European Management Journal Vol. 24, No. 6, pp. 396–410, 2006
Ó 2006 Elsevier Ltd. All rights reserved.
0263-2373 $32.00
doi:10.1016/j.emj.2006.08.002
Determinants of
International
Acquisition Success:
Lessons from FirstGroup
in North America
CATRIONA DUNCAN, Marks & Spencer
MONIA MTAR, University of Edinburgh
This paper proposes a process model of key determinants of international acquisitions success,
drawing on strategic management, organisational
and learning theories. The validity of this model
is tested through the analysis of the successful
acquisition by FirstGroup, the UK’s largest provider of public transport, of Ryder, the second largest player in the US School Bus industry. The case
demonstrates the importance of identifying a target
in a market sector in which the UK has a competitive advantage and which fits well with the
acquirer’s core business. Going against the grain
of theory on integration, findings also show that,
under certain conditions, low integration can yield
significant benefits, leaving further integration as
an option for the future, to create further value.
The impact of cultural fit on acquisition performance is found to be dependent upon the level of
integration adopted. The capacity of the acquirer
to learn from previous acquisition experience is
critical in ensuring the successful management of
both pre- and post-acquisition phases. The theoretical and practical implications of the findings are
discussed.
Ó 2006 Elsevier Ltd. All rights reserved.
Introduction
Keywords: Cross-border mergers & acquisitions,
Post-merger integration, International strategy,
British
multinationals,
Services
industry,
FirstGroup
This paper aims to address this gap. It proposes a
process and integrative model of the determinants
of cross-border acquisition success, drawing on concepts of strategic management, organisational and
learning theories. The validity of this model is tested
through an in-depth analysis of the successful entry
396
In spite of a dramatic growth in the number of crossborder acquisitions over the last decade, there is
limited research on the key factors that affect their
success. In a recent review of the literature on
cross-border M & As, Shimizu et al. (2004: 345) argue:
An important research issue involves the explanatory variables for (cross-border M & As) wealth creation.
The authors (2004: 345) note that the limited literature
that exists on international acquisition performance
has mainly drawn on the fields of economics and
finance, overlooking factors of synergy and strategy,
and that a firm-level focus is needed in order
to uncover the mechanisms at play in the success of
M & As. We also believe that research on international acquisitions which draws on other theories,
such as cross-cultural and learning perspectives, has
not systematically considered the strategic and/or
performance dimensions of M & As. Furthermore,
more attention needs to be given to important
processes such as integration (Shimizu et al., 2004:
324).
European Management Journal Vol. 24, No. 6, pp. 396–410, December 2006
DETERMINANTS OF INTERNATIONAL ACQUISITION SUCCESS
of FirstGroup, the UK’s largest provider of public
transport, to the North American market. In 1999,
this Group acquired Ryder Transportation and
immediately became the second largest player in
the US School Bus industry.
There are significant commercial links between the
UK and North America, yet the U.S. is still seen as
a graveyard for UK companies wishing to expand
their operations. Understanding the reasons behind
FirstGroup’s success is therefore of interest. Furthermore, there is a lack of research on the public transport industry. Yet, like many other services
industries, this sector is increasingly becoming international. The UK is now home to five large quoted
companies who are global players in the public transport arena. This has been brought about by the comparatively early privatisation of the industry, which
has given these organisations a distinct competitive
advantage and they are now leading the globalisation of the industry.
This paper opens with the presentation of a model of
critical success factors in cross-border acquisitions.
The significance of these factors to FirstGroup’s
North American acquisition is then assessed in detail
as part of the case study, and these findings are compared and contrasted to current academic thinking
on these issues. In the concluding section, the theoretical and managerial implications are discussed,
and further research directions suggested.
A Model of Success Factors in
Cross-Border Acquisitions
A model of critical success factors in cross-border
acquisitions is proposed, based on an in-depth
review of the relevant literature. The model draws
on strategic management, organisational and learning theories. Research on acquisitions has shown that
acquisition performance is the outcome of strategic
and organisational variables (e.g. Larsson and Finkelstein, 1999). Learning theory is another influential
perspective for explaining acquisition performance
(e.g. Very and Schweiger, 2001). We selected variables from those three perspectives that most commonly appear in the literature as critical for
acquisition performance, and that we believe will
require greater emphasis in an international, as
opposed to a domestic, acquisition:
v Acquiring
Firm’s
Previous
Experience
v Strategic Fit
v Focus On Core Business
v Cultural Fit
v Integration Process
Acquisition
Each of those factors will now be examined in detail.
Previous Acquisition Experience
A company’s previous acquisition experience can be
identified as a factor for success (Hitt et al., 1998;
Hubbard, 2001: 13–14; Very and Schweiger, 2001).
While no two acquisitions are the same (Clemente
and Greenspan, 1998: 157), the process of all acquisitions is similar. Experience with regards to acquisitions can be beneficial for two main reasons. Firstly,
many of the processes are recurrent, and the firm will
have honed key skills through previous experience.
Secondly, firms will be more knowledgeable about
issues connected to an acquisition, such as integration and cultural issues, and will have learnt lessons
from past approaches. Haspeslagh and Jemison
(1991: 51–52) identify the similarity of acquisitions,
through firms using a standardised decision process
and discipline for their capital appropriations. They
(1991: 52–55) also highlight the differences between
acquisitions, such as their sporadic nature, the dissimilarity from managers’ regular experiences, the
opportunistic nature and the speed with which decisions must be made. In a similar vein, Hubbard
(2001: 14) identifies the process issues that can cause
an acquisition to fail. Hubbard argues that organisations, which have honed these processes through
multiple acquisitions, stand a much better chance
of achieving success.
Hitt et al. (1998: 100) also note that two-thirds of the
successful firms they examined had ‘considerable
experience in implementing change in the years prior
to the acquisition’. The experience of confronting a
complex situation resulted in the firm being ‘more
flexible, with developed adaptation skills’, and being
more capable in dealing with an acquisition. Hitt
et al. (1998: 102) also identify that ‘careful and deliberate selection of target firms and conduct of negotiations’ is critical as it ‘reduces the probability of
paying a premium’. This is a skill that is undoubtedly developed through previous acquisition
experience, as shown by Very and Schweiger
(2001). However, this process will be affected by
the acquirer’s experience of the target country (Very
and Schweiger, 2001).
Experience alone is not sufficient to ensure acquisition success (Finkelstein and Haleblian, 2002; Haleblian and Finkelstein, 1999; Hayward, 2002). A vital
practice in making previous acquisition experience
a key factor for future acquisition success is learning
from that experience. Haspelagh and Jemison (1991:
88–89) argue that for learning to occur, companies
must have formal acquisition review mechanisms
in place. The nature of prior acquisition experience
will also influence firms’ ability to learn (Finkelstein
and Haleblian, 2002; Haleblian and Finkelstein, 1999;
Hayward, 2002).
