Post-acquisition Management:

European Management Journal Vol. 23, No. 1, pp. 65–75, 2005 Ó 2005 Elsevier Ltd. All rights reserved. Printed in Great Britain 0263-2373 $30.00 doi:10.1016/j.emj.2004.12.010

Post-acquisition Management: A Phases Approach for Cross-border M&As PENELOPE QUAH, University of Strathclyde STEPHEN YOUNG, University of Strathclyde Achieving successful integration of mergers and acquisitions (M&As) continues to pose serious challenges for cross-border acquirers. In this article we suggest that to improve success, the post-acquisition management process should be divided into a number of phases with defined objectives and actions. This paper provides preliminary evidence drawing upon the post-acquisition management of four European M&As undertaken by an American automotive MNE. Implications for managers (relating particularly to cultural and organisational integration) and further research are suggested. Ó 2005 Elsevier Ltd. All rights reserved. Keywords: Mergers and acquisitions (M&As), Employee behaviour, Culture and performance, International management

Introduction The objective of this paper is to provide lessons for successful post-acquisition management in cross-border M&As. It draws on evidence from a longitudinal case study of an American multinational in the automotive supplier industry and its four European acquisitions undertaken in the first half of the 1990s. Applying a framework developed from the literature, the study reviews and evaluates the company’s postacquisition management, and presents managerial lessons emphasising in particular the handling of national and organisational cultural differences. There is continuing concern about the relatively low success rate in M&As. One explanation lies in the

European Management Journal Vol. 23, No. 1, pp. 65–75, February 2005

problems of combining separate organisations with different organisational cultures and management process systems. This creates difficulties both for the achievement of specific combination benefits and for the normal functioning of a group consisting of previously separate organisations. Furthermore, cross-border M&As are generally more difficult and riskier as generic problems of acquisition are compounded by differences in national cultures, language differences, political influences and regulatory hurdles (Angwin and Savill, 1997). Several management surveys on cross-border M&As in the mid-1990s concluded that the value of shares held by owners declined in more than half of the cases examined, while increases in the value of shares followed only a small proportion of all M&As (AT Kearney, 1999; KPMG, 1999). There is evidence of improved performance in acquirees, but this might be compensated for by negative effects at the level of the newly created group (UNCTAD, 2000). Generally there are difficulties in determining the success criteria to be applied in measuring acquisition effects, and the counterfactual question (what would have happened in the absence of the acquisition) is problematic (UNCTAD, 2000). One of the explanations as to the why success rate is reportedly poor is because the time period allocated to measure performance is restricted to a short period, commonly 2 years. The argument presented here is that this may be an insufficient amount of time for the management and employees of the firms involved in the M&A to adjust to the post-acquisition changes. In this paper, the post-acquisition process is analysed over a period of at least 7 years. The research also allowed the possibility of tracking the

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patterns of management and employee behaviour from both acquirer and acquiree perspectives. This then permitted the identification of a series of discrete manageable phases in the integration process. It is argued that if, at the outset, the M&A team divides the process into phases, it will be better able to anticipate and manage the setbacks or problems identified in each phase; in addition, it may be possible to predict when post-acquisition problems are most likely to occur. The article is organised as follows. In the following section we identify and define the influencing variables in the post-acquisition management process. In the third section, the research methodology is discussed and justified. In the fourth section, we briefly summarise the results from the case studies and propose a framework for post-acquisition management for use by M&A executives. In the concluding section, we present the managerial implications of this study for post-acquisition management activities across national boundaries.

The Post-acquisition Management Process: Relevant Literature The cross-border post-acquisition process has been likened to a negotiation process in a business setting in which control mechanism and procedures as well as access to knowledge and know-how are negotiated between the acquirer and the acquisition target (Gertsen and Søderberg, 1998; Vaara, 2000). It is in this stage, where employees are forced to work with each other, that they will encounter directly the cultural differences in values, beliefs and assumptions in cross-border M&As. There is a mutual dependency between both parties. This interdependence is characterised by interlocking goals—where parties need each other in order to accomplish their goals. Both parties know they can influence each other’s outcomes, and their outcomes can, in turn, be influenced by each other (Ritov, 1996). Drawing from the strategic management, organisational behaviour and process schools of thought in the M&A literature (Haspeslagh and Jemison, 1991), the current authors identified the factors influencing the post-acquisition management process as being: v v v v v

Level of integration; Post-acquisition changes; Timing of changes; Cultural influences; and Employee behaviour in the acquired firm.

