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Despite best intentions, mergers and acquisitions often do not live up to the expectations for performance. This study examined how the salience of multiple identities creates dynamics in postmerger integration processes and how these dynamics influence the acquisition of the target's capabilities.

The authors conducted an in-depth case study of a large American consumer goods multinational corporation's acquisition of a family-owned German beauty business and examined responses to decisions and events during the postmerger integration process.

The results show how and why efforts to acquire unique target capabilities might not deliver the hoped-for results. The authors discovered multiple identities that became salient during the postmerger integration process which subsequently influenced interpretations and reactions to decisions and events and which created intergroup dynamics. The authors also noted the role of language in making these identities salient. Such dynamics pose challenges to managing the postmerger integration process and to acquiring sought after capabilities.

This study reveals how different identities become salient in the interpretation of particular events and decisions, resulting in emotional and behavioral reactions and intergroup dynamics. Furthermore, it uncovers the role of language in making identities salient. This study offers further insight into identity dynamics when the capability of the target firm is the motive of the acquisition.

Postmerger integration processes have been studied from the perspectives of organizational identity and organizational culture, but these two perspectives have rarely been integrated. We argue that organizational identification and organizational culture differences give rise to two different sets of individual responses that are both important, but for different types of outcomes. An empirical analysis of a large-scale merger between two service sector companies shows that identification with the postmerger organization positively relates to both behavioral intentions and key attitudinal variables. In contrast, our results show that perceived organizational culture differences are negatively related to attitudinal variables. The effect of perceptions of cultural differences on behavioral intentions is mediated by organizational identification.

A thick cost frontier methodology is used to estimate pre‐ and postmerger X‐inefficiency in 348 mergers approved by the OCC in 1987/88. Efficiency improved in only a small majority of mergers, and these gains were unrelated to the acquiring bank's efficiency advantage over its target. These results are not consistent with the traditional market for corporate control story, in which well‐managed firms acquire poorly managed firms and subsequently improve their performance. Rather, the results suggest motivations other than cost efficiencies were driving U.S. bank mergers in the late 1980s. Efficiency gains were concentrated in mergers where acquiring banks made frequent acquisitions, suggesting the presence of experience effects.

While mergers may be a good way to grow rapidly, can one sustain growth and performance for long periods? The answer lies in how well one integrates the business after the merger.

Mergers and acquisitions (M&As) have become an increasingly broad-based phenomenon, and their numbers are growing dramatically in the United States, Europe, and elsewhere throughout the globe. Still, research shows us that less than 50% of M&As succeed. At the same time scholarly research on M&As abounds, presenting the opportunity to step back and review what we have learned and what we still do not know. Although the field of M&A research is far too broad and complex to be covered in one review essay, we attempt to begin at the beginning, covering some historical and background issues before surveying three topics fundamental to successful M&As. First, in order to lay the foundations for better understanding of M&A processes in general, we overview various approaches from those that include just two phases – premerger and postmerger – to those with seven phases – including aspects of due diligence and integration phases. The second topic refers to M&A motives such as entering a new market, gaining new scarce resources, achieving synergies, and so forth. The third issue is M&A success factors. Here we synthesize a large body of research that has pointed to many different managerial and organizational factors that are generally associated with M&A success, for example, relative size of M&A partners, managerial involvement, culture, and organizational structural issues. While no review of these topics can claim to be comprehensive, we do attempt to present a good variety of literature approaches representing not only elite scholarly journals but also some important practitioner-oriented books and articles.

This case will enable students to: understand reasons for mergers and acquisitions (M&A); identify and explain the risks associated with M&A and corresponding risk mitigation approaches; and decision-making on postmerger integrations.

The case discusses the integration dilemma around ChocoTravel’s M&A of Aviata. Both are among the largest online travel agencies in Kazakhstan. The acquisition of Aviata was not the first M&A deal for ChocoFamily – the Holding Company of ChocoTravel; however, it was the largest one. By combining their operations, ChocoTravel and Aviata together could capture 70% of the market share and become the market leader. Although the M&A had high potential toward superior business performance, it had significant risks. Threats of integration failures often make M&As fail. The management of ChocoTravel, therefore, had to consider several factors that could act as potential threats to post-M&A integration. First, each company had its own operating model and corporate culture. Second, both brands, ChocoTravel and Aviata, were well established and recognized in the market; each of them had its own loyal clients. Taking into account low switching costs to customers, the CEO of the new joint company needed to decide whether to integrate ChocoTravel and Aviata or keep them separate or even discontinue one. So, the important thing was not to disrupt operations and lose customers while introducing the post-M&A integration strategy. This case focuses on the challenges of post M&A integration.