How experienced acquirers learn and apply their
knowledge to subsequent deals has seldom been
investigated in an international context (Shimizu
European Management Journal Vol. 24, No. 6, pp. 396–410, December 2006
397
DETERMINANTS OF INTERNATIONAL ACQUISITION SUCCESS
et al., 2004: 335). The examination of this variable
therefore departs from the literature.
Strategic Fit
The strategic fit of the acquisition is critical for capitalising on mutual synergies, a key point that will be
explored below in Focus on Core Business. In this
section however, the business philosophies of the
two entities will be considered (Hubbard, 2001: 14).
Child et al. (2001: 9) describe M & As as ‘among the
most important strategic decisions companies ever
make’. With this in mind Haspelagh and Jemison
(1991: 32) define the impact of acquisitions in terms
of their contribution to corporate-level strategy,
‘Acquisitions can deepen the firm’s presence in an
existing domain; they can broaden that domain in
terms of products, markets or capabilities; or they
can bring the company into entirely new areas’.
However, this acquisition result must fit with the
overall corporate strategy of the acquirer. Similarly
Hubbard (2001: 56) explains that the acquired company has to be aligned with the strategic objective
of the acquirer, whether that is market penetration,
vertical expansion or market entry for example.
Haspelagh and Jemison (1991: 9) identify maintaining consistency with the company’s strategy as one
of the major challenges in managing an acquisition,
and a problem that has to be continually addressed.
Focus on Core Business
An important element of strategic fit is the degree of
diversification pursued by the acquirer. Acquiring a
company within a purchaser’s core business has
been identified as a factor that impacts international
acquisition performance. Continuing to focus on the
acquiring firm’s core business helps to ‘maintain its
strengths and to hold or gain a long-term competitive
advantage’ (Hitt et al., 1998: 102). Hitt et al. argue that
acquiring a core business, such as an active competitor or business in the same industry but operating in
a different geographical region, can result in the creation of positive synergy.
The trend of stock markets discounting the shares of
conglomerates (De Wit and Meyer, 2004: 603) illustrates that while diversification allows firms to protect themselves against poor returns in certain areas
of the business, unrelated diversification is accompanied by ‘lower financial performance, lower capital
productivity, higher market-related risks and a
higher degree of variance in performance’ (e.g.
Shrivastava, 1986: 65). Shareholders are eager to see
organisations achieving economies of scale and
scope, and this can be achieved more readily by
maintaining a focus on the core businesses. However, Hopkins (2002: 91) argues that expanding into
additional industries, allows a firm to fully exploit
398
a core competence, and create a competitive advantage. This decision between expanding into additional industries, or expanding globally to fully
exploit core competence is very dependent on the
industry within which the firm operates. The key
issue however, is the degree of diversification.
Related diversification, which consists of expanding
into related industries to gain market power, permits
a focus on core business to be maintained, while strategic objectives can also be met.
Whilst the role of relatedness has been extensively
studied in the strategy literature on domestic acquisitions, it has seldom been studied in the context of
international acquisitions, an exception being a study
by Datta and Puia (1995) who found inconclusive
evidence.
Cultural Fit
Culture is a primary factor of overall acquisition success (e.g. Cartwright and Cooper, 1992: 14) and this is
particularly so when considering an international
acquisition. As Child et al. (2001: 17) explain, ‘the sensitivity of post-acquisition management increases
when it is cross-border in scope’, with acquirer and
acquired ‘bearing different management philosophies and practices’. Differences can result from
either national or organisational cultures (e.g.
Barkema et al., 1996; Calori et al., 1994; Child et al.,
2001; Weber et al., 1996), organisational culture being
firm specific and strongly influenced by the company’s history.
As culture is intangible (Clemente and Greenspan,
1998: 178), it is a very difficult concept to evaluate.
With an acquisition there are two distinct organisational cultures to understand. A detailed analysis
must be conducted to avoid ‘culture clashes’ that
can destroy alliances (Clemente and Greenspan,
1998: 178). Similarly, Calori et al. (1994: 361) state that
‘differences in organizational culture and management practices between merging firms may be
sources of conflict’ resulting in the benefits of the
merger not being fully realised.
Differences in management values and practices
between nations have been well documented (e.g.
Chandler, 1986; Hofstede, 1980). Examining UK and
US management, we can gain an understanding of
some of these contrasts. UK and US styles have been
described as some of the most similar (e.g. Hofstede,
1980). The UK and the US’ similarities stem from
shared cultural traditions, and Britain’s long-term
exposure to the US influence (Lawrence, 1996: 41).
However, many fundamental differences have also
been noted, for instance with regard to conflict resolution and management styles (Lawrence, 1996: 41).
Consequently, in the case of international acquisitions, there are two separate national cultures to
assimilate, along with internal organisational
European Management Journal Vol. 24, No. 6, pp. 396–410, December 2006
DETERMINANTS OF INTERNATIONAL ACQUISITION SUCCESS
cultures. This results in a greater possibility of
incompatibility between the acquirer and the
acquired.
tors and operating performance measures, but critics
argue that financial performance alone is not sufficient to account for acquisition performance.
Culture has serious implications for the integration
of a cross-border acquisition, and the company’s subsequent performance. Norburn and Schoenberg
(1994, cited in Child et al., 2001: 27) found that ‘65
per cent of those acquirers who had experienced serious problems with post-acquisition integration said
that these difficulties had been due to cultural differences’. Cultural fit is therefore a vital success factor
for international acquisitions.
In this paper, we examine changes in key financial
indicators of the acquired firm since the take-over.
We also adopt Larsson and Finkelstein (1999) concept of ‘synergy realisation’ defined as: ‘the actual
net benefits. . . created by the interaction of two firms
involved in a merger or acquisition’ (Larsson and
Finkelstein, 1999: 3). This measure tracks all the
major types of synergy sources in acquisitions.
Although this indicator is more subjective than financial measures, by capturing the benefits which have
actually taken place post-acquisition and which have
solely resulted from the combination of two firms, it
gives a more accurate picture of value creation in
acquisitions (Larsson and Finkelstein, 1999: 4).
Integration
‘The integration process is key to making acquisitions work.’ (Haspeslagh and Jemison, 1991: 105).
They argue that ‘not until the two firms come
together and begin to work toward the acquisition’s
purpose can value be created’. The integration of
two distinct firms, with separate cultures, as discussed above, is challenging. There are a range of
hurdles associated with the integration process, the
authors have identified three recurring problems as
determinism, value destruction and leadership vacuum (Haspeslagh and Jemison, 1991: 122). Successful
firms are able to overcome these problems, through
management being able to quickly recognise and
deal with them.
