Michael_A._Hitt,_R._Duane_Ireland,_Robert_E._Hosk

Chapter 7: Merger and Acquisition Strategies 217

Research suggests that perhaps 20 percent of mergers and acquisitions are successful,

approximately 60 percent produce disappointing results, and the remaining 20 percent

are clear failures; and evidence suggests that technology acquisitions have even higher

failure rates.^47 In general, though, companies appear to be increasing their ability to

achieve success with acquisition strategies. Later, we discuss a number of attributes that

are associated with successful acquisitions (the attributes appear in Table 7.1). In spite

of this increasing success, firms using acquisition strategies should be aware of prob-

lems that tend to affect acquisition success when problems do surface. We show these

problems in Figure 7.1 and discuss them next.

7-3a Integration Difficulties

The importance of a successful integration should not be underestimated.^48 Indeed,
some believe that the integration process is the strongest determinant of whether either
a merger or an acquisition will be successful. This belief highlights the fact that post-
acquisition integration is often a complex set of organizational processes that is difficult
and challenging. The processes tend to generate uncertainty and often resistance because
of cultural clashes and organizational politics.^49 How people are treated during the inte-
gration process relative to perceptions of fairness is an important issue to consider when
trying to integrate the acquiring and acquired firms. Among the challenges associated
with integration processes are the need to:
■■meld two or more unique corporate cultures
■■link different financial and control systems
■■build effective working relationships (particularly when management styles differ)
■■determine the leadership structure and those who will fill it for the integrated firm.^50
These types of challenges, and others as well, may affect Nokia’s proposed acquisition of
Alcatel-Lucent.
In mid-2015, Finnish telecommunications company Nokia was in advanced talks to
acquire its French Rival Alcatel-Lucent. If completed, the transaction would create the
second largest mobile equipment manufacturer in the world. Benefits sought through

Table 7.1 Attributes of Successful Acquisitions

Attributes Results

1. Acquired firm has assets or resources that are complementary
   to the acquiring firm’s core business
   
   
   1. High probability of synergy and competitive advantage by
      maintaining strengths
   
   
   
   


2. Acquisition is friendly 2. Faster and more effective integration and possibly lower
   premiums


3. Acquiring firm conducts effective due diligence to select
   target firms and evaluate the target firm’s health (financial,
   cultural, and human resources)
   3. Firms with strongest complementarities are acquired and
   overpayment is avoided


4. Acquiring firm has financial slack (cash or a favorable debt
   position)
   4. Financing (debt or equity) is easier and less costly to obtain


5. Merged firm maintains low to moderate debt position 5. Lower financing cost, lower risk (e.g., of bankruptcy), and
   avoidance of trade-offs that are associated with high debt


6. Acquiring firm has a sustained and consistent emphasis on
   R&D and innovation
   6. Maintain long-term competitive advantage in markets


7. Acquiring firm manages change well and is flexible and
   adaptable
   7. Faster and more effective integration facilitates achievement
   of synergy