Section Summary

This section has proposed 5 measures of experience which seem relevant to acquisitions experience of acquisition reviews, acquisitions, the industry and company by the individual and experience of acquisitions by the company The effect of these on success, number of information sources used and speed of decision will be examined in chapter 10.

5.2 Resources Available and Used

This chapter has so far examined the experience of companies and staff involved in the acquisition decision This final section of the literature review will address the management resources available to carry this work out.

Kitchingf 1972) proposes that management resources are important in the acquisition decision process He found that the presence of managers of change (1972:44) and the availability of sufficient management resources were factors in success (1972:54), 'the sum of management skills must be greater than the joint management task ' He acknowledges the problems of lack o f time and states that in the early stages of appraisal 'the greater danger at this stage is to consume too much expensive time

’(1973:112) This appears to imply that a high rate of acquisition would reduce success as acquisition management resources become stretched This factor swamping the lack of experience in companies with all but very low rates of acquisition In Kitching's sample (1973:111) for every acquisition completed an average of 100 were screened

1985:159) this researcher will also examine the maximum, minimum and range of the number of acquisitions conducted per annum in the five year period examined in comparison to success

and that the average time cost per completed acquisition was 3000 hours (1.5 man years work;

Allen and Hodgkinson (1986A41) support this view that an internal search for an acquisition consumes large volumes of management time, 'the research method is not just more exhaustive than the broker method, it is also more exhausting ' Haspeslagh and Jemison (1991) and Birley (1974) do not explicitly examine the issue of management resources

The prescriptive literature is equally limited. Sandler( 1988:22) states that, 'few private companies have the internal staff resources to undertake the detailed planning and searching for acquisition targets ' This could be viewed as saying the maximum acquisition rate a private company can support is zero. The same factors might affect larger companies when relatively large acquisitions are attempted or when many acquisitions are being attempted at once. It is proposed therefore that:

5:26) The greater the volume of management time devoted to a project the greater the success level.

5:27) The greater the number of people dedicated to working on acquisitions the greater the success level.

Hunt (1990 75) proposed that:' rushed acquisitions have a much greater failure rate than longer time frames.' This researcher takes this to imply that the elapsed time taken should influence the success He, therefore, proposes that:

5:28) The greater the elapsed time spent on an acquisitions the greater the level of acquisition success.

The number of people available for acquisitions work may purely be a product of the company's total size Hence the hypothesis

5:29) The larger the sales of a company the more people available to work on an acquisition.

If the last hypothesis is established, it would seem worthwhile to examine the level of resources available, in terms of staff dedicated to mergers and acquisitions work, compared to the work load, and the number of acquisitions being conducted Kitching's (1973:110-112) work suggests that the work required to conduct an acquisition is not linked to size as many tasks in the process are the same whatever the size of an acquisition. It is proposed, therefore, that:

5:30) The greater the measure, number of staff divided by the total number of transactions reported in the last five years, the greater the probability of acquisition success.

Measuring activity over the last 5 years acts as an average of the level of demands on resources. This, however, fails to take account of the peaks and troughs in work load which may stretch resources Therefore, it is proposed that:

5:31) The greater the measure, number of staff divided by the highest number of transactions reported in any of the last five years, the greater the probability of acquisition success.

This focuses on internal resources However Allen and Hodgkinson(1989A) see consultants as substitutes for internal management resources even if not ideal Stallibras (1989:27) is more enthusiastic about the use of consultants, 'the role of the intermediary will prove to be important not only in the identification of targets and the execution of transactions.' Sandler (1988) is equally enthusiastic about using consultants This is possibly because they are both consultants The examination of the advantages of consultants is plagued by the problem that many of the writers are

consultants, and therefore their prescriptions are of dubious value There is, however, only a limited substitute literature to base hypotheses on

llaspeslagh and Jemison(1991) paint a gloomy picture of using consultants. They see the lack of common experience between consultants and internal managers as a problem (1991:60)'.. as a result top managers often focus their attention on more easily and quickly communicated issues that can be quantified.' A further problem they found was that the investment bankers they interviewed concentrated on issues where they could defend their position in a court These issues were not always one's requiring attention. Haspeslagh and Jemison (1991:64) also state that, 'many outside advisers, especially investment bankers, have a major interest in consummating a deal because they are compensated on a transaction basis. Because bankers' fees do not vary dramatically whether a deal takes three weeks or nine months to close it is in their interest to conclude a deal quickly.' This seems to imply that consultants will reduce the time taken to conclude a deal and further pressure internal management resources, thus potentially reducing the possibility of success Considering the above evidence the researcher also proposes that:

