Post-acquisition Management:: A Phases Approach for Cross-border M&As

Penelope Quaha and Stephen Younga

University of Strathclyde
University of Strathclyde

Available online 10 February 2005. 

Achieving successful integration of mergers and acquisitions (M&As) continues to pose

serious challenges for cross-border acquirers. In this article we suggest that to improve
success, the post-acquisition management process should be divided into a number of phases
with defined objectives and actions. This paper provides preliminary evidence drawing upon
the post-acquisition management of four European M&As undertaken by an American
automotive MNE. Implications for managers (relating particularly to cultural and
organisational integration) and further research are suggested.

Keywords: Mergers and acquisitions (M&As); Employee behaviour; Culture and

performance; International management

Article Outline

Introduction
The Post-acquisition Management Process: Relevant Literature
Level of Integration
Post-acquisition Changes
Timing of Changes
Cultural Influences
Employee Behaviour
Post-acquisition Performance
Methodology
Summary Results
The Integration Process in the M&A Cases
Timing of Post-acquisition Restructuring
Acquiree Employee Behaviour
Management Resistance
Employee Resistance
Evidence of Behavioural Change in Acquired Subsidiary
Post-acquisition Performance
Discussion and Managerial Implications
Managing the Post-acquisition Process
Pre-M&A: Important to Set the ‘track’ of the Post-acquisition Process
Post-M&A: More Crucial and Needs More Attention
Conclusions
Appendix. Background of the Cases
References
Vitae

Introduction
 The objective of this paper is to provide lessons for successful post-acquisition management
in cross-border M&As. It draws on evidence from a longitudinal case study of an American
multinational in the automotive supplier industry and its four European acquisitions
undertaken in the first half of the 1990s. Applying a framework developed from the literature,
the study reviews and evaluates the company’s post-acquisition management, and presents
managerial lessons emphasising in particular the handling of national and organisational
cultural differences.
There is continuing concern about the relatively low success rate in M&As. One explanation
lies in the problems of combining separate organisations with different organisational
cultures and management process systems. This creates difficulties both for the achievement
of specific combination benefits and for the normal functioning of a group consisting of
previously separate organisations. Furthermore, cross-border M&As are generally more
difficult and riskier as generic problems of acquisition are compounded by differences in
national cultures, language differences, political influences and regulatory hurdles (Angwin
and Savill, 1997). Several management surveys on cross-border M&As in the mid-1990s
concluded that the value of shares held by owners declined in more than half of the cases
examined, while increases in the value of shares followed only a small proportion of all
M&As (AT Kearney, 1999 and KPMG, 1999). There is evidence of improved performance in
acquirees, but this might be compensated for by negative effects at the level of the newly
created group (UNCTAD, 2000). Generally there are difficulties in determining the success
criteria to be applied in measuring acquisition effects, and the counterfactual question (what
would have happened in the absence of the acquisition) is problematic (UNCTAD, 2000).
One of the explanations as to the why success rate is reportedly poor is because the time
period allocated to measure performance is restricted to a short period, commonly 2 years.
The argument presented here is that this may be an insufficient amount of time for the
management and employees of the firms involved in the M&A to adjust to the post-
acquisition changes. In this paper, the post-acquisition process is analysed over a period of at
least 7 years. The research also allowed the possibility of tracking the patterns of
management and employee behaviour from both acquirer and acquiree perspectives. This
then permitted the identification of a series of discrete manageable phases in the integration
process. It is argued that if, at the outset, the M&A team divides the process into phases, it
will be better able to anticipate and manage the setbacks or problems identified in each phase;
in addition, it may be possible to predict when post-acquisition problems are most likely to
occur.
The article is organised as follows. In the following section we identify and define the
influencing variables in the post-acquisition management process. In the third section, the
research methodology is discussed and justified. In the fourth section, we briefly summarise
the results from the case studies and propose a framework for post-acquisition management
for use by M&A executives. In the concluding section, we present the managerial
implications of this study for post-acquisition management activities across national
boundaries.

