The research is conducted to examine the impact of Mergers and Acquisitions on organizational performance considering Virgin Money and Northern Rock Plc as a case. The data and information is assembled from the five managers of Virgin Money UK. The collected data are analysed with the help of a qualitative analysis technique so that the data can be thoroughly examined and explained. Phenomenological research philosophy is applied to help the collection and analysis of the data through qualitative techniques. The results of the research are also compared with the earlier researches to ensure compatibility of the results. At the end of the research it is deduced that Mergers and Acquisitions have a positive impact on the organizational performance.
This is the opening chapter of research. In this section all those aspects of the study are discussed slightly, which are used by researcher in the later parts of the study. Some of the significant features of the research are slightly touched in the section. The research’s background is given along with the company background. The aims and objectives of the study are discussed in this section as well.
With the opening up of business reforms in, developing nations,which are market oriented. Organizations always search new markets and the competition in the local market has been increased due to this reason. The trend has been observed that the investors started investing in the emerging market. The most favourable strategy which firms adopt to penetrate in the market with lower risks and costs is mergers and acquisitions. Firms adopt these strategies to fortify their positions in the market.
Mergers and Acquisitions is the fastest and the most effective way of expansion by firms. (Schuler & Jackson, 2004).At times, the mergers and acquisitions fail as well this is due to a number of reasons, few of those reasons are mentioned below.
Mergers and acquisitions in the financial institutions and banks have witnessed failures, and the reason for that is considered as overlooking the human resources and activities in regards to mergers and acquisitions (Schuler & Jackson, 2001).
The reason for which the mergers and acquisition have become a popular strategy of the firms isa resource based view along with innovations and organizational learning (Barney, 1991; Conner and Prahalad, 1996). In this regard it has been elaborated that when the organization is exposed to diverse and new ideas after mergers and acquisition it has a greater chance of organisation learning. Post mergers and acquisition performance of the firm can be enhanced by acquiring the knowledge of the acquired firm (World Investment Report, 2000).
Sir Richard Branson founded a company named as a Virgin Money plc. in March 1995, it is based in the United Kingdom and the Virgin Group held this company. It is actually a bank and financial services provider. It has expanded its business across the globe in a very effective manner. The Virgin money has tried to purchase the Northern Rock in the year 2007, and finally bought it in the year 2012 (http://www.virgin.com/company/virgin-money-uk).
Northern Rock is also United Kingdom, based bank it is located in Newcastle upon Tyne at the Regent Centre, it is presently owned by Virgin Money. Northern Rock is the first bank in one hundred and fifty years to suffer from Bank ruin. Firstly, it was public ownership and finally Virgin Money acquired it in the year 2012 (International directory of company histories 2000).
For the ongoing study, the problem statement designed is mentioned below:
“Impact of Mergers and Acquisitions on organizational performance-case of Virgin Money UK and Northern Rock Plc”
The aim of the ongoing research is as follows.
“Examining the Impact of Mergers and Acquisitions on organizational performance-case of Virgin Money UK and Northern Rock Plc.”
The research is conducted with the following objectives
The research questions for the research are below.
Mentioned below is the hypotheses of the current research:
H:1 Mergers and Acquisitions have a positive impact on the organizational performance.
H:2 Mergers and Acquisitions have a negative impact on the organizational performance.
H:3 Mergers and Acquisitions have no significant impact on the organizational performance.
This section opens up the research and it is the base of the whole of the research.This chapter of the study gives the insight of the whole study to the reader and it gave the slight overview of the research background, company background, aims and objectives of research and research questions. Thus, this section provides the concise overview of the whole research.
In this chapter, the concepts related to mergers and acquisitions are presented. The concepts are discussed in detail so that the reader gets a clear understanding of the variables involved in the research.
According to the literature available on the mergers and acquisitions they are divided into horizontal, vertical , conglomerate and concentric mergers (Gaughan 2007, Straub 2007). The term mergers and acquisitions are usually used interchangeably. In layman words, both mergers and acquisitions are considered as the same, however, academics have identified some differences that decide whether a specific activity is a merger or acquisition. Many of the researchers attempted to explore the pose M&A performance of the organizations.
The Merger is defined as a specific activity in which organisations come together and unite and share their resources for a common goal or objective. Both of the organizations unite and result in a third entity that has joint owners who were previously the owners of the joining organizations(Sudarsanam 1995).
DePamphilis (2008) states that the acquisition is defined as a process in which one organization takes a control of the other organization or the subsidiary of the organization or chosen assets of the other organization.It may involve the buying of assets or stock. Ross (2004) said that it is preferable to acquire all the assets instead of acquiring shares or stock this will avoid the expected problem of a minority shareholder.
The horizontal mergers and acquisition type is further divided into two more kinds. The first one is the merger involving the same product line, but in different countries. This type of horizontal merger has an advantage that the organization gets a chance to enhance and capture the new market. The second type of horizontal merger is Merger with slightly different product lines. The benefits this merger brings is the enhancement in the product line. In case of horizontal mergers, the companies have to face greater market and government regulations, which sometimes restricts the value creation like the formation of monopolies (Straub 2007). While the vertical merger is that the Merger and Aquisation in which it is not necessary that the company would acquire the firms having the same product lines but with this, the company would associate the firms with its own existing chain of production. Vertical merger is further classified into two subgroups i-e
The core intent of the forward vertical acquisition is that the company is acquiring the firm for the reason that it would have confirm buyers of its products. While the vertical backward merging means is to ensure the supply of raw material for the production of acquirer. According to Green, 1990; Straub, (2007) vertical backward acquisition means enhancing the market value of the acquiring company.
