UNIVERSITY OF VAASA School of Marketing and Communication ​ Valentin Zavala M. A. Cultural issues that family-owned businesses face in cross-border acquisition processes Master`s Thesis in Marketing International Business VASA 2020 2 3 TABLE OF CONTENTS TABLE OF FIGURES AND TABLES 7 ABBREVIATIONS 8 ABSTRACT 9 TIIVISTELMÄ 10 1 INTRODUCTION 12 1.1. Background 12 1.2. Objective of this research 14 1.3. Problem definition 15 1.3.1. Research questions 15 1.3.2. Key concepts and definitions 16 1.4. Scope of the study 18 1.5. Structure 18 2 LITERATURE REVIEW 20 2.1. Definitions of Mergers and Acquisitions 20 2.1.1. Reasons for M&As 21 I. Empirical motives for M&As 22 II. Motives for cross-border M&As 23 III. Family-owned business in cross-border M&As 24 2.1.2. Stages of the M&A process 25 I. Pre-combination stage 26 II. Combination and integration stage 26 III. Post-acquisition stage 27 2.1.3. Risks for M&As 27 2.2. Definition of Family Business 29 2.2.1. Types of Family-owned business 32 2.2.2. What differentiates a family business from other businesses 34 2.3. Cultural compatibility in mergers and acquisitions 36 2.3.1. GLOBE Study 36 2.3.2. Hofstede’s cultural dimensions 38 2.3.3. National vs Corporate Culture 41 2.3.4. Finnish and Italian cross-border M&As 43 2.3.5. Global and European M&A statistics 46 2.4. Culture and M&A performance 50 4 2.5. Literature Review Summary 51 3 METHODOLOGY 55 3.1. Research Approach 55 3.2. Research Design 56 3.3. Research Strategy 57 3.3.1. Semi-structured Interviews as a Data Collection Method 57 3.4. Data Collection 59 3.4.1 Finding a case company 60 3.4.2 Interviewee Candidate Selection 60 3.4.3. Interview Questions 64 3.5. Data Analysis 67 3.6. Research Quality and Trustworthiness 69 4 PRESENTATION OF THE EMPIRICAL MATERIAL 71 4.1. Oy Mirka Ab 72 4.1.1. KWH Group and Mirka’s History 72 4.1.2. “The Mirka Way” 73 4.1.3. Mirka’s Internationalisation 74 4.2 Cafro S.p.A 76 4.2.1. Cafro’s History 76 4.2.2. “A way of doing”: The Cafro Culture 78 4.2.3. Cafro´s Internationalisation 79 4.3 Classification in the FoB typology 80 4.4. Conceptual Framework Overview 82 4.5. Individual perceptions on FoBs, Corporate and National Culture. 84 4.5.1. FoBs’ distinguishable traits 84 4.5.2. Relation between family values and corporate culture 87 4.5.3. Corporate Culture vs National Culture 88 4.6. FoB roles and experiences in Internationalisation Processes 90 4.6.1. Domestic vs International Markets 90 4.6.2. Previous experiences involving M&As 91 4.6.3. Internationalisation vs Family dynamics 91 4.7. Decision making and Acquisition Process 92 4.7.1. Strategy behind the acquisition 92 4.7.2. Cultural fit assessment and the acquisition process 94 4.7.3. Scope, timeline and challenges of the acquisition process 96 4.7.4. Combination and Integration Process 99 4.8. The post-acquisition integration phase 101 4.8.1. Current state and next steps in the integration process 101 5 4.8.2. Cultural integration and Corporate Culture change and adjustment 103 4.8.3. Evaluation and documentation 104 5 ANALYSIS AND INTERPRETATION 108 5.1. FoBs characteristics Overview 108 5.1.1. FoBs classification 109 5.1.2. FoBs in cross-border M&As 110 5.2. Mirka & Cafro Acquisition Process Overview 113 5.2.1. Pre-combination stage 116 5.2.2. Combination and Integration stage 118 5.2.3. Post-acquisition stage 119 5.3. Summary of the Findings 120 6 SUMMARY, CONCLUSIONS, LIMITATIONS AND FUTURE RESEARCH126 6.1. Summary 126 6.2. Conclusions 127 6.2.1. Theoretical contributions. 128 6.2.2. Managerial Implications 129 6.3. Limitations 131 6.4. Future Research 132 REFERENCES 134 APPENDIX 153 6 7 TABLE OF FIGURES AND TABLES FIGURES Figure 1. Objective of the research 14 Figure 2. Comparison between success factors and failure reasons in M&As processes 29 Figure 3. Conceptualisation of family-owned business, based on the European 31 Family Businesses association vector criteria Figure 4. Family-owned business typology in literature 34 Figure 5. Hofstede’s Dimensions for Italy and Finland 38 Figure 6. GLOBE and Hofstede’s Dimensions comparison 41 Figure 7. Examples of Finnish-Italian M&As transactions 44 Figure 8. Worldwide M&A activity 48 Figure 9. M&A growth and decline global trend heat map 49 Figure 10. M&As in Europe 50 Figure 11. Conceptual Framework 82 Figure 12. Mirka-Cafro acquisition process timeline 113 Figure 13. Summary of the findings. 120 TABLES Table 1. M&As strategies, rationales and major concerns 23 Table 2. Globe project 9 cultural attributes and their descriptions 38 Table 3. Summary of themes found on M&A-related literature on the field of FoB 53 Table 4. Respondents profiles 63 Table 5. Themes Sought 66 Table 6. From pre-combination to post-acquisition - M&As stages 112 characteristics and main events. 