Acquisition is where an organization develops its resources and competences by taking over another organization. For the sake of this discussion, it must be noted here that an acquisition strategy may be a standalone, single purpose document or it may be part of a more comprehensive multi-purpose document. The primary goal in selecting an acquisition strategy is to minimize the time and cost of satisfying and identified, validated need consistent with common sense aid sound-business practices.
The acquisition strategy shall include critical events that govern the management of the program. It shall also be tailored to meet specific needs of individual programs including consideration of incremental development and fielding strategies. The acquisition strategy will serve as a checklist to ensure that all important issues and alternatives are considered a decision aid in prioritizing and integrating many functional requirements, evaluating and selecting alternatives, identifying decision points and providing a co-coordinated approach.
* A basis for preparing program plans and activities
* The formal record of all strategic changes made in response to evolving threat, technology and other environmental factors and the vehicle for building and achieving consensus. Research show that most acquisition do not work, it is reported that most acquisition do not work, it is reported that in today’s business environment, almost every organization is expected to be involved in a merger or acquisition at a certain stage in its life-cycle. Thus from the above it could be deduced that a strategy could be required to embark on an acquisition.
There are basically three strategy-making tasks.
1. Developing a strategic vision
2. Setting objectives
3. Crafting a strategy
An attempt would be made in discussing these strategy-making tasks to show how each of them could be utilize in considering an acquisition.
1. Developing a strategic Vision :
A strategic vision is a view of a company’s future direction and business makeup, a guiding concept for what the company is trying to do and to become. In effect strategic visions chart a company’s future for the next say 5-10 years. Very importantly, strategic visions are company-specific and not generic i.e. to say they must be tailored for the company in question. The vision is not defined in terms of making a profit.
In developing a strategic vision, three main questions are asked.
* Who or what are we now?
* Who or what do we want to become?
* How will we get there from here?
Thus, the vision or strategic intent which is the desired future state of the organization is an aspiration around which a strategist might seek to focus the attention and energies of members of the organization. The strategist must at this stage
1. Define the company’s present business
2. Decide on a long-term strategic path (course) and
3. Communicate the vision in ways that are clear, exciting and inspiring strategist
have come to accept that decisions to merge assume that synergy will develop between two organizations that combine resources and talent and achieve economies of scale, scope and integrated technologies.
Sometimes financial issues overshadow most mergers and acquisitions neglecting other critical aspects of the merger such as vision (mission), planning (strategy) and human resources (i.e. people-factor) making synergies unsuccessful. It would, therefore, be prudent at this stage of strategy-making to tailor the vision in line with intended acquired company. This is development of romance i.e. building a shared vision and commitment. This is to try to forestall any possible future conflict that might emerge should there be a merger or an acquisition. This is done in relation to defining the company’s present or intended business based on satisfying customer needs, target markets and technologies used. It is possible that if the mission of the organization is developed in defining the company’s business as hypothesized. To avoid pitfalls of an intended acquisition the shared vision of the future must be created diagnosing key elements of the vision so as to understand the common and divergent views of the partners. This vision must be tailored to prepare the company for its long-term vision in the wake of any acquisition.
The defined vision must then be communicated to the management and staff providing a means for department management to create their own visions, objectives and strategies and creating enthusiasm among employees must also be repeated often times.
The next task in strategy-making is objective setting. Objectives, usually financial or marketing, are the quantification or more specific statements of the goal. For example “2.5% market share in two months”. Objectives must be-SMART- specific, measurable, achievable, realistic and timely. If these characteristics are inherent in any objective, it has a greater probability to succeed. Thus in considering an acquisition, the objectives must first address when to actually acquire, how must to be spent in the acquisition, specific, measurable and realistic performance targets by a certain time. At this stage, the objectives must be set for both long-term and short-term horizons. The short-term objective focusing on the communication aspect of the vision and the long-term on, staff training and recruitment for the intending acquisition. Nevertheless, as history shows that acquisitions fail to live up to expectations, numerous research over the last 10 years have proven that decisions must be made quickly and often under tremendous pressure as already tight resources are stretched even further. Objectives on this must be timely. Sayewitz (1997) writes that according to recently released survey of 124 USS comp… achieving 80% of their objectives. Firms that took more gradual approach reported a failure rate of close to 50%…. As difficult as this might be, in practice the least management should do is to speed up the acquisition as soon as the opportunities show up after all the necessary analysis has been completed.
The next and final task is crafting the strategy. Crafting a strategy is all about how to reach performance targets set tin the objectives, making the strategic vision a reality, capture market opportunities, achieve sustainable competitive advantage strengthen the firm’s long-term competitive p and out-perform rivals. In effect, it is how managers analyse and think about complex strategic problem and adapting to the challenges inherent in the changing environment. First used by Mintzberg (1887) illustrating with a potter at a wheel molding a lump of clay, his view was that the most productive and real world way to view strategic management is not the strategic planning model, but rather one that merges formulation of strategy with its implementation; in other words have meant that if an organization embarks upon a determined change of strategy, certain aspects of implementation will be changed as it becomes increasingly clear with experience how best to manage the environmental forces even though the basic tools for crating a strategy are SWOT analysis, value chain analysis and scenario mapping, applying Mintzberg’s developing and understanding and commitment to the role M & A strategy involves developing and understanding and commitment to the role M&A activity should play in achieving the company’s strategic objectives.
A good strategy of the acquisition, say fundamental transformation or to just to strengthen certain business units. It must also develop a framework for senior managers to creating potential of various potential acquisitions outlined; substantiate a variety of integration options and how integration plans may vary across potential acquisitions.
Most importantly, the strategy must develop profiles of acquisition candidate(s) consistent with the acquisition strategy and reflects an understanding of realities under M & A market place so as to model the financial implications under a variety of scenarios. The strategy must also developed such that depending on the strategic objectives a relationship is built with the potential acquisition candidates in the areas of marketing integrated supply agreements and possibly accounting practices integrated supply agreements and possibly accounting practices post-Enron era. In addition to building relations, organisations must also establish an external network involving the investment bank and the potential candidates.
Though not trying to confine the M & A market to rigid objectives, in the best, M & A processes informs strategy as well as being guided by it. Thus, through the process of evaluating candidates and putting deals together, the organization can narrow the acquisition parameters and better envision what the company could become by choosing the right acquisition. The organization must also craft a human resources strategy getting the people-related issues right maintaining employee morale that will retain key employees, despite the usual hiccups after major changes, according to research by mercer outlined in an article ‘making a success of mergers and acquisition’ on their website. It went on to further point out that the people are integrated into the new organization is a key to sustained success. By effectively addressing these people issues earlier on, senior executives can determine the feasibility of a deal sooner than later and also lay the foundation required for the long term success of deals planned ahead.
Invariably, qualitative variables are historically proven as the best estimates to increase firm’s value through liquidity, solvency and profitability. Some of these are: strong mission, objectives, strategies such as strong economic and financial forecasting, project evaluation and decision. Other important variables are: strong human resources, flexibility, transparency and good governance, ethical and legal strengths, division of responsibilities, risks and crisis mgt applications. These areas are such that even a little oversight or miss calculation might produce significant consequences leading to create deterrence in the transition to creating the firm’s value.
In a nutshell, different views might be expressed on how to utilize strategy-making tasks in M & A the most significant issue is to integrate and coordinate all the views not leaving out the key factors that are vital in making the synergy successful and just wait and see.