Posted: August 2nd, 2022

Overview An important aspect of a change management strategy is to consider how different alternatives may impact future outcomes. Organizations often use the business case method to explore strategic alternatives as it helps simulate a real situation. Su

bumpy-road-ahead-the-automotive-interiors-merger-that-wasnt-case1
 

Overview

An important aspect of a change management strategy is to consider how different alternatives may impact future outcomes. Organizations often use the business case method to explore strategic alternatives as it helps simulate a real situation. Such simulations help with identifying business issues and provide critical information that organizations can then use to arrive at their own conclusions.

The VP of business development has asked you to analyze other organizations that have gone through the exit process. Doing so will help you identify common risks, challenges, and best practices related to mergers and acquisitions and apply this knowledge to guide the change management strategy of the life sciences organization. For example, if two merging organizations have extremely different communication styles or organizational cultures, it may often lead to conflict between the management and the employees. The same is true when one organization is acquiring another organization. Therefore, it is important that you identify all potential risks and challenges and include the best practices to avoid similar conflicts in your organization after it has been acquired.

You have decided to research a business case that may help you learn from the experiences of another organization.

The focus of your analysis should be on change management and the associated best practices that impacted the transformation of the organization in the case.

Prompt

Review the case study

Bumpy Road Ahead: The Automotive Interiors Merger That Wasn’t

. Next, consider the following steps to complete your analysis of the automotive case and apply your findings from the case analysis to your work in the life sciences organization in the course scenario.

Specifically, you must address the following criteria:

Case Study Review

  1. Provide a brief overview of the two organizations in the case study that addresses the following:

    Identify common characteristics of each organization.
    Explain how the products and services of the two organizations differ.

  2. Describe the key issues that affected the merger plan and its implementation.

    What were the key issues related to organizational cultures and structural integration that created problems after the merger of the two organizations? Support your response with information from the case.

  3. Evaluate the postmerger integration and change management strategies used in the case. Your response should address the following:

    How did the key decision makers respond to the challenges with the postmerger integration?
    What led to the challenges faced by the organization after the merger?
    Could these challenges have been prevented using different change management strategies? Explain.

Recommendations

  1. Based on your findings from the case study, describe specific areas that may lead to post-acquisition risks and challenges for the life sciences organization in the course scenario. Support your response.
  2. Recommend change management best practices the life sciences organization can use for managing post-acquisition integration in a planned manner and avoid the risks and challenges you’ve identified above.

Guidelines for Submission

Submit a 4- to 5-page Word document using double spacing, 12-point Times New Roman font, and one-inch margins. Sources should be cited according to APA style. 

Bumpy Road Ahead: The Automotive Interiors Merger
That Wasn’t

Case

Author: Milton Sousa & Lauren Comiteau

Online Pub Date: January 04, 2021 | Original Pub. Date: 2015

Subject: Managing Across Cultures, Cross-Cultural Leadership, Mergers & Acquisitions

Level: | Type: Experience case | Length: 2774

Copyright:

© 2015 RSM Case Development Centre, Erasmus University. All rights reserved.

Organization: fictional/disguised | Organization size: Small| Large

Region: Northern America, Eastern Asia, Southern Europe, Western Europe | State:

Industry: Manufacture of motor vehicles, trailers and semi-trailers

Originally Published in:

Sousa, M. , & Comiteau, L. ( 2015). Bumpy Road Ahead: The Automotive Interiors Merger that Wasn’t.

Rotterdam, Netherlands: Rotterdam School of Management, Erasmus University.

Publisher: Rotterdam School of Management, Erasmus University

DOI: https://dx.doi.org/10.4135/9781529754889 | Online ISBN: 9781529754889

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  • Bumpy Road Ahead: The Automotive Interiors Merger That Wasn’t
  • https://dx.doi.org/10.4135/9781529754889

    Abstract

    This case is about the merger & acquisition (M&A) process between American Automotive, Inc.
    (Smiths) and BarcelonaBrand Auto, Inc. (BBA). While the case is written in a fictional style, it is
    inspired by a real story with many similarities to what is portrayed. The case takes place within
    the automotive components industry and describes an acquisition and later merger between a
    much larger company, based in the USA, selling standard automotive components and a much
    smaller company based in Spain, selling customized automotive components for the luxury
    segment. What seemed to be a great strategic deal turned out to be an integration nightmare
    highlighting the importance of understanding national and company cultures, different leadership
    styles, deal valuation and specific distinctions in business models in M&A. The key question of
    the case is: what had gone wrong in this merger in such a little time?

    Case

    All eyes were on Luis Barros as he took his seat at the head of the oval mahogany board table in his
    Barcelona headquarters and ran a commanding hand through his thick mane of white hair. As president,
    founder and CEO of BarcelonaBrand Auto, Inc. (BBA), he was used to the attention and, frankly, adoration.