The interactions of these factors formed the basis of a conceptual post-acquisition management framework within which the empirical study was designed, and the conclusions and recommendations were drawn (see Figure 1). 66

Level of Integration The level of integration is based on multiple decision criteria including strategic task needs, organisational task needs, cultural factors and political factors (Pablo, 1994). There is agreement in the literature that integration is an interactive and gradualist process in which both sides learn to work together and cooperate in the transfer of strategic capabilities. Haspeslagh and Jemison (1991) developed a contingency framework to understand and facilitate this process, depending upon the need for strategic interdependence and the need for organisational autonomy. For example, a preservation strategy is proposed when there is a low requirement for strategic interdependence and a high need for organisational autonomy in the acquired firm. An absorption strategy is suggested when there is a high need for strategic interdependence and a low requirement for organisational autonomy in the target firm. The appropriate strategy is related to the nature of the acquisition, as between horizontal (‘domain-strengthening’), vertical and concentric (‘domain-extension’), and conglomerate (‘domain-exploration’) M&As. While this work is influential, it mainly focused upon M&As in a domestic setting, and hence did not consider the importance of managing cultural differences or acculturation modes during the post-acquisition process; and did not allow for flexibility of approach to reflect changing circumstances. Post-acquisition Changes Research in this area is still highly fragmented. Attention in the literature is given to the human resource management issues, which include human resource planning and downsizing, training, and changes to systems for communications and rewards (Napier, 1989). There is little research into the timing and effects of post-acquisition changes. Angwin (1998) suggests that there are clear parallels between post-acquisition management and corporate turnarounds, and draws upon turnaround studies such as Slatter (1984) and Grinyer et al. (1988) to identify the main areas of change involved. These major changes in management include the replacement of the CEO; stronger financial controls; intensive efforts to reduce production costs; an increased importance given to marketing, especially customer relations and a new product market focus; and debt reduction. The evidence also indicates that CEOs appointed from outside the acquired company will replace more subordinates and generally bring about more change than will insider CEOs who hold continuing appointments or come from other positions within the acquired firm. Timing of Changes The pace of implementing the post-acquisition changes is a conflicting issue in the literature, with European Management Journal Vol. 23, No. 1, pp. 65–75, February 2005

POST-ACQUISITION MANAGEMENT: A PHASES APPROACH FOR CROSS-BORDER M&AS

Actions to be taken

6 months prior to M&A

Year 1

Years 2-5

Cultural audit on target. Conduct interviews among key management

Communicate cultural audit results

Communication link between both managements must be established quickly to discuss goals for the company.

Training provided for changes: language financial systems

Gradual changes in acquiree’s management: internal hire from acquirer’s firm or other subsidiaries external hire develop management skills for longterm Further training for other changes need to be introduced: new products & development, human resources, common IT systems, global purchasing systems NC factors: Communicate, measure & feedback: closely Language differences monitor behaviour Tolerance to uncertainty Individualism vs.collectivism Masculinity vs. femininity

Reassure employees that there will be no drastic changes NC factors: Language differences Power orientation differences

Cultural factors to be sensitive to

OC factors: Communication style differences

Set clear goals for the acquired firm.

Postacquisition changes

Provide culture sensitive seminars NC factors: Power orientation Language problems OC factors: Structures & controls Communication styles

Implement changes to financial reporting systems

Need to reassure acquiree’s management that the original leadership remains

Expected employee behaviour

Increasing resistance to the new procedures. Slow to accept reorganisation

Anxiety among the employees in the acquired firm

Integration team is needed to assist the process

Phase 1: Pre-acquisition

Phase 2: Slow absorption

behaviour and feedback Continuous sensitivity to NC differences needed

NC factors: Language OC factors: Communication styles

OC factors: Structures & controls Motivation/training/staffing Communication styles Implement the necessary common systems for both firms to function more effectively & efficiently: new products & development human resources common IT systems global purchasing systems Move toward best practice

Excitement at management level on both sides if impending M&A is a friendly bid

> 5 years Measure employee

Expect higher levels of resistance due to high level of changes Need consistent and constant communication between two firms between different levels of hierarchy

Phase 3: Very active absorption

Should have completed all necessary changes to achieve best practice and synergies in management skills & operational resources Acceptance that management style of acquirer cannot be changed. But some resistance apparent whenever new procedures are introduced

