1
Introduction
A merger or acquisition is not initiated with the expectation that everything will stay the same. While acquisitions were recorded in the Roman Empire (Carmeli & Markman, 2011), academic research on the phenomenon is more recent, but growing. From an initial study by Dewing (1921), a sharp increase in acquisition research from the 1980s has followed different paths. Finance scholars dominated acquisition research until the publishing of a book by Haspeslagh and Jemison (1991) that continues to influence acquisition research. Subsequent management research has largely developed into four schools of thought surrounding financial or economic, strategic management, organizational behavior, and process perspectives (Bauer & Matzler, 2014; Birkinshaw, Bresman, & Håkanson, 2000; Larsson & Finkelstein, 1999; Haspeslagh & Jemison, 1991), with a focus on what makes acquisitions fail or succeed (Capasso & Meglio, 2005; Cartwright, 2006). While different approaches to assess acquisition success range from event studies, accounting measures, and managerial surveys (Cording, Christ-mann, & Weigelt, 2010; Oler, Harrison, & Allen, 2008; Zollo & Meier, 2008), research generally agrees that acquisitions do not live up their potential (Bauer & Matzler, 2014; Homburg & Bucerius, 2006; King, Dalton, Daily, & Covin, 2004).
While different perspectives offer complementary insights (Meglio & Risberg, 2011), arguably a more fundamental problem is that research has provided mainly incremental advancements. Instead of viewing this as a problem, we view it as an opportunity to address multiple issues. First, fundamental gaps in acquisition research remain (Barkema & Schijven, 2008; Haleblian, Devers, McNamara, Carpenter, & Davison, 2009), and this may be addressed by theoretical integration. Second, several scholars identify fragmentation in M&A research (Bauer & Matzler, 2014; King et al., 2004) with the consequence that potentially important conceptual links are often taken for granted or ignored. This can be addressed by summarizing what is known and identifying areas for future research. Overall, the development of acquisition research is incomplete (Cartwright & Schoenberg, 2006; King et al., 2004) and it remains confined within established boundaries leaving new, potentially important insights understudied.
We summarize acquisition research and outline areas that it can advance by taking a broader perspective. Rather than gap-spotting along established lines of inquiry (Alvesson & Sandberg, 2013), we challenge several implicit assumptions of acquisition research by highlighting organizational change. Typically, it is change – in firm valuations, competitive situation, leadership, or demand – that lead to acquisitions (King, 2006). Change is also inherent in combining two previously separate organizations, and this impacts industry structure. Often forgotten by those not involved in acquisitions: The announcement of an acquisition leads to change in the involved firms even before organizational integration begins. As a result, organizational change underlies all aspects of merger and acquisition (M&A) activity.
Table 1.1 Comparison of organizational change and acquisition research
| Organizational Change | Content | Context | Process | Outcomes |
| Substance of Change | Internal and external circumstances | Actions to enact change | Adaptation for increased survival | |
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| ||||
| M&A research | Modes of growth | Stakeholders | Acquiring and target firm pre-merger characteristics | Firm performance |
| Responding to external change or applying slack resources | Communication | |||
| Deal completion | ||||
| Acquisition motives | Post-merger integration | |||
| Target selection and due diligence | ||||
Despite this fundamental insight, M&A research has traditionally not integrated insights from organizational change research despite the latter having developed as an important stream in other areas of management research. Against this background, we hold that a better understanding of M&A requires an explicit consideration of organizational change to integrate research under a common umbrella and to identify new areas of M&A research. We apply four themes of organizational change research developed by Armenakis and Bedeian (1999) as an organizing principle for the chapters of this book and relate them to topics in M&A research, see Table 1.1. Our intent is to identify broad research problems whose investigation can help improve our understanding of acquisitions.
Our focus on organizational change assumes it overlaps with research on mergers and acquisitions. Even if there are clear distinctions, arguably most clearly relating to the legal situation surrounding transactions, we integrate related academic literature and consider both topics synonymous unless when explicitly stated otherwise.
Change content
The first theme (Chapter 2) relates to the content or the substance of organizational change. For acquisitions, significant change corresponds to the change of ownership of a target firm. Still, from the perspective of an acquirer, research generally does not consider differences in target firm selection. Related areas of M&A research involve due diligence and acquisition motives. Evidence suggests that target selection ranges from haphazard or serendipitous to carefully planned. For example, Teva cultivated its acquisition of Biogal in Hungary over five years until the government agreed to lay-offs (Brueller, Carmeli, & Markman, 2016). Both change and acquisitions can come from within an organization (e.g., bottom up or top down), or introduced from outside an organization and involve a range of economically rational or other motives.
Change context
The second theme (Chapter 3) relates to contextual issues associated with using acquisitions as a tool for corporate change. In reviewing the context of change, we summarize research on different stakeholders impacted by and impacting acquisitions (King & Taylor, 2012; Meglio, King, & Risberg, 2015). This extends the dominant approach of considering acquisitions impact on shareholders. Broadly defined a stakeholder is any individual or group that can affect or is affected by the actions, decisions, policies, practices, or goals of an organization (Freeman, 1984). In managing stakeholder interests, managers retain a fiduciary duty to shareholders, but implementation of decisions needs to account for ethical responsibilities toward affected groups (Goodpaster, 1991). While the impact to employees internal to combining firms is well recognized, acquisitions also change relationships with competitors (e.g. King & Schriber, 2016), suppliers (e.g. Kato & Schoenberg, 2014), and customers (e.g. Degbey, 2015; Rogan, 2013). For example, the U.S. defense industry began consolidation in the 1990s following a meeting of executives at the Pentagon (customer) called the “last supper” (Augustine, 1997; King & Driessnack, 2003). In this section, we also summarize research on communicating with acquisition stakeholders.
