Mergers And Acquisitions And Economic Crisis. A Case Study Approach From A Qualitative Analysis In Greece


Mergers And Acquisitions And Economic Crisis. A Case Study Approach From A Qualitative Analysis In Greece

By Yiannis Triantafyllopoulos, Konstantionos Mpourletidis


This article aims to examine the main issues in terms of Human Resource perspective that companies facing after Mergers and Acquisitions in Greece and within recession. For this purpose this article is based on a theoretical research in the recent literature and the results of a qualitative analysis in companies that completed a change like a merger or an acquisition.

1. Introduction

The DEBT crisis in the Eurozone as well as the intense volatility of markets led to “free fall” of the value of mergers and acquisitions in the 4th trimester, resulting in strong shrinking of the commissions of banking consortiums, mainly those of Europe, according to a “Financial Times” publication.

The value of mergers and acquisitions has receded by 32% in the 4th trimester (compared to the previous) reaching the level of 375.3 billion dollars, due to the fall by 41% in European soil. As for the banking commissions, they receded by 8% (compared to the 4th trimester of 2010) reaching 72.6 billion dollars.

Europe was the area mostly hurt, since the value of mergers and acquisitions barely reached 2.57 billion dollars, the 4th trimester being the worse since the first tracing of this particular data in 2000, by the Thomson Reuters Company. It is noted that for the whole of 2010 the value of mergers and acquisition in Europe has increased by just 3.3%.

“Prospects for 2012 are grim. Either there will be a stabilization of the European crisis and a recovery of the merging activity, or deterioration and an even worse situation”, stated Paul Parker, specialist on mergers and acquisitions issues in Barclays Capital.

At the same time public issues fell by 27% for the whole of 2011, with the issuing of bonds following a respective course. In corporate level, only companies with high level of creditworthiness have access to markets, whereas those of countries considered “problematic” are totally excluded. In any event, USA still “holds up”, even after the collapse of the agreement between AT&T and T-Mobile USA, with the value of mergers and acquisitions increasing – still in the 4th semester – by 12% in annual basis and the American companies corresponding to 40% of the world’s acquisition activity, as shown by Merger market company data.

1.1. Mergers and acquisitions as an instrument of economic development

According to some counselling units of ICAP Group, mergers and acquisitions have been highlighted as one of the main forms of strategic expansion and development of enterprises that keep gaining ground in the contemporary competitive environment.

The motives that push enterprises towards mergers and acquisitions are many and diverse. Motives change in different financial conditions and also if it is about a related or unrelated merger. A related merger may come from the motive of creating economies of scale or of creating capacity to satisfy the rising need for the product. On the other hand, an unrelated merger is probably due to differentiation of the business risk of the enterprise or the response of the reducing demand of the merging company’s product.

In some cases, the merging of companies may help a faster penetration in a new market (either geographically or in a new branch) relative to the organic development or the adoption of a strategy that possibly was costly and of high risk. In other cases, mergers and acquisitions have a defensive character, aiming at protecting the market share in a depreciated or concentrated market.

In general, the reason for merging one organization with another organization is to achieve its strategic objectives faster and with less cost compared to acting by itself, due to the scale economies achieved, to the Cross-selling ability and to the cooperation developed.

International studies conclude that mergers, for industry in total, vary significantly in proportion to the economic climate, namely increasing during development and decreasing during depression (Komlenovic, Mamun & Mishra, 2008). Indeed, the significant correlation between the economic circle and mergers is self-powered for related as well as for unrelated mergers. Also, if the intensity of mergers differs according to the branch, circularity is still present. The general deceleration in an economy and the resulting decrease of demand leads in redundant capacity in a branch. Mergers can eliminate this redundant capacity by unifying the existing companies (Jensen, 1993). But during the depression the companies face restrictions in raising capital and cannot afford to pay the value of a business to merge (Schleifer and Vishny, 1992). Then the mergers\acquisitions are postponed until the market becomes more lucid. This argument also implies that the effect of the economic cycle in the financial suppleness of the business may lead to the fact that mergers accentuate circular fluctuations.