In a similar vein, Shrivastave (1986: 65) claims that,
key to a firm’s acquisition long-term success, is
‘how well one integrates the business after the merger’. However, Child et al. (2001: 95) argue that it is
not how well the business is integrated, but that it
is integrated at an appropriate level, ‘an inappropriate level of integration might be detrimental.’ Whilst
Child et al. (2001: 96–97) find that an acquirer can sit
anywhere on a ‘spectrum of integration’ ranging
from a low level, through partially integrated situations, to those where integration is almost total,
Hubbard (2001: 57) has found that generally firms
choose one of four degrees of integration: total autonomy, restructuring followed by financial controls,
centralization or integration of key functions and full
integration. As illustrated, the level of integration is a
well-documented aspect of the integration process,
however the actual process of integration is largely
omitted within the existing literature, and is a concept that will be examined within the case study.
Relationships Among Variables and Acquisition
Success
As none of these factors can be taken in isolation in
understanding successful cross-border acquisition,
we now propose a process model that shows how
their relationships constitute key success factors for
cross-border acquisitions (Figure 1). Based on the
above arguments, previous acquisition experience
will positively affect acquisition success by helping
ensure the presence of all four other antecedents to
acquisition performance: strategic fit, focus on core
business, cultural fit and integration. The validity of
the model is now tested through the case study of
FirstGroup’s North American acquisition.
The Method
This research examines one company within the
Public Transport Industry, exploring its acquisition success in North America. This company is
Previous
Acquisition
Experience
Strategic Fit
Acquisition Success
Post-acquisition performance has been assessed from
a variety of perspectives in the literature, and what
constitutes appropriate criteria for measuring success
is debatable (for a recent review, see Sudarsanam,
2003: 63-89). Studies adopting a financial perspective
have examined stock market returns-based indica-
Integration
Cultural Fit
Focus on
Core Business
Acquisition
Success
Figure 1 Model of Key Success Factors in CrossBorder Acquisitions
European Management Journal Vol. 24, No. 6, pp. 396–410, December 2006
399
DETERMINANTS OF INTERNATIONAL ACQUISITION SUCCESS
FirstGroup, who are the largest public transport providers in the UK (FirstGroup Company Information).
In recent years the public transport industry structure has changed dramatically, and a trend has
emerged in which this traditionally national industry
is becoming increasingly global. UK companies are
playing a leading role in the globalisation of the
industry. Yet, there is a distinct lack of research documenting those events.
Due to the nature of this research project, a case
study approach was selected, permitting a fuller
understanding of the context and processes being
enacted (Yin, 1994). Rather than testing any specific
hypothesis, this sharp focus on one explanatory case
study allowed an in-depth insight into the organisation and the acquisition process. Adopting the use of
a case study also made it possible to provide a
dynamic account of events, and illustrate how factors
interact over time.
Data Collection and Analysis
A combination of in-depth interviews with key executives and extensive archival data was used to construct the case study. The length of the integration
period investigated is five years, and spans the preand post-acquisition phases.
Interviews
Based on preliminary documentary analysis, individuals who played a key role in the North American
acquisition, were identified for interview. Those
interviewed were as follows: FirstGroup Chief Executive (CEO), FirstGroup former Business Change
Director, FirstGroup Finance Director (FD), FirstGroup Chief Operating Officer (COO) and the VicePresident Maintenance of the School Bus Division
of First America. The nature of their involvement in
the acquisition is detailed in Table 1. Interviewing
individuals across a range of functions enabled to
Table 1
build a complete picture of the acquisition process,
and ensured that, for each issue investigated, the
views of multiple respondents were collected.
The interview schedule was semi-structured, encouraging an extensive and descriptive answer, and
allowing any key points, which were raised by the
interviewee to be explored in greater detail. The
same format was used for all interviews, creating
standardisation and reliability. The key themes
investigated were (1) the process of entry into the
North American market and level of prior experience; (2) the strategic rationale for the acquisition;
(3) cross-cultural issues; (4) the integration; (5) the
acquisition outcomes. Throughout, emphasis was
put on the factors identified as critical for success
to establish their role and significance on the outcome of the transaction.
Interviews were conducted by the first author at
FirstGroup’s headquarters in Aberdeen, between
January and March 2004. Interviews with each
respondent typically lasted between one and two
hours. All were face-to-face, except for the VP Maintenance based in the US where data was gathered via
email. Notes were taken throughout the interviews,
and a full record of each interview was written
immediately after it took place to control interviewer
bias. Several discussions were subsequently held
with some of those respondents to verify the information and fill in gaps in the data. The finalised case
study analysis was given to the managers of the company for corrections and adjustments.
Other Sources of Evidence
Documents and archival data were collected to augment and complement the interviews. Documentary
evidence collected consisted of press releases, newspaper reports, corporate and miscellaneous websites,
analyst research, promotional material, internal company presentations and market reports. Approxi-
Interviewees’ Position and Roles in the North American Acquisition
v FirstGroup Chief Executive (CEO). He has held this position since the Group’s formation in 1995,
and has had a great deal of involvement in the North American acquisition, including negotiation of the deal.
v FirstGroup former Business Change Director. Having been with the Group since 1986 before retiring in 2003,
he was closely involved with the North American acquisition and subsequent operations.
He held the position of Acting President of First America during this time, and spent eight months part time in the US.
v FirstGroup Finance Director (FD). He was appointed to the Board in 2000, following the acquisition in North America.
However, the integrated nature of the finance function has resulted in this Director working closely with the
North American team, and making several international trips a year.
v FirstGroup Chief Operating Officer UK (COO). He has had an overview of the international acquisition
without being directly involved with running North American operations.
He is now responsible for Yellow Bus (a US concept) within the UK.
v Vice-President Maintenance of the School Bus Division of First America.
A UK national currently placed in North America in a key engineering role,
he has a great understanding of events and a unique expatriate perspective.
400
European Management Journal Vol. 24, No. 6, pp. 396–410, December 2006
DETERMINANTS OF INTERNATIONAL ACQUISITION SUCCESS
mately 30 documents, totalling over 1000 pages, were
analysed and around 20 websites were consulted.
Data Reliability and Validity
The use of retrospective accounts by executives for
process research in strategic management enables
to trace change over a long period of time when following change real-time is not possible. Furthermore,
data is collected from those who are directly
involved in shaping strategy processes and thus have
greater strategic awareness (Hambrick, 1981, cited in
Golden, 1992: 855). However, because it relies on
individuals’ memories, retrospective data may be
subject to errors (Golden, 1992). Various steps were
taken to reduce the possibility of inaccuracies in
respondents’ accounts. Firstly, the length of the integration period examined was five years, as this time
span was long enough for at least some of the postacquisition changes to have been fully realised. At
the same time, a five year-period was short enough
for the company executives to be able to recall past
facts with greater reliability. Secondly, in designing
the interview questionnaires, care was taken to elicit
past facts and behaviours rather than intentions and
beliefs (Golden, 1992: 855). Thirdly, the use of multiple sources of evidence for each issue investigated
enabled triangulation (Yin, 1994). A limitation of
the study design however is that the respondents
interviewed are all UK nationals.
Data Analysis
Results were analysed, by reconstituting the data in
chronological order, in order to construct a process
account of the events and issues in the acquisition
process. The factors, which have been identified from
the existing literature, were then used as categories
to examine the data. This data was then compared
and contrasted to literature already published.
