How to succeed in M&As

written by Yves-Martin Felker 27. May 2019
Implementation & Integration

Given the tremendous importance of global M&As as a driver for company growth, it is essential to understand the importance of the M&A capability to foster the melting process of two organizations. The biggest mistake that decision-makers can make is to underestimate the complexity and ambiguity in acquisitions. While it is true that M&As are a vital tool to grow, still companies generate little to no value (King et al., 2004; Aktas, de Bodt, and Roll, 2009, 2011). Recent findings discuss the importance of M&A capabilities within a firm as an essential factor to increase M&A performance (Trichterborn et al. 2016). There is evidence that successful acquirers have two interlinked features that help them to succeed in M&As. First, an M&A function allows for a M&A learning process. Second, a M&A capability results out of the accumulated experiences gained in the M&A function.

The M&A function coordinates and supervises a firm’s M&A activity and can be found at the corporate level, business unit level, or both. (Trichterborn et al., 2016) As the function is not responsible for the decision-making process of acquisitions, it serves as an advisory member. Main tasks include the accumulation of experience, to manage the management know-how and the internal M&A process.

Successful firms adapted several features in their M&A function, which enhanced their M&A success; the following roles are therefore essential (Haspeslag, Jemison, 1991).

  • Proactive. M&A functions helped business units to adopt a proactive acquisition approach, instead of responding to competitors.
  • Clearing. Additionally, serving as a clearinghouse for new ideas and leads, therefore distinguishing between strategic relevant and irrelevant recommendations.
  • Learning. Fostering mechanism to learn and accumulate experience and provide a feedback loop into the decision-making process conducted by the top management team.
  • Disseminating. Providing professional experience and know-how along the process of an acquisition.

As the M&A function helps to collect and distribute M&A related knowledge within a firm, the M&A learning process consists out of (1) articulating, (2) codifying, (3) sharing and (4) internalizing M&A knowledge (Zander, Kogut, 1995; Kale, Singh, 2007). This process leads to a higher-order capability called M&A capability. This capability allows firms for an integrative perspective on the overall acquisition process and increase M&A performance (Trichterborn et al., 2016).
However, the M&A capability does not only increase the performance of M&As, but it also provides a competitive advantage for the firm increasing profitability and growth. Empirical evidence based on 4000 US-based firms of the last 30 years provided results that showed higher-order capability such as the M&A capability provide companies with an average competitive advantage of 18 years compared to their competitors (Wibbens 2018). This is due to two reasons, first higher-order resources or capabilities help firms to gain superior ordinary resources such as brands, patents, captive customers, or specialized plants. As ordinary resources assist companies to make a living in the short term (Winter 2003), higher-order resources indirectly impact profitability by impacting the way firms can govern and manage their competitive advantages (Collis, 1994; Winter, 2003). Second, higher-order resources such as the M&A capability are hard to imitate. This is due to their internal development, which is adhesive to knowledge, people, and mechanism within the firm.

Firms around the world are on the endeavor to enhance their opportunities for growth and profitability. One such opportunity is to increase growth via acquisitions. As the hurdle to increasing value through acquisitions exists newest research calls for the development of an M&A capability to increase M&A success. Not only does the capability increase the M A performance, but it also provides a competitive advantage. Therefore, when the question of budgeting an M&A function arises, empirical evidence of researchers could be used to not only give insights on how it increases the performance of M&As but also provides an answer on how this function can make the company more successful.

Aktas N, de Bodt E, Roll R. (2009). Learning, hubris and corporate serial acquisitions. Journal of Corporate Finance 15(5): 543-561.
Aktas N, de Bodt E, Roll R. (2011). Serial acquirer building: an empirical test of the learning, hypothesis. Journal of Corporate Finance 17(1): 18-32.
Collis, D. J. (1994). Research note: How valuable are organizational capabilities? Strategic Management Journal, 15(S1), 143–152.
Haspeslagh PC, Jemison DB. (1991). Managing Acquisitions: Creating Value Through Corporate Renewal. The Free Press: New York.
Kale P, Singh H. (2007). Building firm capabilities through learning: the role of the alliance learning process in alliance capability and firm-level alliance success. Strategic Management Journal 28(10): 981–1000
King DR, Dalton DR, Daily CM, Covin JG. (2004). Meta-analysis of post-acquisition performance: Indications of unidentified moderators. Strategic Management Journal 25(2):187–200.
Trichterborn A, Knyphausen-Aufseß DZ, Schweiger L. (2016). How to improve acquisition performance: the role of a dedicated M&A function, M&A learning process, and M&A capability. Strategic Management Journal 37 : 763 – 773
Wibbens, P. (2018). Performance Persistence in the Presence of Higher-Order Resources. Strategic Management Journal 40:181–202, 2018.
Winter, S. G. (2003). Understanding dynamic capabilities. Strategic Management Journal, 24(10), 991–995.
Zander U, Kogut B. 1995. Knowledge and the speed of the transfer and imitation of organizational capabilities. Organization Science 6(1): 76–92.

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