Process of change
The third theme involves the process of enacting desired change, and it is covered in Chapter 4. While a process perspective for acquisition research has a long tradition (e.g., Jemison & Sitkin, 1986), research combining the relationships between factors before and after an acquisition is scarce (Bauer & Matzler, 2014). Meanwhile, the process of attempting change can lead to better understanding, but it also interrupts coordination on interdependent tasks (Summers, Humphrey, & Ferris, 2012). In acquisitions, coordination is complicated by working to integrate previously separate organizations and routines. For example, companies need to maintain other operating and change activities beyond integration (Puranam, Singh, & Zollo, 2006), contributing to co-evolution of processes (Rouzies, Colman, & Angwin, 2018).
Change outcomes
The fourth theme (Chapter 5) relates to performance variables used to assess organizational change outcomes, such as organizational survival (e.g., Bradley, Aldrich, Shepherd, & Wiklund, 2011). Evaluating performance implications of acquisitions has been a primary focus of research; however, when aggregated in a meta-analysis, common research variables generally do not explain changes in performance (King et al., 2004). While organizational change and regular acquisition activity can increase firm survival (e.g., Bradley et al., 2011; Almor, Tarba, & Margalit, 2014), the primary focus of acquisition research is on financial performance.
Still, a lack of consensus on acquisition performance measures (e.g., Cording et al., 2010; Meglio & Risberg, 2011) and their inconsistent use limits knowledge accumulation (King et al., 2004). The most common accounting measures, short-term stock market measures, long-term stock market measures, and managerial assessments of acquisition performance display low correlations (e.g., Cording et al., 2010; Papadakis & Thanos, 2010; Schoenberg, 2006). This reflects that acquisition performance is a multi-dimensional construct and research design needs to understand difference in performance measures (Cording et al., 2010; Richard, Devinney, Yip, & Johnson, 2009, Zollo & Meier, 2008). Additionally, there are multiple goals beyond financial performance, including growth, resource transfer, and survival, and these goals appear in other research streams, such as entrepreneurship (e.g., Daily, McDougall, Covin, & Dalton, 2002). Additionally, M&A may explain why larger firms display increased survival rates (Sutton, 1997). This is important as it is difficult for firms to grow, build capabilities, and generate market returns (Li, Shang, & Slaughter, 2010), or circumstances consistent with M&A increasing firm survival.
Summary and outlook
The structure of our book begins to integrate M&A research that has a tendency for silo thinking and path-dependent development in different research streams. We also use organizational change to integrate research across M&A phases, as change precedes M&A and it captures the essence of the phenomenon to include intended and actual effects. While an intuitive insight, this notion has received surprisingly little attention in research. Consequently, we build the logic of this book around four main concepts from organizational change literature. Before continuing, we answer two relevant questions: 1) Why is M&A important, and 2) Why is this book worth reading?
Why M&A?
The study of M&A is highly relevant, as M&A represent a fundamental tool for corporate restructuring. For example, in 2017, worldwide M&A activity exceeded $4.7 trillion (Statista.com, 2018). Put into terms of Gross Domestic Product (GDP), this makes M&A equivalent to the world’s fourth largest economy (Focus Economics, 2017). The level of spending on M&A also exceeds worldwide spending on research and development (R&D). For example, R&D in 2017 was just over $2 trillion (Riemschneider, 2017). In other words, over two times as much money is spent on buying assets that exist using acquisitions than is invested in creating something new. This highlights the importance of M&A research in improving acquisition performance.
However, existing academic research offers limited insights and firm acquisition performance hovers around zero (King et al., 2004). This belies a wide variance in acquisition performance with some spectacular failures (e.g., DaimlerChrysler) and other firms (e.g., Cisco) having experienced consistent success. We also hasten to add that a narrow focus on financial effects miss areas of importance for M&A, as many tangible effects of acquisitions are not financial. Still, even small improvements in M&A success rates resulting from integrated and meaningful research would have financial and societal value.
Why this book?
M&A research is fragmented, including use of performance measures (Cording et al., 2010; Meglio & Risberg, 2010), and predictor variables (King et al., 2004). This has contributed to M&A research using diverse perspectives (Bauer & Matzler, 2014) and the lack of an overall guiding theory (Cartwright, Teerikangas, Rouzies, & Wilson-Evered, 2012). Moreover, research often only looks at one part of a multiple phase process (Jemison & Sitkin, 1986) that are not isolated from one another (Puranam et al., 2006, Rouzies et al., 2018). For example, at acquisition announcement signaling is often used to explain stock market reactions and their interpretation by managers (e.g., Meyer & Altenborg, 2008; Reuer, Tong, & Wu, 2012). However, stock market reactions are imperfect predictors of long-term performance (King, Slotegraaf, & Kesner, 2008; Secher & Horley, 2018), because stock market reactions largely ignore integration when value is achieved (Haspeslagh & Jemison, 1991). Following an acquisition, resource based theory has examined internal combinations (King et al., 2008; Makri, Hitt, & Lane, 2010) and competitive dynamics explained external influence on acquisition performance (e.g., Keil, Laamanen, & McGrath, 2013; King & Schriber, 2016). However, research combining perspectives and looking at the overall acquisition process is rare when it is also sorely needed.
Overall, we build on an organizational change framework to integrate M&A research and identify opportunities for continued research. This further organizes M&A research from an existing focus on pre and post-merger phases to multiple aspects of organizational change. We expect this better develops the origins of M&A (content of change) and alignment of a firm with its stakeholders (context of change) before an M&A completes, as well as acquisition integration (process of change) and M&A performance (change outcomes) following completion of an acquisition. Using a common theme of organizational change also offers a consistent umbrella that can integrate and reconcile existing M&A research and outline new research directions.