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Mergers and Acquisitions: The Human Capital Imperative. Michael A. HitT. NCIOP February 2009. Introduction. Popular Strategy for Many Years. M&As = $4.5 Trillion in 2007 ($3.6 Trillion in 2006) (Hitt, Ireland & Hoskisson, 2009; Ireland, Hoskisson & Hitt, 2009).

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Presentation Transcript
slide2

Introduction

Popular Strategy for Many Years

M&As = $4.5 Trillion in 2007 ($3.6 Trillion in 2006) (Hitt, Ireland & Hoskisson, 2009; Ireland, Hoskisson & Hitt, 2009)

Commonly an Action Used in Response to the Competitive Landscape and Uncertainty

However, Research Shows that M&A Returns Average Close to Zero (Reuer, 2005; Cool & Van de Laar, 2006; Tuch & O’Sullivan, 2007)

slide3

Reasons for Acquisitions

Increased Market Power

Access to New Markets

Reduced Cost & Risk

Reshaping the Firm’s Competitive Scope

Building New Capabilities

Integrating Complementary Resources to Create Synergy thereby Providing More Value to the Customer (Competitive Advantage) and Enriching Long-term Firm Performance

slide4

Potential Problems(Hitt, Harrison & Ireland, 2001)

Managerial Hubris

Lack of Due Diligence(Unrecognized Problems; Select Wrong Target)

Too High Cost(Price & Financing)

Poor Integration of the Firms

  • Culture Conflict
  • Different IS Structures
  • Managing Human Capital

Loss of Human Capital (Walsh, 1988; Walsh & Ellwood, 1991)

slide5

Premiums

Premium: Amount of Price Paid for Acquisition that Exceeds the Acquired Firm’s Market Value

Average Premium Paid (1985-2005) 40+%

Reasons for Premiums

Managerial Hubris

Competing Bids

Investment Advisors

Motivation for Target to Sell

Large Premiums Place Pressure on Executives to Create Positive Returns from Acquisitions

Executives Can Enhance Performance in the Short-Term by Significant Cost Reductions

slide6

Premiums (cont’d)

+

Krishnan, Hitt & Park (2007)

__

Premium

Layoffs

Layoffs

Long-term Performance

Nixon, Hitt, Lee & Jeong (2004)

__

Downsizing

Performance

+

Careful Downsizing

Performance

slide7

Integration

Protecting and Maintaining the Best Human Capital

  • Careful Evaluation and Selection
  • Providing Full Information
  • Avoiding Survivor Guilt

Positive Acquisition(Friendly rather than Hostile)

Overcome Cultural Gaps

Build Cooperative Spirit

Create a “Team” Culture

Integration Teams

  • Experienced Teams
  • Representatives from Both Firms

CiscoCapturing Intellectual Capital

slide8

Contrarian Hiring Strategy

Counter-Cyclical Hiring (Greer & Ireland, 1992; Greer, Ireland & Wingender, 2001)

Hiring during Recessions and Economic Downturns

Advantages

  • Access to High Quality Candidates
  • Reasonable Cost
  • Better Prepared to Take Advantage of Growth Opportunities when Economy Revives

High Quality Human Capital = Competitive Advantage (Hitt, Bierman, Shimizu & Kochhar, 2001; Hitt, Bierman, Uhlenbruck & Shimizu, 2006)