Phase 4: Totally absorbed

Figure 1 The Post-acquisition Management Process: Phases, Actions and Outcomes. Phase 1: Pre-acquisition. Phase 2: Slow Absorption. Phase 3: Very Active Absorption. Phase 4: Totally Absorbed

some researchers arguing that immediately after the close of the deal there is a period when employees at the acquired company expect and even welcome change (Searby, 1969; Shrivastava, 1986), while other researchers argue that firms should ‘go slow’ and prepare employees for change and reorganisation (Yunker, 1983). Management’s ability to implement changes affects the way employees perceive the trustworthiness of post-acquisition leadership. Researchers, who encourage quick change, argue that since employees anticipate reorganisation in the acquired company, quick-change implementation helps reduce uncertainty (Searby, 1969; Shrivastava, 1986). Some researchers argue that slow-change implementation is not a result of strategic planning, but a sign of ineffective management (Haspeslagh and Jemison, 1991). In a similar vein, Schmidt and Schettler (1999) argue that there is an incremental resistance to change over time. However, there is an argument that employees in a state of shock after an acquisition can only accommodate a limited amount of change initially; and, therefore, advocate a gradualist approach (Buono and Bowditch, 1989). Rosnow (1988) argues that the acquiring management requires time to learn about the acquired company before designing and implementing change. Frequent and helpful communication during this period will increase employee trust of management and will make reorganisation easier European Management Journal Vol. 23, No. 1, pp. 65–75, February 2005

subsequently. Furthermore, a gradualist approach permits greater learning about markets and environments, especially important in international M&As. This study takes a longitudinal perspective, and the timescale to determine the success of an M&A is a period of at least 7 years. The factors used to determine success are operating income, profit, headcount, and whether the synergies of the M&A have been achieved in the acquired firm.

Cultural Influences The literature drawn on cultural differences is derived from the organisational behaviour school of thought. The effects of culture can take place in the early stages of the acquisition process but are especially crucial in the post-acquisition management period. There have been relatively few studies researching both national and organisational cultures and the impact on the post-acquisition process. However, much of the research on cultural differences in M&A focuses upon management styles and practices, where incompatibilities and conflict can result from either national or organisational cultures (Norburn and Schoenberg, 1994; Marks and Mirvis, 2000). In this study, the authors assume that both national (NC) and organisational cultures (OC) influence the success of the post-acquisition management process. 67

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The impact of acculturative stress on the outcome of M&As is an issue investigated in the management literature (Berry, 1980; Nahavandi and Malekzadeh, 1988). It refers to the trauma and changes in behaviour created by the forced interaction of two different organisational cultures during the post-acquisition process. Most management research about culture has assumed that cultural differences imply acculturative stress. Recent research on European M&As showed that national cultures sometimes influence acculturative stress but not always in the expected direction (Very et al., 1998). Some examples of cultural differences elicit perceptions of attraction rather than stress. Furthermore, Very et al. (1998) found that some cultural problems associated with combining organisations were more amplified in domestic than in cross-national settings; this finding is completely opposite to that of previous studies (Schneider and DeMeyer, 1991). These contrasting results clearly indicate a need for further study in order to clarify a phenomenon, which is much more complex than that often proposed by business researchers. For example, Weber (1996) criticises the fact that most of the work about conflicts in M&As is anecdotal or non-theoretical in nature. Attempts to build analytical frameworks showed that culture is not an easy construct to manipulate and results are often contradictory from study to study (Calori et al., 1994; Morosini et al., 1998; Very et al., 1998).

Employee Behaviour The dimension of employee behaviour in the conceptual framework employed in this research is drawn from Lewin’s (1951) classic theory as to why people change. This dilemma was illustrated with his classic notion of ‘force-field theory’. The theory suggests that all behaviour is the result of equilibrium between two sets of opposing forces (what he calls ‘driving forces’ and ‘restraining forces’). Driving forces push one way to attempt to bring about change; restraining forces push the other way in order to maintain a status quo. Generally, human beings tend to prefer to use driving forces to bring about change. They attempt to ‘win’ by exerting pressure on those who oppose them. But according to Lewin’s model, the more one side pushes, the more the other side resists, resulting in no change. This research assumes that such opposing behaviour is magnified in a cross-border M&A context. It contrasts with the ‘win–win’ solutions now commonly proposed for negotiations and intercompany relationships.