The Post-acquisition Management Process: Relevant Literature

The cross-border post-acquisition process has been likened to a negotiation process in a
business setting in which control mechanism and procedures as well as access to knowledge
and know-how are negotiated between the acquirer and the acquisition target (Gertsen and
Søderberg, 1998 and Vaara, 2000). It is in this stage, where employees are forced to work
with each other, that they will encounter directly the cultural differences in values, beliefs and
assumptions in cross-border M&As. There is a mutual dependency between both parties. This
interdependence is characterised by interlocking goals—where parties need each other in
 order to accomplish their goals. Both parties know they can influence each other’s outcomes,
and their outcomes can, in turn, be influenced by each other (Ritov, 1996).
Drawing from the strategic management, organisational behaviour and process schools of
thought in the M&A literature (Haspeslagh and Jemison, 1991), the current authors identified
the factors influencing the post-acquisition management process as being:
❖ Level of integration;
❖ Post-acquisition changes;
❖ Timing of changes;
❖ Cultural influences; and
❖ Employee behaviour in the acquired firm.
The interactions of these factors formed the basis of a conceptual post-acquisition
management framework within which the empirical study was designed, and the conclusions
and recommendations were drawn (see Figure 1).

Full-size image (152K)

Figure 1. The Post-acquisition Management Process: Phases, Actions and Outcomes. Phase 1:
Pre-acquisition. Phase 2: Slow Absorption. Phase 3: Very Active Absorption. Phase 4:
Totally Absorbed.

Level of Integration
The level of integration is based on multiple decision criteria including strategic task needs,
organisational task needs, cultural factors and political factors (Pablo, 1994). There is
agreement in the literature that integration is an interactive and gradualist process in which
both sides learn to work together and cooperate in the transfer of strategic
capabilities. Haspeslagh and Jemison (1991) developed a contingency framework to
understand and facilitate this process, depending upon the need for strategic interdependence
and the need for organisational autonomy. For example, a preservation strategy is proposed
when there is a low requirement for strategic interdependence and a high need for
organisational autonomy in the acquired firm. An absorption strategy is suggested when there
is a high need for strategic interdependence and a low requirement for organisational
autonomy in the target firm. The appropriate strategy is related to the nature of the
acquisition, as between horizontal (‘domain-strengthening’), vertical and concentric
(‘domain-extension’), and conglomerate (‘domain-exploration’) M&As. While this work is
influential, it mainly focused upon M&As in a domestic setting, and hence did not consider
the importance of managing cultural differences or acculturation modes during the post-
acquisition process; and did not allow for flexibility of approach to reflect changing
circumstances.

Post-acquisition Changes
Research in this area is still highly fragmented. Attention in the literature is given to the
human resource management issues, which include human resource planning and
downsizing, training, and changes to systems for communications and rewards (Napier,
1989). There is little research into the timing and effects of post-acquisition changes.
 Angwin (1998) suggests that there are clear parallels between post-acquisition management
and corporate turnarounds, and draws upon turnaround studies such asSlatter,
1984 and Grinyer et al., 1988 to identify the main areas of change involved. These major
changes in management include the replacement of the CEO; stronger financial controls;
intensive efforts to reduce production costs; an increased importance given to marketing,
especially customer relations and a new product market focus; and debt reduction. The
evidence also indicates that CEOs appointed from outside the acquired company will replace
more subordinates and generally bring about more change than will insider CEOs who hold
continuing appointments or come from other positions within the acquired firm.

Timing of Changes
The pace of implementing the post-acquisition changes is a conflicting issue in the literature,
with some researchers arguing that immediately after the close of the deal there is a period
when employees at the acquired company expect and even welcome change (Searby,
1969 and Shrivastava, 1986), while other researchers argue that firms should ‘go slow’ and
prepare employees for change and reorganisation (Yunker, 1983).
Management’s ability to implement changes affects the way employees perceive the
trustworthiness of post-acquisition leadership. Researchers, who encourage quick change,
argue that since employees anticipate reorganisation in the acquired company, quick-change
implementation helps reduce uncertainty (Searby, 1969 andShrivastava, 1986). Some
researchers argue that slow-change implementation is not a result of strategic planning, but a
sign of ineffective management (Haspeslagh and Jemison, 1991). In a similar vein, Schmidt
and Schettler (1999) argue that there is an incremental resistance to change over time.
However, there is an argument that employees in a state of shock after an acquisition can
only accommodate a limited amount of change initially; and, therefore, advocate a gradualist
approach (Buono and Bowditch, 1989). Rosnow (1988) argues that the acquiring
management requires time to learn about the acquired company before designing and
implementing change. Frequent and helpful communication during this period will increase
employee trust of management and will make reorganisation easier subsequently.
Furthermore, a gradualist approach permits greater learning about markets and environments,
especially important in international M&As.
This study takes a longitudinal perspective, and the timescale to determine the success of an
M&A is a period of at least 7 years. The factors used to determine success are operating
income, profit, headcount, and whether the synergies of the M&A have been achieved in the
acquired firm.