    But today, an unusually windy March morning in 2008, Barros was uncharacteristically sharing the limelight.
    Seated next to him was the somber Alan A. Smith, Jr., president of Smith Automotive Company, Inc. (Smiths),
    the American multinational corporation that a little more than a year ago bought BBA and merged the two
    companies in what was hailed as the merger of the decade—a “smooth ride if ever there was one,” predicted
    financial weekly Barron’s at the time. Now Barros and Smith had come to announce the dissolution of the
    company to its board and top management. What had gone so wrong in so little time?

    Invention and Innovation

    Visionary Luis Barros had long been a superstar in the design world of the automotive industry. An engineer
    and designer by training, he was an inventor at heart. In 1985, foreseeing the rise of the coffee-to-go
    phenomenon, he patented the world’s first integrated cup holder for automobiles. Mercedes and Jaguar
    immediately became his first two customers and also investors.

    By 1995, Barros decided to start his own firm to control all elements in the manufacture of his integrated cup
    holder system instead of outsourcing its production as he had been doing for years. Barros also wanted to
    expand into the luxury market of auto interiors and had recently patented his design for an innovation in air
    vents that again had Mercedes and Jaguar placing huge orders and agreeing to put up capital for Barros’
    venture. They were looking forward to more innovative products from the master. It was a niche market, and
    Barros knew with a company behind him, he’d be able to offer customized products to his clients.

    In the summer of 1995, BBA set up shop in Barcelona’s La España Industrial Park. Barros’ status as inventor
    of the coffee cup holder allowed him to break into a competitive field, his name opening doors to an elite list of
    clientele. It also secured him two more investors, CaixaBank and Oxford Capital Mgmt. in London (although
    Luis Barros always kept the majority of the shares).

    From 1995 until 2005 the company saw tremendous, double-digit growth. Barros was able to recruit the best
    young designers and engineers to come work for him in Barcelona, mostly from within the country (something
    he was proud of). While most of the automotive industry was based in the US, Germany and Japan, Barros
    wanted to put Spain (and Barcelona in particular) on the automotive design map and make it an international
    competitor in an industry not nascent to the country.

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    Bumpy Road Ahead: The Automotive Interiors Merger That Wasn’t

    By 2005, he employed 250 people—mostly designers, engineers and sales reps—to design, produce and sell
    not only his integrated coffee cup holder but his bespoke ashtrays, grills and storage boxes. BBA partnered
    also with external famous designers for some signature products. Despite having developed some product
    platforms, every solution was customized to the new car models of BBA’s loyal customers (most of BBA’s
    turnover was based on repeat customers). BBA had an annual $40 million turnover, representing a 30%
    annual growth rate, double that of the industry standard and an EBITDA of $4 million. Because his clients
    were all located outside of the country, BBA developed sales teams in Germany, Japan and the US. By
    2003, BBA was named one of Europe’s 500 fastest-growing companies, a recognition, said Barros, which
    showed his company’s commitment to “entrepreneurial spirit, innovative management, business growth and
    employment creation.”

    The head-office of BBA reflected its modus operandus and pride. Apart from the somehow more exquisite
    board room, BBA had highly functional open space to stimulate interaction and shared learning. On the walls
    you could see some awards and accolades of BBA’s achievements. The office of Luis Barros was itself part
    of the open space, and people could often hear his outbursts whenever projects would fail to meet his high
    standards. He was proud of using the same old car already for years, something that always surprised BBA’s
    employees.

    “Working for Barros was a both a blessing and a curse, but mostly a blessing,” said one longtime designer
    on BBA’s payroll. “Barros was a visionary and a natural leader who inspired us all. But at the same time,
    he was a micro-manager and control freak, and as sole authority at the company, his frequent angry tirades
    had to be tolerated. But Barros believed in the company, believed in his products, believed in Spain and,
    ultimately, believed in us. His vision and commitment inspired us to do our best and we were rewarded both
    financially and with the satisfaction that comes from seeing a vision become reality. We were like one big
    family, slightly dysfunctional, but all working towards the same goal, and we gave ourselves over to it—and
    our patriarch—completely and gratefully.”

    Indeed BBA was run like a benevolent dictatorship. Barros’ young work force was highly committed, often
    working 60 to 80 hour weeks. They were driven and ambitious and mostly not yet tied down by family
    demands, able to thrive in Barros’ demanding workplace. At the same time the work environment was very
    informal and dress codes were relaxed, even among sales reps. As a young company, there was plenty
    of room for growth, and the thrill of being a successful start-up kept the entrepreneurial spirit alive as BBA
    constantly looked for new cutting-edge products to design and manufacture, radio bezels and utility trays
    among them. The mission of BBA, devised by Luis Barros, was the same since the founding of the company:
    “To become the supplier of choice for customized automotive component solutions, based on innovative and
    state-of-the art engineering”.

