Academic journal article Global Business and Management Research: An International Journal

Mergers, Acquisitions and Downsizing: Evidence from a Financial Sector

Academic journal article Global Business and Management Research: An International Journal

Mergers, Acquisitions and Downsizing: Evidence from a Financial Sector

Article excerpt


Why organizations do Mergers or acquire other organization? Does it really help an organization who does a merger or acquire other organization? In last decade, we have seen a lot of mergers and acquisition (M&A) in the financial sector, particularly in the banking sector of Pakistan and after merging or acquiring, downsizing be the next step of those organizations. Our topic is actually based on the Employment Impact of M&A in Banking and Financial Service Sector. The main reason for choosing this topic is to encompass glance at the negative effects of M&A on the employees including executives.

After the M&A, employees of both the organizations i.e. target and acquiring get anxious & psychosomatic due to which their efficiency decreases and as a consequence the organization suffers as a whole. Not only the employees are psychologically disturbed but also the executives get fired and turnover rate also increases in the situation of M&A.

Merger and acquisition is a global phenomenon, with an estimated 4,000 deals taking place every year. From the last decade the value of worldwide M&A has grown dramatically at the rate of 42% a year. Every company wants to grow its business either by internal expansion or by external expansion. In the case of internal expansion, a firm grows gradually over time in the normal course of the business through acquisition but in external expansion, a firm acquires a running business and grows overnight through mergers.

From the last one decade, a large number of international and domestic banks all over the globe are engaged in merger and acquisition activities. One of the foremost objectives behind the M&A in the banking sector is to reap the benefits of economies of scale. It forms of horizontal merger because the merging entities are involved in the same kind of businesses or commercial activities. Through M&A, the banks look for strategic benefits in the banking sector.

It's no secret that plenty of mergers don't work. Those who advocate mergers will argue that the merger will cut costs or boost revenues by more than enough to justify the price premium. Historical trends show that roughly two thirds of big mergers will disappoint on their own terms, which means they will lose value on the stock market. The motivations that drive mergers can be flawed and efficiencies from economies of scale may prove elusive.

Since a majority of mergers end up with the elimination of overlapping functions and positions, the first 100 days are likely to be those when staff are most uncertain about jobs, career prospects and the disappearance of their own corporate culture. There has been a decline in permanent employment, increased job instability and insecurity, and rapid growth of various non-standard forms of work, including part-time and temporary employment. For many reasons these may not reflect actual job reductions and some of the reasons will help explain frequent discrepancies between the announced and actual job impact of individual M&A.

In case of mergers and acquisitions companies forget that they are actually dealing with people who are basic resource which will make the merger work at every level and need to be treated with respect and sensitivity. The fact is that human factor has not been taken into account and that is the main reason for failure of half of the mergers. Most of the time in case of mergers and acquisitions, teams are usually put together to oversee M&A operations. These teams almost always comprise specialists in legal and financial issues as well as experts in strategy but do not include human resource directors. With the help of mergers and acquisitions in the banking sector, the banks can achieve significant growth in their operations and minimize their expenses to a considerable extent.

Another important advantage behind this kind of merger is that in this process, competition is reduced because merger eliminates competitors from the banking industry. …

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