When the companies involved in the merger and acquisition have no connectionin their production chain and hence has no association between their production chain then mergers and acquisition is nothing more than a conglomerate. In this situation, the firms go for the merger just to reduce the risk which they would face in the market if they would be alone. As per view of Green, (1990)the strategy of such merger and acquisition is to develop a distribution network which would be more efficient than before. Nevertheless, when firms go for mergers and acquisition it enhances the production quality, brings improvements in the capabilities of research, improvement in technology, and increases in delivery speed of goods. Firms from developing countries are especially interested in going for the merger with the firms from developed countries, because this is beneficial for the firms in the long run (Straub, 2007). The most significant acquisition is the one in which firms merge financially, but this is the least discussed acquisition when the mergers and acquisition is classified. As stated by Ross, (2005) the logic behind financial mergers is the shortage of finances, commonly financial mergers come under the umbrella of LBO (leverage buyouts) and MBOs (management buyouts).
So if the case of SSB and SG is considered, they went for the horizontal merger and acquisition for the reason that they are located in different parts of the world, thus both have the same product line.
There are certain motives for which firms go for acquisition. There are numerous theories for illustrating the motives for acquisition and in the end all theories give the overlapping motives of acquisition. Motives in the context of the acquirer company have been classified in following ways (Ojanen et al, 2008).
Perceptibly is not that the attraction of merger and acquisition would be one of the above aspects, there could be more than one aspect which attracts companies to go for mergers. The above- mentioned motive varies from industry to industry and firm to firm (Ojanen et al. 2008).
Kaushal(1995) identified other factors responsible for mergers which, according to him are change in:
According to Neary, (2004)the literature of business organizations identified that strategic rationale and efficiency are the two aspects which are correlated with mergers and acquisition. Efficiency is gained via mergers and acquisitions in a way that where two firms integrate their efficiency and volume they form a stronger-combined entity. While when the firms merge it results in changing the structure of the new entity and resulting in deriving the strategic rationale. This ultimately results in enhancing the performance of the firms.
Globally used terms to ensure the firm’s survival and to achieve the growth of business is named as merger and acquisition. According to Amedu, (2004); Bello, (2004); Katty, (2005), the meaning of the merger is that when two firms join hands together for the future ventures. Whereas carrying on the similar core objectives is called as an acquisition.
A similar sort of explanation is given by a researcher Soludo (2004) who said that the aim of going for the merger and acquisition is to achieve the efficiency in cost, this can be done via economies of scale, the other core objective is expansion of the business and enhanced performance of the business. There are a number of studies which tried to examine that does merger or acquisition are handy in solving the bank problems of any firm.
There are authors who have provided those researches which identified the correlation between profits and the mergers and acquisition of banks. Cabral et al. (2002), Carletti et al. (2002) and Szapary (2001).There are other studies too, which are in complete agreement with it that when mergers and acquisitions are acquired in financial institutions they impact the firms positively by enhancing their efficiency (De-Nicolo 2003 and Caprion 1999). In general some of the researchers projected the mixed sort of viewpoint on either mergers in financial institutions impact positively or not. Some of the researchers even failed to show that there exist any correlation between firms' performance and the merger and acquisitions. According to Kwan and Elsenbeis (1999) there are very sparse evidences that the merger's impact the cost efficiency.
There are studies which point that the mergers and acquisitions in the banks and other financial institutions lead to increased profitability, there is a researcher named Okpanachi (2006) who identified that there are instances that firms enjoy superior profitability period after mergers, the reason for which he identified as the capability of the merged company to attract more loans. He identified the instances too, where after the merger the productivity of the employee increased too, which ultimately resulted in an increase in the net growth of the organization. Two of the authors Uche and Walter (2005) conducted their research on the mergers of Nigerian banks, they examined the data via percentage and the results of their study suggests that when the Nigerian banks went for mergers and acquisitions they became more efficient.The chi square has been used by Akpan (2007) in order to test his hypothesis, the results of his test showed that the capitalization and the strategy of consolidation increased the confidence of the people on the Banks in Nigeria.
Sobowale (2004) and Osho (2004), believed that those firms which are engaged in mergers and acquisition would have the highest value because their profits of the future ventures are expected to rise which in return would increase the efficiency of the firms. Stiroh (2002) in his study when the firms merge with the banks of larger size, the profits would be ultimately bigger too, he studied the case of American banks in his study.
Two of the authors named as Choi and Russell (2004) have examined the impact of mergers and acquisitions in the construction industry of the US, and the results of the study suggest that mergers and acquisitions in the construction industry prove beneficial, in the study the authors have also identified those factors which after acquisition may enhance the performance of the firms. Those factors are mentioned below.
These two authors in their study have examined almost one hundred and seventy-one transaction, the time period, which is selected is from the year 1980 to the year 2002. In order to measure the financial impact, the authors have measured the cumulative abnormal returns. The results of that research are mentioned below
The results of the above-mentioned study were considered reliable for the reason that, they covered twenty-two years of acquisition history. The primary factor which impacts the mergers and acquisition is considered as “method of payment” many of the researchers have agreement on it, but two of the authors Choi and Russell (2004) found no evidence to support this argument.
An author named as Andre et al (2004) analysed the performance of mergers and acquisitions in Canada in the long run, he also examined those determinants which impact the abnormal performance in the post acquisition period of the firm. His study covered the huge two hundred and sixty-seven transactions of Mergers and acquisition, and the timeline which he considered is from the year 1980 – 2000. He took into account of one hundred and seventy-six companies in order to examine the impact of below mentioned three aspects of the performance.