5:32) The greater the number of different consultants used the lower the success level.

5:33) The greater the number of different consultants used the shorter the elapsed time taken.

This section has found that although many consultants propose their use, evidence from other authors paints a poor picture of their use The use of consultants, however, seems to be a potentially significant influence on the process.

5.3 Chanter Summary

This chapter has examined 2 areas: how experience and management resources may affect the acquisition process. The former included: experience of the manager of the company, industry and acquisitions, and company experience of acquisitions The latter includes both internal management resources and consultants who can be viewed as a substitute for internal resources As a result this review the following hypotheses were proposed:

Experience and Success

Experience of acquisitions will increase success levels.

This will be tested as:

5:1) The greater the number of acquisitions completed by a manager the greater the probability of an acquisition being successful.

5:2)Thc greater the number of acquisition reviews carried out by a manager the greater the probability of an acquisition being successful.

5:3) The greater the number of years a manager responsible for a project has spent with a company the greater the probability of an acquisition being successful.

5:4) The greater the number of years a manager responsible for a project has spent within an industry the greater the probability of an acquisition being successful.

Experience and Information Sources

Expert decision makers use a greater number of information sources.

Expert decision makers ask more people for information.

These can be stated in eight forms:

5:6) The greater the number of acquisitions completed by a manager the greater the number of people asked for information.

5:7) The greater the number of acquisition reviews carried out by a manager the greater the number of information sources used.

5:8) The greater the number of acquisition reviews carried out by a manager the greater the number of people asked for information.

5:9) The greater the number of years a manager responsible for a project has spent with a company the greater the number of information sources used.

5:10) The greater the number of years a manager responsible for a project has spent with a company the greater the number of people asked for information.

5:11) The greater the number of years a manager responsible for a project has spent within an industry the greater the number of information sources used.

5:12) The greater the number of years a manager responsible for a project has spent within an industry the greater the number of people asked for information.

Experience and Time taken

Greater experience will lead to a shorter elapsed time being taken.

Greater experience will lead to fewer man hours work being required.

These will be tested as:

5:13)The greater the number of acquisitions completed by a manager the shorter the elapsed time taken.

5:14) The greater the number of acquisitions completed by a manager the fewer man hours work involved.

5:15) The greater the number of acquisition reviews carried out by a manager the shorter the elapsed time taken.

5:5) The greater the number of acquisitions completed by a manager the greater the number of information sources used.

5:17) The greater the number of years a manager responsible for a project has spent with a company the shorter the elapsed time taken.

5:18) The greater the number of years a manager responsible for a project has spent with a company the fewer the man hours work involved.

5:19) The greater the number of years a manager responsible for a project has spent within an industry the shorter the elapsed time taken.

5:20) The greater the number of years a manager responsible for a project has spent within an industry the fewer man hours work involved.

Company F.xncrience greater the number of people asked for information.

5:24) The greater the number of acquisitions completed by a company the shorter the elapsed time taken.

5:25) The greater the number of acquisitions completed by a company the fewer man hours work involved.

Management Resources and Success

5:26) The greater the volume of management time devoted to an acquisition the greater the success level.

5:27) The greater the number of people dedicated to working on acquisitions the greater the success level.

5:16) The greater the number of acquisition reviews carried out by a manager the fewer ntan hours work involved.

5:29) The larger the sales of a company the more people available to work on an acquisition.

5:30) The greater the measure, number of staff divided by the total number of transactions reported in the last five years, the greater the probability of acquisition success.