The above conclusions, which result from international bibliography, are confirmed in the current economic crisis for the Greek market. In particular, according to ICAP DataBank findings, the number of all kinds of mergers reached 345 in 2009 from 450 in 2007. Thus, the economic crisis has negatively affected the development of the realized mergers, obviously due to the above-mentioned reasons (restrictions in raising capital, high interest rates, economic instability).

Challenging markets create turbulence impacting demand, confidence, the competitive landscape and access to resources and capital. The M&A Services professionals recognise the importance and consequences of these factors and their potential impact on our clients, and we are at the forefront of creating practical solutions to support client strategies in the current global market environment.

Challenging markets create turbulence impacting demand, confidence, the competitive landscape and access to resources and capital. The M&A Services professionals recognise the importance and consequences of these factors and their potential impact on our clients, and we are at the forefront of creating practical solutions to support client strategies in the current global market environment.

Even though caution remains the prevailing sentiment, conditions for deal making are fertile. In a market environment where even modest organic growth can be hard to achieve, the corporate sector must consider inorganic growth opportunities, otherwise they risk squandering their hard won positions. Doing the right deal is about timing, intent, due diligence for fair valuation and execution capabilities.

1.2. Consequences in Greek economy:

We have to discern between mergers and acquisitions that were concluded until today and those who will most probably follow. Until today most of these cases had a positive impact for the Greek economy, since privatization of the banks brought high proceeds in the Public fund. Many new jobs were created by continuous development and the opening of new branches. The citizen-consumer got to know new products, has the possibility of choices with lower rates of interest and commissions, enjoying a higher quality of service. The small and medium-sized enterprises gained easier access to financing products with low pricing. Especially for the SMEs that contribute to the growth of employment and to the development of the national economy by raising the national product and consolidating the social cohesion of any sound state and economy.

2. The role of Human Resources after a Merger & Acquisition

The recession is a factor of delay for the activity of Mergers & Acquisitions (the number of M&As in 2009 was 345 from 450 in 2007) but according to ICAP Databank the M&A process is one of the most common strategy movement of an organization to survive or to expand or to be developed in a difficult environment like the one where Greek organizations operate. Also, human resources (employee and top management behavior) and the way they adapt, react and function in this organizational change is an important study issue for many researchers.

There are two distinctible types of research. The first, that has been the main issue of bibliography, examines man as another factor that may cause the failure of M&A, trying to find explanations for probable breakdown and the right strategies for success (Hunt, 1988). The second examines how people are involved in the process with the purpose not to explain why a M&A was successful or unsuccessful, but to fully comprehend the process.

For example, Nappier (1989), Schuller & Jackson (2001), Jorkman & Soderberg (2005) have developed a context explaining that the motives and the characteristics of the involved corporations are related with the type of merger in connection with the degree of integration. Alternatively, the type of merger will affect the place and the time where changes take place in the practices where staff is involved. The three main variables in this context are:

  • The type of merger (extension, collaborative or redesign)
  • The practices and the policies of human resources
  • Results of the merger (financial performance, employee reactions, employee performance),

These variables are also considered as strictly mutually dependent, that is, they can only function through their dependence.

By analyzing thoroughly the above, in the Greek Banking area the labor regime (Lidorikis A., 2006, Kathimerini) acts as one of the breaks of the system, since it complicaties the restructuring of the work-force, in case of merger or acquisition.

According to the EU rules, the administration is obliged to warn the employed about what will happen in case of merger or acquisition and to negotiate with them the new working posts and the labour adjustments. What is most important, though, as proven in various cases of Μ&Α between credit banks in Greece, and especially between public and private ones, is the degree of willingness of the employed to cooperate, a factor that may lead every restructuring attempt to cancellation (Angelis, Lymperopoulos, Dimaki 2005). Hollis (2002) adopts the view of Seth Leiber (CEO of The Center of Effective Performance) that a substantial percentage of the 75% of the corporations that fail (meaning that they do not produce the expected results) in a Μ&Α, is due to problems concerning human resources. The odd thing about it is the fact that although they are expected and thus predictable, they still exist and cause trouble. The same applies to the Greek Banking area, where the majority of M&A’s, even those considered successful in the long run, needed long and time-consuming processes of unification that had a negative effect on the goals of the institutions.

