Acquisition of a Foreign Firm

1. As a CEO, you are trying to acquire a foreign firm. The size of your firm will double, and it will become the largest in your industry.  What does your firm do and what does the foreign firm you are trying to acquire do?  Where are the firms based?

My firm offers diverse financial services and it is located in Washington DC. In particular, it provides community banking services, brokerage and retirement services, wholesale banking, credit cards and customer services and internet services. The foreign firm that my firm is trying to acquire on the other hand is based in California and also offers wide ranging financial services to its clientele. In particular, it provides banking services, asset management, investment and corporate banking services and products as well as wealth management. Furthermore, the firm offers security services in three American states; Florida, California and Connecticut.

2. You are very enthusiastic about the opportunity to be a leading captain of industry and the associated power, prestige, and income.  (You expect your salary, bonus, and stock option to double next year).  However, you are troubled by the fact that 70% of mergers and acquisitions (M&As) reportedly fail.  How would you proceed?

Indeed, it can not be disputed that acquisition of a new firm impacts on the organization’s ideologies and practices in different ways. According to Miller (2008), most failures result from a lack of cultural cohesion. In this regard, cultural cohesion is a very important aspect that can make the resultant firm to either succeed or fail because of is influence on talent retention. In this consideration, I would proceed by attaining an in depth understanding of various cultural influences related to disciplines, beliefs and problem resolution strategies as well as practices of the foreign firm. In addition, I will critically analyze the synergies surrounding brands, physical assets and competencies with the aim of incorporating and retaining these in the resultant company. In this respect, Ghughan (2005) indicates that understanding and appreciating the various cultural underpinnings that anchor the preceding aspects is of paramount importance. As such, I would make efforts to understand the cultural aspect that are related to the above structural supports.

Most importantly, I would align my corporate strategy to the acquisition strategy. In particular, my corporate strategy seeks to enhance profits and maintain upward growth and development by providing high quality and diverse products. The main aim of acquiring the new firm is to diversify the service and increase economies of scale. Bridging any gaps between these two strategies would go a long way in enhancing performance and preventing incidences of failure. It would also be important for my firm to redefine its position in the market and work towards attaining its goals and objectives. Brunner (2004) cites that most companies that make acquisitions fail because they become over whelmed by the entire development and loose track of their corporate goals and objectives. Defining the position of my firm in the market after acquisition is a visionary measure that will enable the firm to develop a viable strategic direction. Further, this will prevent incidences of lacing undue emphasis on short term legal and financial issues at the expense of important corporate goals and objectives.

Also, it is worth appreciating that the resultant firm would be bigger and would pursue diverse approaches. It would be important to put in place distinct communication strategies and enhance organizational capacities with respect to human resource management, production, marketing and so forth. Effective communication strategies would ensure free information flow and enhance a learning culture n the organization. In addition, it would prevent communication related conflicts that strain relationships and undermine effective functioning in the work place. Building capacities on the other hand would be instrumental in ensuring quality production of products and services. In this regard, Miller (2008) posits that some companies fail because of various challenge related to organizational leadership and effective communication.

3. What institution-based issues would you encounter? Discuss.

There are various institutional based issues that my firm looks forward to encountering and which would impact in different ways on the performance and general wellbeing of my organization. To begin with, there is a possibility of legal issues especially considering that the firm to be acquired is located in a foreign country. In this regard, it is worth noting that the legal expectations of the California state might slightly differ from those of my home family. Also, the resultant firm is likely to b treated differently by the regulators and law enforcers because of the relative increase in output and assumption of a new status or position in the industry. These can affect production and the firm’s ability to meet goals and objectives. Particular areas of concern include increase in taxes as a result of increase in revenue and so forth.

Then, challenges might also stem from the issue of acceptability by the foreign firm. Acquiring it will have far reaching implications on its work force as they would be required to operate under new rules and regulations. Effectively assuming these can be problematic especially considering that some of their practices and processes differ considerably from those of my firm. Issues pertaining to morality and culture are likely to be problematic because of the varying beliefs and practices. These would directly affect performance as well as managerial behavior that are instrumental in providing guidance to the resultant company. Also, aspects pertaining to the credibility of the business operation are also likely to raise certain concerns. Credibility in this regard is defined in terms of the cohesiveness between organizational practices and corporate strategy, goals and objectives.

Also, the personnel of the acquired firm are likely to experience difficulties in assuming a new culture. In this regard, they would be expected to assume new practices, processes and align their beliefs and perceptions to new organizational goals and objectives. This can negatively impact on the organizational relationships and have far reaching impacts on the productivity of the company. This would occur especially when the respective personnel find it difficult to cope with the new work environment. It might result in loss of personnel that are important in maintaining quality production.