Cultural Influences
The literature drawn on cultural differences is derived from the organisational behaviour
school of thought. The effects of culture can take place in the early stages of the acquisition
process but are especially crucial in the post-acquisition management period.
There have been relatively few studies researching both national and organisational cultures
and the impact on the post-acquisition process. However, much of the research on cultural
differences in M&A focuses upon management styles and practices, where incompatibilities
and conflict can result from either national or organisational cultures (Norburn and
Schoenberg, 1994 and Marks and Mirvis, 2000). In this study, the authors assume that both
national (NC) and organisational cultures (OC) influence the success of the post-acquisition
management process.
The impact of acculturative stress on the outcome of M&As is an issue investigated in the
management literature (Berry, 1980 and Nahavandi and Malekzadeh, 1988). It refers to the
trauma and changes in behaviour created by the forced interaction of two different
 organisational cultures during the post-acquisition process. Most management research about
culture has assumed that cultural differences imply acculturative stress. Recent research on
European M&As showed that national cultures sometimes influence acculturative stress but
not always in the expected direction (Very et al., 1998). Some examples of cultural
differences elicit perceptions of attraction rather than stress. Furthermore, Very et
al. (1998) found that some cultural problems associated with combining organisations were
more amplified in domestic than in cross-national settings; this finding is completely opposite
to that of previous studies (Schneider and DeMeyer, 1991).
These contrasting results clearly indicate a need for further study in order to clarify a
phenomenon, which is much more complex than that often proposed by business researchers.
For example, Weber (1996) criticises the fact that most of the work about conflicts in M&As
is anecdotal or non-theoretical in nature. Attempts to build analytical frameworks showed
that culture is not an easy construct to manipulate and results are often contradictory from
study to study (Calori et al., 1994, Morosini et al., 1998 and Very et al., 1998).

Employee Behaviour
The dimension of employee behaviour in the conceptual framework employed in this
research is drawn from Lewin’s (1951) classic theory as to why people change. This dilemma
was illustrated with his classic notion of ‘force-field theory’. The theory suggests that all
behaviour is the result of equilibrium between two sets of opposing forces (what he calls
‘driving forces’ and ‘restraining forces’). Driving forces push one way to attempt to bring
about change; restraining forces push the other way in order to maintain a status quo.
Generally, human beings tend to prefer to use driving forces to bring about change. They
attempt to ‘win’ by exerting pressure on those who oppose them. But according to Lewin’s
model, the more one side pushes, the more the other side resists, resulting in no change. This
research assumes that such opposing behaviour is magnified in a cross-border M&A context.
It contrasts with the ‘win–win’ solutions now commonly proposed for negotiations and inter-
company relationships.

Post-acquisition Performance
There has been considerable debate as to the most appropriate and accurate way by which to
assess M&A gains, both in terms of indices used and the appropriate time span over which to
judge performance (Lubatkin, 1983, Lubatkin, 1987 and UNCTAD, 2000).
Many studies have found that M&As as a corporate strategy have dissipated instead of
creating value for corporations. The success of an acquisition depends on the ability to create
added value after it has taken place. However, the mere existence of potential value creation
or synergism is no guarantee that this possibility will be realised. Some research indicates
that M&As can have a negative impact on the economic performance of the new entity
(Tetenbaum, 1999 and Cartwright and Cooper, 1993). Also, realising performance gains can
actually take several years; and commonly touted operating synergies, such as exploitation of
economies of scale, can turn out to be extremely complex and difficult management tasks to
implement, aggravated by conflict between the two parties in the acquisition (Haspeslagh and
Jemison, 1991).
Many studies have distinguished between the ‘hard’ (performance-related) and ‘soft’ (cultural
issues) in investigating the success or failure of cross-border M&As; but more recently, the
management of ‘soft’ factors in the post-acquisition process has been highlighted as a crucial
factor. The latter approach is pursued in the present research, with the emphasis on national
and organisational cultural factors; while the performance outcomes focus upon a mixture of
hard and softer measures.
 What is clear from this literature review overall, is that identifying a successful management
formula for the post-acquisition process is a crucial yet daunting task. Research is still
lacking in respect, for example, of integrating national and organisational cultures in
international acquisitions, of reducing managerial and employee resistance in acquired firms,
and of determining the timescales over which integration objectives should be set and
performance measured.

