Combining Integration and Autonomy in Acquisitions
🔥 According to the literature on acquisitions, it is of high importance to decide on the proper level of integration between the firms in order to realize value from an acquisition. It is often considered that there is a
trade-off between integration and autonomy. However, there could be situations when certain levels of
both integration and autonomy are necessary. Thus, the question arises on how to decide on the
effective levels of integration and autonomy in such cases. See also:
Dialectical Enquiry
One interesting perspective is the moderating effect of inter firm relatedness on that decision. It is argued that
synergies in acquisitions arise from the relatedness between the two companies, i.e. the similarity and complementarity between them.
KEY
ACQUISITION INTEGRATION TERMS
Here's a short explanation of some key terms related to this topic:
- STRUCTURAL INTEGRATION — The extent to which the acquirer merges the target’s functional activities into its own reporting hierarchy.
- TARGET AUTONOMY — Represents how much influence the acquirer delegates to the target managers regarding decisions about the target’s functional activities.
- SIMILARITY — Refers to the case when there is great overlap in two firms’ technologies, operations, products, customers, distribution channels, etc.
- COMPLEMENTARITY — Happens when components of the acquirer and the target are not the same but combine nicely, thus creating greater value (components such as internal capabilities, access to different markets, products, etc.).
HOW DO SIMILARITY AND COMPLEMENTARITY AFFECT THE LEVEL OF INTEGRATION AND AUTONOMY?
There are several different ways for similarity and complementarity to affect the decision making regarding the level of integration and autonomy (Zaheer et al., 2013):
- In case of High Similarity and Low Complementarity -> High integration and low autonomy (e.g. Chemical’s acquisition of Chase Manhattan)
- In case of Low Similarity and Low Complementarity -> Low integration and low autonomy based on factors other than relatedness (e.g. Coca-Cola's acquisition of Columbia Pictures)
- In case of High Similarity and High Complementarity -> High integration and high autonomy desirable but limited by need for integration (e.g. L’Oréal’s acquisition of The Body Shop)
- In case of Low Similarity and High Complementarity -> Moderate and selective integration and high autonomy (e.g. Disney’s acquisition of Capital Cities/ABC)
In their paper, Zaheer, Castañer and Souder (2013) report proof that:
- Similarity has a positive and significant influence on integration.
- Complementarity has a positive and significant influence on both integration and autonomy.
- The combination of similarity and complementarity tends to reduce autonomy.
COLLABORATION BETWEEN THE ACQUIRER AND THE TARGET COMPANY
A final point to consider is the importance of promoting the mutual inclination towards collaboration between the acquirer and the target managers in order to effectively exploit any existing complementarities.
Sources:
Zaheer, Castaner and Souder (2013) "Synergy Sources, Target Autonomy, and Integration in Acquisitions", Journal of Management, 39, pp. 604-632
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