Post-acquisition Performance There has been considerable debate as to the most appropriate and accurate way by which to assess M&A gains, both in terms of indices used and the 68

appropriate time span over which to judge performance (Lubatkin, 1983, 1987; UNCTAD, 2000). Many studies have found that M&As as a corporate strategy have dissipated instead of creating value for corporations. The success of an acquisition depends on the ability to create added value after it has taken place. However, the mere existence of potential value creation or synergism is no guarantee that this possibility will be realised. Some research indicates that M&As can have a negative impact on the economic performance of the new entity (Tetenbaum, 1999; Cartwright and Cooper, 1993). Also, realising performance gains can actually take several years; and commonly touted operating synergies, such as exploitation of economies of scale, can turn out to be extremely complex and difficult management tasks to implement, aggravated by conflict between the two parties in the acquisition (Haspeslagh and Jemison, 1991). Many studies have distinguished between the ‘hard’ (performance-related) and ‘soft’ (cultural issues) in investigating the success or failure of cross-border M&As; but more recently, the management of ‘soft’ factors in the post-acquisition process has been highlighted as a crucial factor. The latter approach is pursued in the present research, with the emphasis on national and organisational cultural factors; while the performance outcomes focus upon a mixture of hard and softer measures. What is clear from this literature review overall, is that identifying a successful management formula for the post-acquisition process is a crucial yet daunting task. Research is still lacking in respect, for example, of integrating national and organisational cultures in international acquisitions, of reducing managerial and employee resistance in acquired firms, and of determining the timescales over which integration objectives should be set and performance measured.

Methodology The study involved a longitudinal case study of one American multinational in the automotive supplier industry, and its four acquisitions into Europe undertaken during the years 1991–1995. The present paper forms part of a wider study on the impact of national and organisational cultures on the postacquisition management process. Three types of M&As were analysed: horizontal, vertical and concentric. The purpose was to compare the management processes for each type of M&A and to draw similarities and differences so as to provide a more complete picture of the management process. A US acquirer was selected because, as a country, it was the largest M&A buyer during the 1990s. In European Management Journal Vol. 23, No. 1, pp. 65–75, February 2005

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addition, its M&A cases studied involved the main M&A sellers in continental Europe identified during the same period, namely, Germany, France and Sweden. All four acquirees were of similar size, with fewer than 500 employees, and can be categorised as small&medium sized enterprises (SMEs). The names of the US acquirer and its acquisitions (2 in Germany, and one each in Sweden and France) have been suppressed in order to ensure anonymity. The backgrounds of the companies involved in this study are shown in Appendix. The research process was divided into three phases over a period of 13 months in 2001 and 2002, namely desk research on the company; interviews and questionnaire distribution at the various acquired sites; and interviews and questionnaire distribution at the North American headquarters. The primary instrument for data collection was indepth interviewing with senior managers and key employees from the acquirer and the target companies. This process allowed the author to gain insights from both parties in the post-acquisition process. In order to obtain richness in the data, organisationwide interviews with the senior managers, functional managers and supervisors who were involved in the M&As were conducted. In total, thirty-two interviews were conducted with executives in the finance, human resource, information technology, manufacturing, and R&D departments. This variety of job responsibilities and functions allowed the researchers to gain a wide range of perspectives on the cultural challenges faced in different departments and at various levels in the hierarchy, and how they were managed. The interviews were recorded, transcribed and coded in the QSR Nudist software and the researchers applied the rules of ‘pattern matching’ and comparative methods to draw conclusions (Yin, 1994). To derive further in-depth inferences, the complex inter-dependent and interactive relationships among the variables were studied for each acquisition, using content analysis and explanation-building modes of analysis. The in-depth personal interviews were supplemented with short questionnaire surveys in each location. Response rates were high, except in one German acquiree where the Works Council refused to grant permission to distribute the questionnaire. In total, 41 questionnaires were returned at the US headquarters giving a response rate of 82%; and 75 responses were obtained from the European sites (37.5% response rate). In order to improve the quality of the data collected from interviews and surveys, a variety of other methods were employed, including personal observations, examination of archival M&A records and company documentation. European Management Journal Vol. 23, No. 1, pp. 65–75, February 2005