Methodology
The study involved a longitudinal case study of one American multinational in the
automotive supplier industry, and its four acquisitions into Europe undertaken during the
years 1991–1995. The present paper forms part of a wider study on the impact of national and
organisational cultures on the post-acquisition management process. Three types of M&As
were analysed: horizontal, vertical and concentric. The purpose was to compare the
management processes for each type of M&A and to draw similarities and differences so as
to provide a more complete picture of the management process.
A US acquirer was selected because, as a country, it was the largest M&A buyer during the
1990s. In addition, its M&A cases studied involved the main M&A sellers in continental
Europe identified during the same period, namely, Germany, France and Sweden. All four
acquirees were of similar size, with fewer than 500 employees, and can be categorised as
small&medium sized enterprises (SMEs). The names of the US acquirer and its acquisitions
(2 in Germany, and one each in Sweden and France) have been suppressed in order to ensure
anonymity. The backgrounds of the companies involved in this study are shown in Appendix.
The research process was divided into three phases over a period of 13 months in 2001 and
2002, namely desk research on the company; interviews and questionnaire distribution at the
various acquired sites; and interviews and questionnaire distribution at the North American
headquarters.
The primary instrument for data collection was in-depth interviewing with senior managers
and key employees from the acquirer and the target companies. This process allowed the
author to gain insights from both parties in the post-acquisition process. In order to obtain
richness in the data, organisation-wide interviews with the senior managers, functional
managers and supervisors who were involved in the M&As were conducted. In total, thirty-
two interviews were conducted with executives in the finance, human resource, information
technology, manufacturing, and R&D departments. This variety of job responsibilities and
functions allowed the researchers to gain a wide range of perspectives on the cultural
challenges faced in different departments and at various levels in the hierarchy, and how they
were managed.
The interviews were recorded, transcribed and coded in the QSR Nudist software and the
researchers applied the rules of ‘pattern matching’ and comparative methods to draw
conclusions (Yin, 1994). To derive further in-depth inferences, the complex inter-dependent
and interactive relationships among the variables were studied for each acquisition, using
content analysis and explanation-building modes of analysis.
The in-depth personal interviews were supplemented with short questionnaire surveys in each
location. Response rates were high, except in one German acquiree where the Works Council
refused to grant permission to distribute the questionnaire. In total, 41 questionnaires were
returned at the US headquarters giving a response rate of 82%; and 75 responses were
obtained from the European sites (37.5% response rate).
In order to improve the quality of the data collected from interviews and surveys, a variety of
other methods were employed, including personal observations, examination of archival
M&A records and company documentation.
Summary Results

The Integration Process in the M&A Cases

This research found that the post-acquisition integration strategy pursued by the American
acquirer was similar for each of the four M&As, with a preservation strategy being followed
by an absorption strategy. The American acquirer did not embark on an immediate absorption
integration strategy because it was venturing into new geographic markets, and wanted to
learn the local ways of doing business before undertaking any reorganisation. Therefore,
there were minimal post-acquisition changes made during the first 1–2 years.
The more aggressive post-acquisition changes took place in years 2–5. In retrospect the
parent itself accepted that mistakes were made in this period, with a ‘cowboy style’ being
adopted involving the implementation of changes ‘blindly’ without considering the cultural
consequences. It was only in the final acquisition of German Antenna that a decision was
taken to communicate clearly in advance the logical reasoning behind forthcoming post-
acquisition reorganisation.
A common finding in all four M&As, was that the main post-acquisition changes were
adopted successfully (or more quickly) after the existing senior executives were replaced.
However, the senior management changes did not take place until at least 3 years after the
M&A. This was intentional because the acquirer wanted to retain the existing management’s
expertise relating to products and markets; and was especially crucial in the concentric M&A
(German Antenna) as the acquirer was entering into new areas of business. However, the
acquisition motives highlighted in Appendix reveal the great importance in all M&As of
retaining good customer relationships, which are associated with existing management, or at
least with local nationals as noted below.
When the senior executives were replaced, the US acquirer attempted to ensure that their
successors were locals. The acquirer generally either hired from its local competitors or
internally promoted individuals with appropriate capabilities for the job (although some
internal transfers took place from within the parent’s multinational umbrella). The purpose of
this strategy was to retain the image of a local firm for its customers. Prior to the M&A, the
acquirer consulted key customers to gain their opinions of the change of ownership and the
association with an American MNE. The response of local customers was that they would
continue doing business with the acquired enterprise, providing they dealt with local
employees.
Once the replacement of senior executives was completed, the acquirer found it much easier
to implement rapidly its desired reorganisation (a finding which supportsAngwin, 1998). This
could be because the resistant behaviour from the previous management was almost
eliminated. However, national cultural differences still existed between the acquirer and its
acquired firms.

