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Post Merger Control - an examination of tools for success measurement
Dokument Nr. V151806 http://www.grin.com/ ISBN 978-3-640-63743-0
9 783640 637430
2010 . 3rd Semester Fall Term 2009 May 28.Zeppelin University Department Corporate Management and Economics Controlling Paper Post Merger Control An examination of existing tools for success measurement Name: Degree program: Semester: Deadline: Karolina Danuta Kuta Corporate Management and Economics.
.. Bibliography.......... you cant manage it”.......Why do mergers fail? ................... The Integration Balanced Scorecard ........2 Content 1...............................................5 3................. 10 4............ Conclusion ............................................................8 3..................... 4 3....................... 3 2...................... 13 ...........................................................11 5........................................ .................................................... .................................... Introduction.1 The Integration Dashboard.............................................. ............. The challenge of merger control and success measurement “If you cant measure it...2 7 C Model ...........................................
153 4 Mitleton-Kelly 2006. but lead to an underestimation of functional and sustainable controlling systems. This proves why especially mergers and acquisitions require a higher degree of systematic controlling arrangements than other transactions. Their overwhelming impact on economic and integration success is the explanation why synergies projected for M&A are not achieved in 70-80 percent of the cases4. The Integration Balanced Scorecard is known as a multidimensional controlling system and includes the relevant factors for mergers. which include critical aspects for Post Merger Control.3 1. although they play a very important role in reimbursing expenses and capturing integration costs. But for many managers this fact still remains unrecognized and explanations are frequently seen in exogenous. This paper deals mainly with the Integration Balanced Scorecard as an approach to performance management with controlling and strategic elements by providing a balanced view of the organization and integration process. 36-37 .with great expectations of high returns and the accomplishment of transactions in an enormous speed. Focusing on the difficulty of the localization. 241 3 Jansen. During this development stakeholders became very influential and demanding actors. agreement and inflexibility often reach an unpredicted height3. which shows the interdependencies that have the most striking impact on the effective and profitable utilization of supposed synergies and corporate advantages.Why do mergers fail? The fourth Mergers & Acquisitions (M&A) wave1 is characterized by the extensive use of dept capital to finance merger deals and a very strong orientation on capital markets. This causes a strong concentration on overestimated synergies and high yields2. environmental factors. These shortcomings are the main reason for mergers failure. Rather costs caused by coordination. separation and final definition of ratios they will finally 1 2 1984-1989 Jansen. Introduction. After this short overview I will additionally present the Integration Dashboard and the 7 C Model.
the introduction of such a system should not be based on benefit. but do not implement even one of them as a result of comparisons with other merger arrangements5. further 9% for the formulation of common planning tools and finally 7% of a ratio-based post-merger audit system. an in. although it avoids unpleasant and irreparable results for the newly merged company and ensures a foundation for business management. Using them as decision making basis either leads to stagnation or incrementalizm.depth analysis of this issue is left for further research. So having regard on the altitude of investment and transactions costs. Having regard on the extend of this paper. 2. you can’t manage it” The challenge of post-merger integration is to carry out the transformation process from two different companies into one as smooth as possible. On the other hand. 91 . The challenge of merger control and success measurement “If you can’t measure it. one major problem can arise: many key ratios for integration success are hard or even impossible to measure quantitatively6. many arrangements do not solve the problem because of the absence of a depentful flow of information and statements about cause and effect coherences. Even if problems and misleading developments are recognized. Therefore. The missing transformation in indicators that function as critical key issues provoke an unsatisfactory performance. 203 Drews.4 be examined on their strengths and weaknesses concerning their practical use in dynamic and sensitive Merger processes. if quantitative indicators are used for integration success evaluation. Therefore it is really surprising that about 14% see the necessity for the consolidation of documentation systems. it is 5 6 Jansen.costs analysis. But a full localization of critical key issues is in case of the difficult separation of endogenous and exogenous influences rarely dependable. Further reasons for non implementation are high costs and the time intensive architecture of a controlling system.
