Merger, Acquisition, and International Strategies
Nowadays, many companies, especially those working on the global market, are constantly looking for additional opportunities for expanding their activities. One of the most widely used methods of achieving this goal is mergers and acquisitions (M&A). In general, M&A is aimed at achieving synergies, an added value from pooling the resources or operations of several companies. However, despite the rapidly growing volume of transactions of this kind, the research results of the newly formed organizations show that M&A projects often do not pay back funds invested in them. Merged companies usually lag behind in their development and are re-divided into separate corporate entities in a short time. Finally, M&A may lead to a decrease in a shareholder value of an enterprise. At the same time, at least 20% of the merged companies can achieve the desired financial or strategic objectives (DePamphilis, 2012). Thus, despite the ambiguity in assessments of M&A (especially given the growth of the market of mergers around the world in recent years), it is an objective reality. As a result, all peculiarities of merging must be investigated and analyzed in order to draw conclusions that will help avoiding the previous mistakes made by companies during this process.
Mergers and Acquisitions
The case of PricewaterhouseCoopers (PwC), a consulting company that operates on the global scale, can provide extensive knowledge of the process of M&A. The enterprise was established in 1998 as a result of a merger of two giants of the international consulting business, Price Waterhouse (PW) and Coopers & Lybrand (C&L) (PricewaterhouseCoopers, n.d.). This case is especially interesting because it has not just united tough competitors, but also experts in the field of business consulting possessing a vast knowledge of conducting the integration process. The primary objectives of this merger of equals were gains from the expanding process. In particular, they included a greater geographical coverage, large expertise in more industries, intensive exchange of new ideas and skills, greater flexibility, and independence from a single customer or region.
According to the forecasts, this merger was to be implemented without any problems. In addition to careful financial calculations, the companies had a lot in common, both institutionally and culturally (DePamphilis, 2012). The leadership of the new organization was to be a balanced composition of the employees of merging companies representing different spheres of their activities. There were no staff cuts, and the expansion and growth were declared the primary objectives of the merger. To ensure the involvement of all employees in the process, as well as to receive a constant feedback from the staff, a weekly internal newsletter was created a year before the actual merger. This initiative gave the company’s management an opportunity to respond to all questions of employees related to the reincarnation of the new organization (DePamphilis, 2012).
However, despite the best efforts put by the merged companies, problems in some areas could not be avoided. First of all, the resource allocation has become quite a difficult task due to the unclear distribution of power and responsibilities, namely in terms of decision-making. For example, some programs of the development of young advisors were frozen because it was impossible to find anyone willing to sign an order for necessary costs for two years (the period of integration). In addition, there was a group confrontation, when the former employees of C&L perceived the staff from PW as snobs, while the latter considered the employees of C&L a cheap workforce. The primary reason for this confrontation was the difference in service sectors of the merging companies. In particular, C&L serviced middle-sized companies, while PW worked only with large corporations. The almost identical organizational structure of the two companies resulted into an ideal match in job responsibilities and spheres of influence during the process of their integration. At the same time, this fact created fears for the safety of jobs in both companies willing to merge and resulted into a number of resignations in the period of integration (DePamphilis, 2012).
Nevertheless, despite the problems described above, by using the combined experience and resources of its predecessors, the newly established company has managed to become one of the leaders in the industry. Currently, PwC owns a network of companies in more than 150 countries, employing more than 195 thousand people, with total revenues of approximately thirty-four billion dollars (financial year 2014) (PricewaterhouseCoopers, n.d.). Thus, it is possible to say that the merger of the two companies was justified.
However, not all companies resort to the abovementioned strategy, primarily due to the lack of resources and the inability to operate on the global scale. Among them there is Power Advocate, Inc., an American company specializing in supply chain consultancy and market intelligence in the energy sector. The organization operates solely in the U.S., having offices in Boston and San Francisco (Power Advocate, Inc., n.d.). However, on the background of globalization, as well as the growing demand for energy-saving solutions both in the private and public sector, it is clear that in order to maintain its competitiveness, the company must expand its activities. However, due to limited resources of the firm, such goal is difficult to be achieved on its own. M&A is one of the ways of solving this problem.
