Explain the five stage model of mergers and acquisitions.
To examine the issues that may contribute to the failure of acquisition and value destruction, a five-stage model of mergers and acquisitions was developed by the author Sudi Sudarsanam. The five stages comprise:
Stage 1: Corporate strategy evolution
The goal of M & A is to achieve corporate and business strategic objectives. The corporate strategy aims to achieve ways to optimise the portfolio of businesses that a firm has and how that portfolio can be modified in the interest of the shareholders.
The business strategy aims to enhance the firm’s competitive positioning on a sustainable basis in its chosen markets. Both the objectives can be met by M & A but is only one of several alternatives including, for instance, strategic alliances, outsourcing, organic growth, etc.
Stage 2: Organising for acquisition
It is important to understand the decision process of acquisition because it has a bearing not only on the quality of the decision and its value creation logic but also on the ultimate success of the post-merger integration.
Stage 3: Deal structuring and negotiation
The result of the processes described in Stages 1 and 2 is the specific target selection. Once the selection has been made by the firm, the merger transaction has to be negotiated or a takeover bid to be made. The deal-making takes place in this stage.
Stage 4: Post-acquisition integration
The objective of this important stage is to make the merged organisation operational so that the strategic value expectations can be delivered which drove the merger in the first place.
Integration of two organisations is not just about making changes in the organisational structure and instituting a new hierarchy of authority. It involves the integration of processes, systems, strategies, reporting systems, etc.
Above all, it also involves integrating people and changing the organisational culture of the merging firms, possibly to develop a new hybrid culture.
Integration of organisations may require a change in the mindset and behaviour of the people. It is, therefore, necessary to address cultural issues during the integration process.
Stage 5: Post-acquisition audit and organisational learning
Companies trying to grow through acquisitions need to develop acquisition-making as a core competence and excel in it.
Companies possessing the right growth strategy through acquisition and the necessary organisational capabilities to manage their acquisitions efficiently and effectively can sustain their competitive advantage far longer and create sustained value for their shareholders.