Timing of Post-acquisition Restructuring

As noted earlier, there is debate in the literature on the timing of post-acquisition changes; but
the literature (for example, Haspeslagh and Jemison, 1991) has not paid sufficient attention to
international acquisitions, where national culture differences would seem to suggest a
gradualist approach. This study supports this view that the timing of changes should take
place over a period of time and not immediately after the M&A. This not only allows the
acquirer to learn about its new business and markets, but also facilitates cultural
understanding (national and organisational). Rapid implementation runs the risk of a
haemorrhaging of senior executives, causing long-term damage to the business.

Acquiree Employee Behaviour

 The study results suggest that the main sources of either negative or positive behaviour in the
acquired firm were based on how well the acquirer acknowledged and handled cultural
differences in the post-acquisition period.
Being inexperienced in international M&As, the post-acquisition management process in
First Automotive was financially driven. There was little consideration of the management of
cultural differences between the parent and its acquirees. There was no formal integration
plan or integration team set up in the acquired sites for the first three M&As. These
contributed to the varying levels of resistance in the acquired subsidiaries. The data showed
revealed two types of resistance during the post-acquisition process—management
resistance and employee resistance—that took place with differing intensity and at various
phases in the process.

Management Resistance
Resistant behaviour in the acquired firm was initially seen at the acquired management level.
This occurred initially during the first contacts between managements after the deals were
completed and in the early phases of the acquisition; but tended to diminish over time, either
through acceptance of the new situation from the acquired management or their replacement.
The results show that the degree or intensity of resistance from the acquired managements
depended on how wide and varied the cultural differences were between them and their new
US parent. Evidence showed that the national cultural differences in respect of uncertainty
avoidance, power orientation, language, individualism vs. collectivism, and masculinity vs.
femininity (Hofstede, 1980 and Trompenaars, 1993), were the underlying manifestations of
the fear of loss of control, a failure to build mutual trust, a dislike of being ‘forced’ to change
and a reluctance to alter established processes. National cultural differences were most
evident in US-France relations and lowest between US and Swedish cultures.
Organisational culture differences also led to resistance at the management level. In large part
these reflected the strong entrepreneurial cultures in the acquirees, all of which were SMEs;
while national cultural divisions hampered the successful implementation of organisational
change.

Employee Resistance
Over time, as interactions between the acquirer and the acquired firms increased through the
implementation of common systems and processes, the resistance arose from the lower levels
of the organisations. Employee resistance tended to begin during the mid-phases of the post-
acquisition process and reduced over time as employees either resigned or accepted that they
could not do much to halt the post-acquisition restructuring.
Conflicts arose and escalated over issues such as the timing of reorganisation, and
communication and implementation of proposed future post-acquisition changes. This finding
supports the findings of studies such as Angwin, 1998, Gertsen and Søderberg,
1998 and Child et al., 2001. Generally a common pattern of resistance was evident among the
four acquisitions, irrespective of cultural differences in each country or firm.

