About half of all Merger & Acquistion transactions actually destroy value for the buyer's shareholders, and half fall short of the expectations optimistically proclaimed at the time the deal is announced. The reasons that these deals fail are often blamed on strategic or financial factors. But, just as often, the root cause has to do with people and the cultural clash between the two organizations.
Based on our consulting experiences in the midst of M&A deals, the shortcomings in this category include:
- The departure of key employees or leadership
- The defection of key customers as a result of the above
- Irreconcilable cultural differences between the two organizations
- A lack of agreement by management on the combined company's future direction, culture or values
- Low morale because employees did not understand what was expected of them in the new company
- Organizational paralysis caused by fear and uncertainty
These problems are compounded when the two companies:
- Combine mature, low-growth businesses
- Do not have prior experience in handling integration
- Have inefficient or non-existent communications channels
- Fail to cut duplicate costs
- Are unable to streamline or coordinate sales and distribution networks
- Face expensive systems integration
With the new regulations governing write-offs of goodwill assets gone bad, the risks to successful M&A deals have become even greater. These deals are not for the faint of heart or the inexperienced.
Having painted a very negative picture, consider the deals that do "go right". These are often hallmarked by superior people practices, most often directed by capable HR departments who exercise strategic leadership. Early involvement by a company's HR function in evaluating the people challenges in a prospective merger, acquisition or other restructuring can significantly enhance the success of any deal. Our experience indicates there is a list of actions a company must get right upfront in order to make a deal successful. Many of these demand the intimate involvement of the HR team to:
- Understand the deal and prioritize activities around the essential objectives of the deal. Understanding this "acquisition logic" directs your focus on the people issues with the greatest potential impact. Start at the 30,000-foot level and work down.
- Manage the deal price and people risks. For HR, this means making certain that leadership fully understands potential people costs and risks (e.g., pension or executive compensation liabilities)
- Develop a change management plan for every step of the way. Ensure that your merger integration process incorporates detailed change management techniques.
- Answer the big questions. Company leaders need to quickly and explicitly spell out both the overall vision for the deal and how people are likely to be impacted. HR needs to manage these messages.
- Ensure continuity of leadership and key talent. It's important early on to build retention programs that support the key objectives of the merger. Almost every merger results in an initial dip in productivity, which is why it is even more critical to keep key players.
- Design and implement the right staffing model. The process used to staff the new organization is as important as the people. Staffing decisions do more to signal the organization's values than formal communications.
- Align total rewards. Be sure to consider the relative merits of both organizations' reward programs and use the opportunity presented by the deal to make changes that better support the future business direction.
- Measure results. Be realistic about proposed targets or synergies (i.e., cost savings) and the effort required to achieve them. Then, carefully track progress against the financial model.
No doubt about it - M&A deals are a risky way to grow a business. There is a lot to get right during the integration of two merging companies. The task would be difficult enough for a single management team with proven systems and years of experience. Given that two disparate teams are coming together, the task becomes nearly impossible without impartial and experienced outside assistance to keep priorities in line and manage key issues.
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Involve HR early and often!
Our clients in HR often complain that they are brought in to "fix" issues post-deal when they could have helped to prevent things from getting "broken" in the first place. At a very high level, there are five critical ways that involving HR can ensure better outcomes.
- Build a coordinated due diligence and integration process that addresses the implications of the people liabilities and the so-called "soft stuff."
- Communicate. Communicate. Communicate. There's no such thing as too much communication (despite what senior leaders might think). A well-informed HR team, with its pulse on employee engagement, can offer invaluable insights.
- Focus attention on the high visibility reward items and those sensitive policies and perks that employees may hold sacred.
- Understand and measure employee commitment and take appropriate action when key players are at risk.
- Involve key managers (both in terms of title and those considered key influencers) in the process of change management through formal and informal programs.
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