Summary Results The Integration Process in the M&A Cases This research found that the post-acquisition integration strategy pursued by the American acquirer was similar for each of the four M&As, with a preservation strategy being followed by an absorption strategy. The American acquirer did not embark on an immediate absorption integration strategy because it was venturing into new geographic markets, and wanted to learn the local ways of doing business before undertaking any reorganisation. Therefore, there were minimal post-acquisition changes made during the first 1–2 years. The more aggressive post-acquisition changes took place in years 2–5. In retrospect the parent itself accepted that mistakes were made in this period, with a ‘cowboy style’ being adopted involving the implementation of changes ‘blindly’ without considering the cultural consequences. It was only in the final acquisition of German Antenna that a decision was taken to communicate clearly in advance the logical reasoning behind forthcoming post-acquisition reorganisation. A common finding in all four M&As, was that the main post-acquisition changes were adopted successfully (or more quickly) after the existing senior executives were replaced. However, the senior management changes did not take place until at least 3 years after the M&A. This was intentional because the acquirer wanted to retain the existing management’s expertise relating to products and markets; and was especially crucial in the concentric M&A (German Antenna) as the acquirer was entering into new areas of business. However, the acquisition motives highlighted in Appendix reveal the great importance in all M&As of retaining good customer relationships, which are associated with existing management, or at least with local nationals as noted below. When the senior executives were replaced, the US acquirer attempted to ensure that their successors were locals. The acquirer generally either hired from its local competitors or internally promoted individuals with appropriate capabilities for the job (although some internal transfers took place from within the parent’s multinational umbrella). The purpose of this strategy was to retain the image of a local firm for its customers. Prior to the M&A, the acquirer consulted key customers to gain their opinions of the change of ownership and the association with an American MNE. The response of local customers was that they would continue doing business with the acquired enterprise, providing they dealt with local employees. Once the replacement of senior executives was completed, the acquirer found it much easier to 69

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implement rapidly its desired reorganisation (a finding which supports Angwin, 1998). This could be because the resistant behaviour from the previous management was almost eliminated. However, national cultural differences still existed between the acquirer and its acquired firms.

Timing of Post-acquisition Restructuring As noted earlier, there is debate in the literature on the timing of post-acquisition changes; but the literature (for example, Haspeslagh and Jemison, 1991) has not paid sufficient attention to international acquisitions, where national culture differences would seem to suggest a gradualist approach. This study supports this view that the timing of changes should take place over a period of time and not immediately after the M&A. This not only allows the acquirer to learn about its new business and markets, but also facilitates cultural understanding (national and organisational). Rapid implementation runs the risk of a haemorrhaging of senior executives, causing long-term damage to the business.

Acquiree Employee Behaviour The study results suggest that the main sources of either negative or positive behaviour in the acquired firm were based on how well the acquirer acknowledged and handled cultural differences in the postacquisition period. Being inexperienced in international M&As, the postacquisition management process in First Automotive was financially driven. There was little consideration of the management of cultural differences between the parent and its acquirees. There was no formal integration plan or integration team set up in the acquired sites for the first three M&As. These contributed to the varying levels of resistance in the acquired subsidiaries. The data showed revealed two types of resistance during the post-acquisition process—management resistance and employee resistance—that took place with differing intensity and at various phases in the process. Management Resistance Resistant behaviour in the acquired firm was initially seen at the acquired management level. This occurred initially during the first contacts between managements after the deals were completed and in the early phases of the acquisition; but tended to diminish over time, either through acceptance of the new situation from the acquired management or their replacement. The results show that the degree or intensity of resistance from the acquired managements depended on how wide and varied the cultural differences were between them and their new US parent. 70

Evidence showed that the national cultural differences in respect of uncertainty avoidance, power orientation, language, individualism vs. collectivism, and masculinity vs. femininity (Hofstede, 1980; Trompenaars, 1993), were the underlying manifestations of the fear of loss of control, a failure to build mutual trust, a dislike of being ‘forced’ to change and a reluctance to alter established processes. National cultural differences were most evident in US-France relations and lowest between US and Swedish cultures. Organisational culture differences also led to resistance at the management level. In large part these reflected the strong entrepreneurial cultures in the acquirees, all of which were SMEs; while national cultural divisions hampered the successful implementation of organisational change. Employee Resistance Over time, as interactions between the acquirer and the acquired firms increased through the implementation of common systems and processes, the resistance arose from the lower levels of the organisations. Employee resistance tended to begin during the mid-phases of the post-acquisition process and reduced over time as employees either resigned or accepted that they could not do much to halt the post-acquisition restructuring. Conflicts arose and escalated over issues such as the timing of reorganisation, and communication and implementation of proposed future post-acquisition changes. This finding supports the findings of studies such as Angwin (1998), Gertsen and Søderberg (1998) and Child et al. (2001). Generally a common pattern of resistance was evident among the four acquisitions, irrespective of cultural differences in each country or firm.

