Description

BACKGROUND

All companies strive for growth. Strategic plans are prepared identifying new products and services to be developed and new markets to be penetrated. Many of these plans require mergers and acquisitions to obtain the strategic goals and objectives rapidly. Yet often even the best-prepared strategic plans fail when based on mergers and acquisitions. Too many executives view strategic planning for a merger or acquisition as planning only and often give little consideration to implementation, which takes place when both companies are actually combined. Implementation success is vital during any merger and acquisition process.

PLANNING FOR GROWTH

Companies can grow in two ways—internally or externally. With internal growth, companies cultivate their resources from within and may spend years attaining their strategic targets and marketplace positioning. Since time may be an unavailable luxury, meticulous care must be given to make sure that all new developments fit the corporate project management methodology and culture.

External growth is significantly more complex. External growth can be obtained through mergers, acquisitions, and joint ventures. Companies can purchase the expertise they need very quickly through mergers and acquisitions. Some companies execute occasional acquisitions while other companies have sufficient access to capital such that they can perform continuous acquisitions. However, once again, companies often neglect to consider the impact on project management after the acquisition is made. Best practices in project management may not be transferable from one company to another. The impact on project management systems resulting from mergers and acquisitions is often irreversible, whereas joint ventures can be terminated.

Project management often suffers after the actual merger or acquisition. Mergers and acquisitions allow companies to achieve strategic targets at a speed not easily achievable through internal growth, provided the sharing or combining of assets and capabilities can be done quickly and effectively. This synergistic effect can produce opportunities that a firm might be hard-pressed to develop by itself.

Mergers and acquisitions focus on two components: preacquisition decision making and postacquisition integration of processes. Wall Street and financial institutions appear to be interested more in the near-term financial impact of the acquisition rather than the long-term value that can be achieved through combined or better project management and integrated processes. During the mid-1990s, companies rushed into acquisitions in less time than the company required for a capital expenditure approval. Virtually no consideration was given to the impact on project management and on whether project management knowledge and best practices would be transferable. The result appears to have been more failures than successes.

When a firm rushes into an acquisition, often very little time and effort are spent on postacquisition integration. Yet this is where the real impact of the acquisition is felt. Immediately after an acquisition, each firm markets and sells products to each other’s customers. This may appease the stockholders, but only in the short term. In the long term, new products and services will need to be developed to satisfy both markets. Without an integrated project management system where both parties can share the same intellectual property and work together, this may be difficult to achieve.

When sufficient time is spent on preacquisition decision making, both firms look at combining processes, sharing resources, transferring intellectual property, and the overall management of combined operations. If these issues are not addressed in the preacquisition phase, then the unrealistic expectations may lead to unwanted results during the postacquisition integration phase.

STRATEGIC TIMING ISSUE

Lenore Industries had been in existence for more than 50 years and served as a strategic supplier of parts to the automobile industry. Lenore’s market share was second only to its largest competitor, Belle Manufacturing. Lenore believed that the economic woes of the U.S. automobile industry between 2008 and 2010 would reverse themselves by the middle of the next decade and that strategic opportunities for growth were at hand.

The stock prices of almost all of the automotive suppliers were grossly depressed. Lenore’s stock price was also near a 10-year low. But Lenore had rather large cash reserves and believed that the timing was right to make one or more strategic acquisitions before the market place turned around. With this in mind, Lenore decided to purchase its largest competitor, Belle Manufacturing.

PREACQUISITION DECISION MAKING

Senior management at Lenore fully understood that the reason for most acquisitions is to satisfy strategic and/or financial objectives. Table I shows the six reasons identified by senior management at Lenore for the acquisition of Belle Manufacturing and the most likely impact on Lenore’s strategic and financial objectives. The strategic objectives are somewhat longer term than the financial objectives, which are under pressure from stockholders and creditors for quick returns.