the target firm. In the takeover process, the company making the bid is the acquirer while the company it wishes to take control of is called the target. Takeovers are typically initiated by a larger company for a smaller one. They can be voluntary, meaning they are the result of a mutual decision between the two companies. In other cases, they may be unwelcome, in which case the larger company goes after the target without its knowledge. A takeover, which merges two companies into one, can bring major operational advantages and improvements to performance and for shareholders.

Mergers and acquisitions are inevitable in the corporate world. Acquisitions can be friendly as well as hostile. A friendly acquisition is one in which controlling group of the target company sells its shares to another group wilfully. However, if the management of the target company is unwilling to negotiate, the acquirer can directly approach the shareholders of the company by making an open offer. This is known as a Hostile takeover.

L&T has acquired 4.5 lakh shares of Mindtree from the open market. In all, the infrastructure major is eyeing up to 66 per cent stake in Mindtree for around Rs 10,800 crore, marking the country’s first-ever hostile takeover bid in the information technology industry.

In 1998, India Cements Limited (“ICL”) in its hostile bid for Raasi Cements Limited (“RCL”) made an open offer for RCL shares at Rs 300 per share at the time when the share price on the Stock Exchange, Mumbai (“BSE”) was around Rs. 100. In this case investors felt cheated as the promoters themselves sold out their stake to the acquirer leaving little room for them to tender their stake to the acquirer during the open offer. However, ICL also bought out the FIs in the open offer and thereby increased their holding in RCL to 85%.

A Reverse takeover or reverse merger takeover is the acquisition of a public company by a private company so that the private company can bypass the lengthy and complex process of going public. The transaction typically requires reorganization of capitalization of the acquiring company.

When ICICI bank emerged it used its parent company name Industrial Credit & Investment Corporation of India. Industrial Credit and Investment Corporation of India (ICICI) was established in 1955 as public limited company under Indian Company Act, for developing medium and small industries of private sector.

A Back -flip takeover is a rare type of takeover in which the acquirer becomes a subsidiary of the acquired or targeted company after deal completion. The combined entity retains the name of the acquired company.

For example, AT&T was taken over by SBC (construction & Development Company) but AT&T name was continued as it was a well known established brand name. Such takeovers take place when the well known named company is short of resources to run the company and lesser known company is cash rich and searching for an investment opportunity. Although there can be many motives behind any takeover, merger or acquisition.

Conclusion: Mergers and acquisitions have become a popular business strategy for companies looking to expand into new markets or territories, gain a competitive edge, or acquire new technologies and skill sets. M&A are especially popular in the professional services space with the growing wave of retiring Baby Boomers and a rapidly changing economy and marketplace.

A PESTLE analysis (formerly known as PEST analysis) is a frame or a managerial tool in strategic management used to analyze and monitor the macro-environmental factors that may have a profound impact on an organization’s performance. This tool is especially useful when starting a new business or entering a foreign market. In PESTLE P stands for politics, E stands for Economics, S stands for Social, T stands for Technology, L stands for legal and the last E stands for Environment factors.

Politics

Spanish oil giant Repsol had to face a downsizing due to political intervention in Argentina.  It started an above average profitability operations in Argentina. But the business was later impounded by the Left Wing government. So the decade long profits didn’t materialize in the end. Certain factors create Inter-linkages in many ways. US-based Google had to deal with the Chinese government’s restrictions on the freedom of speech in order to do business in China. China’s different set of political and legal guidelines made Google choose to cease its mainland Chinese version of its site and direct mainland Chinese users to a Hong Kong version.

Political system is basically the system of politics and government in a country. It governs a complete set of rules, regulations, institutions, and attitudes. A main differentiator of political systems is each system’s philosophy on the rights of the individual and the group as well as the role of government. Each political system’s philosophy impacts the policies that govern the local economy and business environment. There are more than thirteen major types of government, each of which consists of multiple variations.

Political decisions affect the economic environment for example the taxation system in the country, political decisions influence the country’s socio-cultural environment for example the LGBT; few countries are gay friendly, while most are not. Politicians can influence the rate of emergence of new technologies, politicians can influence acceptance of new technologies. Political factors relate to how the government in a country mediates in the economy. Political factors are government regulations that influence business operation positively and negatively. Managers must keep a bird’s eye view over political factors. These factors can be current; they can be impending legislation, political stability and changes, freedom of speech, protection and discrimination laws etc. Political factors are inclusive of tax policies, labor law, environmental law, trade restrictions, tariffs and the most important of all political stability.

Economics

Nike has invested largely on their women’s footwear, clothes and equipments for women in Pakistan since the women are getting more liberal in Pakistan. Pakistan is already one of the primary suppliers for the Nike’s sports items. The rich Pakistanis are brand conscious and spend conspicuously on themselves.  Another good example of economic factor is of Coca-Cola operations in countries because of wages. Wages influence the company’s production costs; in countries like the UK they are quite high, whereas in Asian countries the salaries are low. Therefore, Coca Cola manufacturing is on higher side in Asian countries.