Evidence of Behavioural Change in Acquired Subsidiary Analysis of the behaviour of acquired employees found that it changed during the post-acquisition process. The behaviour of the employees tended to mimic the behaviour of their management, and this behaviour depended on the time required to accept the acquirer as their new ‘boss’ and the new processes. In all the M&As in this study, positive behaviour, that is, lack of or low levels of resistance, was the result of a clear communication process about the immediate goals of the acquirer for the acquired firm. Findings showed that a low level of resistance or high level of satisfaction was evident only during the first phase of the post-acquisition process. This was due to a clearly communicated message from the acquirer that there would be no post-acquisition changes and that business would continue as before European Management Journal Vol. 23, No. 1, pp. 65–75, February 2005

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with the same management. The peak of resistant behaviour, by contrast, tended to occur in the subsequent phase of the post-acquisition process, which coincided with increased interactions between the two firms consequent on the active implementation of change and reorganisation. In order to reduce resistance in the acquired firms, the acquirer to some extent followed the three-stage approach of lowering resistance in the M&A, as advocated by Lewin (1951) and Schein (1964). Thus levels of resistance were lowered in the following manner: Stage 1: The acquirer unfreezes existing behaviour by gaining acceptance for change of ownership among the management and the employees, by reassuring them that there would be no change in the way they ran their business in the short-term. Stage 2: The acquirer responded to negative behaviour through the replacement of senior executives: v External local hire. v Internal transfers from another division or company that belonged to the acquirer (also consisted of locals but already familiar with the acquirer’s organisational culture). v Promotion of local staff who were compatible with the acquirer’s organisational culture. Although these moves led to faster diffusion of postacquisition changes, it created fear among the lower level employees that they were ‘not wanted’ and many decided to resign. However, this was not regarded as particularly negative from the acquirer’s view as it allowed them to hire new employees, leading to faster adoption of new procedures and systems. Stage 3: The acquirer refreezes behaviour through the reinforcement of new patterns of thinking and working by injecting new local ‘blood’ into the acquired subsidiaries: v New hire of local employees (the disadvantage was loss of experience and established relationship contacts with OEMs). v Acquirer being more culturally aware of differences. v By replacing employees, the acquirer managed to diffuse new attitudes among the local employees and reinforce the new patterns of thinking and working. Except for Swedish Consultancy, employees at the acquired sites noted that the behaviour in their firms currently was more hierarchical and impersonal compared to the pre-acquisition situation. They complained that their current leaders were not as involved with daily operations, and were convinced European Management Journal Vol. 23, No. 1, pp. 65–75, February 2005

that the managing directors did not know their names and responsibilities in the firm. This finding supports the study conducted by Levie and Hay (1997) concerning entrepreneurial culture, who found that the culture of the company becomes ‘colder’ as the organisation grows. Except for French Security, all the other acquirees have grown in size since the M&A, and it is a natural process for the organisation’s culture to become less personal, more structured, and less proactive (Stopford and BadenFuller, 1994).

Post-acquisition Performance Performance in the four acquisitions was measured by profits, sales and employment growth rates for a 10 year period; the performance of manufacturing metrics as compared to the headquarters site; and the synergies captured since the M&A took place, relating to the sharing of operational resources and the transfer of functional and management skills. The results show increases in sales and profits growth and expansion in employment; but in all four cases the planned synergies were still to be fully captured despite the fact that all M&As were at least 8 years old. If success were measured for only the two-year period after the acquisition, the results would be significantly different: in particular, manufacturing metrics were well below target levels because of the difficulties of integrating new processes and systems. Both management and employee resistance was high due to cultural differences, and productivity gains had still to be realised.

Discussion and Managerial Implications While the results of the acquisitions were positive from a long-term perspective, it is clear that mistakes were made. The US MNE took a cautious approach initially to avoid damaging market prospects. However, when managerial change was required, the inevitable tensions between the US MNE and its acquisitions were exacerbated by a failure to understand and respond to national and organisational cultural differences. Conflict was aggravated and perhaps prolonged. Underlying such difficulties was the lack of planning for acquisition integration. Yet, even if by serendipity, the phased approach pursued provides valuable lessons for the management of the post-acquisition process. A review of the post-acquisition management process as observed in this research is displayed in Figure 1. The phases described represent the authors’ interpretation of the way the M&A events developed in the cases. 71

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Accepting that the phases, actions and outcomes presented in Figure 1 are not necessarily optimal, nevertheless, there are valuable managerial lessons that can be drawn for the management of the post-acquisition process. The issues the acquirer needs to consider, understand and plan are highlighted following, distinguishing between the pre- and post-M&A stages:

the length of the post-acquisition management process. This in turn will allow the acquirer to achieve success in terms of realizing synergies, improving profits and operating income and transferring unique knowledge more quickly; and, hence, achieve genuine competitive advantage from international acquisitions.