In order to examine how successful mergers were in Germany a study has been conducted by an author named as Kling (2006), this study has been conducted to examine what effect does mergers leave at the macro level. In the study those variables are examined too, which could be the reason of mergers. These determinants are mentioned below
Kling (2006) took a sample of leading thirty-five German firms which went through mergers, the time line selected cover forty-four years from year 1870’s to the year 1914. The outcomes of the study suggested that the first wave of mergers in Germany began in the year1898. The model which was used to identify that if the mergers were successful i-e the regression model, it showed that mergers were not successful in that time period in Germany. This study has certain pitfalls, the one amongst those is that the time period selected for the examination is long enough to bring about some conclusive results. Furthermore, when the sample is segmented in accordance with the type of industry it gives the inside story of the impact of mergers in the whole of the industry, while the results of the above-mentioned study were generalized with no or less conclusive evidence. Another flaw of the study is that it has been conducted to see the impact on the macro level, the results would be different if would be examined at the micro level then.
Another study has been conducted in which the association between the operating performance, the method of payment and earning management has been analysed, this study was conducted by the author's name as Heron and Lie (2002), they have selected the sample of nine hundred and fifty-nine acquisitions. The operating performance has beenexamined by taking the ratio of operating income and sales ratio. In this ratio, the impact of payment and the accounting method has been examined in the operations performance.The results of the study suggest that there is no significant difference in the results of different modes of payment. In comparison to those studies which indicated that those have been benefited who go for acquisition via stock, this study found as such conclusive evidence.
Yeh and Hoshino (2002) analysed the impact of mergers on operating performance of the firm while using samples of eighty-six mergers, the timeline selected is from the year1970 to the year 1994, he tested the success of mergers by testing the
The indicator, which was used by the researcher in order to know the efficiency of the firm is
The outcomes of the study suggest that there has been a negative impact on the total productivity, the diminishing trend of profitability has been observed, there is the diminishing trend of sales and the growth rate, it has also been observed that there are evidences of downsizing after mergers and acquisitions. To conclude, it can be said that it has identified a negative impact on the performance of the firms in Jaona, since other researches required to examine what are the core reasons for the failure of mergers and acquisitions in the context of Japan.
According to Straub (2007) there is no significant role of mergers and acquisitions in enhancing the performance of the banks. Berger et al (1999) holds the same view regarding the impact of mergers and acquisitions on performance, he stated there are numerous studies which have been conducted in the regard that what was the performance of the firm before M&A and after M&A, the results suggest that the potential efficiency which can be achieved from the mergers and acquisition is materialized very rarely. For Beitel et al. (2003) there is no as such significant impact of mergers and acquisitions on the performance of the Banks but David and Yener (2004), hold a different viewpoint on this they believe that there is a significant change in the financial position of the firm which goes for mergers, and as the strong financial position is the stimulus in increasing the efficiency of the firm, so Mergers and Acquisitions it thus enhance the efficiency of the firm. Thus, it can be concluded that there are a number of researches which identify that there exist a positive relation between the better performance of the banks and the M&A’s excluding two of the researchers Rhoades (1993) and Straub (2007) because their views are different.
According to Uboh, (2005) since the late 80’s number of developing countries have adopted the financial reforms as a part of marketing oriented economic reforms. The activities of the financial institutions like banks around the globe show that they have a crucial role to play in the growth of any economy.
The financial sector is comprised of:
And the role of this financial sector is recognized in all the developing countries because they have the key role to play in stimulating the economic growth of the country. The relationship between economic growth and the Banks is quite co-dependent (Uboh 2005).
Two of the researchers named Tse and Soufani (2001) have tried to examine the financial impact of Mergers and acquisition, for this purpose they have considered both the acquiring firms and acquired firms. The timeline which they have selected is the early years of 90’s i-e from 1990 – 1996, they have considered one hundred and twenty-four transactions. They have done segmentation of the selected time period further into two groups, those two selected eras are mentioned below.
In order to assemble the cumulative abnormal returns the tool is used, called as "event-study" tool, which measured the abnormal returns of both the eras. Its outcomes suggest that that the returns of activities of HMAE era are positive whereas the returns of the LMAE era are negative. The results of this study clearly identified a correlation between economic conditions and the financial impact of mergers and acquisitions. There is another part of this result and that suggests that the gains of those companies which are acquired is positive while for those which are acquired there is doubt.
Andre et al (2004) started the examination of firm three years from its merger or acquisition. The tool he used to measure the abnormal returns is the mean calendar time abnormal returns. He used it to measure the reliability and the magnitude of the abnormal returns. The results of the study suggest that the firms in Canada, which went for the mergers and acquisition under performed even after three years of acquisition. The study analysed that the method of payment used by these firms is the stock financed, the study suggests that the cross borders deals had no significant impact on enhancing the performance of the firms. The author of the mentioned study didn’t compare the results with the industry so examine the industry effect of the merger and acquisition. This is the flaw of study, because there is every possible reason for the negative abnormal returns that the conditions of the industry are not suitable.
Yook (2004) has examined the effect of acquisition on the financial performance of the firm which is acquiring, he did this by evaluating EVA (economic value added) before and after the acquisition. In order to see the EVA performance of the firm below-mentioned characters are examined
The selected sample has seventy-five of the largest acquistion of its time in the US, the timeline selected for the examination is from the year 1989 – 1994. The results of that study signifies that the acquiring company faces the worst result in this time.
There have been studies which are conducted, but there is no conclusive evidence that the glamour of the acquirers outperform those acquirers who have value. It is identified when the same way is used to calculate the findings of the firm with regards to its glamour and value, the results are very inconsistent. Two of the authors that Rau & Vermaelen (1998), suggested that in the short run, the glamour out perform the valued acquirer for the reason of extrapolation of management regarding the abilities of the firm, it is not simple because the book value of the firm and all this is reversed in the long run. According to Megginson et al (2004) after three years of mergers it is witnessed that there is no significant difference between the abnormal profits of glamour and value acquirer mergers. Megginson et al are on the view that it is not an easy job to differentiate in between the results of glamour and value acquirers because they are overlapped. Megginson et al (2004) has examined the data from the year 1977 to the year 1996. While Raw & Vermaelen (1998) analysed the data from the year 1980 to the year 1991. The time period selected for both the studies is not amply enough to give the inconclusive results.
