Advances in Mergers and Acquisitions: Volume 7

Volume 7 of Advances in Mergers and Acquisitions brings together a terrific set of articles on a broad spectrum of issues related to M&As. This year, the two papers that are most strategic in outlook both touch on alliances as a part of corporate strategy. In the first, by Prescott and Shi, they explicitly take a temporal lens to M&A in what may be the early stages of an important research stream within the wider field. A temporal perspective focuses on when and under what conditions firms should seek different types of growth, and the pattern of these strategic actions over time. The idea that patterns are important to understanding strategy is implicit in the most fundamental conceptualizations of the field – Mintzberg's view of strategy as a stream of decisions – yet it is seldom taken much further in other work. Prescott and Shi take up this challenge and identify seven different “sequence types.” Each of these types has a different “rhythm” and each presents different strategic challenges and requirements. This work is very exciting as it offers an opportunity to understand in a more dynamic framework the process of engaging in M&As, a topic that is likely to generate considerably more work to come.

How and whether the rhythm, synchronization and sequence of firms' M&A and alliance activity over time impact firm performance is our core question. We seek to advance a temporal lens in the M&A and alliance discourse by explicitly incorporating time-associated theories, constructs and methods. A temporal view of M&A and alliance activity requires strategists to study fundamental questions related to when and under what conditions firms should accelerate, slow down and coordinate their M&A and alliance initiatives, whether firms' trajectory of M&A and alliance have discernible and distinctive patterns over time, and whether these initiatives demonstrate a temporal pattern that becomes an integrated part within firms' M&A and alliance routines that create a time-based source of competitive advantage. Using a sample of 57 small to medium-size firms in the global specialized pharmaceutical industry and their M&A and alliance activities for 19 years we find support for our temporal-based hypotheses.

In this research, we address the following questions: (1) Do joint ventures (JVs) create value for both parent firms in the dyad? (2) How is the total value created in the venture influenced by resources and capabilities of the two parent firms? In addressing these questions, our objective is to provide added insight into the performance of JVs by shifting the level of analysis to the dyad from the individual parent firm. Our results indicate that a significant proportion of JVs created value for both parents. However, there was also considerable evidence of value destruction with a large proportion of JVs resulting in positive returns to one parent and negative returns to the other. In terms of the second question, we find that the total value created in a JV increases as the value of resources in the dyad increases and decreases with the differential in the value of resources between parents. We argue that the latter effect occurs because when there is a wide differential in capabilities, incentives are shifted away from joint value creation and cooperative behavior toward non-cooperative behavior and appropriating private benefits. Our findings broadly highlight the important role of private benefits in JVs and provide evidence that these benefits significantly influence the performance and dynamics of inter-firm collaboration in various ways.

This chapter focuses on the human side of the integration phase between the acquiring and the acquired firms. We contribute to the M&A literature by sketching an analytical framework that unveils the main features of the champion of acquisitions and his/her strategic role as the individual (or group of individuals) accountable to lead the integration process between the two firms. To discern the champion of acquisitions, we propose the coexistence of a set of distinctive features such as: (1) the capability to achieve the full commitment of the integration teams; (2) a leader's personality able to guide change in the acquiring firm's desired direction; (3) networking capabilities to facilitate or reduce the two firms’ boundaries permeability; (4) communication skills and relational capabilities necessary to facilitate the interface activity between individuals who are critical to the integration phase; and (5) the knowledge of (and the access to) the power centers necessary to obtain the indispensable legitimacy of his/her roles and actions.

While the average level of M&A activity in Japan as a proportion of GDP is still much lower than in the US or in EU countries such as Britain, the number of M&A transactions in Japan nearly doubled from just over 1,500 in 2001 to nearly 3,000 in 2006 (The Economist, 2007) – a more than five-fold increase in the last 10 years. A similar rising trend can be observed with respect to transaction value – although with some fluctuation due to the size of some of the deals.

This chapter attempts to overcome the lack of theory development in the human side of mergers and acquisitions by synthesising key climate, knowledge generation and leadership frameworks. The chapter aims to identify the key roles that climate plays during M&A and how leadership can positively influence climate in order to improve M&A organisational outcomes. The chapter establishes that climate could be a key ‘systems variable’ during different M&A stages and influences the generation and transfer of actionable integration knowledge among individuals. The role of leadership and its relationship to climate's impact on M&A are developed. The chapter uses the concept or vision of ‘making fire’ or ‘kindling the flame of fire’ to assist leaders to conceptualise their role and the underlying processes at play. Finally, propositions have been developed to assist future research.

A model focusing on the role of the individual in national and corporate culture clash situations, during post-merger integration, is presented. The theory of psychological contract is adapted to explain different individual expectations in domestic versus international mergers and acquisitions (M&As). It is proposed that expectations on the part of both parties to the merger can act to moderate the effects of culture clash in M&As on acquired management attitudes and behavior, and thereby influence post-merger turnover and integration success. Thus, the model explains the inconsistencies of empirical findings about the different effects of national versus corporate cultural differences on M&A performance. The implications of these ideas for research and practice are discussed.