Evidence of Behavioural Change in Acquired Subsidiary

Analysis of the behaviour of acquired employees found that it changed during the post-
acquisition process. The behaviour of the employees tended to mimic the behaviour of their
management, and this behaviour depended on the time required to accept the acquirer as their
new ‘boss’ and the new processes.
In all the M&As in this study, positive behaviour, that is, lack of or low levels of resistance,
was the result of a clear communication process about the immediate goals of the acquirer for
the acquired firm. Findings showed that a low level of resistance or high level of satisfaction
was evident only during the first phase of the post-acquisition process. This was due to a
 clearly communicated message from the acquirer that there would be no post-acquisition
changes and that business would continue as before with the same management. The peak of
resistant behaviour, by contrast, tended to occur in the subsequent phase of the post-
acquisition process, which coincided with increased interactions between the two firms
consequent on the active implementation of change and reorganisation.
In order to reduce resistance in the acquired firms, the acquirer to some extent followed the
three-stage approach of lowering resistance in the M&A, as advocated byLewin,
1951 and Schein, 1964. Thus levels of resistance were lowered in the following manner:
Stage 1: The acquirer unfreezes existing behaviour by gaining acceptance for change of
ownership among the management and the employees, by reassuring them that there would
be no change in the way they ran their business in the short-term.
Stage 2: The acquirer responded to negative behaviour through the replacement of senior
executives:
❖ External local hire.
❖ Internal transfers from another division or company that belonged to the acquirer (also
consisted of locals but already familiar with the acquirer’s organisational culture).
❖ Promotion of local staff who were compatible with the acquirer’s organisational culture.
Although these moves led to faster diffusion of post-acquisition changes, it created fear
among the lower level employees that they were ‘not wanted’ and many decided to resign.
However, this was not regarded as particularly negative from the acquirer’s view as it
allowed them to hire new employees, leading to faster adoption of new procedures and
systems.
Stage 3: The acquirer refreezes behaviour through the reinforcement of new patterns of
thinking and working by injecting new local ‘blood’ into the acquired subsidiaries:
❖ New hire of local employees (the disadvantage was loss of experience and established
relationship contacts with OEMs).
❖ Acquirer being more culturally aware of differences.
❖ By replacing employees, the acquirer managed to diffuse new attitudes among the local
employees and reinforce the new patterns of thinking and working.
Except for Swedish Consultancy, employees at the acquired sites noted that the behaviour in
their firms currently was more hierarchical and impersonal compared to the pre-acquisition
situation. They complained that their current leaders were not as involved with daily
operations, and were convinced that the managing directors did not know their names and
responsibilities in the firm. This finding supports the study conducted by Levie and Hay
(1997) concerning entrepreneurial culture, who found that the culture of the company
becomes ‘colder’ as the organisation grows. Except for French Security, all the other
acquirees have grown in size since the M&A, and it is a natural process for the organisation’s
culture to become less personal, more structured, and less proactive (Stopford and Baden-
Fuller, 1994).

Post-acquisition Performance
Performance in the four acquisitions was measured by profits, sales and employment growth
rates for a 10 year period; the performance of manufacturing metrics as compared to the
headquarters site; and the synergies captured since the M&A took place, relating to the
sharing of operational resources and the transfer of functional and management skills.
The results show increases in sales and profits growth and expansion in employment; but in
all four cases the planned synergies were still to be fully captured despite the fact that all
M&As were at least 8 years old. If success were measured for only the two-year period after
the acquisition, the results would be significantly different: in particular, manufacturing
metrics were well below target levels because of the difficulties of integrating new processes
 and systems. Both management and employee resistance was high due to cultural differences,
and productivity gains had still to be realised.

Discussion and Managerial Implications

While the results of the acquisitions were positive from a long-term perspective, it is clear
that mistakes were made. The US MNE took a cautious approach initially to avoid damaging
market prospects. However, when managerial change was required, the inevitable tensions
between the US MNE and its acquisitions were exacerbated by a failure to understand and
respond to national and organisational cultural differences. Conflict was aggravated and
perhaps prolonged. Underlying such difficulties was the lack of planning for acquisition
integration. Yet, even if by serendipity, the phased approach pursued provides valuable
lessons for the management of the post-acquisition process.
A review of the post-acquisition management process as observed in this research is
displayed in Figure 1. The phases described represent the authors’ interpretation of the way
the M&A events developed in the cases.
Accepting that the phases, actions and outcomes presented in Figure 1 are not necessarily
optimal, nevertheless, there are valuable managerial lessons that can be drawn for the
management of the post-acquisition process. The issues the acquirer needs to consider,
understand and plan are highlighted following, distinguishing between the pre- and post-
M&A stages:

Managing the Post-acquisition Process

Pre-M&A: Important to Set the ‘track’ of the Post-acquisition Process

The acquirer should:
❖ Set up a M&A team comprising a balanced mix of personnel from the acquirer and the
acquired firm.
❖ Be specific on the motives of the M&A.
❖ Understand and set the objectives for the acquired firm.
❖ Plan for the future and how the acquired firm fits into the parent’s multinational umbrella.
❖ Conduct a preliminary cultural audit among the management personnel.
❖ Reassure the employees in the acquiree of their future with the company after the M&A
deal is signed to reduce their fear and anxiety.
If the acquirer is clear on the above prior to the signing of the acquisition deal, the post-M&A
process would be easier to handle, with the chosen integration strategies having being
planned, at least in outline terms.