The impact of Mergers on the abnormal returns is examined by the two authors Yuce and Ng (2005) in the Candian firms. The sample which is chosen is of size 1361 (mergers), the firms which were selected were mostly from oil and gas sector and industrial product companies. The thing which used for the acceptance and rejection of the result was abnormal profits for both the targeted companies and the acquiring company, there already have been the results suggested by American studies in the same regard and the outcomes of the study suggest that there are negative abnormal results for the acquiring firms whereas positive results for the targeted firms, but the outcomes of the Yuce and Ng (2005) study were in complete contrast with the results of American studies. They argued that without any discrimination of target and the acquiring firms, both the firms enjoy the positive abnormal returns. They are on view that both enjoy the profit, but it is not as significant as Megginson et al (2004) stated in his study. So the results of the study suggest that the abnormal returns have reduced with the passage of time. The key characteristics of the results of Yuce and Ng (2005 study are mentioned below.
It can be criticized here that in the study the type of industry is not considered. Moreover, the performance of only forty days has been examined in the study, which is not a sufficient time to analyze the performance of transaction. Thus, the results lacked the generalization aspect. For that reason the investigation of the longer periods is required in order to decide if the posited abnormal returns change into negative abnormal returns in the long run or it goes in the same way positively.
The theoretical framework is the pictorial representation of the variables which are involved in the execution of the study. It is easy to understand the variables when they are displayed in the diagram. In the ongoing study the variables which are involved areas:
Both the dependent and independent variables are displayed in the picture below.
This is the most significant section of the study.This is the skeleton of research. This is the building block of research. The whole study is built upon this section of the study. The key elements of the study are mentioned in this section of the study. The section takes a start from the definitional portion and it discusses the different concepts extensively in the later part of the section.
Methodology is one of the important chapters of the whole research as it sets grounds for the rest of the research. All the processes and data collection methods that are to be selected for the research are discussed in this section of the research. Due to the significance of the methodology section in the entire research this chapter is to be designed carefully.
Research process needs to be clear so that the research can be conducted with greater reliability. In order to make the research process effective it is required to have a clear understanding of each and every step involved in the research. The research process has been studied by Saunder who named the research process as Saunders Onion. The Saunders onion is basically the diagrammatic representation of the methods and processes to be used in the research. Every step of the research is presented as a layer of the onion. Given below are the steps that are involved in the research and are shown in Saunders onion.
Research onion is an effective way to represent the major steps involved in the research. The diagrammatic presentation helps the reader to understand the research process. According to Saunders et al. (2009) research onion is very important in the acceptance or rejection of the research. The research onion for the given research is as below.
Source: Saunders et al. (2009)
According to Smith (1975) research philosophies are inhuge number. The most commonly used, two are mentioned below.
The researcher has to keep in mind the natureof the research while deploying the philosophy. There are evidences where the researcher has deployed both the research philosophies in a single research. But it gets complicated when the researcher employs both the philosophies in a single research. According to Strauss and Corbin (1990) the examiner has to mention the pros and cons of both the philosophies when he deploys both the philosophies ina single study. The research philosophies are slightly explained below.
This philosophy itself is qualitative in nature, that’s why it is preferred in the researches which are qualitative in nature. It is that philosophy which analyses the data in detail. Tis philosophy helps the researcher to explain every minute detail of the study in a well organized manner (Denscombe, 2003).
It is a well known fact that each individual is different from the other one and he holds the opinion different from the other regarding the same thing. Same aspect of the individual is acknowledged inthis philosophy.The philosophy states that the observations the people impact their perceptions regarding different events. Saunders et al. (2003) stated that the difference of opinion exists due to the reason that people experience different things, so does the author in his surroundings. This philosophy is interesting to apply for the reason that their perceptions would impact their viewpoint on the topic too. There is this beautiful aspect of this philosophy that when the research gets a chance to record the different viewpoints he gets a chance to look at the topic from various diverse angles. There are certain lope holes in this philosophy too. For instance the generalized results can’t be attained (Bulmer 2010).
The research in which the assembled data isquantitative in nature this philosophy is employed. The quantitative research instrument is applied in this philosophy. The examiner has to keep inmind certain assumptions while going for this philosophy of research.
The research philosophy which is closely related to the realities of life is called as the realism. Inthis philosophy the viewpoints of the individuals are recorded as well, that’s why it is said to be the individual philosophy,(Goodwin 2009). The whole building of the research in which this philosophy is deployed is built on the viewpoints of the respondents (Goodwin 2009).
The ongoing study is executed so to examine the impact of mergers and acquisitions on the performance of the firms. The case considered to be studied in the light of the topic is of Northern Rock acquired by Virgin Moneyis. So in this regard the collected data would be analysed via the qualitative approaches to study. Phenomenological research philosophy is employed by the researcher to execute this study, it has been selected by keeping in view the nature of the study. The qualitative instrument is used for the collection of data when this philosophy is used in the research. Phenomenological research philosophy is the most suitable one for the ongoing study for the reason that it uses open ended questionnaires to collect the qualitative data. This is not the sole reason fro which this philosophy has been used, the other reason is that it gives the clear understanding of the variables involved. Ìt is fruitful in accomplishing the aims and objectives of the study, in the later part of the study it helps in testing the hypothesis.
As like the research philosophies the research strategies are in hugenumber too, and the researcher has to select one according to the nature of the study. Those philosophies which are used worldwide are mentioned below.
Robson (2002); Bryman (2007) stated thatwhen the researcher selected a particular casein order to study under the light of the research’s topic, that strategy is said to be the case study strategy.
According to Strauss and Corbin (1990) when for the sake of the research the researcher has to collect data from the larger portionof the population, this strategy id called as a survey. When the researcher deploys this strategy, then he first gathers the data and in the later part he examines that collected data.
