Cross-Border Mergers and Acquisitions: Do Strategy or Post-Merger Integration Matter?

Article excerpt

[Abstract]

A new wave of cross-border mergers and acquisitions has begun. This is in spite of the fact that most of these mergers are likely to fail (Tuch & O'Sullivan, 2007; Lubatkin, 1983). However, recent research suggests the mergers can succeed with the right strategy and careful post-merger integration. This article focuses on the importance of cross-border merger and acquisition strategy and post-merger integration.

[Keywords] Cross-border mergers & acquisitions; strategy; post-merger integration; firm performance; new wave

Introduction

There has been quite a lot of research on mergers and acquisitions (M&A) activity over the years. Research on cross-border mergers and acquisitions (CB M&A) has also become increasingly popular. In a recent review, Shimizu, Hitt, Vaidyanath, and Pisano (2004) review 31 studies on cross-border mergers and acquisitions. They categorize these studies into three streams of research: cross-border M&A as a mode of entry (e.g., comparing CB M&A to "greenfield" entry); CB M&A as a dynamic learning process; and finally, CB M&A as a value-creating strategy (examining post-M&A performance using relatively longer-term measures). However, none of these streams address the focus of this paper. With all the different approaches to CB M&A, are there certain long-term strategies that are better than others? For example, might it be that an acquiring firm that intends to use its acquisitions as a foundation for future growth and consistently acquires high-tech firms in the same industry with complementary but not identical skills, that has compatible organizational and national cultures, and intensively markets itself to the international business press and investment community is more likely to succeed than those that don't do these things?

Some recent research studies suggest that with the right strategy and the right approach to post-merger integration, cross-border acquisitions can create value for the acquiring firm (Belcher & Nail, 2000; Benou, Gleason, & Madura, 2007; Colombo, Conca, & Gnan, 2007; Seth, Song, & Pettit, 2002; 2000). Thus, even though research suggests that most M&As fail (Lubatkin, 1983), M&As might make sense if they use the right strategies.

Some researchers have accused senior managers of acquiring firms thinking they can succeed where most others have failed and, thus, demonstrating what is called management hubris (Seth, Song, & Pettit, 2000). Accusations of hubris on the part of senior managers, like Jurgen Shrempp of Daimler-Benz, are especially damning because research to date on M&A activity clearly demonstrates that most mergers, both domestic and cross-border, fail, and this observation has been widely reported in the business press. Pointing to management hubris, however, may be unfair since in many other areas of human activity, many strive to succeed at things even when the odds are long. These include starting a new business, submitting an academic paper to a highly selective journal, and running for president, among others. In these types of activities, we don't claim that those attempting to succeed in these activities are showing hubris.

Researchers sometimes wonder why managers continue these losing courses of action when research shows most fail (Brouthers, van Hastenburg, & van den Ven. 1998). The answer may be that managers, quite reasonably, think that they can succeed where others have failed because some do, in fact, succeed. Successes include Renualt/Nissan, First Group/Ryder Transportation, and Pharmacia/Upjohn, among others. Whether their efforts are given a negative label quite possibly depends upon whether it is being judged by an outsider (i.e., an academic) or an insider (i.e., a manager).

The current cross-border merger wave had its start in 2003 and was still moving up in 2006. The current wave has yet to surpass the previous one in terms of the number of Sl billion deals. …