Case Study Background
FirstGroup is the product of a series of domestic
acquisitions, which took place in response to the
deregulation of the industry in 1986. Up to this juncture, bus companies were regional, and owned and
operated by the local authorities. Grampian Regional
Transport (GRT) based in Aberdeen, was one such
company and following deregulation, a successful
management/employee buy-out was conducted. In
1995 GRT merged with a South-West England operator, Badgerline, to form FirstBus, and was subsequently floated on the London Stock Exchange.
FirstBus aggressively acquired small and mediumsized UK bus operations. In 1997 and 1998, three
privatised train companies and a 51% stake in Bristol
International Airport were added to the portfolio,
diversifying the company’s interests. 1 FirstBus took
its preliminary international step through a joint venture in Hong Kong, operating transit buses on the
mainland. To reflect the newfound diversity of the
organisation, the name was changed to FirstGroup.
In 1999 FirstGroup had disposed of its interest in
Bristol Airport, and the Hong Kong joint venture to
concentrate on the UK Bus and Rail market. As the
UK market became mature, it offered limited opportunities for growth, necessitating FirstGroup to look
towards international expansion. After conducting
worldwide market analysis, North America became
the chosen focus. In the summer of 1999, FirstGroup
acquired Bruce Transportation, a school bus operator
based in New England, and Ryder Transportation,
the bus division of a global logistics group. Bruce
gave FirstGroup an initial toehold in the North
American market, but this was a small company
compared to the scale of Ryder Transportation. With
Ryder, FirstGroup acquired 10,000 buses and three
divisions – school bus; public transit contracting
and management services; fleet maintenance services
-, operating in over 30 states across the country
(WestLB Panmure Analyst Research, 2001). The
acquisition also gave FirstGroup critical mass in a
very large market with huge potential.
FirstGroup’s North American Acquisition
The Role of Previous Acquisition Experience
FirstGroup’s History and Nature
As noted above, prior to their entry into North America, FirstGroup had gained no real international
acquisition experience but did have a great deal of
experience on the domestic front. The UK bus division consists of 26 bus companies (FirstGroup Company Information, 2004), all of which have been
acquired. The group was very familiar with the fast
pace of growth that comes through acquisition, and
their successful past experience and the lessons
learned, had given them confidence to take on
the acquisition of Ryder. This acquisition was however, considerably larger, than any that had gone
before. 1
Although the company had no experience of international acquisitions, they had previous overseas business experience from which they had gained
valuable lessons. The joint venture in Hong Kong,
had taught FirstGroup about issues of cross-border
control, and reinforced the belief that a wholly
owned subsidiary was the right mode of entry for
North America. The FD stated:
Hong-Kong taught us that we could do an international
acquisition, and that we didn’t like the joint-venture. That
made the US a wholly-owned subsidiary decision. . . Jointventures have an accounting benefit, but the downside is
that it takes a lot of management time. . . Joint-ventures
have to go through boards and boards of people.
This combination of a great number of domestic
acquisitions, and the one international joint venture
provided FirstGroup with experience in implementing change quickly. This experience would have
European Management Journal Vol. 24, No. 6, pp. 396–410, December 2006
401
DETERMINANTS OF INTERNATIONAL ACQUISITION SUCCESS
resulted in the firm being ‘more flexible, with developed adaptation skills’ (Hitt et al., 1998: 100), which
have influenced the success of the US acquisition.
FirstGroup has been described by their CEO as ‘a
highly opportunistic organisation’. Continually
assessing new options becoming available to them,
FirstGroup concentrate their focus on areas of change
within the industry, for instance the privatisation
of the school bus industry in North America.
The Group’s previous acquisition experience has
therefore helped them develop the skills to quickly
identify opportunities and take full advantage of
them.
One further unique element in FirstGroup’s advantage in making large acquisitions, was its past experience of itself being the product of a merger. In 1995
FirstGroup was formed through the merger of GRT
with Badgerline. Badgerline was two to three times
larger, but less profitable and well organised than
GRT. The Former Business Change director, then a
GRT executive, described the experience of the frustrations of being shackled by a merger with a larger,
less nimble and less well organised group. Although
this was a painful process, the GRT executives eventually dominated the organisation and as a result
learned many valuable lessons. In particular it gave
them a clear understanding of the de-motivational
effects that a merger with a larger partner can have
on the staff of the subordinate organisation. This
was a vital learning process for FirstGroup executives, and was perhaps the critical factor in making
them more aware of the need to ensure that the
North American staff were on-side, motivated,
empowered and felt that they were important to
the development of FirstGroup as a whole.
FirstGroup’s Inspection and Negotiation Approach
to the US Target
Through their domestic acquisitions FirstGroup have
honed many skills that have aided them in their
international acquisition process. In particular information gathering, negotiation and pre-acquisition
planning have been very successfully developed.
Because of the rapid, end on, nature of FirstGroup’s
UK Bus company acquisitions in the 1990s, the
Group had a very highly developed process of
inspection. Whilst there was latterly a dedicated
acquisition team, the function heads (Operations
Director, Engineering Director, Commercial Director), as well as doing their day jobs, led the due diligence inspections into their specific function within
the target companies. As a result, they had a very
pronounced sense of ownership because they had
to subsequently live with any shortcomings in this
due diligence process when FirstGroup took over
operational management.
After initially using market research to evaluate the
industry and select appropriate targets, the CEO
402
explains that he approached several organisations.
After a visit to North America, he focused in on
Ryder Transportation because of the close fit with
his own Group. He explains:
Ryder was 90% Trucking and Leasing and 10% Bus. I contacted the CEO of Ryder and offered to merge FirstGroup
with their bus division, so as to get him interested. . . At
this stage, Ryder was not for sale... (however) Ryder Business Development manager realised that it made sense to
sell their bus division. . .
After this initial sign of interest from the target, the
CEO quickly moved on to the negotiation stage. The
CEO and FD of the Group took charge of the negotiation, and over months of discussion, maintaining
continuous contact with Ryder, managed to convince
the target that their bus division was not one of their
core sectors, and to achieve a good price for the acquisition from FirstGroup’s point of view. This point was
confirmed by the warm reception received in the City
for the rights issue to fund the acquisition. Clearly,
the management team’s in-depth experience in negotiating previous acquisitions played a key role in
obtaining best value for this transaction.
Pre-acquisition Planning
Due to FirstGroup’s extensive acquisition experience,
the company’s pre-acquisition planning is highly
practised, and can therefore be completed quickly.
It has been described, by the former Business Change
Director as being such a routine procedure as to be
almost ‘formulaic’. With regards to the North American acquisition, the dedicated project team were
responsible for pre-acquisition planning and a critical element of this – due diligence. As Ryder’s business was composed mainly of individual school
contracts, it was relatively easy to investigate and
there was high visibility of turnover and profit.
Financial modelling was routinely executed, examining performance and sensitivities.