When the researcher has to examine any of the scientific events, then theexperimental strategy is employed. Inthis strategy the dependent variable is kept constant while the independent variable is changed so as to see its impact on the dependent variable. This is done to check how much the dependent variable change with the changes in the independent variable. Johnson and Christensen (2010)is of view that employing this study would mean the reduction in the chances of errors in the execution of the study.
It is the strategy of the study in which it is examinedthat how the one variable impacts the other one. According to Saunders et al. (2009)it is that strategy in which the surrounding events of the subject are studied.Anthropology is the base of ethnography research strategy. This strategy takes a lot of time, this is the one biggest flaw of this strategy, and for this the researchers are always reluctant to employ this.
When the research strategyis constructed on the basis of hypothesis is called as grounded research philosophy.According to Strauss and Corbin (1990) whenthe researcheremploys this strategyhe structures the hypothesis in the very start and then tests the hypothesis at the very end.The steps which are adopted inthis strategy are as: assembling data, then structuring the theories, applying the mathematical tests and then fabricating the assumptions.
The research strategy deployed in the ongoing study is survey research strategy. When this strategy is deployed it helps the researcher to assemble the data from respondents. In the ongoing study the case study is also employed. The case considered here is of the Northern Rock acquired by Virgin Money. And for this case the data is collected via survey strategy.
There are two approaches of the research available which the researcher may use in the executionof his study. These two approaches are as inductive approach and deductive approach. Mentioned below are the approaches briefly.
The deductive approach is that approach in which the conclusion is derived when the researcher follows certain steps, the steps are as starting the research generally and then analysing the data later on drawing the conclusions at the end.
This is the approach which starts from the specific case and then drawing the general results.According to Collins (2010)whenthe researcher deploys this approach of the research, then the researcher has to construct the hypothesis andthe hypothesis is tested in the later part of the study. The basis of this study is not the grounded theory so this approach is not used much by the researcher.
This is the approach of the study in which the researcher starts off with a specific case and then draws the conclusions at the end. Collins (2010) argued that this is the approach in which the researcher takes a case and then study in the light of the topic and then the conclusions are derived at the end after studying. This approach is built on developmental theories. There is an association between the inductive approach and the developmental theories and that correlation can be explained in a way thatthe developmental theories are the source of assembling the data for the inductive approach.
The current research is regarding the influence of mergers and acquisitions on performance of any organization.The case considered for the ongoing study is a firm named as Northern Rock, and it is acquired by Virgin Money the approach which is suitable for the study seems to be inductive approach, when the researcher would employ the inductive approachhe would be able to figure out a clearer picture of the mergers and acquisitions. According to Collins (2010) the initially this approach takes start from the specific case and it ends up with a general result of something. In the ongoing study the particular case has been studied and the general results have been deduced in the end.
It is the nature of the study, which helps the researcher in deciding which method would be used for the data collection purpose. Mainly there are two methods of data collection, these two methods are primary data collection method and secondary data collection methods. A brief description of both the methods is mentioned below.
The data which is not raw in nature and collected not for the first time by any researcher is known as secondary data. Thisis the data which has been used by many of the researchers for their researches too. When the data is not assembled solely for the ongoing study, since the data has already been used by many and will be used by the other researchers too in the future is called as secondary data. According to Saunders et al. (2007) for the execution of the research and for building up the building of research, data acts like a building block. Making sure the foundation is strong would end up instrong andreliable research. Thus the cut throat efforts must be done by the researchers to assemble the data from the reliable and authentic resources. In the current research the secondary data is collected from Magzines, online journals, Books, Articles, library sources newspaper etc.
When the researcher collects data for the execution of his research, that data is said to be primary data. This data is said to be the most credible one, this is the least ambiguous data. According to Saunders et al. (2007) is of view that nobody can Raise questions on the authenticity of this data. In this study for the collection of primary data the data collection tool used is interviews, the interviews of Virgin Money’s five managers have been conducted. When the data is collected via the primary sources it has certain limitations as well. The most crucial one is the costs which would beinvolved in the collection of primary data, the second important factor is the consumption of time, as the time required for the collection of primary data is far more than the data collection through the secondary sources. Furthermore, it is also argued by some of the authors that data collected via this source canbe vague too, this is the possibility when the respondents do not give the adequate responses. Thus, one can sum up on this that though the data collection via primary sources is expensive, but it is reliable and authentic medium for assembling the data.
Thereare a varietyof research instruments which are available for the execution of the study. Sapsford (2007).Mentioned below are the instruments which the researcher can use for the collectionof data depending upon the nature of research.
It is entirely the nature of the study, which defines which instrument would be used by the researcher. The thing to keep in mind is that the researcher must use the instrument which is appropriate for the research. In the current study the data is collected via the interviews.
The interviewof the five managers of Virgin money would be conducted.
In order to examine the correlation between the variables involved the data would be examined thoroughly. The qualitativeresearch techniques would be used by the researcher to examine the relationship between the variables.
Collection of data via the reliable sources is the only medium which would ensure the overall research’s credibility and the research’s validity. There are nowadays, methods available which can be employed in order to test the validity and reliability of the collected data. As per the viewof Blalock (1974)research’s outcomes, reliability and its validity these three aspects are interlinked with each other.
According to Saunders et al. (2007) the connectionbetween the validity and reliability is very clear. The researcher can ensure the validity of the data by collecting the primary data from the authentic sources. As per words of Saunders et al. (2007) when the researcher uses the fake data it diminishes the research’s validity.
Asper view of Saunders et al. (2007) the extent to which the research can be relied onis known as the reliability of the data. It is the extent to which the data used in the study is credible.When the data is collected from the authentic sources only then can be the research would become reliable. So in the ongoing study, ample time is given to the process of data collection.