    By 2006, with the luxury auto market booming, Barros was looking to grow his business, hoping to get out
    of the niche market by producing a few standardized high-end versions of his staple products, mostly his
    integrated coffee cup holder that could be sold more off-the-shelf. He needed more financing, but didn’t want
    to give up control of his private enterprise or see its brand name dissolve. Historically, BBA ran on reinvested
    profits and external capital from its two financial partners. While a public offering would have solved Barros’
    financial problems, it didn’t mesh with the vision he had for BBA. Barros wanted to keep control of the
    company and not be beholden to bottom lines and shareholder demands. In short, he wanted someone to
    fund his expansion—his way, his goals, his vision.

    Enter Smith Automotive Company Inc. (Smiths).

    Smiths: An American Story

    Although Smiths, like BBA, was in the automotive interiors business, the company was as different from BBA
    as Ladas were to Cadillacs. Started by Alan A. Smith, Sr. in Michigan in 1955, Smiths had been listed on
    the NY Stock Exchange since 1960 and represents corporate culture at its finest. Its board had long been
    beholden to its shareholders, and as CEO, Alan A. Smith, Jr. had made his father proud by overseeing a
    tightly-run organization with global reach that, by 2006, employed 320 people and had an annual $200 million

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    Bumpy Road Ahead: The Automotive Interiors Merger That Wasn’t

    turnover. The new corporate head-office of Smiths, recently renovated, demonstrated its growth process and
    the motivation of Alan A. Smith, Jr. to belong to the American elite of corporate CEOs. The new lavish board
    room and executive office, a source of discomfort among some blue collar workers, was designed to impress
    and signal the world about Smith’s ambition to grow into a truly global corporation. Sales teams were highly
    professional, formal (implicit dress code was to always wear suit and tie, even in the office) and commercially
    driven.

    Unlike BBA, Smiths specialized in standardized interiors, holding the number four position in its sector. It
    produced the big basics for automotive interiors: seating, instrument panels and cockpits, interior lighting,
    floor consoles and overhead systems. Its products were sold off-the-shelf. Smith’s partners included some
    mold manufacturers and a wide range of distributors.

    But Smiths was facing increasing competition from Asian automotive interior producers, especially in China,
    and started looking at the possibilities of acquiring a complimentary firm that would allow it to sell complete
    interiors—from the control panel and lighting right down to the coffee cup holder. Smiths wanted to be a one-
    stop shopping manufacturer for automotive interiors, challenging its competitors by offering its clients a full
    range of everything they needed for their auto’s insides. The newly devised mission of Smiths incorported this
    ambition: “A full Smiths interior in every car”.

    BBA seemed the ideal candidate: the Spanish start-up was cash rich and a world leader in its niche market.
    Its products had stood the test of time and the company had good brand recognition. In addition, the customer
    base of both Smiths and BBA was complimentary: Jaguar and Mercedes, for example, were customers of
    both companies, with Smiths providing the interior necessities and BBA the luxuries. If the two firms merged,
    they’d be able to provide a complete package to their clients, who would never have to seek business
    elsewhere. On paper, this merger looked perfect.

    The Merger

    In February of 2007, the deal was made: Smiths bought BBA for the astronomical sum of $160 million, four
    times the turnover of BBA. Many industry observers questioned why Smiths, who paid mostly in cash, would
    virtually empty its coffers to pay such an inflated price for the Spanish start-up.

    But at the time, both companies thought it was a good deal. Smiths and BBA had been in talks for almost
    a year, and other companies had been making quiet offers to Barros. This led to a bidding war that put
    pressure on Smiths to act—and act big. Smiths didn’t want to dilute its stock, so the deal had the backing
    of its shareholders, who also knew they’d see a quarterly spike in earnings after the merger. Indeed, Smiths
    moved its market position to number two after acquiring BBA. “Smiths has had an amazing year,” said Smith,
    Jr. in announcing the merger. “Now with the acquisition of BBA, Smiths has strengthened our market position
    and will be able to meet our clients’ demands for fully-outfitted automotive interiors.”

    As for Barros, he and his two investors wanted cash, and being acquired offered more opportunities than
    going public. It also allowed Barros to hold on to his company. Under the terms of the deal, BBA, while
    remaining in Spain, became a business group of Smiths, with its products continuing to be sold under the
    BBA brand. Barros became the group president and General Manager and got a seat on Smiths board.
    The sales, finance, legal, HR and marketing functions were to be consolidated, but each company’s design
    teams, engineers and R&D people would stay intact and work in parallel, as they had different know how and
    specialties with few overlapping elements.

    Barros envisioned the merger resembling the one between Air France and KLM, where each company would
    retain its brand identity. “With the combined forces of Smiths and BBA,” Barros told the world, “for the first
    time out clients will be able to fully outfit their automotive interiors without ever having to look elsewhere. This
    is a game-changer in the world of automotive interiors.”