8 ABBREVIATIONS FDI Foreign Direct Investment FoB Family-owned Business I/C Individualism versus Collectivism I/V Indulgence versus Restraint i.e. id est (that is) LTO Long-Term Orientation M&As Mergers and Acquisitions M/F Masculin versus Feminin MCN Multinational Corporation PDI Power Distance PMI Post-merger integration phase PR Public relations RBV Resource-based view SEW Socioemotional wealth UAI Uncertainty Avoidance Index 9 _____________________________________________________________________ UNIVERSITY OF VAASA School of Marketing Author: Valentin Zavala M. A. Topic of the thesis: Cultural issues that family-owned business face in cross-border acquisition process Degree: Master of Science in Economics and Business Administration Master’s Programme: International Business Supervisor: Jorma Larimo Year of entering the University: 2015 Year of completing the thesis: 2020 Number of pages: 155 ______________________________________________________________________ ABSTRACT The importance and weight of Mergers and Acquisitions (M&As) in the corporate world has steadily grown in the past few decades and as the world economies themselves grow more heavily interconnected in the age of globalisation, the same weight and importance reflects in the interest governments and other international bodies put into the subject. This, has lead academic research in the M&A field to be abundant, distributed in many different historical trends and heavily concerned with figuring out the motives behind M&A transactions, as well as, the reasons behind their success or their failure. Moreover, the rapid development in global economy and the increasing number of cross-country and multi-country M&A acquisitions, has also brought to the forefront issues regarding the cultural differences between the countries of origin of the firms involved. However, an issue rarely discussed in M&A literature concerns the relevance of family-owned business (FoBs) in the global economy and specially, the different dimensions with which they approach a M&A process. Consequently, little is known of the peculiarities of how M&A transactions are approached, managed and perceived in cross-border settings by FoBs and what role cultural differences play as catalysts for their success or failure. Thus, being a relatively unexplored subject of study, this research strives to address this particular gap in literature. To this purpose, one main research question with three sub-questions was developed. The main question investigates what are the cultural factors that influence the acquisition process in a family-owned business in a cross-border setting. The sub-questions explore what are the main differences between non-family owned and family-owned firms, which family factors affect the success in the pre-combination phase in cross-border M&As, and what aspects of the integration and post-acquisition phases of a FoB are influenced by culture. Exploratory qualitative research was employed within this empirical study to answer the research questions through conducting thirteen semi-structured interviews within one case company. The interviewee pool consisted of members of both merging companies, involved at different stages of the acquisition process, as well as, members of the law firms that helped broker the deal. Theory-guided content analysis was then used when analysing and interpreting the data. Results of the literature study helped to create a comprehensive typology to classify different types of family-owned businesses, which was then subsequently utilised to classify both the bidding and the target companies; additionally, it helped to create a conceptual framework to analyse the acquisition process, highlighting the way cultural differences, particularly of national nature, play an integral part in the integration process and how FoB-to-FoB M&As differ from those of listed firms. This was further enforced through the analysis of the case company interviews, as it helped to create an image of the acquisition process and decision rationale inside of a FoB, and it became apparent that every relevant aspect of the integration process is influenced by the cultural differences of the companies involved, as stated in the existing literature, however, no evidence of cultural differences enhancing performance was found; while family-related factors (i.e., SEW, value networks, approval of family members with or w/o decision making rights) were found to play a bigger role during the pre-acquisition phase and in the formation of the integration plan ______________________________________________________________________ KEY WORDS: 10 Mergers and Acquisitions - Family-owned business – cross-border M&As – cultural differences ______________________________________________________________________ VAASAN YLIOPISTO Markkinoinnin ja viestinnän akateeminen yksikkö Tekijä: Valentin Zavala M.