Organizational diversification and financial capacity through strategic merger and acquisition

Strategic Leadership Issue
Ascertaining strategic issues within an organization is the core of the strategic planning process. In delineation, a strategic issue is a key policy problem or critical challenge impacting the obligations, mission, or values of an organization, consumers, organizational structure, practices, or management. The strategic issue faced by the company at the present moment is the need for diversification and increasing its financial capacity. As a result, the organization is considering a merger with one of the key players in the industry.
Background
There are different factors and resource constraints that have combined to give rise to the strategic issue of mergers and acquisitions. One of the factors is economies of scale. Specifically, there is a cost reduction that takes place owing to corporate assimilation. This reduction may happen because of declines in per-unit costs that emanate from a rise in the size or scale of the organizational operations. As a result, the companies consider merging and capitalize on the production of greater volumes of outputs to attain lower costs. Another factor is the need for diversification. The organization might employ the merger to diversify its business operations by also getting into new markets as well as offering new products or services. Furthermore, the merger will enable the organization to diversify its risks that are linked to its operations (Kaol, 2017).
An additional organizational reason takes into account an increase in financial capacity. Imperatively, every firm experiences a full financial capacity to fund its operations either using debt or equity markets. Therefore, owing to the lack of sufficient financial capacity, the organization might benefit from merging with another. The newly consolidated financial entity will be able to attain greater financial capacity that can be utilized in additional business development practices. Furthermore, there is also the combines need for acquiring assets. Specifically, a merger can be driven by a yearning to acquire particular assets that cannot be usually obtained using other approaches. In this regard, within the merger and acquisition transactions, it is conceivable for the organization to gain accessibility to assets that are distinctive (McDonald et al., 2015).
Some different reasons or intentions are deemed to enhance the financial performance of the organization. To begin with, there is the financial motive that mergers facilitate the acquiring company in enjoying a prospectively desired portfolio effect by attaining risk decrease whereas perchance sustaining the rate of return for the company (Kaol, 2017). Secondly, there is a financial motive that a merger facilitates business expansion. Notably, bigger companies might enjoy greater access to financial markets and therefore be in a better and improved position to raise both equity and debt capital. What is more, greater capability for financing might is also intrinsic in the merger itself. Furthermore, there is a financial motive in that tax loss carried forward might be accessible in a merger if one of the companies has sustained a tax loss in the past (Kaol, 2017).
Financial synergy takes place when the amalgamation of two firms enhances financial activities to a magnitude greater than when firms were operating as separate and distinct entities. More often than not, mergers and acquisitions give rise to a bigger company, which has a greater bargaining power to obtain a lower cost of capital. Attaining a lower cost of capital owing to a merger or acquisition is a fitting instance of financial synergy. Synergy in mergers and acquisitions is attained when the value-added when the uniting of two corporations is higher than that of the firms operating as separate entities (Chatterjee, 1986).
The VUCA model in strategic management stands for Volatility, Uncertainty, Complexity, and Ambiguity. Different elements of this model are applicable in mergers and acquisitions. Complexity alludes to the multiplicity of issues as well as factors, several of which might be interconnected. In the case of mergers and acquisitions, this is an intricate process in which different organizational structures come into play and also the different regulatory environments and cultural values that are included if one of the parties is from a different country. Volatility encompasses the quality of being subject to frequent, fast-paced significant change. Uncertainty is an element of that circumstance, in which events and results are unpredicted. In this regard, the issue is organizational change and prospective synergy. When two companies merge, the uncertainty is whether positive synergies will be formed and whether parties will embrace organizational change. Lastly, ambiguity is manifested in the absence of clarity and the difficulty of comprehending precisely what the situation is. In this case, when a company goes into a merger for diversity, ambiguity might emerge concerning entering a new market or launching products that are outside of the organization’s core competencies (Bennett and Lemoine, 2014).
Several key stakeholders and leaders within the organization bears directly in the problem of mergers and acquisitions, organizational procedures, and policies that are pertinent to the discussion.
1. C-suite and investment committee
The investment committee comprises of the Chief Executive Officer (CEO) in addition to other C-suite and senior-ranked executives within the organization. These leaders act as the most influential ones, who make the ultimate decisions, sustaining accountability for the efficacy of each transaction. These leaders bear the task of ascertaining the right individuals and teams are in position, instigating a culture of collaboration and discipline, sustaining an organization-wide emphasis and long-standing, value-enhancing objectives. The investment committee, as a stakeholder, deals with instituting a comprehensible strategy and a cohesive vision across the organization (Anderson, Havila, and Nilsson, 2013).
2. Business unit leadership
After the completion of a transaction, the business unit is responsible for the operation of the merged business. As a result, each of the business unit leaders plays a pivotal role in the later phases of the M&A lifespan. Business unit leaders are expected to render backing of the due diligence and assimilation processes. This is because they have specific know-how that could generate prospective red flags and have a complete understanding of how the business ought to operate once the merger and acquisition are done (Hitt, Harrison, and Ireland, 2001).
3. Corporate development team
The corporate development team is responsible for shepherding the planned constituents of an acquisition. The corporate development team most regularly works in tandem with the target and, as a result, can show extensive understanding of the target, have a well-expressed acquisition strategy and implementation plan, and guarantee that the necessary resources are available or can be secured (Deloitte, 2020).
Analysis
Some different strategic tasks and competencies are necessitated to address the strategic issue of mergers and acquisitions. These comprise of the following: 1. Reprioritization of physical, monetary, or human resources Successful mergers and acquisitions necessitate proper management and reprioritization of resources; physical, monetary, and human. The rate of failure of mergers and acquisitions is usually linked to different human resources factors, for instance, cultural incompatibility, management styles, lack of motivation, loss of key employee talents, lack of communication, and also declined trust and vagueness of long-term goals and objectives. The significance of reprioritization of human resources in the context of mergers and acquisitions, with a focus on human resource professionals, who must be proficient at pinpointing prospective issues, ascertaining solutions and influencing management to adopt them. Some of the human resource aspects that need to be taken into consideration include retention of significant personnel, employee selection as well as downsizing, establishment, and advancement of compensation approaches and also coming up with extensive and satisfactory employee benefits programs (SHRM, 2016).