There are two great economic factors affecting business models they are demand and supply. Demand is how willing and able a consumer is to purchasing what a business offers and supply is how able the business is to make available what the consumer needs. Economic factors include economic growth, interest rates, exchange rates and inflation rates. These factors greatly affect how businesses operate and make decisions. For example, interest rates affect a firm’s cost of capital and therefore to what extent a business grows and expands. Exchange rates can affect the costs of exporting goods and the supply and price of imported goods in an economy.

Social

Because Pepsi is no-alcoholic drink, it has to maintain the strict differences in cultures around the world. It is essential for Pepsi to communicate its image as a global brand to change people’s perception. Pepsi values all the festivals in order to relate to their market.  Reacting to the social factor has helped Pepsi cash upon the opportunity of increasing sales during festive seasons around the world. Since June 1, 2011 a smoking ban in all of Argentina prohibits smoking in workplaces, all public indoor areas, schools, hospitals, museums and libraries, theatres, and all public transport. However, smoking is still allowed in balconies, terraces and patios. The law also included the prohibiting of advertising and sponsoring of tobacco. The fine for breaking the law is equivalent to 250 to 1,000,000 packets of the most expensive cigarettes in the market. Imagine, how cigarette companies could advertise in Argentina?

This measurement of the general environment represents the demographic characteristics, norms, customs and values of the population within which the organization operates. This includes population trends such as the population growth rate, age distribution, income distribution, career attitudes, safety emphasis, health consciousness, lifestyle attitudes and cultural barriers. These factors are especially important for marketers when targeting certain segments. It also includes the local workforce and its willingness to work under certain conditions.

Technology

Apple, Google, Blackberry and Microsoft have changed the information technology scene completely. Google is the most widely used search engine on the internet today. It receives over 3 billion online searches on a daily basis. It was created in 1997 by American computer scientists Larry Page and Sergey Brin.

Technological factors pertain to innovations in technology that may affect the operations of the industry and the market favorably or unfavorably. The progress in technology refers to technology incentives, the level of innovation, automation, research and development (R&D) activity, technological change and the amount of technological awareness that a market possesses. These factors may influence decisions to enter or not enter certain industries, to launch or not launch certain products or to outsource production activities abroad. By knowing what is going on technology-wise, the management of organizations may be able to prevent its company from spending a lot of money on developing a technology that would become obsolete very soon due to disruptive technological changes elsewhere. Technological Factors are linked to innovation in the industry, as well as innovation of the overall economy. Not being up to date to the latest trends of a particular industry can be extremely harmful to operations.

Legal

The foremost criteria include ease of starting a business, ease of obtaining construction permits, access to electrical utilities, ease of registering property, availability of credit, protection for minority investors, tax rates and collection methods, capacity for trade to occur across borders, and ease of enforcing contracts and declaring insolvency. Labor market regulation is also considered in compiling these rankings. It takes few hours to start a business in New Zealand. Thanks to a simple online procedure! High standards of living combined with one of the world’s most skilled labor forces are among the many factors that make Sweden an excellent country within which to carry out business and trade. Its strong infrastructure and well-developed social programs are strong incentives as well.

Although these factors may have some overlap with the political factors, they include more specific laws such as discrimination laws, antitrust laws, employment laws, consumer protection laws, copyright and patent laws, and health and safety laws. It is clear that companies need to know what is and what is not legal in order to trade successfully and ethically in a country.

Environment

Through 2011, Bhutan experienced accelerated economic activities pressured natural resources such as land, air, and water. Development activities increased urbanization, industrialization, mining and quarrying, agriculture, and solid waste management projects. Land degeneration, biodiversity and habitat loss, high fuel-wood consumption, and human-wildlife conflicts are some of Bhutan’s environmental challenges. Notwithstanding these problems, Bhutan remains overall carbon-neutral.

Environmental factors have come to the forefront recently. They have become important due to the increasing scarcity of raw materials, increased pollution and carbon footprint. Environmental factors include ecological and environmental aspects such as weather, climate, environmental offsets and climate change which may especially affect industries such as tourism, farming, agriculture and insurance. Furthermore, growing awareness of the potential impacts of climate change is affecting how companies operate and the products they offer. This has led to many companies getting more and more involved in Corporate Social Responsibilities (CSR) practices and sustainability.

Mission Statement

A mission statement describes the overall purpose of an organization. A mission statement should be brief and answer key questions about the business of organization. Questions such as what are the basic objectives of the firm? Who are the target audience? These points should be mentioned in the mission statement. A mission statement describes what an organization hopes to achieve.

Vision Statements

Vision statements mention aspirations of the organization; they lay out the most important primary goals for a company. A vision statement is a company’s road map, indicating both what the company wants to become and guiding transformational initiatives by setting a defined direction for the company’s growth.

The top management in organizations spend a lot of time drafting, designing words, and redrafting vision statements, mission statements, values statements, goals and objectives so on and forth.