The case targets last year’s bachelor’s students, Master of Business Administration/Master of Science students as part of the business strategy, marketing and branding and M&A classes. It allows students to have a broad in-class discussion and apply knowledge to make strategic management decisions in postmerger integration situations.

Teaching notes are available for educators only.

CSS 11: Strategy.

The purpose of this paper is to examine the role of diversity management on postmergers and acquisitions (M&A) performance. Building on prior literature, it investigates whether a firm ability to harmonize people with different backgrounds and to deal with uncertainty and dynamics in the diverse work environment will affect post-M&A performance either directly or through its interactions with acquirer-target characteristics.

This paper used panel regression analysis on a sample of 218 M&As conducted by listed large US firms across industries.

Results show that the diversity management of an acquiring firm positively influences post-M&A performance. This paper also finds support for diversity management having a more significant moderating role where merged firms have a bigger size difference and higher industry relatedness.

The primary contribution of this study is in testing and finding evidence to support the claim that diversity management is a useful factor in predicting post-M&A performance. The success of post-M&A integration should be considered alongside the extent of firm capabilities to manage internal diversity.

Mergers, frequent and disruptive business practices, are increasing in the U.S. and abroad. A qualitative inquiry of a newly‐merged travel agency revealed six acculturation themes: identity, reputation, leadership, membership, information, and appearance. These themes suggest an acculturation agenda for the long period of turmoil that follows a merger.

This paper aims to examine post-merger integration (PMI) through the lens of paradox to determine how paradoxes contribute to successful integration. Although PMI has been identified as crucial to understand merger success or failure, the literature on PMI drivers remains inconclusive.

Drawing on the theory of paradox and two key elements of PMI, strategic interdependency (SI) and organizational autonomy (OA), the authors describe the merger of two listed French companies using longitudinal data.

The authors identify how the paradox between OA and SI was triggered and fostered PMI success by leading to symbiotic integration. They also show that two capabilities were central in helping the paradox to evolve: preserving the specificities of the organizations and pooling their respective capabilities. These capabilities result from basic decisions and actions during the integration implementation, such as highlighting the expertise of the target firm, refocusing the core activity while valorizing each company’s expertise, clarifying the identity of the new organization on the market and enhancing joint piloting and transferring both general management capacity and functional abilities during the reorganization period.

The authors offer several useful insights for managers trying to manage paradoxical tension throughout the merger process. This study encourages managers to embrace inconsistencies as they make decisions and to shift to dynamic decision-making as a way to adapt to complex contexts.

This study adopts a global and inclusive approach to focus on OA and SI and flesh out a picture of the integration process. It proposes a dynamic process model to conceptualize the stage-wise nature of the PMI process by highlighting the interrelations between OA and SI dynamics.

This chapter integrates two separate branches of the law and economics literature to demonstrate the two-sided risk of market exclusion by a vertically integrated firm (VIF) with upstream and downstream market power. The ratio of downstream (retail) to upstream (wholesale) price-cost margins is key. A margin ratio that is “too low” can result in a vertical price squeeze, whereas one that is “too high” can create incentives for the VIF to engage in non-price discrimination or sabotage. A price squeeze occurs when a rival is inefficiently foreclosed because the upstream (input) price is too high relative to the downstream (output) price. Sabotage arises when the VIF raises its rivals' costs which, in turn, raises their prices and diverts demand from the rivals to the VIF. Displacement ratios delineate the range of safe harbor margin ratios within which neither form of market exclusion arises. The admissible range of these margin ratios is decreasing in the degree of product substitutability and reduces to a single ratio in the limit as the competing products approach perfect substitutes. The policy challenge is to apply these pricing constraints judiciously to prevent market exclusion in accordance with a consumer-welfare standard, while recognizing the risk that these protections can be appropriated and used strategically in the errant pursuit of a competitor-welfare standard. These issues may take on greater prominence in light of the recent release of the DOJ/FTC draft vertical merger guidelines.