A typical example is a big private bank ― created after privatization ― that acquired another private bank for a price eight times its book value, since the latter was launching products that were innovative for Greek standards (internal consumer credit and financing professionals). However, they did not take good stock of the situation and were overtaken by competition. At the same period a trust was created between a big insurance organization and a foreign private bank (it is worth mentioning that it was the first banking enterprise established from scratch after thirty years in Greece). The latter was planning to launch products to compete the products of the acquired bank, aiming in fact at creating plenty of branch offices.

And on top of all that, the trust, taking advantage of the insecurity and the uncertainty created to the executives of the acquired bank during transition period, and knowing its profitability and its innovative actions regarding the specific products, managed to detach many of its basic administrative executives.

The threat of dismissal after M&A (particularly after 2009 where the unemployment index increased dramatically within the country) often leads to disorganization, drop of efficiency and of course the withdrawal of experienced executives. Krug (2003), continuing the research of Walsh (1989) concluding that 70% of high executives withdraw within 5 years from the M&A, resulted that withdrawals and moves of high executives are very increased, even nine years after a merger or acquisition. In particular, Krug & Nigh (2001) worked out five main reasons for an executive to remain in an organization:

  • Job satisfaction
  • Increased Job status
  • Job security
  • Autonomy
  • Personnal Issues

But the reasons for an executive to decide to withdraw from his position are the following three:

  • Acquired company top management lack leadership and direction
  • Dishonesty & Lacked morale
  • Treating poorely the employees

The example of an aggressive acquisition by a large private bank, towards the second-larger bank of the private sector through the Stock Market, is typical of the role of human resources. The acquisition cost reached almost 655 million Euro. Co-operation after the acquisition was bound to be effective. The acquired bank was focusing on small and medium scale enterprises and owned several subsidiary financial companies, such as a successful company of financial credit, that the private bank did not possess an equal of at that time. On the other hand, the strong point of the private bank was the quality of service rendered to consumers and large enterprises.

According to market analysts, the outcome of this agreement was not at all positive due to the conflict between different cultures in administrative level. The personnel of the acquired bank were allowed to develop strong relationships with their clients, thus following a much more liberal lending policy. On the contrary, the private bank, through its structure, was following a more disciplined approach, the decisions being taken by top executives and transmitted to lower levels, or at least had to be approved by top administrative executives.

The result was the withdrawal of many middle-level executives of the acquired bank seeking occupation to other organizations, or, in certain occasions, creating their own competitive enterprises of financial credit. Because of the power of the trade union of bank employees, the bank that resulted from the merger was not in a position to discharge the extra personnel in time. As a consequence, the bank did not manage to restructure properly the resulting branch office network (Angelis, Lymperopoulos, Dimaki 2005).

Stress is one of the most often recognized reactions in M&A (Buono, 2002). Because of the possibility of significant changes and losses, M&A is considered to be very stressful. In a stress intensity scale of max 100, in such cases the number might reach 100 (Siehl 1990). However, it is not only the Μ&Α that worries the employed, but also the inability to anticipate when it will take place, the lack of positions of employment, or other factors that prevent the employed to leave, causing even more stress (Balmer & Dinnie, 1999).

Each time an organization mergers with another, the employed feel they are losing control over important matters relating with their lives. In an effort to surpass this difficult phase, they put themselves under a lot of pressure, a fact, which leads in turn to lower productivity and lower job satisfaction (Davy et al., 1989).

The buy-off of the 51% of a public bank by a large private one in the context of expanding its activities and strengthening its position in the market, raised the market share of the latter from 12% to 20%, but put a significant strain on the cost-income ratio, thus narrowing the increase rate of earnings. The merger had good results, since the top administrative executives appointed by the state were dismissed from the beginning, leaving to the executives of the private sector the space to apply their policy.