As part of the due diligence inspections which function heads conducted in their respective function,
FirstGroup were able to assess the competence of
staff they would inherit and already be working on
replacements for weak executives, usually by promoting others within the target. They also examined
and planned the requirement for replacement systems and procedures where they were identified as
inadequate.
In conclusion, extensive acquisition experience has
been a key factor in the success of FirstGroup’s US
acquisition. Inspection, negotiation and due diligence skills are competences that have all been
honed over a ten year period, and this has ensured
selection of the correct acquisition target which is
fundamental for long term success.
In contrast with studies which highlight such system
as essential for future success (Haspeslagh and
European Management Journal Vol. 24, No. 6, pp. 396–410, December 2006
DETERMINANTS OF INTERNATIONAL ACQUISITION SUCCESS
Jemison, 1991: (88–89)), FirstGroup have no formal
mechanism for post-acquisition review. Instead FirstGroup’s continued success can be explained by their
relatively stable board of directors and their ability
to learn from past experience through informal mechanisms, which helped prevent them from making
the same mistake twice. Indeed, according to the Former Business Change Director, it was not uncommon
during new acquisitions for issues from previous ones
to be referred to, so a learning process was taking
place.
Strategic Fit
Evolution of FirstGroup’s Global Strategy
Prior to the North American acquisition, FirstGroup
had largely adopted an emergent strategy. This
unstructured approach allowed the young Group to
explore many options. The ‘take what comes along
attitude’, 2 resulted in holdings as diverse as a 27
per cent share in a joint venture in Hong Kong, and
a 51 per cent stake in Bristol airport. Both of these
holdings have since been divested, as FirstGroup
failed to gain critical mass in these markets. Subsequently, as a result of the restricted growth on the
domestic front, FirstGroup’s approach to internationalisation became strategic. The company commissioned consultants reviews of all worldwide
potential markets, and made a conscious decision
to become a global player in its core business. It
was following these developments that the Bruce
and Ryder acquisitions took place.
Entry to the North American market is one of the
most important strategic decisions that FirstGroup
have made (Child et al., 2001: 9). These acquisitions
in a new geographic region (Hubbard, 2001) changed
the shape of the Group and made it a truly multinational organisation. These acquisitions brought the
Group immediate critical mass and elevated it to
the number two position within the school bus
industry.
Assessment of the Target for Strategic Fit
FirstGroup’s FD explained the three principal criteria
used to assess Ryder as a suitable acquisition target:
v Management Structure. ‘Does the structure of
the company allow FirstGroup to have control
over it?’
v Finance. ‘Can we finance this acquisition, in both
the short and long-term?’
v Strategic Fit. ‘Does this company fit with our
global strategy?’
FirstGroup’s Selection of a Favourable Set of Market
Characteristics
Critically, FirstGroup appear, as part of their overall
strategy to have set out to replicate the unique set of
circumstances which the UK provided them in the
1990s. At the time there was a major movement away
from public ownership to private, with significant
opportunities for cost savings and efficiencies. However, in North America FirstGroup had the opportunity of a growing overall market, whereas in the
1990s the total market in the UK was still shrinking.
Timing and in particular first mover advantage, were
also very critical to this strategy and no doubt FirstGroup saw the appointment of a Republican President, as a further positive omen for the movement
towards outsourcing and privatisation. Whether by
accident or design, FirstGroup have chosen a strategy of not merely reproducing their core business
abroad, but of seeking out a political/economic set
of circumstances which almost replicates that on
which their previous success was founded.
In conclusion, strategic fit was the single most important factor for FirstGroup’s successful acquisition.
Selection of an acquisition target with a supportive
set of market features, with a strong and sound management structure, which most importantly mirrored
closely its core business, contributed greatly to the
difference between success and failure. This focus
on core business is an element of strategic fit that will
now be explored.
Focus on Core Business
A key part of our global strategy is to stick with what we
know.
The words of FirstGroup’s CEO summarise the company’s emphasis on maintaining a focus on their core
business. The acquisition of Ryder allowed FirstGroup to maintain its strengths and exploit its competitive advantage in a new geographical market
(Hitt et al., 1998: 101–102). FirstGroup had no direct
experience of operating in the US Transit, or School
Bus markets, but the similarities to their core UK
operations, presented FirstGroup with the opportunity to export their core competences.
However, the Services division which FirstGroup
inherited from the acquisition, moved outside the
boundaries of the core business, although it
remained related as it drew on one of FirstGroup
core skills – vehicle maintenance. As this accounted
for less than 10 per cent of the acquisition it was
not perceived as a problem, and is currently a thriving and growing business. The FD explained:
It is easy to say ‘this is not core, let’s get rid of it.’ But if it
looks good, we have to ask the question, ‘can we make it
work?’ If it doesn’t work out, and you decide that it’s not
where you want to be, at least you are selling a going
concern.
FirstGroup’s North American acquisition was successful, partly due to the fact they bought a company
they knew how to run. With an international acquisition, focussing on a core business, where it is clear
European Management Journal Vol. 24, No. 6, pp. 396–410, December 2006
403
DETERMINANTS OF INTERNATIONAL ACQUISITION SUCCESS
how to exploit your competitive advantage, provides
an organisation with more time to dedicate to overcoming the ‘international’ problems such as culture
and distance from the home country.
sidiary of a much larger group, and fitted into this
role relatively smoothly. This was perhaps aided by
the fact that there was not a huge amount of corporate change for employees at the bottom of the hierarchy, post acquisition.
Cultural Fit
The combined culture of the two entities has evolved
over time, and with greater exposure to each other,
they have become more aligned. The FD reflected
that:
National Culture
First America has operations in Canada and in over
35 states in the US, from Alaska to Florida (FirstGroup, 2003). Due to the sheer size of the continent,
the culture varies from location to location. The VP
Maintenance of the school bus division of First America, explained the diversity of the country cultures
and business approach: from the ‘laid back’ approach
of the West, and the ‘conservative’ mid-West; to
the more ‘aggressive’ and at times, ‘European’
style of the East coast. Being so widely represented
across the North American continent greatly amplified the potential culture related problems which
might have resulted from such a cross-border
acquisition.
Several Directors interviewed, commented that there
was a general misconception that the UK and US
have similar cultures and values. In practice, they
found the situation to be very different. One of the
biggest disparities between the UK and North America that was expressed, was the presence of the ‘good
news’ phenomenon, particularly in the US. The COO
explained that US employees were more than eager
to broadcast good news, but tended to hold back
bad news. Another difference highlighted by the former Business Change Director, was that the Americans had a very ‘sales and customer orientated
approach’, whereas the Brits were much more ‘bottom line’ driven.
‘Two countries divided by a common language’
George Bernard Shaw’s quote about the UK and
US, highlights another problem initially faced by
FirstGroup. Although the two countries speak the
same language, the different uses and connotations
of certain words was an initial problem. The COO
illustrated this point, using the example of pensions.
Discussing a pension ‘scheme’, was seen to the
Americans as talking about a pension fiddle or scam,
rather than a pension plan!