Post-M&A: More Crucial and Needs More Attention

The post-acquisition process is lengthy and difficult because of the range of internal and
external factors to be handled. It is, therefore, important that the acquirer plans and
implements the following:
❖ During the first year of the M&A, the acquirer should conduct a full-scale cultural audit
and communicate the results to employees involved in any post-acquisition changes.
❖ Both firms must anticipate the force of cultural influences during the post-acquisition
process, particularly the acquirer, and be flexible and open to differences.
❖ Understand that the interactions of cultures (national and organisational cultures) differ
during the various post-acquisition phases.
❖ Be sensitive to the implementation of post-acquisition changes on issues such as timing
and obtaining co-operation from employees.
By pursuing such an approach, it should be possible to reduce resistance and cultural conflict,
and shorten the length of the post-acquisition management process. This in turn will allow the
 acquirer to achieve success in terms of realizing synergies, improving profits and operating
income and transferring unique knowledge more quickly; and, hence, achieve genuine
competitive advantage from international acquisitions.

Conclusions
This study was based on a single case in the automotive industry and the results have,
therefore, to be treated with caution. However, the high level of access to both the parent
MNE and its acquirees and to both management and employees facilitated a very in-depth
longitudinal analysis of the post-acquisition process. In the early 1990s the majority of this
company’s sales were in North America and while it had a presence in overseas markets, its
internationalisation and cross-border M&A experience was limited; hence there are lessons
that can be drawn for other companies embarking upon an acquisition-based
internationalisation strategy.
The study concludes that success in the post-acquisition period requires a phased approach
with defined objectives and actions. In international acquisitions, in particular, the
management of both cultural and organisational (and their interactions) integration requires
caution and mutual understanding to avoid conflict which can become entrenched and,
therefore, intractable. Caution is also suggested because of market factors, and particularly
adverse customer responses, depending on the motives for the acquisition. In this study,
initial caution was unavoidable given that the principal motives concerned access to national
markets and to automotive OEMs. The big mistakes of the case company concerned the
failure to learn about cultures in the initial phase, leading almost inevitably to conflict when
change began to be imposed subsequently.
Of course this sequential, evolutionary approach to the reorganisation of internal management
processes and actions has to be responsive to internal and external environmental shocks. It
also has to be balanced alongside other pressures: at the acquiree level these relate to the
achievement of tangible results within specified time periods, while at headquarters level, in
turn, performance improvement has to show through in improved earnings and stock prices.
This qualitative research concentrated upon the national and organisational culture challenges
for management and employees in the international acquisitions studied. Further qualitative
research relating to different countries and cultural contexts would be valuable; as would
comparative studies focusing upon alternative approaches to post-acquisition management,
particularly cases of rapid or immediate as opposed to phased integration. Reflecting the
observations in the previous paragraph, research on the coordination and communication
issues between and among acquired subsidiaries and the parent MNEs could provide valuable
and fascinating insights.

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Appendix. Background of the Cases

First Automotive
Established as a division within a large American car manufacturer in the early 20th century,
First Automotive offers a range of innovative safety, communication, entertainment and
electronics integration technologies for vehicular transportation.

There are strategies in place to try to decrease the dependency of sales in North America
through venturing overseas by either internal development or external development
strategies. It has utilised a combination of internal development, joint ventures and
acquisitions in various countries depending on the government and legal laws relating to
foreign ownership.

The strategic intent for acquiring in Europe in the 1990s were:

❖ Part of a aggressive growth strategy

❖ To be close to local customers

❖ To purchase long-established customer relationships

❖ To improve its reputation in Europe

❖ To gain technology and skills

❖ To inject corporate entrepreneurship.

German Security

Created in the 1980s as a company manufacturing industrial security systems by a university

professor who hired two business partners to run the daily affairs of the company while he
continued to work at the university. Its main business activities were manufacturing vehicle
security devices for the OEM market. Customers before the M&A consisted of only German
OEMs.