The most suitable company for Power Advocate, Inc. to merge with (or to be acquired by) is the Science Applications International Corporation (SAIC), an American company engaged in the sphere of information technologies and engineering (Science Applications International Corporation, n.d.). This decision can be justified by the fact that the activities of SAIC involve technology-based business consulting and support provided to energy enterprises, which is a sphere of expertise of Power Advocate, Inc. Thus, as in the case of PwC, the companies have common touch points. In addition, SAIC is a large international corporation that collaborates with the federal government. Therefore, it is characterized by a high level of financial stability and the access to the global market of consulting services. By becoming a part of SAIC, Power Advocate, Inc. may expand its activities to the global scale (at least by participating in the projects arranged by the corporation’s Energy, Environment, and Infrastructure Division). In addition, this M&A process is rather real, judging by the fact that SAIC has acquired R.W. Beck, Inc., another consulting company similar to Power Advocate, Inc., in 2009 (Science Applications International Corporation, n.d.). The primary goal of this acquisition was gaining access to the company’s advanced metering infrastructure and automatic meter reading technologies (which may complement the energy intelligence platform by Power Advocate, Inc.). Therefore, it is possible to conclude that the proposed deal is feasible for both parties.
In order to operate in the competitive environment successfully, any company requires a developed business and corporate-level strategy. In particular, in its activities, PwC is guided by the international corporate-level and capabilities-driven strategy that is focused on differentiating the capabilities of the firm in accordance with its environment and the primary goal (an increase of the company’s presence on the global scale). In turn, such strategy ensures the company’s reliability and sustainability (PricewaterhouseCoopers, n.d.). In order to ensure its competitiveness, the company implements many business-level strategies, including a combination of strategy consulting and the track record of delivery on the international scale (PricewaterhouseCoopers, n.d.). In addition, it is possible to recommend focusing on the development of feasible strategies for foreign companies working in China. By taking into account that China has become one of the most profitable markets of the world, it is clear that the demand for such services will be quite high. Moreover, due to its huge size and dynamism, reliable information on business conditions will be difficult to find without the help of qualified experts. As a result, the companies involved in this sphere offering high-quality services will be able to improve their position on the global market of consulting services in terms of both revenues and image, which justifies the recommendation mentioned above.
As for Power Advocate, Inc., it is possible to recommend the following strategies. The primary goal of the company (its corporate-level strategy) should be penetration into the international market of consulting services in the energy industry, namely, by merging with a similar company operating on the global scale. Such choice can be justified by the fact that the problem of reasonable energy consumption has become especially acute nowadays, and the demand for the services of consulting in the energy industry has grown. As for the business strategy, the company should introduce its energy intelligence platform in the Western European market. Such move can be presented as a way of lowering the dependence of the European countries on the external energy sources, such as natural gas, providing an opportunity to manage their expenditures on energy more rationally. With such presentation, one may assume that the platform will gain popularity in Europe, especially in the most developed countries of the European Union, including Germany, France, and the United Kingdom.
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M&A has become an integral component of the contemporary business, with the number of such deals growing each year. However, as shown by the example of PwC, even the most careful planning of a merger does not allow predicting and preventing all problems arising in the process of integration. This statement is especially true for the issues affecting the human resources of the organization, which are rather sensitive to changes in the internal environment. Therefore, the managers of the merging companies should be ready for unexpected problems, as well as be willing and able to respond to them positively, constructively, and quickly. In particular, an open, honest and clear leadership style must be adopted at the very beginning of the process. In order to prevent problems or reduce their severity, it is necessary to appoint people in charge of M&A and determine their responsibilities. The process of integration must be open for the entire staff of the companies to convey to them the vision of a new, improved organization and involve them in the development of a new strategy. In addition, comprehensive information support of the integration process (as apart from the statements of the senior management, there is a need for the constant information support of supervisors) must be established. Finally, these actions must be carried out on a permanent basis. Thus, the awareness of the main problems related to the staff of the organization in the period of integration helps the leadership finding less conflicting and more efficient ways of carrying out a merger or acquisition.