The problems identified above, have largely been
overcome through an awareness of the situation
and anticipation of any differences that may arise.
North American operations are run by host-country
nationals, who are more aware of their own country’s cultural variations, and this cultural awareness
is imperative when dealing with customers from
geographically diverse areas.
Organisational Culture
The organisational cultures of Ryder and FirstGroup
are complementary. Ryder was used to being a sub404
We’re now five years on and the organisational culture has
got better in the latter stages. The Business Change Director
ensured that the US worked closely with the UK. There
was a three to six months time period where the FD and
the Business Change Director were both in the US. It will
have really shown the Ryder team that FirstGroup were
together on all matters, and this was an important message. . . The UK and the US have a good working relationship, but it is clear that the UK calls the shots.
The CEO highlighted the key issue of trust within the
organisation. He stated that it was imperative for
success, that the UK and US trust their colleagues
on the other side of the Atlantic, but that it is only
after a considerable change-out of Senior Executives,
that the required level of trust has been achieved:
The trust is now very strong and the US feels part of the
FirstGroup team.
In terms of organisational culture, FirstGroup places
less emphasis on ‘soft issues’ such as human
resource management and marketing than the US
subsidiary. These are skills which Ryder consider
important, and at which they are highly competent,
partly because of the necessity for good relationships
with schools, pupils and parents alike. This contrast
not only provides the possibility of conflict, but an
opportunity for learning if handled in the correct
way. FirstGroup have left those matters in the hands
of US nationals and even looked to adopt some of the
North American practices, demonstrating their recognition and acceptance of the US subsidiary’s
expertise. There is no doubt that FirstGroup’s 1995
merger helped their executives to understand the
concerns of a large company being taken over, and
this would have led to a more sympathetic, listening
approach to Ryder.
Whilst it is important that national and organisational cultural differences are recognised and taken
on board in international acquisitions, the low level
of integration in this particular case has meant that
it is less of an issue for success. Nevertheless FirstGroup appear to have resolved the principal cultural
issues which could have led to problems.
Integration
Level of Integration
On the matter of integration, the CEO of FirstGroup
explains:
European Management Journal Vol. 24, No. 6, pp. 396–410, December 2006
DETERMINANTS OF INTERNATIONAL ACQUISITION SUCCESS
First America is a stand alone company. . . You integrate to
achieve synergies, and at this stage that’s just not possible.
Due to the nature of the industry, and the distinct
businesses on either side of the Atlantic, there are
only a few possibilities for economies of scale or
scope. 3 The low level of integration selected for First
America has resulted in all main functions being
retained by the subsidiary. Operations personnel in
the UK and North America have little contact, as
their functions are so distinct, with North America
having a strong contracting focus. However, the
audit, insurance and finance functions all work closely with their overseas partners, as these are areas
where the few synergies available, do exist.
FirstGroup have opted for restructuring of its
acquired subsidiary, followed by the implementation
of financial controls. This is the second least level of
integration as identified by Hubbard (2001: 57) and
consists of modifying the target company ‘to some
extent’, then leaving it ‘to operate in a stand-alone
capacity with little interaction with other business
units. Financial controls are implemented to ensure
that the business unit complies with head office strategies and objectives’.
Child et al. (2001: 95) have identified that it is imperative that integration takes place at an appropriate
level. There are several implications that stem from
this fundamental decision of the ‘appropriate level’
of integration. Fuller integration often results in a
loss of power on the part of the target, and as a consequence senior target employees are more likely to
leave voluntarily. Further, where a higher degree of
autonomy is given to the target company it results
in a lower level of complexity in the implementation
process, as integration affects a lower number of
employees and business units.
Finance: A Key to Integration
Finance has played a fundamental role in the integration. Upon acquisition of Ryder, FirstGroup found
the company to be less commercially aware and
profit driven than the UK. The former Business
Change Director explains that budgets were written,
but deviation from these did not appear to be a problem to North American management. This was
partly due to the fact that public sector values still
dominate in the North American bus industry, as it
is only starting to move into the private sector.
This situation led FirstGroup to reinforce financial
controls in the US subsidiary. The first CEO
appointed to First America was FirstGroup’s FD.
He brought with him a British Chief Financial Officer
for North America and together they overhauled the
financial function and put in place the UK finance
system. FirstGroup introduced key performance
indicators and a much greater emphasis on performance delivery throughout the organisation. The former Business Change Director explains:
Deviation meetings were implemented once a month,
where the Regional Vice-Presidents flew in to meet with
the CEO. Contract by contract they compared performance
to budget and agreed on corrective actions where necessary, as well as discussing issues that they were facing in
their region. The Regional VPs found this level of accountability very difficult, and as a result many were replaced.
FirstGroup’s quick implementation of total financial
integration mirrors literary thinking. Studies have
found that ‘the dominant influence of the City has
encouraged a short-term financial emphasis’ for UK
management (Child et al., 2001: 58), and many British
firms rely on financial performance to control their
subsidiary (Morgan et al., 2001: 49–50).
Controls Over the Acquired Company
In addition to installing their financial controls, FirstGroup have also appointed a small number of homenation staff to key positions. The first CEO following
the acquisition was British, as was his replacement.
The first Chief Financial Officer was also British, he
implemented all the new financial controls, and has
more recently been succeeded by the previous Group
Internal Auditor from the UK. There has therefore
been a strong UK presence at the top of the finance
function, and from time to time, various other UK
personnel came to assist in implementation of the
finance systems. In the First Student Division, the
VP Maintenance was appointed from the UK. At an
early stage inadequacies in the maintenance system
were recognised, and staff were changed out. He also
brought with him an assistant from the UK and
together they overhauled the company’s entire maintenance function. This has been the extent of the
import of UK Executives onto the North American
team, but their contribution has been very significant.
By doing this FirstGroup has not only achieved a
higher level of control in key functions, but as a byproduct has gained greater integration over time.
These individuals have an increased knowledge of
the UK’s processes and procedures and are generally
more willing to embrace them. This highlights the
overlap between integration and control (Child
et al., 2001: 97).
Despite the control mechanisms mentioned above,
the subsidiary operates almost as a stand-alone
entity, with reporting occurring to the Group via
the First America CEO. In addition, the group today
relies on a mix of home- and host-national control.
The FD states:
. . .FirstGroup need enough Brits in North America, but not
too many.
While the first two CEOs were British nationals, the
decision was taken to appoint a US national because
it was felt that both customers and staff would align
themselves more readily with an American. This
evolution in FirstGroup’s staffing approach is
another example of their openness.
European Management Journal Vol. 24, No. 6, pp. 396–410, December 2006
405
DETERMINANTS OF INTERNATIONAL ACQUISITION SUCCESS
To sum up, FirstGroup’s integration approach is
characterised by a low level of integration with stringent financial controls. While it is clear that the UK
hold the purse strings 3, this approach has enabled
the group to take advantage of the industry and cultural expertise that the US nationals hold. A delicate
touch has been employed with the injection of UK
nationals to key functional positions, and over time
the Group has realised that North American operations should be run by host-country nationals, who
are more aware of their own country’s cultural
variations.
