Mergers And Acquisitions

MERGER AND ACQUISITIONS

Growth is Crucial

Increased competition, an inevitable result of a market's potential for profits, causes firms to cut prices in order to maintain sales. Provided that a firm's marginal costs remain the same, productivities are stagnant, and sales levels are maintained as a result of price cuts, lower prices will directly affect profitability. Thus, in order to increase profitability, growth is imperative. Inherent in the nature of expansion, new opportunities are available for capitalization. These include the firm's entry into new markets and ventures, thus achieving a level of diversification that mitigates the risk resulting from the acute concentration of resources.

Organic v. Acquisition

Business growth can be broadly divided into two schools: organic and acquisition. Organic growth represents a firm's natural expansion as its businesses gradually develop and increase in scope. Microsoft's rise to the top of the software industry exemplifies organic growth. Acquisition growth is a more rapid vehicle that achieves growth through the purchase and integration of existing firms. Acquisition represents a breadth of complex financial vehicles offering firms multitudes of growth opportunities. The quickness and flexibility that results from various forms of acquisition has revolutionized the way businesses think about strategy, and achieving corporate development. As an investment vehicle acquisition's strengths have given birth to its weaknesses. For example, acquisition growth's versatility has created a wide breadth of diverse applications. The increasing sophistication of these uses has manifested itself in firms' seeming lack of understanding of acquisition.

Forms of Acquisition

Investment bankers have long referred this form of growth as "mergers and acquisitions." This term is misleading, as it is often quite difficult to differentiate between the two. Within this industry, each "deal" is different and subsequently tailored to firms' unique characteristics. No two deals are the same, as no two firms are identical in their structures or objectives. Acquisitions are carried out to achieve myriad forms of growth. A deal could refer to the purchase of a competitor's portfolio or assets, thus achieving growth without increasing payroll. (Ashkenas, 168) Whole or parts of competitors may be purchased and integrated into existing ventures, thus achieving growth within the firms' previous businesses. Acquisition can also be used as an effective tool to enter markets, thus generating a new business. (Ashkenas, 168)

1 + 1 = 3

When a merger/acquisition occurs within an organization, leader behavior, environmental contingency factors, and subordinate contingency factors plays a critical role and should be observed and applied. Our organization developed a leadership plan for the merger/acquisition based on the path-goal theory. For leaders to become an effective leader he or she must understand what the path-goal theory is and what it entails.

The path-goal theory basically represents how leaders motivate their subordinates, or followers to complete an end goal. This theory argues that a leader can change a subordinate's expectation by clarifying the path between the subordinate's action and the outcome, which is the goal employees want to achieve. A leader can display the following four different types of leadership styles depending on the situation (Kreitner & Kinicki, p 564-566).

Ш Directive Leadership: The leader provides guidance to employees about what should be done and how to do it, scheduling work, and maintaining standards of performance.

Ш Supportive Leadership: The leader shows concern for the well-being and needs of employees, being friendly and approachable, and treating workers as equals.

Ш Participative Leadership: Consulting with employees and seriously considering their ideas when making decisions.

Ш Achievement-oriented leadership: Encouraging employees to perform at their highest level by setting challenging goals, emphasizing excellence, and demonstrating confidence in employee abilities.

The employee's motivation, satisfaction, and work performance are dependent on which leadership style the supervisor chooses. Implementation of the theory can increase and influence performance by recognizing and activating needs over which you are in control of. Leaders can increase payoffs for attending work goals, but the path to payoffs must be made easier by coaching and providing direction. According to the path- goal model, leaders behavior is acceptable when employees view it as a source of satisfaction or as paving the way to future satisfaction (Kreitner & Kinicki, p562).

In correlation with the path goal theory, the environmental contingency factors play a crucial role in the leaders behavior during the process of the merger and acquisition (M&A) as well. Environmental factors are those that are beyond the control of the leader. They include, but are not limited to: task structure, formal authority system and work group. The leader must take into consideration the environmental factors when clarifying the path of desired outcome to employees.

First, let us identify task structures, authority systems, and work groups. Task structure during an M&A can take place in many forms but generally there are two different structures. It can be ambiguous or unclear, often causing stress amongst employees, or the structure can be well laid out and highly structured. Formal authority systems chosen for the M&A can also take on several forms. They are divided into two categories, either the mechanistic model or the organic model, whether it is the simple structure, bureaucracy, matrix, team, virtual, or boundary less organization. The mechanistic model is primarily the same as a bureaucracy. The focus is extensive departmentalization, high formalization, limited participation and little communication and participation by low-level members in decision-making. To the contrary, the organic model utilizes cross hierarchal/ cross functional teams, low formalization, comprehensive network of communication, and has a high level of participation in decision making. (Robbins, 292). Work groups are dependent upon several variables: how much conflict is within the group, the group skill level and the right mix of individuals to form a successful group.

Taking into consideration the various leadership behaviors and environmental