According to Saunders et al. (2006) when the results of the particular researchare applied to the larger group of people it is said to be Generalizibilty. When the researches are quantitative in nature than the applicationof the genralizeability principle gets easier, while it is harder of the researches which are qualitativeinnature.
Mentioned below are someof the ethical considerations which every researcher has to take care off.
Every research at some level has to face some of the hurdles during the execution of the study. It is not something new, when the researcher gets careful about certain things then he can reduce the potential limitations. Mentioned below are some of those limitations.
The prior researches are to be consulted when the researcher would fabricatethe theoretical framework.There is a risk of plagiarism so when the researcher uses the previous researches he must properly acknowledge those. The same would be done by the researcher in the ongoing study.
In the whole phenomenon of the research this section plays a key role, as it briefly explains all those methods, approaches and steps which the researcher may use in his research. In this section of the study all the strategies, philosophies, ethical consideration, approaches, limitations, techniques, strategies etc.are slightlytouched. In the ongoing study the Phenomenological research philosophy is employed along with the inductive approach of the research and the case study is selected.
This section plays a promising role in the successful execution of this research. This is significant for the reason that in this section the data which is collected is thoroughly examined.
If the ongoing study is considered inthis sectionthe datacollected from the mangers of the Virgin Moneyis examined.Each and every step is done systematically so to derive some logical conclusions out of it. Furthermore the result of the ongoing study is compared with the results of the previous studies too in the very same section. This is done so to bring conformity in the results.
The interview is the most widely used instrument forthe purpose of data collection in the qualitative analysis. The interview is the most effective instrument for the data collection in a way that it allows the researcher to gather the detailed viewpoint of the respondents. According to Aronson (1992); Mahrer (1988); Spradley (1979); Taylor & Bogdan (1984)the tool of the interview is further divided into below mentioned categories.
These are the well known mediums of data collection when the examiner deploys interview as a tool of data collection.Furthermore, like the data collection process the process of data analysis is detailed one as well as the data analysis technique is adopted as the qualitative one also. In the existing study the data is assembled via conduction of the interviews of five managers of Virgin Money, the assembled data is examined thoroughly by interpreting it in detail. The preparationof the interview questions is done with great care so that the respondents don’t find any difficulty in answering any query or to express their viewpoint with complete freedom regarding the impact of mergers and acquisition on the organizational performance.When the results after the careful examinationof the collected data and information are deduced then the hypothesis is accepted or rejected. Thus, one can say that this section holds the significance of a backbone in a research. It is interesting to examine the impact of Mergers and acquisitions on the performance of the organization considering the case of Virgin Money and Northern Rock Plc.
The interview of Five mangers ofvirgin money, is conducted. In order to clearly understand the impact of the acquisition of Northern rock Plc on the performance of the Bank the detailed interviews areconducted. The respondents had the complete freedom of expression, the managers were not pressurized to give the anticipated answers. Furthermore, there was no pressureon the respondents to participate in the research rather their consent was taken before involving them in the research.
Queries which were asked fromthe respondents arementioned below.
The company taken as the case of the research and the brief details of the individuals participated in the research are presented in the table below.
Name of the Company
Virgin Money UK
Number of Respondents
Managers from different departments of Virgin Money (Manager Operations, Manager Sales, Manager Finance . Manager Customer Relations and Manager Human Resource)
The data and information is assembled from the following managers at Virgin Money UK.
The motive behind the collection of data from the managers is that they are the one who can have a better understanding of the Mergers and Acquisition process. Moreover, they can better explain the significance and the resultant impact of the Mergers and Acquisitions on the performance of the organization.
Detailed answers from respondents
Not very large sample can be studied as it takes more time.
More valid information
Due to smaller sample it is expected that the sample may not represent the whole population.
An informal atmosphere encourages the respondents to be open and honest
Time consuming both data collection and data analysis
How the mergers and acquisitions result in better organizational performance?
Is organizational efficiency increases after mergers and acqusitions?
In order to examine the understanding of the managers about the concept mergers and acquisition the employees were asked about the significance of the mergers and acquisition activities. The respondents said that they understand the importance of the mergers and acquisition in the overall performance of any organization.They informed that it is a process that enables the organization to grow rapidly in its existing sector or location or a new area of operation or location.
It was informed that to experience a successful merger or acquisition the leadership has to articulate a clear and convincing goal for the merger.Moreover the leaders are required to communicate with the subordinates to build a positive reception among them regarding mergers and acquisitions. Talking about the worth of mergers and acquisitions they said that the companies who undergo mergers and acquisitions have high growth as their market share is combined. The business after acquisitions has the tendency to explore new markets, a greater range of products and services. Greater control over the supply chain and experience cost efficiencies. They explained that how the company after a merger or acquisition is able to achieve all the above efficiencies as the capacity and resources increase all collectively lead to enhanced shareholder value.
When it was asked to summarize the benefits that can be acquired out of the merger or acquisition they highlighted the following points.
From the responses it can be assessed that the management at Virgin Money is well aware of the significance of the mergers and acquisition process. They understand that this process can bring positive impact on the productivity of the employees and the performance of the organization.
To explore the performance of the Virgin Money after acquisition of Northern Rock the managers were asked whether the company is able to achieve the goals it decided at the time of acquiring Northern Rock Plc.It was reported that the company intended to expand its operations and customer base at the time of acquiring Northern Rock. It can be seen that the acquisition resulted in ownership of seventy five Northern Rock branches, one million customers, fourteen billion mortgage book, sixteen billion retail deposit book and twenty one hundred employees. As a result of this acquisition the enlarged group will have over four million customers.