Acquisition Performance
Operating Performance
In financial terms, FirstGroup views the North American acquisition as having been successful. As indicated in Table 2, turnover has increased from
£462.7 mn in 2001 to £665.8 mn in 2005, an increase
of 44%. Operating profit for the North American
division has increased by 8.8% between 2001 (£56.3
mn) and 2005 (£61.2 mn). According to the 2004 company report, since the acquisition in 1999, turnover
has grown by 73% and profit by 65%, generating a
cash return on invested capital of 12%. FirstGroup
reports earnings before interest, taxes, depreciation,
and amortization of £108.1 mn in 2005 (2004: £107.1
m; 2003: £103.3 m), and reports that its North American division is self-financing for maintenance capital
expenditure and growth organically and via
acquisitions.
Synergy Realisation
Various sources of synergy have been identified,
which have contributed to a sound financial performance and enhanced FirstGroup’s long-term competitiveness. Firstly, as explained in the section on
Strategic Fit, by acquiring the second largest player
in the US school bus industry and positioning itself
in a market with significant growth potential, FirstGroup has enhanced its market power, which in turn
enables it to compete more effectively in the increasingly global public transport industry.
Table 2
The following example explained by the former Business Change Director illustrates how the North
American acquisition benefits from being part of a
large group. In the US, bus specifications are invariably state specific. In the past this gave only two
options upon loss of a contract. Either the vehicle
had to be sold, or transferred to another contract in
that State, neither being very efficient. FirstGroup
has worked with its suppliers to produce an ‘InterState Bus’. The core of the vehicle is fitted with sockets capable of taking numerous additional optional
fittings e.g. extra lights, flashers, horns, signs etc. so
that these can be added or removed as appropriate.
This creates a much more versatile transferable vehicle. Clearly, it has taken a global player with muscle
with its suppliers to provide this economic solution.
Second, by transferring its core competences in the
finance and maintenance functions, which it developed as a result of its early experience of privatisation and deregulation in its domestic market,
FirstGroup has improved the management of the
US business. This expertise has been extremely beneficial to the acquired firm, as the US market is
now evolving along a similar path as the UK.
Third, synergies have resulted from the reverse
transfer of knowledge from the North American
operation to the UK market, an unexpected benefit
for the group. FirstGroup has imported the US concept of the Yellow School bus, which was inexistent
in the UK. In the US, the yellow school buses transport 23 million students to and from school every
day (UBS Warburg, 2002), the whole system being
based on a philosophy of ensuring the safety of the
school pupils. The scheme was launched in the UK
in 2002 and currently FirstGroup has 20 Yellow
Buses in the UK operating on trial in several sites
around the country. According to the COO, the introduction of the scheme has been positively received
by communities and the government alike, as it coincides with growing concerns over safety, road congestion and pollution. Thus, this reverse transfer of
know-how has resulted in the creation of new business opportunities for FirstGroup and enhanced its
core business. Global learning has also successfully
Financial Performance of FirstGroup’s North American Divisiona
2000b
2001
2002
2003
2004
2005
Turnover (£m)
(% increase over previous year)
246.4
462.7
–
542.9
(+17.3%)
582.4
(+7.3%)
620.7
(+6.6%)
665.8
(+7.3%)
Operating profit (£m)
(% increase over previous year)
34.5
56.3
–
60.8
(+8%)
61.3
(+0.8%)
63.5
(+3.6%)
61.2
( 3.6%)
Operating margin (%)
EBITDA (£m)
14.0
–
12.2
–
11.2
–
10.5
103.3
10.2
107.1
9.2
108.1
a
b
Sources: FirstGroup Company Reports 2000 to 2005.
For 2000, results are only available for 6 1/2 months (September 1999 to March 2000). All other years are full financial year results.
406
European Management Journal Vol. 24, No. 6, pp. 396–410, December 2006
DETERMINANTS OF INTERNATIONAL ACQUISITION SUCCESS
taken place in aspects of the HRM and safety functions, where, as explained above, FirstGroup have
found that its US operation is relatively more
advanced due to the specificities of its national and
industrial environment. This has in turn provided
FirstGroup with a competitive advantage over its
competitors.
Discussion
The case study of FirstGroup’s North American
acquisition supports the framework developed in
this paper. The role of each variable as well as the
interrelationships between all the variables and
acquisition success is confirmed.
Findings show that previous acquisition experience
is significantly and positively associated with international acquisition success, through ensuring the
presence of all the other success factors: strategic
fit, focus on core business, cultural fit and integration. As a serial domestic acquirer, FirstGroup had
honed many of its in-house skills, through its experience. The highly opportunistic nature of this organisation resulted in it experimenting with international
joint ventures, non-core businesses and playing the
role of the subordinate organisation in a sizeable
merger. These events have resulted in FirstGroup
learning key lessons early, fortunately, without fatal
consequences. Both of these experiences have provided the UK group with essential skills, which have
in turn ensured the selection of the correct acquisition target as well as facilitated the integration
process.
The study contributes to our understanding of the
role of prior acquisition experience in an international context, and illustrates the mechanisms
through which firms can learn from past experience
in such a way as to enhance the performance of their
subsequent acquisitions. In the case study, a key
learning mechanism has been the group’s relatively
stable board of directors and their ability to learn
from past experience through informal mechanisms.
This contrasts with the literature which highlights
formal mechanisms for post-acquisition review as
essential for future success (Haspeslagh and Jemison,
1991: 88–89). A second factor which explains that
extensive learning has taken place is linked to the
absorptive capacity of the group, which has in turn
been shaped by its early experiences. Throughout
its existence FirstGroup has shown an open attitude
and a willingness to learn, which can partly be linked
to the group’s emergence from a troublesome merger
in its early years, as well as it’s young age.
Findings also confirm that strategic fit and focus on
core business are critical antecedents to cross-border
acquisition success. FirstGroup’s strategy led them to
find a unique favourable market position, with characteristics very similar to those which brought about
their major growth in the UK during the privatisation
process. Gaining first mover advantage in this market was also vital. Furthermore FirstGroup has maintained a focus on core business. Focus on core
business positively affects success firstly by maximising the potential for value-creating synergies, due to
the similarity of both firms’ industrial environments.
Secondly, as the acquiring firm is knowledgeable
about the industry, it can dedicate more time to overcome the other ‘international problems’ such as cultural differences.
Nevertheless, an element of diversification can be
beneficial by creating real options and new growth
opportunities (e.g. Karim and Mitchell, 2000, Cited
in Sudarsanam, 2003: 116), provided that it remains
within the boundaries of the acquiring firm’s core
competences. FirstGroup has gained a valuable
related diversification in the domain of vehicle maintenance, which has helped the group realise the
potentialities of this market. Thus, findings contribute to the limited research on the role of relatedness
on cross-border acquisition performance.
