Role of Hrm in Mergers Nad Acquisition

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Understanding the Role of HRM

Mergers & Acquisitions:

July 2007
Craig W. Fontaine, Ph.D. Northeastern University College of Business Administration

Based on: C.W. Fontaine, Human Resource Management: The key to Successful Mergers and Acquisitions., The 9th Annual Conference on Business Integration, London, 2005

© 2007 Northeastern University

Executive Summary
HR professionals play a critical role in the success or failure of mergers and acquisitions.

Human resource management professionals must be capable of handling many unique challenges. One of the most prevalent challenges that HR professionals face and the one that requires the utmost attention is in a merger or acquisition. HRM plays a critical role in the success or failure of mergers and acquisitions. Involving HR from the very earliest of planning stages can make all the difference in both the financial and the human outcomes.

What Are Mergers & Acquisitions?
The first thing we need to examine is the difference between a merger and an acquisition. 1 A merger is when two companies, more or less on equal footing, decide to join forces. There are many reasons why companies merge. We’ll address those reasons later. The basic attribute of a merger, however, is that it is considered to be an equal transaction, with both parties accepting risk and sharing in the potential rewards. Acquisitions are different in the sense that one company is, in fact, taking over another company. Of course, some companies want to be taken over and some do not. One of the most challenging acquisition situations an HR professional (or any other professional in the organization) can face is the hostile takeover. A hostile takeover is simply when a larger, more powerful, and richer organization takes over another organization. They accomplish this by typically offering a premium of 20% to 25% over and above the current stock price. This is, of course, a powerful influencing tool, especially for those individuals who hold a lot of shares. And those that hold a lot of shares are often on the board of directors or sit in positions of power in the organization being taken over. The concept of “hostile” goes beyond the way in which an organization is acquired. When you enter into an acquisition situation, there can be a lot of real hostility internally because people do not want to see their companies taken over. The situation can easily become even more hostile as you go through the acquisition process.

Mergers & Acquisitions: Understanding the Role of HRM

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The 5 Waves of Merger & Acquisition Activity in the US
Mergers and acquisitions are not a new thing in the United States. The how-and-why of modern mergers and acquisitions has evolved over the decades, starting in the late 19th century and moving into the 21st century. In the late 19th and early 20th centuries, economic conditions, technological innovation, and competitive forces came together to drive the First Wave of mergers and acquisitions in the US from 1894 to 1905. Many call it “The Great Merger Movement.” During this First Wave of activity in the US, there was an unprecedented number of horizontal mergers. Reports Lamoreaux in The Great Merger Movement in American Business – 1895-1904: “More than 1,800 firms disappeared into horizontal combinations, at least a third of which controlled more than 70 percent of the markets in which they operated.” 2 Modern mergers and acquisitions are a result of M&A evolution from the 19th century to the 21st century.

The Five Waves of Merger Activity in the US

Mergers & Acquisitions: Understanding the Role of HRM

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In the midst of The Great Merger Movement came the Sherman Antitrust Act which prohibited monopolies. After the Sherman Antitrust Act came the Second Wave of mergers and acquisitions. Between 1915 and 1930, companies called “oligarchies” began to form and did business in a market space in which there were a relatively small number of sellers....
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