Abstract
Corporate growth through merger and acquisition is one of the many growth strategies open to the firm. Such a growth strategy can be divided into three stages: formulating the merger/acquisition strategy; screening and evaluating potential candidates; and implementing and integrating the merger/acquisition. In this article, the second in a series of three, the focus is on the second stage. Research findings into the evaluation practices utilized by twenty acquisition intensive South African companies are reported. Broadly speaking, evaluation in the South African context is seen primarily as a team effort, and the domain of top management, assisted by staff personnel where necessary. Taking between one to three months to complete, the evaluation practices of organizations represented display considerable variance. Some adopt a structured approach, and utilize formally developed evaluation checklists, while others rely on an ad hoc, informal approach. While several methods to evaluate managerial competence were suggested, no process to evaluate either managerial compatibility or the culture of potential candidates were discovered. Understanding of the concept of organizational culture was found to be minimal, though the research findings indicate a contingent role for organizational culture in the merger/acquisition process. The article is concluded by making some suggestions which, while not guaranteeing transaction success, should lessen the chance of failure being attributable to inadequate candidate evaluation.
Highlights
External merger or aquisition is one of many growth strategies open to the firm (Pearce, 1982)
Corporate growth through merger or acquisition can be either a viable strategy, or the road to ruin, depending on many factors, including the approach adopted by the acquiring firm in its merger or acquisition activities (Brews, 1987)
The evaluation process, properly executed, is aimed at achieving three objectives: firstly, to evaluate the strategic and organizational fit between the target company and the acquisitor; secondly, to quantify the business and financial risk of the candidate under investigation; and to provide data which can be used as the basis for the financial valuation of the potential candidate
Summary
External merger or aquisition is one of many growth strategies open to the firm (Pearce, 1982). Research was conducted into the perceptions and practices of twenty South African companies actively pursuing a growth strategy based upon merger or acquisition. In the research programme the merger/acquisition process was divided into three key stages: determining a merger/acquisition strategy; screening and evaluating potential candidates; and implementing and integrating a merger or acquisition. The purpose of this article, the second in a series of three, is to report the research findings relating to Stage II: the screening and evaluating of potential candidates. Respondent understanding of organiutional culture was explored, as well as the processes employed by the organizations represented to evaluate the culture of potential merger or acquisition candidates. Screening and evaluation process Once a firm has determined its acquisition sttategy and profile, the screening and evaluation of potential candidates can commence. The objective behind the evaluation process, is to determine the suitability of the potential acquisition, and to gather sufficient data to form an opinion on the financial worth of the candidate to the acquisitor, should the ttansaction be executed
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