The case study confirms that integration is a critical
success factor (e.g. Child et al., 2001; Haspelagh and
Jemison 1991). However, our findings about the links
between the level of integration and the realisation of
synergies contradict existing theory on integration.
Whilst recognising that different modes of integration will be adopted depending on the nature of
the strategic interdependencies between acquired
and acquiring firms, Haspelagh and Jemison (1991)
argue that a company must integrate to create value
from an acquisition. Similarly, Larsson and Finkelstein (1999: 16) find that a higher degree of synergy
realisation is associated with higher levels of integration: ‘. . .structural and processual changes must be
undertaken that allow (potential) synergies to be
realised’.
Low integration is typically associated with conglomerates, where mainly financial synergies are
sought. However, the case study shows that significant and not merely financial, value-creating synergies can be achieved without the need for
integration. Because of the nature of the public transport industry which requires local knowledge and
the diversity of the US culture, FirstGroup opted
for low integration coupled with stringent financial
controls. Low integration has enabled FirstGroup to
improve the management of the US business where
necessary, while overcoming the problems arising
from the many cultural differences, which exist
between North America and the UK. In this transaction, value has been created through enhanced market power and revenues, thanks to the selection of a
fundamentally sound business operating in a high
growth market, and a better management of the US
business. Another synergy that has been realised
European Management Journal Vol. 24, No. 6, pp. 396–410, December 2006
407
DETERMINANTS OF INTERNATIONAL ACQUISITION SUCCESS
without integrating the US business, has been the
reverse transfer of best practices from the target to
the UK, which has enhanced FirstGroup’s domestic
core businesses. Therefore, an acquisition at the right
price, at the right time, in the right market conditions, followed up by better management of the business, can create value in itself. This leaves further
integration as an option for the future, to create further value.
This finding makes sense in light of a study by Seth
et al. (2002: 938), which suggests that some sources
of value creation in cross-border acquisitions differ
from those in domestic acquisitions, due to the diversity of motives that may underlie international acquisitions. It is therefore logical to expect that the links
between modes of integration and the extent of synergy realisation need to be re-evaluated in an international context. The global nature of an industry will
be a fundamental determinant of the potential types
of synergies that exist in an international acquisition.
A long line of studies have concluded that cultural fit
is a critical determinant of acquisition success. However, few studies have considered its role in conjunction with other antecedents. First, the case study
shows that problems which might arise from cultural
differences can be solved through an awareness and
anticipation of cultural differences. Second, findings
point to a strong interdependence between cultural
fit and integration. In the case study, cultural fit has
not had a major impact on the North American acquisition, due to the low level of integration adopted.
The importance of cultural fit on acquisition success
will partly depend on the level of integration chosen.
Conclusions
The case study of FirstGroup’s successful market
entry into North America supports a process and
integrative framework for understanding the performance of cross-border acquisitions. Whilst only
based on one case study, this exploratory study contributes to the limited research on the determinants
of international acquisition success. Cross-border
acquisition success is found to be function of the
acquiring firm’s prior acquisition experience, strategic fit combined with a focus on core business, cultural fit and the integration process. Whilst factors
such as national cultural fit uniquely affect cross-border acquisitions, other factors which have been
found to affect acquisition performance in a domestic
context, are also found to play an important role in
an international context. The study also contributes
by showing the relationships between all the variables and acquisition success, and in so doing has
offered important insights.
While there is a great deal of literature supporting
the notion that North America is a graveyard for
408
UK companies, the case study shows that in the presence of the appropriate success factors, it is possible
to succeed in this market. There is no doubt that certain sectors are particularly competitive, such as
retail, telecoms and technology. However, there are
sectors, particularly in the service industry, where
UK companies are quite far advanced along the path
of evolution. In the sector chosen for this study, the
comparatively early promotion of privatisation in
the UK has allowed companies to acquire expertise
well ahead of other geographical regions. This identification of a market sector, in which the UK has a
competitive advantage, combined with a respect for
the diversity of culture in North America, can be
very successful and leave plenty of scope for sustainable growth.
Many practical implications can be drawn from the
case study for companies conducting cross-border
acquisitions:
v This study has implications for the way in which
companies conduct their global strategy. It is one
thing to see a market opportunity, such as an
opening for a core product. However, FirstGroup found a uniquely similar, favourable
market climate, to that which had proved so successful domestically. This unique set of market
circumstances has been a critical factor for the
success of FirstGroup. When combined with a
fast growing market it becomes a very compelling strategy.
v Lessons can be learned from the integration
approach adopted by FirstGroup. Under certain
industry and cultural conditions, low integration
can be very beneficial. Various sources of synergy can be capitalised upon. Partial integration
can also help avoid cultural problems and have
a motivational effect on the target staff.
v Companies need to remain open to learning
opportunities. Not ignoring opportunities for
reverse transfer of knowledge, is another important lesson, as on some occasions, best practice
will originate from a subsidiary. Two-way transfer of knowledge can also have a positive motivational, and early acceptance effect on the
target staff.
One of the clear limitations regarding this research, is
the fact that the case study is merely based on one
company, within one sector of the service industry.
However, although findings of this research cannot
necessarily be generalised across all business sectors,
it may be highly appropriate to further apply the
findings of this case study to similar sectors of the
service industry as the basis of further research. It
would also be interesting to examine the impact of
these selected factors, on the success and failure of
other service industry acquisitions in North America.
A final appealing future research question would be
to examine FirstGroup’s North American experience,
European Management Journal Vol. 24, No. 6, pp. 396–410, December 2006
DETERMINANTS OF INTERNATIONAL ACQUISITION SUCCESS
as it plays out over time, to determine whether their
success is sustained, and the benefits from the acquisition continue to accrue.
Acknowledgement
We thank Paula Jarzabkowski (Aston U.) and three
anonymous reviewers from the 2006 annual Academy of Management meeting for helpful comments
on this paper. This paper was presented at this meeting in August 2006, Atlanta. We also thank the editorial team of this journal.
Notes
1. Interview with former Business Change Director.
2. Interview with COO.
3. Interview with FD.
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European Management Journal Vol. 24, No. 6, pp. 396–410, December 2006
409
DETERMINANTS OF INTERNATIONAL ACQUISITION SUCCESS
CATRIONA
DUNCAN, Marks & Spencer,
London, UK.
Catriona Duncan has an
MA(Hons) in International Business from the
University of Edinburgh.
She currently works for
Marks and Spencer in
Central London.
410
MONIA MTAR, School
of Management, Strategy
and International Business
Group, University of
Edinburgh, 50 George
Street, Edinburgh EH8
9JY, Scotland, UK.
Monia Mtar is a Lecturer
in Strategic Management
at the University of Edinburgh. She holds a Ph.D.,
from the University of
Warwick. Her research interests are cross-border
mergers and acquisitions, strategic and organisational
aspects of multinational management; French multinationals; international institutional theory.
European Management Journal Vol. 24, No. 6, pp. 396–410, December 2006