Managing the Post-acquisition Process

Conclusions

Pre-M&A: Important to Set the ‘track’ of the Postacquisition Process The acquirer should: v Set up a M&A team comprising a balanced mix of personnel from the acquirer and the acquired firm. v Be specific on the motives of the M&A. v Understand and set the objectives for the acquired firm. v Plan for the future and how the acquired firm fits into the parent’s multinational umbrella. v Conduct a preliminary cultural audit among the management personnel. v Reassure the employees in the acquiree of their future with the company after the M&A deal is signed to reduce their fear and anxiety. If the acquirer is clear on the above prior to the signing of the acquisition deal, the post-M&A process would be easier to handle, with the chosen integration strategies having being planned, at least in outline terms.

Post-M&A: More Crucial and Needs More Attention The post-acquisition process is lengthy and difficult because of the range of internal and external factors to be handled. It is, therefore, important that the acquirer plans and implements the following: v During the first year of the M&A, the acquirer should conduct a full-scale cultural audit and communicate the results to employees involved in any post-acquisition changes. v Both firms must anticipate the force of cultural influences during the post-acquisition process, particularly the acquirer, and be flexible and open to differences. v Understand that the interactions of cultures (national and organisational cultures) differ during the various post-acquisition phases. v Be sensitive to the implementation of post-acquisition changes on issues such as timing and obtaining co-operation from employees. By pursuing such an approach, it should be possible to reduce resistance and cultural conflict, and shorten 72

This study was based on a single case in the automotive industry and the results have, therefore, to be treated with caution. However, the high level of access to both the parent MNE and its acquirees and to both management and employees facilitated a very in-depth longitudinal analysis of the post-acquisition process. In the early 1990s the majority of this company’s sales were in North America and while it had a presence in overseas markets, its internationalisation and cross-border M&A experience was limited; hence there are lessons that can be drawn for other companies embarking upon an acquisitionbased internationalisation strategy. The study concludes that success in the post-acquisition period requires a phased approach with defined objectives and actions. In international acquisitions, in particular, the management of both cultural and organisational (and their interactions) integration requires caution and mutual understanding to avoid conflict which can become entrenched and, therefore, intractable. Caution is also suggested because of market factors, and particularly adverse customer responses, depending on the motives for the acquisition. In this study, initial caution was unavoidable given that the principal motives concerned access to national markets and to automotive OEMs. The big mistakes of the case company concerned the failure to learn about cultures in the initial phase, leading almost inevitably to conflict when change began to be imposed subsequently. Of course this sequential, evolutionary approach to the reorganisation of internal management processes and actions has to be responsive to internal and external environmental shocks. It also has to be balanced alongside other pressures: at the acquiree level these relate to the achievement of tangible results within specified time periods, while at headquarters level, in turn, performance improvement has to show through in improved earnings and stock prices. This qualitative research concentrated upon the national and organisational culture challenges for management and employees in the international acquisitions studied. Further qualitative research relating to different countries and cultural contexts would be valuable; as would comparative studies focusing upon alternative approaches to post-acquisition management, particularly cases of rapid or European Management Journal Vol. 23, No. 1, pp. 65–75, February 2005

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immediate as opposed to phased integration. Reflecting the observations in the previous paragraph, research on the coordination and communication issues between and among acquired subsidiaries and the parent MNEs could provide valuable and fascinating insights.

Appendix. Background of the Cases First Automotive Established as a division within a large American car manufacturer in the early 20th century, First Automotive offers a range of innovative safety, communication, entertainment and electronics integration technologies for vehicular transportation. There are strategies in place to try to decrease the dependency of sales in North America through venturing overseas by either internal development or external development strategies. It has utilised a combination of internal development, joint ventures and acquisitions in various countries depending on the government and legal laws relating to foreign ownership. The strategic intent for acquiring in Europe in the 1990s were: v Part of a aggressive growth strategy v To be close to local customers v To purchase long-established relationships v To improve its reputation in Europe v To gain technology and skills v To inject corporate entrepreneurship.