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    Bumpy Road Ahead: The Automotive Interiors Merger That Wasn’t

    The Problems

    No sooner had the ink dried on the acquisition than the problems began appearing.

    The most obvious one was the structural change to the new company that left everyone feeling cheated.
    Although Smiths and BBA were to keep their separate identities, in reality, Smiths wanted to merge BBA into
    its own corporate structure. Barros’ KLM-Air France vision was quickly dashed.

    Nowhere did this policy manifest itself more disastrously than in sales. While BBA kept some of its functions
    intact, Smiths’ insistence that the sales teams be integrated was a failure. Used to selling standardized
    products, its one-size-fits-all sales mentality couldn’t cope with individual client requests for customized
    products (including the one-off wealthy financier looking for a completely customized interior) that BBA’s
    sellers were able to accommodate.

    And selling in the luxury market was a whole different ballgame from selling to mass producers of workhorse
    cars, one which Smiths’ sales team couldn’t get its head around when approaching its new market. Although
    the products had looked complimentary on paper, in reality, they were a bad fit.

    “Smiths mismanaged the merger,” said one BBA sales rep. “Its integration dogma undermined our sales
    organization, turning it into a disaster.”

    The acquisition also put Smiths in a competitive position vis-à-vis a few of its clients, who also made some
    of their own smaller interior products such as radio bezels and grills. Feeling threatened by the new Smiths,
    they took their business elsewhere.

    While Smiths did get an initial revenue boost after the merger, that faded after the first quarter. Smiths, who
    wanted BBA to start contributing to the company’s revenue as soon as possible, had used almost all its cash
    to fund the merger and subsequently had to borrow money at a high premium to keep its operations going.
    It became clear that the inflated $160 million price tag Smiths paid for a company with a $40 million turnover
    didn’t make financial sense.

    This led almost immediately to cost-cutting measures, including layoffs, with BBA people the first to go. While
    still showing some growth, Smiths was well behind the industry standard by late 2007. Further, its time spent
    on BBA development took away from its own R&D when it came to its core products—lights, navigation
    systems, seating—giving the competition a leg up.

    Smiths, however, blamed the new company’s failures on the world’s softening economy, which by 2008 was
    reaching disastrous proportions, especially in Spain where the housing market went bust. BBA employees,
    though, insist demand for luxury cars was not hugely effected, although the demand for cars in general did
    plummet, hurting Smiths, which in turn hurt the merged company.

    “Smiths brought us down in a way that never would have happened if the merger hadn’t happened,” said
    one bitter BBA employee. “We would have seen some slowdown in growth for sure, but we would have been
    able to keep our heads above water until the economic turnaround, when again you saw a rise in demand for
    luxury and specialized automotive components.”

    BBA employees were used to their mostly-benevolent dictator, the visionary who despite his outbursts,
    inspired his workers to go above and beyond in the name of his privately-owned and very personal brainchild.
    Barros was BBA. After the merger, with boards and reports and interfering investors and shareholders to
    contend with, BBA employees lost the motivation that Barros, personally, had always been able to summon.

    Smiths was more detached. Its workers lacked the drive and sense of mission that BBA’s employees had and
    took a more laid-back approach to their work, focusing on numbers and the bottom line.

    Integration was a failure. Disagreements on the board lead to Barros’ resignation a few months later, allegedly
    to “pursue personal interests” but in reality, due to his resentment at having to report to a new COO. During the

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    Bumpy Road Ahead: The Automotive Interiors Merger That Wasn’t

    year’s third quarter, Smiths announced a $120 million write-off, announced job cuts as part of restructuring,
    and saw its stock lose 5 percent of its value. In addition to the softening of the market, Smiths eventually
    acknowledged that “delays in the synergies of the companies” had hurt.

    In the end, what had looked like such a promising merger on paper and had been hailed by the industry as
    the breakthrough deal of the decade was over just 13 months after it began. What went wrong exactly? Was
    there a way to prevent the dissolution of the company?

    Epilogue

    BBA was eventually sold to the Stallion Group in a $45 million cash deal. On the plus side, the Spanish
    company continues producing quality automotive interiors of exceptional design, proving that a homegrown
    Spanish company could achieve global market leadership in an unfamiliar market. Many of BBA’s employees
    went to Stallion, while a degree in automotive design has been introduced at Barcelona’s Technical University.

    https://dx.doi.org/10.4135/9781529754889
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    Bumpy Road Ahead: The Automotive Interiors Merger That Wasn’t

    https://dx.doi.org/10.4135/9781529754889

      Bumpy Road Ahead: The Automotive Interiors Merger That Wasn’t
      Case
      Abstract
      Case
      Invention and Innovation
      Smiths: An American Story
      The Merger
      The Problems
      Epilogue

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