Wednesday, March 27, 2013

Merger and Acquisitions: The Role of Strategic Planning



Mergers and Acquisitions (M&A) have been the focus of attention since the 1980’s.  More recently, the approach of many companies in considering M&A has been a more strategic and reasoned procedure. Forbes has called 2011 the “year of the M&A”.
With all the attention on mergers and acquisitions (M&A) of late, today’s blog explores the role of the strategic planning behind an M&A success. A recent study by KPMG found that more than 85% of all M&A deals fail. This is a daunting number for any CEO thinking of venturing into an M&A.   
There are several reasons for M&A transactions to go off track. This is because an M&A needs to address several issues like unions, pay scales, benefit plans, technology, legal implications and financial implications. So where does strategic planning come into play? How does it improve the odds of success of an M&A?

Let us analyze the recent merger between American Airlines (AMR) and US Airways. US airways clearly defined its M&A objectives and goals which were primarily to increase cost efficiencies and achieve economies of scale (new company creates largest airlines in the United States), improve the operational efficiency and provide a better network to its passengers by using American’s international routes. I would say that had US Airways had a "Situation-Target-Proposal" approach of strategic planning. They evaluated their current situation and defined target goals for the M&A and finally mapped a route or path to achieve the target. 
I would say that had US Airways had a "Situation-Target-Proposal" approach of strategic planning. They evaluated their current situation and defined target goals for the M&A and finally mapped a route or path to achieve the target. 


To assess the company's interests and priority is crucial in a M&A. US Airways might have been interested in making the deal as profitable as possible (get the maximum possible equity share distribution for its shareholders). However, their priority is to increase cost efficiencies and achieve economies of scale, improve operation efficiency and minimize job losses. Hence, I feel US Airways stuck with their priorities and were able to come up with a good deal for themselves (Or Not? ). Doug Parker, CEO, US Airways focused on the benefits the M&A would bring for the two companies. He relied on the creditors of AMR to put pressure on the AMR senior management and was able to make the deal. A  a lot of groundwork and preparation must have been done by the US Airways senior executives before coming into the negotiation meetings. This is also an important aspect of strategic planning. What should be discussed in the stakeholder meetings? What should be the follow up required? Where should be the participants? The answers to these questions are crucial when planning any strategy.

I would like to conclude by saying that any organization requires a good strategic planning to succeed and function effectively. With that said, What happens next for AMR-US? Do you think strategic planning is more important for a merged organization or a organization going into a M&A?



References:
1. “US Airways approaches AMR in April”, Wall Street Journal
http://online.wsj.com/article/SB10001424127887323596204578243662271095012.html

2. “What an American-US Airways Deal means to air flier”, Wall Street Journal
http://online.wsj.com/article/SB10001424127887324906004578288553293302268.html
  
3. “Why American Airlines and US Airways Tied the knot”, By Thomas.C.Lawton
http://www.usnews.com/opinion/blogs/economic-intelligence/2013/03/01/whats-behind-the-american-airlines-us-airways-merger

Image Source: http://www.businessweek.com/news/2013-02-13/amr-us-airways-said-to-agree-on-terms-for-merger

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