4. What resource-based issues would you face? Describe

There are various resource based issues that the company firm is likely to grapple with. To begin with, there would be need for more financial resources to cater for the increasing costs and expenses. The ability to handle this effectively requires an understanding of financial capability of the company. The company may also experience difficulties in accessing important complementary resources that may be financial, human or materials to maintain optimal production. This as the ability to affect its productivity as well as its capacity to cater for wide ranging processes. Then, the firm is likely to loose important human resources because of the changing work environment and other institutional changes. This can affect the quality of production significantly. The company will be expected to source for other resources to develop capacities of it personnel especially after redefinition of their corporate strategy, goals and objectives. Developing human resources will enable it to maintain quality production especially considering that it looks forward to assuming the top most position in the industry.

5. What are your managerial motives? Explain

There are various managerial motives for the acquisition of the foreign firm. To begin with, the aim of acquiring this firm is to increase my remuneration as the chief executive officer of one of the leading financial services companies in the region. Since the resultant company would assume market leadership, heading it is prestigious and would attract a higher salary package. The salary package will be aligned to the roles and responsibilities that I would be required to perform as a chief executive officer. In addition to salary increment, I look forward to being entitled to various benefits such as paid holidays, increased insurance packages, housing and so forth. This will enhance my quality of life as well as the life of my family. In his research, Ghaughan (2005) indicates that having responsibility in a larger firm attracts higher compensation. In the financial industry, it is widely agreed that most executives set their salaries by comparing with other managers in the industry.

Another motive for acquiring a foreign firm is to enhance my professional status. Compared to being a chief executive officer of a smaller firm, being the chief executive officer of a leading financial firm is more prestigious. In addition to increased compensation, this also attracts relative benefits that stem from mere association with top players in the financial industry. For instance, I would have a higher media attention that would enable me to recognize various opportunities in the industry. Another motive for acquiring this foreign firm pertains to the need to attain more power. Notably, the number of workers under my command would increase significantly. In addition, I would be in charge of more responsibilities. This implies that I would be more powerful and have a greater influence than what I currently have. In this regard, it should be acknowledged that power in the current corporate sphere is greatly determined by the status of an individual in the industry as well as the level of influence and the amount of salary.

Finally, another reason for acquiring the firm pertains to the need for empire building. This is instrumental in enabling me to attain a high degree of job security. According to Miller (2008), larger banking organizations are unlikely to be taken over than their smaller counterparts. Statistical evidence indicates that hostile take over culminate in loss of jobs especially for the management staff. Acquiring the foreign firm would increase my possibility of maintaining my job position as he chief executive officer of the company.

6. Do you possess hubris? Explain your answer

I do not posses hubris that constitutes over optimism in the evaluation of the acquisition. In this regard, I have taken practical measures to analyze the value of the foreign firm to be acquired as well as its performance in the industry. In addition, I have effectively evaluated the financial trends and made credible predictions based on previous as well as current trends. Although I have great faith in my capabilities, I also appreciate my weaknesses and the decision to acquire the foreign firm has not been directly influenced by this. The payment of this acquisition is reflective of an objective evaluation of all the necessary aspects as well as trends in the industry. In essence, the acquisition is driven by a great desire to increase shareholder wealth as opposed to other subjective reasons.

7. How would you ensure the success of your acquisition?

There are various measures that I would take to ensure the success of my firm. To begin with, I would review my corporate goals and objectives and align these to the organizational strategy. This will ensure that my firm focuses on attaining important organizational goals and objectives even after acquiring the foreign firm. Then I would take measures to reconcile any cultural inconsistencies after acquisition. Notably, the firms operate in different environments and are governed be varied regulations. Reconciling any cultural differences is imperatively important in ensuring optimal performance. This would include the need for compromise in order to accommodate any differences that would not significantly impact on performance. Before acquisition, I would objectively evaluate the value of the foreign firm in order to avoid incidences of over valuing that have the ability to affect the overall performance of the firm.

Then, I would analyze the legal aspects of acquisition and align all my practices to these. This will go a long way in preventing negative legal implications that undermine effective performance. Then, I would take timely measures in establishing viable relations with important regulator bodies in order to avoid unnecessary disruptions. Also, I would aim at retaining the human resource and enhancing their capacities through education opportunities as well as training. As compared to hiring other human resources, Brunner (2004) indicates that retaining human resources is less expensive. This is because the retained staff understands the processes and practices of the industry better than the new staff. This implies that fewer resources would be employed for capacity building. Enhancing their capacities on the other hand would aid in improving their performance and aligning these to the required global standards. Then, I would use my influence and power to source for sufficient financial resources from trusted investors to ensure effective and sustainable operation.

References

Brunner, R. (2004). Applied mergers and acquisitions. USA: Wiley

Gaughan, P. (2002). Mergers, acquisitions and corporate restructurings. USA; Wiley

Gaughan, P. (2005). Mergers: What can go wrong and how to prevent it. USA: Wiley

Miller, E. (2008). Mergers and acquisitions: A step-by-step legal and practical guide. USA: Wiley