Today, the company has grown in size and has expanded the number of devices it
manufactures to include central electronics, central door locking, theft alarm systems, sensor
systems, interior protection, radio remote control and others for automobiles. It serves well-
known OEM customers such as Audi, BMW, Ford, and others.

This first M&A, undertaken in 1991, has been classified as a horizontal acquisition since
German Security was a direct competitor to First Automotive. The motives for the acquisition
were to access the growing European automotive security market, and to gain direct access to
local original equipment manufacturers (OEMs) through established relationships in
Germany.

French Security
A family-run business founded in 1970s. Its main business was undertaking installations and
repairs in the aftermarket business and its secondary business was producing security systems
for OEMs. It had a well-known domestic brand: French Security alarm.

Since the M&A in 1990s, the company gradually shifted focus towards the vehicle security
market, and eventually eliminated its aftermarket business in the early 21st century. Today, its
business activities consist of manufacturing complete alarm systems, central door locking,
sirens, wiring looms, radio remote control systems etc., for automobiles. Customers include
Renault, PSA and others.

This was the second M&A, which took place in 1992, and has been classified as a horizontal
acquisition since French Security was a competitor in the French market, while also
providing complementary products. Motives included access to the French market, where the
acquiree was an after-market leader for car alarm systems; a strong brand image, and access
to southern European OEMs; and cost savings between French Security and German Security
in a range of value chain activities.

Swedish Consultancy

Established in 1980s by two visionary engineers, Swedish Consultancy has been a highly
successful consultancy business serving the Swedish automotive market. The business
resulted from the managing director/co-founder’s Ph.D. thesis that was on building a fully
computerised ignition system for car vehicles.

Today, it is active in providing services for advanced engineering, and specialises in the
development of advanced electronics concepts for automobiles, trucks, buses and their
infrastructure. Its business activities include services that range from taking development
responsibility for complete software systems, to developing individual software modules
within an OEM system. They have also expanded heavily in the area of mobile multimedia in
the last 10 years. Since the company specialises in consultancy work, it does not have its own
production facility, therefore the manufacturing of its product designs are subcontracted.
Their customers include manufacturers of vehicles and combustion engines such as Saab and
General Motors.

This third M&A followed a minority joint venture relationship and was finalised in 1993 and
has been classified as a vertical acquisition. Motives were to gain expertise in advanced
engineering and technology; and to access local OEMs in Sweden.

German Antenna

German Antenna was a division founded in 1980s within a large German telecommunications
company. The automotive division, German Antenna, was founded only in 1990s when there
was an increasing trend among end-customers in the automotive industry for hidden antenna
systems in their automobiles. The antenna trends identified back in the early to mid-1990s
initiated a shift from multiple discrete antennas towards an integrated antennas system.
German Antenna was the first company to come up with this hidden antenna technology and
was instantly a domestic market leader.

Today, the company has managed to sustain its market leader status as a supplier of
automotive antenna systems. Furthermore, the company has retained its well-known German
Antenna brand and has expanded into the mobile multimedia market. Customers include
DaimlerChrysler, BMW, Audi, Volvo, Volkswagen, Hyundai-Kia and others.

This fourth M&A occurred in 1995, and has been classified as a concentric acquisition. The
motives related to access to new automotive technology and thereby offering a wider package
of products and services to customers; and to strengthen First Automotive’s position in the
German market.

Vitae

PENELOPE QUAH, Strathclyde International Business Unit,

University of Strathclyde, Level 2, Stenhouse Building, 173
Cathedral Street, Glasgow G4 0RQ, UK. E-
mail: p_quah@yahoo.com

Dr. Penelope Quah is a market and financial analyst in Shanghai

for an American automotive firm; and a Research Associate in
Strathclyde International Business Unit at the University of
Strathclyde. Her research interests include managing cross-cultural
interactions in multinational enterprises, and integration in cross-
border mergers and acquisitions.

STEPHEN YOUNG, Strathclyde International Business Unit,

University of Strathclyde, Level 2, Stenhouse Building, 173
Cathedral Street, Glasgow G4 0RQ, UK. E-
mail: stephen.young@strath.ac.uk

Stephen Young is Professor of International Business in Strathclyde

International Business Unit at the University of Strathclyde. His
research and consulting interests concern multinational corporate
strategies, inward investment attraction and host country policies,
and outward internationalisation.

European Management Journal

Volume 23, Issue 1, February 2005, Pages 65-75