Risky Business of Business Mergers and Acquisitions

By Rhonda Campbell

Trends have shown that marriages between individuals don’t always turn out the way people who enter the unions imagine that they will. Even if marriages endure the test of time, they may not yield joy, fulfillment and peace the way people expect. It’s no different with business mergers. These business mergers and acquisitions can look beautiful, like winning pacts, on paper, then turn out to be anything but a winning coming together.

Risk Associated with Business Mergers and Acquisitions

It’s risky business. Major corporations, Fortune 500 firms, have performed business mergers that proved to be less than profitable. In effort to reduce losses associated with mergers, organizations can develop teams to conduct thorough due diligence action steps related to upcoming mergers and acquisitions. Some of these due diligence steps may include meeting with managers at acquired firms and discussing existing policies and processes at the firms, holding town halls to introduce employees at acquired firms to benefits, procedures, etc. at acquiring companies and reviewing employee payroll databases to become familiar with payroll expenses, title structures, etc. at acquired companies.

Acquiring companies can also review business plans and financial statements at acquired firms. However, the best company mergers come with risks. For example, cultures at acquiring and acquired organizations may differ so much that workers at acquired companies have trouble understanding and/or accepting cultural practices observed at acquiring firms. This can cause internal resistance which can negatively impact employee engagement, motivation and performance.

There’s another component to business mergers that’s typically unpleasant. However, executives at acquiring and acquired firms almost always promise employees at both organizations that this unpleasant event won’t occur. The desire to keep employees from looking for employment elsewhere and resigning is likely a driving force behind this executive decision. Yet, when companies merge, it’s common for workers to get laid off. In fact, after a merger and acquisition between two large corporations is finalized, tens of thousands of employees may receive a severance package.

Growing Costs of Company Mergers and Acquisitions

These severance packages are not cheap. Google is one of the major corporations dealing with the rising costs of severance packages associated with company mergers. After the search engine giant purchased Motorola, it set about restructuring the organization, working to blend Motorola employees into its existing workforce. As reported in Reuters’ October 4, 2012, “Google Warns of More Motorola Cuts, Revises Up Third Quarter Bill” article, “Google Inc raised its estimate of the cost of job cuts at its money-losing Motorola Mobility unit.” The article continues, “Severance-related charges at its mobile phone unit will be 9 percent higher at $300 million, Google said, adding the bill may rise another $40 million in the quarter after the exit of facilities and markets.”

In addition, if companies start experiencing consistent losses in one or more of its divisions, it might start shopping for a buyer, hoping to dump the weighty division on a firm that has the pockets to absorb the losses. Information Weekly Mobility reports in its October 4, 2012 “What T-Mobile, MetroPCS Merger Means for Business” article that this is what Deutsche Telekom is trying to do with T-Mobile. In the article, it says, “T-Mobile USA’s parent company, Deutsche Telekom, is desperate to rid itself of the fourth-largest wireless network operator in the country.” The article goes on to say, “T-Mobile USA has underperformed against its larger rivals for years now (partly because it doesn’t have the iPhone) and Deutsche Telekom would rather focus its resources on other projects.”

Mergers and acquisitions are a part of today’s business environment. Successful business mergers can generate millions of dollars for an acquiring firm in a short amount of time. On the other hand, unsuccessful company mergers can cost more than they’re worth. As hard as companies try, it’s often difficult to tell whether mergers and acquisitions are a good business move until after the marriage has taken place, when it’s too late to back out.

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http://www.informationweek.com/mobility/business/what-t-mobile-metropcs-merger-means-for/240008494 (Information Week: What T-Mobile, MetroPCS Merger Means for Business)

http://www.reuters.com/article/2012/10/04/us-google-motorola-idUSBRE8930L020121004 (Reuters: Google Warns of More Motorola Cuts, Revises Up Third Quarter Bill)

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