However, part of the deal was that there were not going to be any job losses, which entails a long and hard restructuring process, through which the best middle administrative executives of both association were chosen, while the rest were either repositioned or retrained.

But there were also asymmetries regarding the benefits towards the personnel. The employees of the public bank had a subsidiary insurance fund, which was much wealthier than that of their homologues in the private bank.

The bank had to join the two funds improving the benefits of its former personnel. Finally, the merger was crowned with success but under conditions of strain due to the long and time-consuming procedures. The effect showed almost two years later when there was an effort to merge the resulting association with the largest public bank of Greece; the executives coming from such a stressful process went against the merger and, as a consequence, it was never completed.

Other studies (Schweiger at all, 1987) conclude that after M&A the employed operate under a feeling of loss and insecurity. Often there are worries such as loss of identity, obsession with survival matters, as well as the fact that their families put additional strain in their behaviour.

The situation in question caused by insecure events taking place after M&A is called Merger Syndrome (Mark and Mirvis, 2001). According to that, the employed are experiencing conditions of sress and work so much on the matter that there is not any time left for the company. In the Greek area, where the syndicalistic banking federation is very powerful, the briefing of the employed in case of M&A was immediate and detailed, especially where there was a public organization involved; the result was that the employed were studying the issue too much, even in the case where the agreement was not concluded, thus reducing their productivity.

However, the process of merger and acquisition is not always a negative experience (Mark & Mirvis 1992). Panchal & Cartwright (2001) concluded that the culture of an enterprise affects the experience of stress. Companies with flexible culture had less stress, while in those with complicated structure and a culture of superiority the employed showed high levels of stress. Thereby, if these reactions are not handled quickly and efficiently, the performance of the enterprise will have a negative effect (Buono 2002).

3. The problem and the methodology of the Research

From the previous presentation it is made clear that the factor of action and reaction of human resources before and after merger or an acquisition particularly during a recession plays a significant role for the course of the organization that results from the merger. Our intention in this article is to study the importance of the factor “human resources” after organizational changes like Merger and Acquisition and more particularly to identify the factors that can act as catalysts or destroy the result of an M&A and are related with the “human resources”.

4. Qualitative analysis after M&A

As a part of a survey for the performance management strategies in Greek companies that passed organizational changes like Mergers and Acquisitions before or during recession there were posed open questions in 6 organizations and particularly in members that participated actively not only in the process of the M&A but also in the implementation of the new strategy after the process completed.

Responses were submitted from CEO`s (25%), HR Professionals (25%) and other Management (50%). The key responses were:

• No matter before and after the M&A, the process itself does not act as a catalyst for people to abandon the organization. Everyone stays until the new practices (strategy) implemented. What really happened is that people wait and do not participate actively, particularly if there is a lack in leadership change or generally in the Management of Change process.

• All employees, no matter the hierarchy, they have expectations in terms of their career and future that created the relevant commitment

• The factor of expectation is one of the most important as it is related with the absorption of the organization practices and people engagement as create the psychological contract between the employee and the company

• In most successful companies even though the changes were major the retirement approaching the 70% that means that people’s expectations achieved.

• What is happening with the new practices that the new organization (after the M&A) wants to impose (eg reward, leadership style, change in ways of reporting) is that their absorption from the employees are always related with how the people understand their importance or not

• In most successful companies even though the changes were major the retirement approaching the 70% that means that people’s expectations achieved.