And somewhere in the course of the organization’s journey, many of its actions don’t align with the well drafted vision and mission statements. Also, in the absence of a well drafted, or a poorly written vision and mission statements organizations lose good number of opportunities in attracting and engaging talented human resource, building organizational culture, and increasing productivity while leveraging all resources to successfully implement a strategic plan.

Organizational success is often linked to inspiring vision, clear mission, and strong values. But without employee buy-in, these concepts are worthless. Employee engagement is essential to an organization’s success, and alignment is arguably even more important.

Do you know that the founders of great and stable organizations like Hewlett-Packard, 3M, and Johnson & Johnson did not have a vision statement when they started out? They began with a set of strong personal core values and a relentless drive for progress and yet had an amazing ability to translate these into concrete mechanisms. 3M Corporation always had a sense of its core values in place such as support innovation, protecting the creative individual, solving problems in a way that makes people’s lives better. These core values gave it its soul. But what really set 3M apart was the ability of its leadership over the years to create mechanisms that bring these principles to life and translate them into action. For example, 3M allows scientists to spend 15 percent of their time working on whatever interests them, requires divisions to generate 30 percent of their revenues from new products introduced in the past four years, has an active internal venture capital fund to support promising new ventures, preserves a dual career track to encourage innovators to remain innovators rather than become managers, grants prestigious awards for innovations and entrepreneurial success, and so on.

Change is constant and needs to be taken into account as it is an essential component of strategic planning. So many changes take place in organizations. Change in manpower, change in business processes, change in product portfolio, change in infrastructure so and forth. This involves moving the organization or program forward or backward to create or change something. Some plans are created out of the need for the organization to move in a certain direction, and other plans develop organically. At such times, mission and vision statements need little tweaking, rephrasing, redesigning – little change and they are important to help communicate the goals of the plan to employees and the public.

Often companies modify their vision to fit the current environment; the changes internally or externally require a revision of in its mission or vision. To identify misalignments organizations require looking around internally as well as externally, talking to people, getting inputs, and finding out whether their core values align with their business philosophies. The misalignments arise because years of ad hoc policies and practices which are incomprehensible with the organization’s underlying values. When organizations don’t mean what they have signed off as vision and mission, at some point, the employees in the organization begin to grumble about the organization’s complex sign-off process, recognizing its inconsistency with the notion of respect and trust for the individual. The first task for leaders, then, is to create an environment and a process that facilitate people to safely identify and eliminate these misalignments.

Let’s take a look at Nestlé’s vision: “to be a leading, competitive, nutrition, health and Wellness Company delivering improved shareholder value by being a preferred corporate citizen preferred employer preferred supplier selling preferred products.”

Nestlé web site includes both a “mission statement” and a “vision and values” statement. Although the company is known for Nestlé Crunch chocolate bars and other snack foods, these statements emphasize nutrition, wellness, and good corporate citizenship.

The Swiss company’s “vision and values” statement is quoted above. Its “mission statement” is: “Nestlé is…the world’s leading nutrition, health and wellness company. Our mission of ‘Good Food, Good Life’ is to provide consumers with the best tasting, most nutritious choices in a wide range of food and beverage categories and eating occasions, from morning to night.”

These statements mirror the company’s long-term business strategy. In keeping with its claimed promise to nutrition, Nestlé has invested in scientific research on nutritional aspects of the kinds of products it sells. For example, it has studied the effects of chocolate on metabolism and gut bacteria. The Economist describes this as a potentially risky strategy; by investing in research and development, the company is “playing a long game,” in contrast to the short-term strategies of some of its competitors.

Nestlé has also made an effort to practice “corporate citizenship.” It has been involved in a number of efforts to promote good agricultural and environmental practices, such as the World Cocoa Foundation, which is “committed to creating a sustainable cocoa economy by putting farmers first – promoting agricultural and environmental stewardship, and strengthening development in cocoa-growing communities.”

This article emphasizes not only being consistent with vision and mission but true alignment.

Identifying core values

In describing the alignment process, it is assumed that an organization’s core values are already clearly defined. It is important that people must be predisposed to holding them, and it is important to attract and then retain these people. Every organization has to wrestle with a niggling question: what should change and what should never change? Can policies or strategies change at a particular time? Can its core value change? Can cultural values change? Remember, undying core values should never change. But, operating practices and cultural norms should never stop changing. Because business environmental changes are constant and organization needs to change according to the environmental changes.

It’s always a good practice to review the vision and mission because in the organization’s lifecycle lot of changes takes place.  The sector in which it operates changes economically, socially, or politically; if the top management in organization such as the CEO, VP or General Manager changes their philosophy and ideas change; if the  product or service line has become obsolete due to regulation, or replacement for example cigarettes, or full service gas stations there is an immediate change in the business; sometimes the current product version is being replaced by another (iPods, for example being included into iPhones); if an organization  acquires another firm it needs to change its entire philosophy. As an organization evolves, to explain its foundation its vision and mission need the changes.