customer

German Security Created in the 1980s as a company manufacturing industrial security systems by a university professor who hired two business partners to run the daily affairs of the company while he continued to work at the university. Its main business activities were manufacturing vehicle security devices for the OEM market. Customers before the M&A consisted of only German OEMs. Today, the company has grown in size and has expanded the number of devices it manufactures to include central electronics, central door locking, theft alarm systems, sensor systems, interior protection, radio remote control and others for automobiles. It serves well-known OEM customers such as Audi, BMW, Ford, and others. This first M&A, undertaken in 1991, has been classified as a horizontal acquisition since German Security was a direct competitor to First Automotive. The motives for the acquisition were to access the growing European automotive security market, and to gain direct access to local original equipment manEuropean Management Journal Vol. 23, No. 1, pp. 65–75, February 2005

ufacturers (OEMs) through established relationships in Germany. French Security A family-run business founded in 1970s. Its main business was undertaking installations and repairs in the aftermarket business and its secondary business was producing security systems for OEMs. It had a wellknown domestic brand: French Security alarm. Since the M&A in 1990s, the company gradually shifted focus towards the vehicle security market, and eventually eliminated its aftermarket business in the early 21st century. Today, its business activities consist of manufacturing complete alarm systems, central door locking, sirens, wiring looms, radio remote control systems etc., for automobiles. Customers include Renault, PSA and others. This was the second M&A, which took place in 1992, and has been classified as a horizontal acquisition since French Security was a competitor in the French market, while also providing complementary products. Motives included access to the French market, where the acquiree was an after-market leader for car alarm systems; a strong brand image, and access to southern European OEMs; and cost savings between French Security and German Security in a range of value chain activities.

Swedish Consultancy Established in 1980s by two visionary engineers, Swedish Consultancy has been a highly successful consultancy business serving the Swedish automotive market. The business resulted from the managing director/co-founder’s Ph.D. thesis that was on building a fully computerised ignition system for car vehicles. Today, it is active in providing services for advanced engineering, and specialises in the development of advanced electronics concepts for automobiles, trucks, buses and their infrastructure. Its business activities include services that range from taking development responsibility for complete software systems, to developing individual software modules within an OEM system. They have also expanded heavily in the area of mobile multimedia in the last 10 years. Since the company specialises in consultancy work, it does not have its own production facility, therefore the manufacturing of its product designs are subcontracted. Their customers include manufacturers of vehicles and combustion engines such as Saab and General Motors. This third M&A followed a minority joint venture relationship and was finalised in 1993 and has been classified as a vertical acquisition. Motives were to gain expertise in advanced engineering and technology; and to access local OEMs in Sweden. 73

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German Antenna German Antenna was a division founded in 1980s within a large German telecommunications company. The automotive division, German Antenna, was founded only in 1990s when there was an increasing trend among end-customers in the automotive industry for hidden antenna systems in their automobiles. The antenna trends identified back in the early to mid-1990s initiated a shift from multiple discrete antennas towards an integrated antennas system. German Antenna was the first company to come up with this hidden antenna technology and was instantly a domestic market leader. Today, the company has managed to sustain its market leader status as a supplier of automotive antenna systems. Furthermore, the company has retained its well-known German Antenna brand and has expanded into the mobile multimedia market. Customers include DaimlerChrysler, BMW, Audi, Volvo, Volkswagen, Hyundai-Kia and others. This fourth M&A occurred in 1995, and has been classified as a concentric acquisition. The motives related to access to new automotive technology and thereby offering a wider package of products and services to customers; and to strengthen First Automotive’s position in the German market.

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PENELOPE QUAH, Strathclyde International Business Unit, University of Strathclyde, Level 2, Stenhouse Building, 173 Cathedral Street, Glasgow G4 0RQ, UK. E-mail: [email protected]

STEPHEN YOUNG, Strathclyde International Business Unit, University of Strathclyde, Level 2, Stenhouse Building, 173 Cathedral Street, Glasgow G4 0RQ, UK. E-mail: [email protected]. uk

Dr. Penelope Quah is a market and financial analyst in Shanghai for an American automotive firm; and a Research Associate in Strathclyde International Business Unit at the University of Strathclyde. Her research interests include managing crosscultural interactions in multinational enterprises, and integration in cross-border mergers and acquisitions.

Stephen Young is Professor of International Business in Strathclyde International Business Unit at the University of Strathclyde. His research and consulting interests concern multinational corporate strategies, inward investment attraction and host country policies, and outward internationalisation.

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