One of the manager quoted the statement by Jayne-Anne Gandhi who is the chief executive Officer at Virgin Money. He said after this acquisition, we have a unique opportunity to construct a new kind of bank in the United Kingdom, a bank that is honest, fair and transparent.The respondents said that the bank had successfully attained the goals set at the time of acquiring Northern Rock plc. According to them the bank made a real difference and provided enhanced competition in the United Kingdom retail Banking.
Jayne-Anne Gadhia also said that when we acquired Northern Rock we were very lucky that people in North East welcomed us with open arms. She further said that we desired to gain a high growth rate, but when we acquired Northern Rock we were not so much sure of the success due to the history of Northern Rock but all turned in our favour and the results exceeded our expectations so far.
Further, when they were inquired about the financial performance of the Virgin Money. The managers said that Mergers and acquisitions increased the financial performance of the company that is a stimulus for efficiency. It was told that the bank after acquiring Northern Rock plc in 2012 has undergone major growth, improvements in the profitability and a positive changing trend in the retail saving market.
They while elaborating the financial performance of the company said that the bank has achieved an underlying profit of £53.4min 2013 as compared to a loss of £2.5m in 2012, statutory profit before tax increased from £150.6m to £179.4m, total assets raised to thirteen percent reaching a value of £24.6bnand the company’s net interest margin increased from 0.54% to 1.26% .
The sales of the company depict a remarkable trend as eight hundred new customers are added in thecustomer base, with the growth of £21.1bn and £19.6bn in the retail savings balances and the mortgage balances respectively.A twelve percent increase i-e £5.6bn in the gross mortgage lending is also recorded.One of the managers said that now we are focusing on becoming a complete retail savings bank with a current account being tested among staff, a new credit card business following the acquisition of £1bnof credit cards from MBNA. It is informed that the increase in sales will make us a complete service bank having full chances of tremendous growth in the future.
The respondents provided a table that summarizes the performance of the group in the year 2013 after the acquisition of Northern Rock Plc.
2013 Annual Report and Accounts
Asking about the performance of the employees after acquisition of Northern Rock the respondents revealed that the company has also progressed in the number of the permanent staff. After acquisition one hundred and eighty positions are announced n Newcastle while the number of employees in the North east went to almost eighteen hundred.Along with the increase in number all the employees of the group received a bonus of five percent in their basic pay thanking the employees for their contribution in achieving the already ambitious goals.
Jayne-Anne Gadhia also in her statement said that she is very much happy and contented with the productivity and performance of the employees. She emphasized that the employees worked with full zest and zeal to make this acquisition process successful and to turn the outcomes in favour of the group.The managers quoting the statement of the Jayne-Anne Gadhia agreed that employees played a crucial role in the overall performance of the group as no organization can flourish if its workforce lacks commitment and enthusiasm. They said that their employees showed a great commitment towards productivity and customer satisfaction leading to a better performance of the group.
From the responses it can be analysed that both Virgin Money and Northern Rock Plc fit together perfectly and the group is delivering the services that are truly valued by the customers. The Virgin Money performed reallywell after the acquisition of Northern Rock Plc. It can be seen that the company maintained a strong momentum that they have established in their core mortgages and savings business, along with the company stated investing in the banking capabilities and is growing and expected to grow by leaps and bounds in the near future as well.In the mortgage and savings the company has grown that is higher than all the competitors in the market, havingprogressed, interest margins, controlled cost growth (achieved by leveraging current infrastructure and low level of impairment losses). Due to all these the company is able to have increased contributions from mortgages and savings i-e £100 million in the year 2013. Moreover the company showed good performance, which can be analysed from the acquisition of £1 billion of credit cards from MBNA. The company has also started its new current accounts showing its progress towards banking services.
It can be said that Virgin Money is a strong brand ,a sound balance sheet, a strong core business franchise, a clear vision and has the ability to make everyone better off.It is expected that the company will perform better in the future as well.
What challenges you faced after the acquisition?
Are you personally satisfied with the result of the integration? Why?
Everything has some risks associated with it so the respondents were asked about the challenges faced by the company during and after the acquisition of Northern rock plc. The managers reported that they agree that no initiative is free of risk or nay challenge, but the risks and challenges can be eradicated if the management properly plans and executes the entire process. Same is the case in mergers and acquisitions process means this process also has some risks and challenges with it. Talking about Virgin Money and Northern Rock the managers said that sometimes there comes a sinking feeling that comes with the announcement of another merger or acquisition. Irrespective of the fact that your company is acquiring or acquired, merging or get merged entailed change and uncertainty associated at all levels. They said that normally the objective of any merger or acquisition is performance improvement, but they are likely toproduce unexpected and disappointed results. But according to respondents this was not the situation in the case of Virgin Money as the company expected to enhance the performance and growth after the acquisition of Northern Rock but still the management was a bit worried whether the expectations will be fulfilled or not due to the situation of Norther Rock Plc. But the situation turned into the favour of the group and the company outperformed in the year 2013. They said that this acquisition is successful due to proper planning. The company did not follow a one size fits all approach rather it allocated sufficient time and effort to analyse and plan all the activities.The company has gained better standing in the market and excelled in terms of performance due to proper planning and systematic execution of the plan. They said that this is true that it takes time to understand and establish a vision for the integrated company and then to align its human resource, systems and processes with the corporate strategy but Vigin money is successful in catering all these challenges.They reported that the company practiced five steps basically to manage the change and uncertainty that was expected to be encountered at the time of acquiring Northern Rock Plc.
The company had a clear and realistic vision. The management set strategic direction by establishing strong, realistic and well articulated vision statement. This strategic direction enabled the company to face the problems and challenges with a pre established direction and strategy.
Second the management at the company understand the differences. Although many of the mergers and acquisitions are performed between the organizations that fit eachother, but still there are certain differences that are required to be captured carefully. The leaders at Virgin Money understood this notion and took time to understand the differences. According to the respondents the differences are mostly in the corporate culture and value system, staff qualifications and skills, operational processes, systems and tools and leadership style.We did not follow a strict approach of using one common way of working rather rather each and every member is considered to be a part of the team and deficiencies are removed at the individual level through proper trainings and workshops.
