A Mathematical Valuation Model of Human Resources
E-Book, Englisch, 132 Seiten
ISBN: 978-3-656-00690-9
Verlag: GRIN Publishing
Format: PDF
Kopierschutz: Kein
In global terms, there is increasing acknowledgement and awareness of intellectual capital as a core economic resource, rating the significance of a company’s sum of human capital and intellectual property on a par with physical assets such as equipment, plant and inventories. Empirical evidence suggests that the management of cultural and human factors in a M&A implementation is crucial for smooth integration and overall positive outcome.
The project work discusses, investigates, and reports on research into the essentials of human resource due diligence and its cultural aspects in a cross-border integration. It focuses on human resource management and cultural integration during a M&A phase. It also points out specific findings on integration using and intensive HR due diligence approach. The issues of discussions are based on a wide range of literature supported by findings of empirical studies published internationally and the M&A knowledge of the management staff . The project intends to tackle the contrast between pre-acquisition motives and post-acquisition behaviour, and the subtle process of sound integration in terms of HR due diligence in general cross-border M&A. The work will touch on the measurement approaches of the field of human resource accounting (HRA), specifically the stochastic rewards valuation model for M&A, as a tools for the measurement of the value of the ROI on human capital.
The discussion on cultural integration includes cultural fit, cultural change and management across national cultures in mergers and acquisitions. Addressing these issues is designed to provide further insights for the two companies in question into the significance of HR due diligence in the run-up to any possible merger or an acquisition of ADMECO AG.
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Weitere Infos & Material
2 Introduction
2.1 Issues & Challenges
In the nineties, the number of domestic as well as cross-border mergers and acquisitions had grown significantly before it dropped after 2001. The growth was mostly based on an expanding economic environment and bullish stock markets. The increasing importance of information technology (IT) at the end of the nineties did not just trigger a boom on the NASDAQ, it also led to overall improving share prices, hiking the value of such companies as they matched market capitalisation. In this process, shares took on an ever more prominent role as a currency in M&A deals - with the result that some deals took place without any detailed long-term planning or any clear structure of pre- and post-merger integration, or how to align corporate cultures. In general, classic due diligence covers risks from the current state and potential future state of the M&A. However, this provides only for a somewhat limited remit. Some of the soft areas of a M&A cover the “human” side of business relations, i.e., feelings and/or values, which are traditionally only taken into account too late during during process term. For example, there may be interpersonal conflicts and / or cultural differences between the acquiring and acquired management which could lead to postmerger failure if the deal actually goes through. During a M&A, pertinent questions are: Which key people must be retained and which core areas of competence are crucial and need to be kept? What are the corporate cultural discrepancies between the companies? What losses in productivity or personnel defections could they cause? What would this cost the company? (Galpin et al.,2000,p14)? Generally, the classic due diligence approach ignores the conflict management issues. Empirical evidence suggests that the assimilation of different corporate cultures and values poses conflicts. Therefore the ADMECO and NMS recognise the importance of its human capital and its importance of HR due diligence within the evaluation, the pre- or and postmerger phase. 2.2 M&A Facts
The M&A deals for the 1st half of 2004 are significantly higher as against the same period last year and the second half of 2003 (ZEPHYR, 2004[4]). The number of deals rose by 62% for the same period last year in North America. Europe and Asia are up by similar amounts of 45% and 46% respectively. Africa is in the red for the same period, facing a deal value change of -46% and -85% for the Middle East. The numbers show that North America is pulling away from Europe - a prerequisite of a vibrant M&A market, as Ed Mountfield at ZEPHYR points out, is a vibrant US market. The financial (banking, insurance) sector still dominates, with 277?09 or 16.3% of the total. However, the computer and internet service market is very active sector, suggesting a convalescing market after 2001, the year the bubble burst. Globally, for the 1st half of 2004, the combined figures for Europe and North America give a majority of 76% in numbers of deals and 83% for deal values. The U.S. and U.S. cross-border activities are illustrated in Figure 1 (source: www.mergerstat.com - as of 10. July, 2004 - value is the base equity offered). M&A Activity (U.S. & U.S. Cross-border Transactions) Figure 1: M&A Activity 1968 to 6/2004 (U.S. & U.S. Cross-border Transactions) In Europe France, Sanofi-Synthelabo SA acquired Aventis SA to 100% and is one of a top M&A deals in progress as of June 21, 2004, with a deal value of €55.3 billions. Telefonica Moviles SA (Spain) has a top cross-border deal in progress for 100% assets of BellSouth Corp. Latin American - rated at €4.6 billions. Not every M&A deal is a 100% acquisition, an analysis by deal type is illustrated in Figure 2[5] Figure 2: Analysis by deal type (1st half of2004 vs. 2003) 2.2.1 Cross-border M&A Facts