Reprioritization of monetary and physical resources such as assets is pivotal. Within a merger, the buyer usually makes the acquisition of all the assets and liabilities of the target company. The management of these new assets is pivotal in determining the rights fit for the new entity by either disposing of the unnecessary assets or selling them. Monetary management in M&A is also important in order to achieve financial synergy. Mergers give rise to improved performance and efficiency of the banks as mirrored by the overall increase in profitability levels, long-term firm solvency, and also the capital adequacy levels (Berger et al., 2003). They also give rise to changes in efficiency and effectiveness, market power, economies of scale as well as scope in addition to accessibility of services to small consumers and payment systems efficacy. With the exception of enhancement in cost and profit efficacy, mergers could facilitate organizations to generate higher profits through the financial market in leveraging loans and deposit interest rates. Therefore, reprioritization of financial resources is pivotal (Berger et al., 2003). 2. Cross-cultural competency Research demonstrates that two out of three mergers end up failing as a result of failing to address and deal with cultural issues. It is extensively acknowledged that the effective management of organizational change and the free flow assimilation of corporate cultures is pivotal for ant merger and acquisition. For the most part, about 60 percent to 80 percent of the global mergers end up failing because strategies to cope with and assimilate cultural dissimilarities amongst personnel are not in a position (Wright, 2010).
When commencing on a merger and acquisition, it is imperative to try and reunite the variances, take corporate values as a process of development, and eventually work on the corporate identity of the new entity. Cross-cultural competency plays a pivotal role in this regard because the integration and redefinition of the culture and corporate values of any new firm is significant for the integration process. Moreover, settling the dissimilarities builds a mutual platform for the future (Andersson, M, and Karlsson de la Rosa, 2006).
By assimilating two different cultures, the success of a merger and acquisition is reliant upon the competency of generating a new third culture that is openly shared and espoused by all personnel. It is imperative to note that language, cultural beliefs, and values, attitudes as well as behaviors are all issues that intrinsically impact the integration process and the stakeholders involved in the merger and acquisitions need to address them. Cross-cultural training and competency for mergers and acquisitions can help in rendering the essential cultural understanding and sensitivity, leading to the success of the merger or acquisition (Schuler and Jackson, 2001). 3. Communications or negotiations with stakeholders Communication is a key task and competency in mergers and acquisitions. Good communication is pivotal to successful and effective M&A’s. The communication role has to commence in the course of the initial phases to set the scene. Efficacious employee communication is one of the most significant aspects of carrying out mergers. Internal communication is pinpointed as one of the most difficult to attain, but the most important in merger success. Adequate investment in internal communication is the linkage in sustaining employee attitudes positive towards the changes generated by the merger. It is important to secure buy-in and support from the decision-makers and the stakeholders from both entities before the commencement of any merger and acquisition process. By carrying out M&A communications, the managers address the actuality that the cultures of two different entities will not dissolve simply because the two organizations have merged into one (Ayers, 2019).
Furthermore, after the merger, strategic communication is fundamental to the assimilation of the two organizations into a more efficacious single entity. This necessitates change communication to guarantee a mutual understanding of the vision of the future, facilitate cultural alignment, assist personnel in comprehending and internalizing change, and also reinforcing the desired behaviors and retaining and motivating key employees (Gomes et al., 2013). A clear communication plan is beneficial to the organization in addressing corporate culture problems before, during, and after mergers and acquisitions. Additionally, paving the way for a new, unified value system, as well as a strong, effective partnership that might assist the entity is having a competitive advantage (Gomes et al., 2013).
Negotiations are also a significant task in mergers and acquisitions. In delineation, negotiation is an approach by which persons can settle their differences. It is a practice by which compromise or an agreement is attained while avoiding arguments and disputes. Negotiation skills play a key role in M&A to ensure that both parties coming into the merger are satisfied. Taking into consideration that ultimately one entity will be forged after the merger, it is imperative to make certain that all parties involved are satisfied and are all geared to ensuring that the newly formed organization is a success. Negotiations are a channel of communication that purpose to attain a win-win position (Weber, Belkin, and Tarba, 2011).
Implementation
Taking into consideration that the CEO in tandem with the senior-level executives are the personnel with the authority to deal with the decision making for the merger and acquisition, there are several recommendations that I would make for its implementation. First and foremost, the leaders should commence the process by ascertaining growth prospects in business or the market. The second phase of the decision making recommended is the identification of the merger and acquisition candidates. That is, the leaders should pinpoint the candidates that could meet the strategic financial goals and objectives sought after by the organization.
There is also the recommendation of assessing the strategic financial position and fit. This emphasizes the strategic fit amid the organization and its target and the significance of making certain that the proposed entity can contribute to the organizational strategy. There is also the significance of emphasizing the need to attain an organization fit between the two organizations by matching administrative systems, organizational cultures as well as characteristics of the demography (Jemison and Sitkin, 1986). Sufficient magnitudes of strategic and organizational fit should be able to assure success for the merger and acquisition. Subsequently, the leaders must decide on the probable benefits and shortcomings of the proposed M&A and make a high-quality discussion. Furthermore, it is recommended that effective and comprehensive communication should be conveyed to the personnel within the organization. It is imperative to ensure that the employees are well aware of the M&A process for them to come on board and also to evade resistance (Jemison and Sitkin, 1986).

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