Mergers and Acquisitions. The Strategic Challenge

The Impraise Blog from Impraise.com states, "It's no secret that mergers tend to fail. According to a KPMG study eighty-three percent of mergers do not boost shareholder return. Historically, roughly two-thirds lose value on the stock market. Mergers are often driven for the wrong reason: Fear." 

What are some strategic challenges with mergers and acquisitions? 

The experts at CareerMinds.com spell out significant issues on the HR side of things. These are key challenges to keep in mind as your company merges its culture with another. 

1. Identifying and communicating the reasons for the M&A to employees. Often employees see change as dislocating and upsetting. HR must communicate effectively and openly with all employees throughout the transition. Specifically, HR must communicate with employees about the necessity for the change, explain how the change will benefit them, and manage the stresses that accompany change.
2. Forming an M&A team and choosing and coaching an M&A leader. The team leader must focus solely on the M&A rather than be involved in running the business, be sensitive to cultural differences, lead the change process, and retain and motivate key employees.
3. Assessing the corporate cultures. One company may be driven by a sales mentality while another may be focused on innovation. Or decisions in one company may be top down while the other may be used to more participative decision making. HR must anticipate cultural challenges and take steps to integrate the two cultures.
4. Deciding who stays and who goes. HR must determine the new organizational structure, and retain and motivate key talent. Our workforce planning template can help you better assess this issue. Download it here.
5. Comparing benefits, compensation and union contracts and deciding on HR policies and practices.

When visiting again the writing by Impraise.com the M&A risks are spelled out slightly differently.

They mention the following: 

Communications challenges.

Employee retention challenges.

Cultural challenges

Solutions

For whatever reason mergers and acquisitions occur, it's vital that the decision-makers take the intangible factors into account. 

One way to measure intangible challenges is to use this formula from Investopedia.

Understanding Calculated Intangible Value (CIV)

Usually, a company's intangible assets are valued by subtracting a firm's book value from its market value. However, opponents of this method argue that because market value constantly changes, the value of intangible assets also changes, making it an inferior measure. Finding a company's CIV involves seven steps:

1. Calculate the average pretax earnings for the past three years.
2. Calculate the average year-end tangible assets for the past three years.
3. Calculate the company's return on assets (ROA).
4. Calculate the industry average ROA for the same three-year period as in Step 2.
5. Calculate excess ROA by multiplying the industry average ROA by the average tangible assets calculated in Step 2. Subtract the excess return from the pretax earnings from Step 1.
6. Calculate the three-year average corporate tax rate and multiply by the excess return. Deduct the result from the excess return.
7. Calculate the net present value of the after-tax excess return. Use the company's cost of capital as a discount rate.

In summary, strategically, if a company will use the discipline to look ahead and count all these considerations as part of the decision making and implementation process, many of the challenges in M&A could be minimized.