According to a PR released by UNCTAD, the global foreign direct investment (FDI) flow in 2003 remained flat, at €535 billion as against €534 in 2002[6], after 2001 and 2000 experienced two consecutive declines down from €676 billion and €1.15 trillion respectively. As UNCTAD points out, the continuing low value and numbers of cross-border M&As (the key drivers of global FDI flows) contributed significantly to the downturn. Boosted by signs of an improving global economy in early 2004, UNCTAD predicted FDI flows bouncing back this year as investor confidence grows, M&A transactions recover, and corporate profitability increases. As research has shown, patterns of M&A activity tend to reflect managerial assumptions on and perceptions of the similarity and compatibility of different national cultures and business styles (Gersten et al.,1998,p10) . Such research has found that given a choice, Northern European countries such as U.K., Sweden, and Denmark would prefer to enter business partnerships with other North European and American organisations. The figure below depicts the FDI Inflows by host region relevant for this project (www.unctad.org). Figure 3: FDI Inflows by Host Region; Denmark vs. Switzerland (1991-2002) 2.3 Context of the Study - Issues and Objective
The purpose of this project is to investigate the evaluation of HR due diligence to achieve effective integration between two culturally different companies - in this instance, the Swiss company ADMECO AG and the Danish investor NMS ApS. One of the main reasons why mergers & acquisitions fail can be found in the “staff’ factor or human resource management (HRM). The issues this project intends to tackle will cover the contrast between pre-acquisition motives and post-acquisition behaviour, and the subtle process of sound integration in terms of HR due diligence and the cultural fit in general. The Danish investor, Kim Hafstrom [7] believes that conducting HR Due Diligence allows the parties to understand associated employee issues and sees this as a significant and important step in ensuring the success of an organisation, in particular of a M&A. HR Due Diligence is not just used to evaluate an organisation, but also the actual sale/merger and the post-sale/merger in the period of change during the phases of a pre-sale/merger. It ensures: all information is obtained on employment liabilities/costs, hence reducing the risk of employment litigation. management teams are audited on qualifications and the teams reviewed that will be integrated and work together to make it a success. disruption to the organisation is minimised in the area of possible employment disputes. space is left to focus on the daily business tasks ahead. business transitions are run as smoothly as possible. an atmosphere of positive external PR in relation to customers, distributors, suppliers and the media is created. 2.4 Reason for Selecting
The business reasons for choosing this project are: The real opportunity to allow me to determine the strategic, cultural fit between the crossborder integration of ADMECO & NMS for the investor. The chance to establish the general determinants- the key success factors of HR due diligence during the M&A process. The use of analytical, mathematical models to analyse ADMECO’s operations in terms of HR due diligence and its cultural fit with NMS. The need for NMS to understand the cultural difference and position itself in this changing market environment. The academic reasons for choosing this project are: The intention to use HR due diligence as a valuation instrument, a mathematical model for M&A - identifying methods to measure integration as well as human success. To discuss the significance of HR due diligence for the overall success of an M&A transaction, and in particular the cultural aspects of cross border M&A transactions. To apply and test the methods of M&A in a real life case. To analyse the individual determinants, the factors influencing the qualitative and quantitative deployment of HR due diligence. The opportunity to use many of the MBA tools in addition to MPIO, including Finance, and Operations, and electives such as Power & Organisations and Organisational Ethics. The desire to gain an insight into the real value of HR outcomes (both of analytical and process-oriented approaches) in terms of the M&A process. 2.5 Outline & Structure of Project
The report will contains four parts: 1....