• What is happening with the new practices that the new organization (after the M&A) wants to impose (eg reward, leadership style, change in ways of reporting) is that their absorption from the employees are always related with how the people understand their importance or not

• The new environment is the one that define the direction, The stakeholders and the way of they communicate, affect the new practices of the organization

• The evaluation of personnel after the change process is always depended on the new company structure. For the Greek organizations this is not a common practice as it is not always the first priority

• The culture plays the most important role also after the merger and acquisition. Even in companies with similar cultures there are always people that cannot be engaged. When you cannot change the people’s mentality is better to keep the old leadership but increase the way of monitoring and proceed with minor changes

• The change of leadership is an important factor for the success. There is always a need of leadership with experience, that can take decisions quickly, that knows the organization goals how they will succeed them and fully committed to their role. Very often the young leaders act with arrogance. They are just acting as “implementers” of the designed organization performance management practices leaving the human factor last in their priorities.

• Usually after an M&A there are performance management strategies that came from the Human Resource dpt and nobody has evaluated their importance or their implementation within the organization

• The evaluation of personnel in order to be motivational should be based on specific KPIs on monthly basis and bonded with:

– the salary.

– The team performance. The individual should realize the consequences of his actions in the team performance

• Reward and bonus should be taken into consideration and should be bonded with specific targets of the organizations strategy performance

• Individual education and training plays also important role to people motivation and particularly if this is not related only with the job but also with the personnel development plan

• Individual education and training plays also important role to people motivation and particularly if this is not related only with the job but also with the personnel development plan

• No matter the strategy and the techniques that the new company is using the main difference is the role of leadership and how active and focused on the employees is. All leaders from first to upper level should be trained for the successive organization of performance evaluation meetings. They have to support the effective performance and pass to all employees the appropriate messages for this purpose.

• Firms that use high technology in their systems (eg ERP systems, TQM, web based tools etc) applied the Performance management practices easier than manufacturing companies that still don’t use Informative technology.

• Technology and web based tools can help people to understand and better to communicate more clear among teams.

• Clear roles and responsibilities after any change but also during normal operations is vital. In this way the passing from the data to the decision is fast and effective.

• The development of employees should also be the first priority to the leadership and the company targets should also be related with this.

• The daily activities should be performed in such way that should be an alignment between company targets and employees activities.

• Organization structure should be rely on trust and open communication among teams.

• The consideration of knowledge transfer at the individual and at the team or collective level. According the respondents when employees are assigned successively to different project teams, they can transfer their knowledge in high technology to other parts of the organization. This plays more important role in high technology companies.

• Human Resource Practices not always absorbed from the staff, particularly after a change where they feel suspicious and unsecure.

• Performance Management practices should be implemented in a way that people understand the needs and their contribution via the implementation.

• The existence of robust and reliable Key Performance Indicators in order to trace and solve the bad performance issues that raised inevitably.

• Interpersonal Trust: Learning processes are facilitated by good interpersonal relations, that can improve feedback and communication, which will facilitate individual learning, development and growth. If there is no trust, employees will not be cooperative and willingness to share their knowledge to their colleagues

• The diversity among the teams. This is vital in this type of business. Employees can be different in many aspects, like different skills, knowledge, personality characteristics. This diversity will be beneficial to the born of new ideas and consequently new knowledge.

• Organizational Culture: In this type of business this refers mainly to the dimensions of uncertainty avoidance and individualism. For example, coaching is important to overcome the obstacles of individualism for employees that are the competitive advantage of the company.

• Motivation & Reward: The performance process should be related with motivation and reward techniques. This also would be more efficient if there is only one central Human Resource department with uniformly management.

• Use examples from failure organizational changes to motivate and make personnel more proactive and ready to react in difficult cases

On table 1 are all the factors that referred as important from the representatives of the various sectors within the Greek environment after an organizational change takes place and particularly after a merger or acquisition.

Table 1 Factors that affect MA result per sector
Table 2 Factors-Sub–factors common for all sectors

5. Conclusion

From the above qualitative data are obvious that some of the factors are common for all sectors. Particularly there are sub factors that showed in table 2 that need to be considered and reviewed with more quantitative data.

Additional the role of expectations that people have in terms of performance management practices (eg reward, leadership, Education, personal development, targets, key performance indicators) before the process of the Merger or the Acquisition and the way these ones implemented after the new organization is in place is the most important as it was referred from all representatives as the most crucial for the success of every change.

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