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Introduction

Mergers and acquisitions (M&A) are terms used to describe a deal that brings two companies together. While often used interchangeably, the two terms have different legal meanings.

Merger

The combination of two companies. The result is a new legal entity that operates under the banner of one name. An example would be the 1998 merger of Exxon and Mobil.

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Acquisitions

When one company purchases another. The company that’s been bought doesn’t cease to exist or change its name. Instead, it’s just owned by the parent company. Think Disney acquiring Marvel.

To gain an edge over their competition, organizations frequently merge and acquire each other, combining their activities and pooling their market shares. M&A, while inherently risky, provide enormous potential for growth that can’t be achieved as quickly through traditional organic development.

This practise has become so common that a recent EY survey revealed 56% of those asked admitted they're planning to actively pursue M&A in the next 12months - even with the current uncertainly caused by the coronavirus pandemic.

M&A are so popular because of the prospective benefits an organization can achieve if successful.

  • Reduced costs and overheads through shared marketing budgets and increased purchasing power.
  • Businesses in the same sector or location can combine resources to reduce costs, remove duplicated facilities or departments and increase revenue.
  • Fewer competitors. Buying up new intellectual property, products or services may be cheaper than developing these yourself and allow you more space within a crowded market.
  • Accessing valuable employee knowledge. It can be difficult to find the right talent in niche industries. M&A allows organizations to harness insight that would otherwise be unavailable.
  • A more diversified range of products and services. It might be too expensive to launch new products alone. Instead, combine with an existing organization and access their range.
  • These enticing benefits are often enough for organizations to attempt risky M&A deals without proper preparation or planning. The result is a myriad of failed mergers and unnecessary acquisitions that cause more harm than good for the parent company.

Head to the next section to see why so many major deals are considered failures when we look back at them.

Why are Most Mergers and Acquisitions Considered Failures?

A Harvard business report estimates 70-90% of all mergers and  acquisitions fail.That's an incredibly high failure rate and should act as a major red flag to any organization thinking of heading down the sample path without taking the necesssory steps beforehand.

Mergers and acquisitions should never be undertaken lightly. You’re asking two companies to integrate under one corporate mission which is difficult enough. But consider that you’re also bringing together teams with their own personalities, ambitions, behavioral traits, cultures, and processes. Start to add multiple offices, cross-border IT infrastructure and differing financial regulations and things get even more complicated.

Here’s a quick run-through of three previous disasters to give you an idea of what you’re up against without the right support or plan in place.

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Microsoft and Nokia

Microsoft was falling behind its competitors in the world of smartphones and saw an opportunity to close the gap in Nokia. The acquisition of Nokia by Microsoft was completed in 2014 for an estimated $7 billion.

The first joint venture (the Lumia phone line) was a commercial flop and major streamlining needed to take place to balance the books. Large scale layoffs took place at Nokia and the whole thing was written off a year later.

Hewlett Packard and Autonomy

HP’s huge 2011 acquisition of European data analytics company Autonomy came to around $11 billion when the final tally was calculated. Experts questioned the move and weren’t sure how this new venture fit within HP’s traditional strategy.

Unfortunately for HP, they later realized Autonomy had been massively overvalued due to some financial irregularities and the whole thing had to be written off for a $9 billion loss five years later.

eBay and Skype

An acquisition that really falls into the ‘unnecessary’ category. The thinking behind eBay’s 2005 acquisition of Skype was that it would allow buyers and sellers an easy way to connect and get in touch.

Perhaps unsurprisingly, eBay users had no real need of this feature and emails continued to suffice. The acquisition cost $2.6 billion (in 2005!) but was labeled a failure and the majority of Skype was sold for a loss four years later.

These examples show even the biggest organizations in the world can misjudge the complexities associated with mergers and acquisitions. They have teams of financial and legal experts and they still ran into serious difficulties.

For an idea of some of the most common pitfalls businesses encounter during a merger or acquisition, head to the next section.

5 Common Pitfalls You Need to Avoid

1. Poor Communication

Like with any business deal or transaction, communication is key. From the outset, it’s vital everyone is on the same page and is aware of the type of merger or acquisition taking place.

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If the purpose behind the merger or acquisition isn’t communicated to all those involved, then problems can soon start to surface. Make sure everything is crystal clear to stakeholders, employees, and anyone else who might need to know so everything runs as smoothly as possible.

Like with any business deal or transaction, communication is key. From the outset, it’s vital everyone is on the same page and is aware of the type of merger or acquisition taking place.

Although all parties are trying to achieve the same thing, if either company feels as though they’re getting a poor deal then they’ll pull the plug.

Even something as simple as paying too much for the acquisition can lead to problems down the road.

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3. Issues with Integration

The real work begins once everything is signed on the dotted line. Bringing together two disparate teams who have conflicting ideas and processes is no easy feat. A successful integration requires a lot of work, energy, and patience — things that are often in short supply.

4. Outside Influences

Even if everything’s gone perfectly, there’s always the chance that failure will be caused by something completely out of your hands. As we showed earlier, some of the largest mergers and acquisitions of all time have had to carefully navigate external factors that were out of their control.