complexity and inflexibility costs7. which could be fulfilled by certain analysis methods. At this point. The pre. In sum there is a high practical need for methods that help do increase the plausibility of the developed key factors. which are known as instruments for post merger controlling. The main goal of integration control is to measure how productive the integration activities are. consulting and adaptation costs.condition for this is the 7 Drews. it is necessary to have a closer look at their internal construction in order to find out if they are nevertheless useful as a decisionmaking foundation and if there were gaps. 3. The connection of both are essential for clarifying the effectiveness as the degree of goal achievement by taking specifically determined periods of time and available resources into consideration. The following part deals with the examination of typical models. After showing up the problems of reliable measurements. Characterizing them as time and resources consuming factors. The aim is to evaluate the purely economic success of the merger transaction in general and of the post. temporal aspects of integration and integration costs. All of them can reach very high levels. To reach a high degree of reliability.merger integration in particular. post merger control represents an essential component for financial merger success. The Integration Balanced Scorecard After the transaction stage has been taken it is time to look at what has actually been done. so that it is indispensable to observe them in order to find out whether there are possibilities for rationalization. different types of integration costs can be distinguished: coordination.5 critical to make sure that they really reflect the qualitative side and indicate largescale changes. 91 . they must be primary based on the most important aspects for sustainability: the degree of goal achievement of integration. which are even harder to quantify as restructuring.
organization and innovation. Employee perspective shows whether all capacities are used and what postmerger development means for the employees. Financial/economic perspective How does economic success look like? Customer and public perspectives Do we meet the expectations of our customers? How does the public opinion look like? Strategy vision. financial and non. indicators. It describes the integration of business strategy. Whether the merged company meets expectations of the customers and how the public opinion looks like is described by the customer and public perspective. past and future performances9. 164 . merger logic Organization and innovation perspectives How can we improve the overall PMI process and innovation potential? Employee perspectives What does post. 387 Drews. The four perspectives need to be balanced with respect to internal and external. etc. the ability to raise funds. profits.6 indemnification of consistence common targets and a functional process auditing8. objectives.merger development mean for employees? Figure 1. vision of merger logic. Organization and innovation perspective is about ways for the improvement of overall post merger integration process and innovation potential. The Post-Merger Integration Balanced Scorecard Source: Jansen (2001. 238) 8 9 Picot.financial. The financial perspective shows how the economic success of the company looks like by using such indicators as operating income. measures. The Integration Balanced Scorecard presents an approach to performance management and provides a balanced view of organization and integration process. employees and customers. and adjustment actions with respect to the four merger perspectives: finance.
the Integration Balanced offers a great system of checks and balances. Ohlendorf.oriented strategy for minimizing this gap.7 But during the conception one major problem can arise: many components of integration success. This could be done by the value chain analysis13. the evaluation of integration success should have the requirement to reach high valid and probable results. 101 Picot. primarily for the minimization of principal. Hence the construction of the Integration Balances Scorecard requires detailed and separable information. driven by the aim of securing that all delegated duties and responsibilities are located in the working unit of the actors and that they operate on full capacity utilization10 to raise the degree of efficiency of the transaction11. which cannot be achieved with interviewbased total analysis. are hard to measure quantitatively. which gives information for developing operative improvements in strategic decision-making processes. Instead of this the use of normative reporting and documentation systems15 ensure a high level of objectivity and could be seen as the only reliable method. 127 14 Jansen.declarations14. whose results are subjective self. One further challenge is the separation of key ratios from intervening variables. Taking this challenges and the variety of integration aspects under consideration.175 . The operational capability could be ensured by developing a gap analysis. for example the employees’ adaption.9 12 Huch. Behme. but also has some gaps which have to be fulfilled 10 11 Wall. The measurement of committed organizational behavior could be realized by consequent monitoring arrangements. which determinates the differences between present achievements and arranged objectives concerning intended goals and gives the needed information for setting up a problem. which can function as a reasonable judgment about integration effectiveness. in order to establish dependable factors that cause value enhancement and value destruction12. 259 13 Gleißner.agent problems. In summary. Therefore it is critical to ensure that they reflect the qualitative side of their impact. 111 15 Drews.