Thirdly the top management at the company has developed an approach to care for all concerned people like leaders, employees and other stakeholders and listen to their concerns and fears.
Fourthly the company defined best practices in the operational and service processes and tools and made them standard practices.Several training programs and workshops were conducted to train the employees so that they can pace up with standards.Last but not the least the management developed a strong communication strategy as communication has the ability to make or break any merger or acquisition.The communication was two ways, honest that is why won the credibility of the employees.
The following hypotheses are designed for the current research.
H:1Mergers and acquisitions have a positive impact on the organizational performance.
H:2Mergers and acquisitions have a negative impact on the organizational performance.
H:3Mergers and acquisitions have no significant impact on the organizational performance.
The first hypotheses of the research are accepted as the results of the current research are showing that mergers and acquisitions do have a positive impact on the performance of the company. Cabral et al (2002), Carletti et al (2002) and Szapary (2001) andDe-Nicolo (2003) also confirmed the results of the current research by investigating the linkage between banks mergers and acquisition and profitability. They suggested that mergers and acquisitions in the financial system could impact positively on the efficiency of most banks. Overall, some of these studies provide mixed evidence and many fail to show a clear relationship between mergers and acquisitions and performance. Also, evidence supporting mergers and acquisitions to achieve cost saving and efficiency gain is sparse (Kwan and Elsenbeis, 1999). They found that a banking organization significantly improved their profit efficiency ranking after mergers. However, Okpanachi (2006) find some evidence of the superior post merger period because of the merged firms’ enhanced ability to attract loans. They also show increase employee productivity and net asset growth. Walter and Uche (2005) posited that mergers and acquisitions made Nigerian banks more efficient. They used table to present their data which was analyzed using simple percentage. Akpan (2007) , using chi square to test his stated hypothesis found that the policy of consolidation and capitalization has ensured customers confidence in the Nigerian banking industry in term of high profit. But, for Sobowale (2004) and Osho (2004), it is expected that the value of the companies that participated in merger and acquisition activities would be higher than before because future dividends and earning streams are expected to rise and subsequently improves efficiency. The study by Stiroh (2002) using data on United States banks suggested that, there may be more substantial scale efficiency from larger sizes of banks as a result of mergers and acquisitions.
The second and third hypotheses of the research are rejected on the grounds of the findings of the research.The results of the current research suggest that mergersand acquisitions do not have a negative impact on the performance of the organization.Choi and Russell (2004) also confirmed the results of the current research. He investigated whether mergers and acquisitions in the constructionSector in the U.S.makes positive contributions to the performance and determined the factors that may affect post-mergers and acquisition performance as: method of payment, acquisition timing and transaction size. The study analysed 171 transactions that occurred between 1980 and 2002 using the cumulative abnormal returns to indicate an improvement in performance. The results have revealed that(i) the number of acquisition transactions increased dramatically during the late 1990s, (ii) firms experienced insignificant improved performance, in other words, they just reached break even after mergers, and (iii) no evidence was found that either acquisition time, method of payment, or target status had an influence on the reported performance and that related diversifications perform slightly better than unrelated diversifications. The analysis covered a long time span of about 22 years, which increased the reliability of the results. Unlike the majority of studies that supported the method of payment as a primary factor influencing mergers and acquisitions, Choi and Russell (2004) identifies that there are no evidence to support such results.
In the current chapter the data collected from the respondents is analysed by applying qualitative techniques. Each and every question is analysed thoroughly so that a reasonable conclusion can be devised with the help of the information provided by the respondents.
This is the closing chapter of the research. This is the chapter in which the queries of the research are discussed. Then, as the section grows it slightly touches the predetermined aims and objectives of the study. In the end it is concluded that there is a direct positive correlation between the mergers and acquisitions and the organizational performance.
5.2 Discussion and Conclusion
It can be examined from the assembled data that when the firms go for mergers they become the leaders of technology in the respective industry and more competitive globally. The acquiring company needs to illustrate the benefits associated with the mergers and acquisitionsalong with the increased value of their shareholders. They shall define the expected costs, benefits, and risks which are associated with the mergers and acquisitions(Heron and Lie 2002).Furthermore, from the collected data it can be concluded that mergers often leadto success when the human resource along with the leaders of thefirm's work effectively. Managers of the firm must ensure that the merger and acquisition strategy is devised appropriately, it is planned effectively and it is executed efficiently.
5.3 Compatibility with the Research Aims and Objectives
The prime objective of theongoing study is to examinethe impact of mergers and acquisitions on the organizationalperformance
The aim of the ongoing research is as follows.
“Examining the Impact of mergers and acquisitions on organizational performance-case of Virgin Money UK and Northern Rock Plc.”
The research is conducted with the following objectives
The researcher has made the cut throat efforts to accomplish the preset aims andobjectives of the study.The outcomes of the research indicate that there lies a direct positive correlation between the organizational performance and the Mergers and acquisitions.
5.4 Compatibility with the Research Questions
Queries of any research hold equal significance as the aims and objectives of the study. Thus, it is essential to structure the queries of the research, queries of the ongoing study are mentioned below.
The research questions for the research are below.
During theexecution of the study it has been witnessed that the research queries are effectively answered.
After analysing the case of Virgin Money and Northern Rock Plc it is evaluated that the company has effectively acquired Northern Rock plc. But here are some recommendations that will help in further improving the effectiveness.
This is the most important sectioninthe study overall. It is significant because it compiles the outcomes of the study. It is concluded that there lies a direct positive correlation between the organizational performance and the mergers and acquisition.
Name ………………………….. Gender………………………
Age ……………………………. Designation…………………
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