Marriages between companies: mergers and acquisitions

Mergers and acquisitions between companies have turned into a business strategy for increasing profitability and competiveness in difficult times. Although we use these terms interchangeably as synonyms, there are substantial differences between them.

A merger occurs when two or more companies join together to convert into a single one. If one of the intervening entities absorbs the assets of another, this is called a statutory merger. The term “cold fusion”, now in vogue among savings banks (Cajas de Ahorros) in Spain consists of creating a holding company by incorporating a percentage of the assets with the possibility of maintaining the different brands in each region of influence.

In contrast, when an acquisition occurs, a company is bought out by another. All assets of the company bought out, or the controlling stock package become the property of the buyer.

Marriages between companies

To understand this properly, we can talk of a merger as something based on mutual agreement, rather like a “Western” marriage. Anthropologically, this kind of marriage is an institution which legitimizes descendents and creates ties between groups of family relations.

Alternatively, we can talk of hostile actions launched by one of the parties, comparable to arranged marriages or ones of convenience.

“Arranged marriages” very common in countries like India, China or Afghanistan emerge after months of negotiations between the families, where the couple never get to see one another. It’s not just a contract between two people; it is a contract between families generally of the same social strata and which become larger and more powerful. And this puts pressure on the couple to make sure that this union works.

In the 17^th and 18^th centuries, marriages of convenience were common in Europe, uniting aristocratic and noble families in marriages with the purpose of increasing fortunes and creating bonds of power and influence.

Last are forced marriages, the most “hostile” of all, where one of the parties is married against will out of physical or psychological pressure.

Why do companies “marry”?

The value sought in this strategic decision differs in each case; it can be anything from attaining economies of scale through to reducing competitors, including access to a broader geographical market. Something similar happens with marriages, where we can find unions seeking to legitimize descendents, take advantage of tax benefits, increase fortunes or gain greater power and influence.

With companies, such unions make it possible to cut operating and services costs, and thus increase the cash flow, market share and subsequently profits.

Loveless marriage?

In mergers, independently of decisions directly related to economic and financial objectives and the business, often the difficulties in integrating people from both parties have been underestimated.

As with marriages of convenience, arranged or enforced ones, the couple does not expect to start their marriage with love; instead they accept the norms imposed by their social environment. The love of companionship (the kind a person has for another after spending much time together) may emerge over time in the union, but it lacks the emotional component of romantic love.

A merger process poses an important challenge for the Personnel Administration and Human Resources departments to resolve.

As a result of the merger, the HR department frequently comes up against a rather complex process for change management which is usually quite precipitated. Ideally this companionship should emerge more or less naturally. Above all when the company acquired passes from a familiar present to an unknown and uncertain future. In this scenario, there are employees who leave the organization and those who remain must adapt to change, be these minimal changes or ones that imply an overhaul of the objectives for business units, dependency relationships, planning and more.

Just like marriages of convenience, these crises can bring to light numerous scandals of lovers who unseated the royal wife or husband. For instance, the marriage between Napoleon I with Maria Luisa, the Austrian archduchess not so long ago sealed a peace treaty.

Human resources as a marriage broker

The challenge is to know how to make the most of this change process and embrace it as an opportunity for improving all processes related to managing people, or as I mentioned before, to sow the seed to let “companionship” blossom.

The main keys for rising to this challenge successfully are:

• Detect synergies between management processes in the different companies
• Proposals and decision making for unifying criteria: compensation policies and HR strategies
• Proposals for solutions and improvements: at technical and organizational levels as well as in management processes
• Consolidated information extraction and management: reporting, indicators, dashboards, cost analyses, etc.
• Risk analysis and management
• Actions for change management

Under these circumstances, being the good marriage broker that it has to be, HR needs to undertake tasks for managing change, performance reviews and organizational climate. All without omitting the communication and information phase, as well as paying special attention to detecting demotivation in the workforce and possible knowledge drain.

Or as in any marriage desirous of a healthy and lasting union, the spark of love must be “nurtured” while being ever watchful of any indication that either party is losing interest and enthusiasm.

In short, we mustn’t ever forget that the human factor is vital for the union to be successful. In mergers and acquisitions, just as in marriages, we are talking of people at the end of the day. And when we talk about people, things work out if the parties want it and pull their weight. That’s why the HR department is there. As good marriage broker, it must make sure that the general feeling throughout the organization is that things flow and work out as smoothly as possible without ever losing enthusiasm or the conviction that they are where they want to be.