1 The Integration Dashboard In comparison to the presented merger controlling system above. that function as the most important factors for the control of synergy realization17.Merger phase16. Being centralized positioned it is closely linked to following hard issues: Figure 2.The focus here lies on the cultural integration because this element shall be deemed to be the most critical factor for the failed realization of supposed synergies and financial benefits18. the integration dashboard gives a four dimensional view on resource transfers. 153 . 3.14 Bark.8 in order to provide time based comparisons of actual results and the planned outcome with regard on clearly stated objectives appointed in the Pre.143 18 Bark. The Integration Dashboard Source: Bark (2002. 156) 16 17 Picot.
Ohlendorf. Behme. 126 Drews. An additional advantage is given by the integration of warning systems in order to control transfer processes22: if hard rations reach a certain altitude.9 The Integration Dashboard is the only controlling instrument that includes most measureable criteria in reciprocation with factors as know. Having in mind that the compositions of measures include factors which cannot be localized and transformed into data19. because of its strong financial-related intention and the analysis of the majority of changes and dynamics right along the added value chains. an oversimplification of facts with a high loss of information occurs.89 21 Wall. such as the impact on intangibles20. Summing all this up the application of the Integration Dashboard guarantees a low influence of subjectivity. but support the continuous modification caused by the rapid change of parameters that appropriate the validity of the ratios. so that reactive arrangements could be developed as a contribution to the continuous process improvement. 86 22 Huch. Even the use of business planning systems21 give no information about their level of influence. 240 . So planning and controlling seems to be easily possible by giving information about misleading developments that enable corrective arrangements. 19 20 Drews. mistakes are recognized immediately.how and cultural transfer.
The 7 C Model of Integration Source: Jansen (2001. Regarding post merger audit as an element in between all internal interdependencies determining the overall success of mergers. 23 Jansen. 229 . One further role of this model is the determination of integration costs by comparing them with the added value of synergies in order to examine if the merger deal is valuable in long terms23.10 3.2 The 7 C Model of Integration All the critical aspects of the post merger management can be gathered together to form the so called 7 C model of integration controlling.merger management that directly influence costs of integration: Figure 3. The seven core elements constitute different fields of post. 230). the negligence of other factors would show up contorted experienced data and no reliable state of the merged company that could have disastrous effects for the decision making process.
The Integration Balanced Scorecard with the intention of maximizing multidimensional targets can finally be seen as a direction select. although the synchronization of all dimensions of the corporate architecture is crucial for the realization of synergies and value improvement potentials. So even if the merger phase went on smoothly the transaction can still fail to yield expected results if firms chose to merger but not to integrate.wise by emphasizing some elements.alternatives in aim of cost and uncertainty minimization must be an active part in merger controlling as a political component.destitute and must be defeated with regard on their application as each individual case. That is the reason why the introduced models represent great basic approaches. having impact on the target output and finally on stakeholders contributions. but it does not function as an established controlling instrument. but cannot be seen as an all round tool. therefore. available resources and external parameters the own action.making.11 4. while integration is often left aside. which is the most important element for ensuring functional operative processes and increasing the company’s` value. In view of the overall economic success. Conclusion Mergers are accompanied by influences. The Integration Dashboard concentrates on internal resource transfers. Above all the latter controlling tools for M&A should find with respect to the rising environmental complexity more attention. Nevertheless. Consequently. administrative influence on the financial space to move could play an important role. as a consequence of mergers being a subject of irregular. dynamic . why scenario planning with working out action. the nonharmonization of common targets leads to a lack of information and a high degree of uncertainty in decision. Nevertheless the primary focus lies on the transaction itself. however. that differ very strong form each other and cause difficulties in multidimensional sizes and intensities. The 7 C Model illustrates upcoming interdependencies and functions as a framework for integration cost controlling. it must be kept in mind that there is no best practice method in general. they still are enlargement. because every merged company stresses and defines in consideration with internal. ignoring others and adding absent ones.
12 changes which make individual modifications indispensable. .
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