Mergers and Acquisitions = Job Losses

Sunday, September 13th, 2009 - economics, Employment, sunday thoughts, unemployment


Mergers and Acquisitions = Job Losses

Delta/Northwest A330

If you read this Sunday’s UK newspapers, then you will note that the editors are in turmoil as to what is the lead story. So diverse and unclear are the contenders, the BBC actually leads presently on its website with the headline: Product placement for TV approved

As a UK based TV watching adult, when hasn’t product placement been approved? The Ford Focus is the UK’s best selling car, and yet the number of Peugeot’s which make an appearance, or vehicle choice explained in behind the scenes episodes because the producer wanted an “edge” to the character – when exactly did a Chrysler have an edge – is beyond me. Independent TV companies, much like Formula1 car manufacturers, make programmes which are just inside the rules – to do any less is economic suicide. Product placement has always been allowed, it is just they have changed the rules for commercial TV. If you want an example of blatant product placement as it will be allowed, go and have a look at one of the last six James Bond films – constantly looking at , or large Sony and Nokia logo’s plastered over the back of products.

However, returning to the point of this blog entry, if you turn to the Business or Finance pages, there is a consistent story emerging: the return of Mergers and Acquisitions.

Mergers and Acquisitions

Mergers and acquisitions are a natural form of capitalism: some companies succeed, some companies fail, and some people think that X is worth more than the market currently values it. These thoughts relate to business plans, and these business plans – if backed by bankers – often lead to approaches for a Merger or Acquisition.

So why, when the public and personal debt sectors are at their highest levels ever in the western world, are Mergers and Acquisitions activity returning to the market? Firstly, most M&A activity these days is undertaken by leveraging your own paper, or stock. The acquisitor doesn’t offer cash, they offer a large lump of stock. For the uninitiated, this means that you take over another company, by issuing more of your own paper – effectively, a non-debt debt. Secondly, you top this up with cash, and cash is cheap at present to borrow – if you can persuade the bank that your business plan makes sense.

The way any Mergers and Acquisitions deal makes sense, is if: (a) the combined group is worth more than the two parts, and (b) cost savings are made. Those cost savings are made in various ways along the line of production or value, but most often it means – job losses.

Mergers and Acquisitions Job Losses

Bankers like seeing quick results, so the first job losses are likely to be in sales. Although many Mergers and Acquisitions papers suggest that a combined head office will create savings, actually most business plans survive or thrive on these people being incentivised to stay to actually integrate the two entities into one. Head office redundancies therefore are often some of the last to take part, but are also the most scheduled.

This result of all this activity is that, 80% of Mergers and Acquisitions fail to produce value for their shareholders. But, 80% of Mergers and Acquisitions do actually create the job losses evisaged in the business plan, its just that often – like integrating a production line – they take longer then anticipated.

So, what can you do to avoid being made redundant if your company is approach, or is the acquistor? Yes, even if your company is the approaching party as opposed to the potential meat in the sandwich, new group wise business plans will affect your job as much as the other parties.

Firstly, read the news feeds about your company, and your sector. What are the commercial pressures, and what are the commentators saying? Often, the commentators have got something right, but like economists they don’t know when such activity will occur. Newspaper commentators have been saying for a while that food companies would integrate, so Kraft’s (have been spun out of Altria) approach for (now smaller and more digestible) Cadbury, is not a shock.

Secondly, once an approach is made there is one sure way to ensure your job: get on the integration team! You then now what is going on, and as an insider as opposed to a outsider have a choice on if and where to stay. It is also a fact that most on those on the integration team get a promotion.

Hence, personally, the economists predictions that 3million+ Britons would be on the dole que, still seems about right to me. A slightly better economic recovery, but some debt fueled Mergers and Acquisitions activity and resultant job losses, means that prediction still seems on course – unfortunately.

Good Luck!

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2 Responses to “Mergers and Acquisitions = Job Losses”

  1. Tweets that mention Mergers and Acquisitions = Job Losses | CV4.BIZ - The Professional CV Writing Experts -- Topsy.com Says:

    […] This post was mentioned on Twitter by cv4biz, ProfessionalCV andMike Andrews. Mike Andrews said: Mergers and Acquisitions = Job Losses | CV4.BIZ – The Professional …: The return of economic stability and deb.. http://bit.ly/2vykuD […]

  2. Scott Moeller Says:

    Excellent advice here to look at your updating your CV right away when you hear that your company will merge or be acquired, and even if your company is the bigger one doing the acquiring. Job losses even at the acquirer average around 10% and can be more. There’s a book ‘Surviving M&A: Make the most of your company being acquired’ that discusses what happens and what you should do — in addition to the need to update your CV and getting on the integration team.
    Scott Moeller.

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