5:31) The greater the measure, number of staff divided by the highest number of transactions reported in any of the last five years, the greater the probability of acquisition success.

5:32) The greater the number of consultants used the lower the success level.

5:33) The greater the number of different consultants used the shorter the elapsed time taken.

The last 3 chapters of this thesis have proposed hypotheses to be explored The next chapter will examine how the data to do this was collected 5:28) The greater the elapsed time on an acquisition the greater the level of acquisition success.

C hanter 6 Methodology

6.0 Introduction

This chapter will face the realities of how data was collected on what is a very sensitive issue for companies. It will present the methods used to explore the hypotheses outlined in the previous 3 chapters and how success was measured, a factor that has constrained much of the research in the acquisition area. It will focus on 2 main areas:

First, the data collection method, including how success was measured, which variables were standardised for, and the construction of the interview schedule.

Second, the sample frame including how companies were approached and tests for bias in the sample.

The first section will examine how data was collected, the primary objective of which was to obtain valid and accurate data on the substantive hypotheses. The researcher, therefore, chose to use structured interviews. The reasons for the rejection of other possible methods, published data, real time methods and questionnaires, are given below starting with published data as a data source.

6.1 Data Collection Methods

Published Data

Published data was rejected as the main data source as the information to examine the hypotheses developed in the previous 3 chapters was not available Published data was used for establishing the sample frame, total company sales and the number of

acquisitions completed by a company over the last 5 years Total sales were taken from the ‘One-source’ database The number of acquisitions completed by a company was taken from Extel This database may exclude some small acquisitions It, however, provided an external standard on the inclusion of acquisitions

6.2 Real Time Methods

Real time methods, as proposed by Van de Ven (1992), were rejected for this research because:

A) It would have only produced a few cases. Testing many of the hypotheses proposed in chapters 3, 4 and 5 would therefore be impossible. Only 1 year was available for fieldwork and in Hickson et al's (1986:143) sample, boundary decisions, which included acquisitions, took from 2 to 18 months. Even if all acquisitions observed took 2 months and were completed, which is unlikely, (Kitching 1973:110) this would produce a sample of 6.

B) Access problems. Companies were unlikely to allow the researcher access to price sensitive information during the analysis and negotiation phases

C) It would be difficult to determine success close to the completion of an acquisition The researcher, therefore, rejected this method

6.3 Questionnaire

A large scale questionnaire approach offered a number of advantages for this research It would have allowed rapid data collection, and would not have placed a geographic limit on the sample frame

It was rejected for this research for the following reasons:

a) The researcher would have no control over who completes the questionnaire Thus whether the respondents have a detailed knowledge of the acquisition process is unclear

b) A questionnaire involves less commitment to answering questions than an interview, thus reducing the value of individual answers (Birley, 1974 :26)

c) Senior managers may be unwilling to answer questions about acquisitions without meeting the person conducting the analysis and establishing the degree to which answers would be treated as confidential. (Birley, 1974:26)

d) All questions must apply in all cases (Mallory, 1987:95). Thus categories in closed questions would have to be very clear cut, so only 1 interpretation can be made. This reduces the detail that can be expected from such questions. It would also be difficult to clarify questions if a company operates in an unusual way.

e) It is ill-suited to exploring areas where detailed hypotheses do not exist as interesting idiosyncrasies cannot be followed up.

f) Few executives would fill in a questionnaire large enough to answer the hypotheses posed in chapters 3, 4 and 5. (c.f. Mallory, 1987:92)

g) Datta and Grant(1990) reported a response rate of 27 per cent. If this were replicated in this study it would have produced approximately 80 responses if all United Kingdom companies with sales over 200 million pounds which had completed any acquisition between January 1990 and December 1993 were mailed 1

This method was, therefore, rejected. The researcher thus decided to conduct personal interviews with companies that agreed to participate.

6.4 Interviews

Having chosen interviews as the primary data collection method this left 3 main questions concerning data collection: how to structure the interviews, how many