The Sources & Impact of "Lame Duck Behaviour" in Mergers and Acquisitions-Case study of a $4.16 billion acquisition in Ireland's Financial Services Sector

Abstract

Purpose: This paper's objective is to explore the sources and impacts of "Lame Duck Behaviour" ("LDB") in the context of Mergers and Acquistions, focusing particularly upon the putative effects of such behaviour on acquired company valuations. A $4.16 billion acquisition in the Financial Services Industry will be used as Case Study. Design/Methodology/Approach: The aforementioned aim will be achieved by attempting to detect "LDB" in the Case Study using specific criteria derived from three separate "LDB" hypotheses. These criteria are implemented in a questionaire that was distributed to employees in the Dublin office of the acquired company. Distribution was accomplished via a web based Software program called "Survey Share" that allowed employees to submit answers over the internet as well as provided the author a means of statistical analysis. The questionnaire data was supplemented with in depth one-on-one interview data with senior Directors of the acquired company. Finally, qualitative analysis regarding employee concerns published on the internal integration website were analysed to provide an insight to the overall employee feeling about the merger. Findings "LDB" was found to profoundly influence the acquired company Following acquisition, employee turnover increased, motivation levels dropped, and overall employee commitment levels decreased, with many employees seeking alternate employment. This behaviour, in turn, detrimentally affected the target company's valuation as talented, intelligent employees either decreased their productivity or left the firm . According to transaction literature provided by the acquirer, the bulk of the accretive synergies of the merger were going to be contingent upon the target company's HR. However, resources' productivity was now hampered by "LDB". Research Limitations/ Implications The merger used as a case study in this paper was announced 5 February 2007 and finalised 2 July 2007. As of 4 September 2007, it remained to be seen whether the "LDB" effects of the merger would "iron out." I.e., it is unknown for what length of time "LDB" persists, and whether its detrimental effects are therefore temporary. In addition, the author confined her researches to the Dublin branch of "Company A", and it thus unknown whether "LDB" was indeed a Company-wide phenomenon. Nevertheless, this paper constitutes strong evidence that "LDB" accompanies M&A, and has a tangible and negative influence on the acquired company. Originality/ Value: To date has been no literature objectively quantifying the putative effects of "LDB" on target-company valuations in M&A. Identifying the sources and impacts of "LDB" is therefore of interest as regards valuation strategies for future M&A activity Ireland.