The 2008 Financial Crisis and the COVID-19 pandemic are just two examples of outside influences playing havoc with even the best-laid plans.

5. Cultural Problems

Even within the same industry, two companies can have completely opposite processes, approaches, and cultures. Fail to marry these effectively and the merger or acquisition will be in danger of collapse.

Add to this the complications caused by acquiring a business from another country. Time zones, language barriers and cultural customs can all create serious headaches.

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The Role of a Global PEO in Mergers and Acquisitions

A Global Professional Employer Organization (PEO) offers a quick solution for organizations looking to take advantage of  markets and talent overseas by becoming a company’s global Employer of Record (EOR).

They enable companies to hire employees anywhere in the world quickly, compliantly, and without the hassle or need to create a foreign legal entity.

A Global EOR removes any need for an organization to have legal ties with their international employees. That means the Global PEO bears all employment risks and can hire employees in any country while ensuring that all statutory requirements related to employment law are taken care of.

So, how can a Global PEO help during a merger or acquisition?

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A Simplified Transition

Transitional services agreements (TSAs) are common when it comes to M&A. They’re used in situations where the buyer doesn’t have the systems or management in place to absorb the acquisition and the seller can offer them for a fee. These services can include IT, accounting, finance, and other relevant infrastructure needs.

While TSAs are common, they can present challenges for both buyers and sellers. That’s where a Global PEO can come in to streamline the process. Global PEOs enable companies to complete the transaction without a TSA and offer a low-risk alternative to using the seller’s existing payroll through a TSA.

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Streamlined HR

A Global PEO is an effective way to identify and vet leadership teams, compliance issues and company cultures.

These priorities often fall by the wayside but they play a significant role in valuing a company.

If your organization is working across borders, then it’s vital you’re fully versed in the specific regulations or employment in the countries you’re working in.

Any mistakes or missteps and you’ll find the road to completion a long and taxing one.

Global PEOs assist with crucial HR elements including:

  • Training programs
  • Paid time off policies
  • Payroll administration
  • Job titles and reporting structure
  • Employee onboarding and offboarding
  • Employment contracts and agreements
  • Performance evaluations and incentive programs


Integration and Employee Retention

Integrating two organizations and retaining key staff during mergers and acquisitions is always a challenge. A Global PEO will provide a turnkey solution that assists global companies in transitioning their key personnel without compromising on either company’s productivity or growth.

A Global PEO will provide key support when moving new employees to your existing infrastructure, leaving you free to focus on the essential things like running your business. We know these processes require a lot of time, energy and focus so the support of a Global PEO is worth its weight in gold.

Through effective planning and clear communication, many risk factors can be mitigated to improve employee retention.

How to Get Started; It’s Never too Late!

A Global Professional Employer Organization (PEO) offers a quick solution for organizations looking to take advantage of markets and talent overseas by becoming a company’s global Employer of Record (EOR). They enable companies to hire employees anywhere in the world quickly, compliantly, and without the hassle or need to create a foreign legal entity.

1. Develop a Robust Strategy

First things first, outline what you hope to achieve by acquiring or merging with another company. Take into consideration the current market conditions, your financial position, and future projections. The more work you put into the planning stage of the process, the easier you’ll find things as they progress.

2. Establish the Ideal Criteria

Whether you have a particular business in mind or not, outline what the ideal company would look like.

Think about its size, financial position, global reach, product range, customer base, existing employees, and anything else you’re looking for in a target. With this information in mind, you can begin your search.

3. Find the One

The more detailed the criteria, the more you can narrow down potential candidates to find the right business for your investment. Once you’ve found the one, it’s time for more planning. Think about how the acquisition or merger would work and create a summary of the deal. Then, get in touch with them.

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4 Calculate Their Value

This is a crucial step. If you make mistakes, you might have similar problems to so many organizations that have failed. You’ll need important business information from the target company so you can effectively determine their value. It isn’t just a case of looking at the numbers, though. Do they tick all the other boxes?

Negotiate

Another crucial step. Negotiations are always complicated and can make or break a deal. Be as thorough as possible to ensure everything is discussed that needs to be. Don’t make the same mistake as eBay and don’t be afraid to take some time to weigh everything up before signing on that dotted line.

This shoud take you all the way up to that handshake moment. However the hardwork is only just beginning.

Next, you'll need to think about performing due diligence, creating purchase contracts, confirming financial strategies and the long process of integration. As we said, it's a long process, but if the stars align the benefits are worth it.

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Next Steps

Mergers and acquisitions can be long- winded, complicated processes that require a lot of time and energy.

Regardless of scale, it’s a huge undertaking for any business. For the best chance of success, it’s important to have the right support at your disposal.

We know you have a million and one other things to think about which is why working with a Global PEO during a merger or acquisition is such a smart thing to do. Get in touch with our team today and provide details of your plans and we’ll outline just how we can help.

From payroll management to seamless integrations across borders, we’re on hand to reduce your stress and ensure the entire process runs smoothly. Contact us now and find out how we can ensure you deliver your merger or acquisition on time and under budget.

Contact Us Today

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