The merging of two companies with different management styles, internal controls and processes is not an easy task. The process can be very challenging for the senior management of a company as it impacts the lives of employees of the company, the customers, suppliers, or anyone associated with both the companies. Some of the challenges involved in the merger & acquisition process are:
- Communication failure
A merger is not just the integration of the marketing, technology and finances of two companies. It involves another important aspect, ‘the merging of human capital that the company possesses’. Failure of companies to be vocal about their plans can lead to a lack of trust among the employees regarding their organization. The companies that enter into a merger need to be very clear about how they would want to unite their employees; combine and improvise on their processes and leverage their human potential. For example: The HP and Compaq merger went wrong right from the initial stages because of their failure to communicate
- Lay offs’
Sometimes companies decide to lay off employees in anticipation of the additional human talent they would inherit as an outcome of the merger or acquisition. This can backfire very badly as retrenchment in this scenario can be detrimental to the overall company morale besides creating a very high level of insecurity amongst the retained employees as well
- Time consuming process
Any merger or acquisition process is a very time consuming one. It requires a lot of time and energy of the senior management (of both the organizations) as their commitment to the process is very crucial. This could lead to diversion of attention from the operational aspects or day to day running of the company. Considering the nature of this kind of process, they are also required to manage the interest of anyone associated with the company both internally as well as externally
- Information sharing and consolidation
A major challenge for companies is consolidation of information. It is difficult to keep costs minimum while consolidating data. Research indicates that organizations spend up to 30% of their IT budgets on system integration issues. Ensuring high quality data for new applications is a challenge during any system conversion
- Due diligence
Due diligence requires deep analysis of assets and liabilities. It includes the analysis of collections of receivables and inventory to identify obsolete stock or doubtful accounts, analyzing billing files to assess the reliability of cash flows. The challenge for companies during the process of a merger or an acquisition is that they have to run through vast amounts of data under very tight schedules
- Investment in resources
Not investing adequate resources to complete the transaction can lead to major setbacks in the long run. It is important to allocate the right amount of time, energy, capital and people for a merger to be successful
- Different cultures
A merger affects the customers of both the companies. The customers would want to be assured that the quality of service would remain good or improve further because of the merger. This could be a challenge (especially in case of Cross border mergers) as mergers involve melding the cultures of two different organizations
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