Methods and concepts for Value Based Management (VBM)
M&A Concepts
The Acquisition Integration Approaches model of Philippe Haspeslagh and David Jemison provides insight and guidance in Mergers and Acquisitions (M&A) on choosing the optimal integration approach.
In mergers and acquisitions, the motto was traditionally often "Make them like us", or relatively simple criteria where used to choose an approach (such as the size and and quality of the acquired firm).
Haspeslagh and Jemison (1990) have stated that the approach a company should take towards integration should be understood by considering two (additional) criteria:
1. The need for strategic interdependence
2. The need for organizational autonomy
Strategic Interdependence
Obviously, the goal and central task in any acquisition is to create the value that is enabled when the two
organizations are combined.
There are four types of value creation:
1. Resource sharing (value is created by combining the companies
at the operating level)
2. Functional skills transfer (value is created by moving people
or sharing information, knowledge and knowhow)
3. General management skill transfer (value is created through
improved insight, coordination or control)
4. Combination benefits (value is created by leveraging cash resources,
borrowing capacity, added purchasing power or greater market power)
Organizational Autonomy
Haspeslagh and Jemison warn that managers must not lose sight of the fact that the strategic task of an
acquisition is to create value, and must not grant autonomy too quickly, although obviously people are
important and should be treated fairly and with dignity. The need for organizational autonomy can be answered
using three questions:
A. Is autonomy essential to preserve the strategic capability we bought?
B. If so, how much autonomy should be allowed?
C. In which areas specifically is autonomy important?
The Preferred M&A model
Depending on the score on these two factors (see graph), the preferred acquisition integration approaches are:
1. Absorption (management needs courage to ensure that its vision for the acquisition is carried out)
2. Preservation (management focus is to keep the source of the acquired benefits intact, "nurturing")
3. Symbiosis (management must ensure simultaneous boundary preservation and boundary permeability, gradual process)
4. Holding (non intention of integrating and value is created only by financial transfers, risk-sharing or general management capability)