3.1 Factors that contribute to the successful of a merger
Merger is defined as “a combination of two or more companies in which the assets and liabilities of the selling firm are absorbed by the buying firm. Although the buying firm may be a different organization after the merger, it retains its original identity” (Sherman, 2010).
Firstly, the factor that contributes to the successful of a merger is the strategic management. According to Weber, Tarba, & Oberg (2014), the strategic management approach address a large number of measure of success, including the size of sales, the increase of the market share, the improvement of competitive abilities, and also the change in profitability. Moreover, the other important selection in strategic management is the strategic fit between two companies. Strategic fit is defined as “the degree to which the target firm complements the parent’s strategy and thus makes identifiable contributions to the financial and nonfinancial goals of the parent” (Jemison & Sitkin, 1986). That means, to develop the good business strategy in a merger, there must be clear value-creating plan aligned to the company business objectives.
The cultural difference is one of the most popular factors in the merger theory between the companies. As suggested by the Iankova (2013), in his research on the factors that contributes to the successful of a merger, his said that in accordance with the hypothesis of cultural difference, that in its most general form suggests the the difficulties, the cost and the risks associated with the cross-cultural contact increase with the increase of the cultural differences between two individual, groups, or organizations by Hofstede (1980). From that, it clearly shows that the control mechanism are related to the behavioral and economic performance of the acquired company. Hence, they should decrease the formal control on operational decision-making level in order to improve the cultural differences and at the same time improve the performance of their foreign mergers.
In addition, the success factor of a merger is on mode of financing. The decision on the mode of financing a merger deal is a consequence of several considerations among which experience and the level of expertise. As suggested by the Iankova (2014), in his research on the success factors of a merger, his said that there is a direct influence of the investments banks on the mergers decisions which is starting from the selection of target companies to the methods of payment of the transaction by Hayward (2003). This author believes that by choosing more complex payment solutions the banks benefit from their expertise in order to influence the entire process of the transaction. He readily advises their corporate clients to finance about the deals with complex mix of financial instruments but the client’s interest is not always the priority in these deals. As a result, the authors suggest that the less the acquiring companies turn to banks’ expertise, and the less these companies finance their deals by stocks, the better their merger performance will be.
The human resources management also plays a critical role in succeeding with merger. According to Refsnes (2012), the human resources management need to prepare the business plan that contain elements such as organizational structure, management structure, product lines and business process. This alternative which is good for human resources management to practice in order to make sure all the process is run smoothly and effectively. Besides that, the merger integration can also be improved through enhanced human resources practices like job grading, training, performance appraisal, career development, salaries, and other aspects of Human resources management (Calipha, Tarba, & Brock, 2010).
Other than that, the success factor of a merger is the organizational structure. As suggested by the Calipha, Tarba, & Brock (2010), in his research on the success factors of mergers, his said that the organizational structure should be examined at the early merger phases since it is an integral part of management and corporate policies by Brockhaus (1975). That means, the acquiring companies has several decisions to make, including how to structure the resulting firm postmerger. This alternative which is good for the acquiring companies to practice in order to avoids confusion and at the same time they can also works independently and separately, but still under the supervision by the parent company.
Furthermore, the success factor of a merger is due diligence. Due diligence is defined as the investigative process of collecting and analyzing adequate, relevant data before making a decision, with the aim of understanding advantages, disadvantages and risks associated with a decision (Arslan, 2009). According to Savovic & Pokrajcic (2013), due diligence involves deep scanning and reviewing all aspects of a company, including production, technology, marketing, sales, finance, regulatory framework, human resources and others. In the real world, acquiring companies can choose between broad due diligence review and narrow due diligence investigation. Both due diligence has advantages and also disadvantages.Usually, in broad due diligence review required higher costs but it yields better insight. While, in narrow due diligence review required lower costs but it yield less detailed review. Therefore, the acquires has to know what he or she acquiring so that they make the right decisions.
The management team also plays a critical role in succeeding with merger. The acquiring companies use various assessment methods to selects talents critical for synergy realization in the post-merger integration (Bertoncelj & Kova?, 2007). That means, the process of appointing new executives or retaining management teams should be fair and transparent. In addition, according to Harding & Rouse (2007), the early and full information of new vision and strategy of the merger, along with the opportunities for the carries development, should be presented to key staff, otherwise, for those who remain confusion over differences in decision-making styles. This alternative which is good for the companies to practice in order to build a strong relationship with their staff and management team.
Last but not least, the success factor of a merger is government participation. According to Uhlenbruck & De Castro (2000), the process of transformation change radically when one of the parties in the transaction is the government. In the traditional framework of merger, the seller is supposed to protect the interest of the stockholders only through the maximization of the selling price (Jemison D. &., 1986). But in the case of privatization, the government is the seller and its interest surpass the simple economic considerations. Moreover, the government can also impose its political or social consideration directly or indirectly even after the deal has taken place (Iankova, 2014).