Human resources (HR) should play a prominent role through every stage of the merger and acquisition (M&A) lifecycle from due diligence to integration planning and realization of synergies. Every deal has its unique challenges and clarity on how to handle the “people issues” will increase chances for success.
Studies indicate that 58 to 70 percent of M&A deals fail to achieve their integration goals. HR involvement on a strategic level improves the likelihood that financial and operational goals will be realized. It takes deliberate and thoughtful planning to avoid the main causes of M&A failure, which include:
- Clash of cultures;
- Loss of key talent;
- Incompatible systems;
- Communication gaps; and
- Productivity declines.
These people issues can be mitigated with advance planning, well-crafted communications, and a sharp focus on business objectives.
Whether on the buying or selling side of the deal, HR should have a strong presence during the due diligence phase. The acquiring company will request comprehensive records for every facet of the business. In an attempt to uncover potential liabilities and avoid surprises, the documents will be scrutinized by the buyer’s attorneys and M&A advisors. Major liabilities, such as underfunded pension plans, could quickly derail negotiations.
As keeper of the records for the target company’s employment policies, compensation and benefits, organizational structure, employee data, workers compensation and legal compliance, HR is under pressure to produce a large volume of material quickly. This process is much like the discovery process in litigation. It is fast-paced, stakes are high, discussions are confidential and there are changes at every turn.
It is critical to carefully track the documents provided to the acquiring company to ensure records are complete. During the due diligence phase, legal compliance gaps often surface (wage & hour, FMLA/ADA, I-9, affirmative action, ACA, etc.) This is not the time to conduct an HR audit and take corrective measures. That opportunity will come soon enough.
To become a valuable member of the integration team, HR must have credibility, strong business acumen, HR expertise, an understanding of integration objectives and excellent communication skills. Then, HR is well positioned to provide guidance on how to align the workforce to achieve M&A objectives.
The chances of achieving synergy goals improve greatly when executive and functional teams from both sides of the deal discuss the integration strategy, identify cost synergies, and collaborate to establish priorities. It is essential to carefully plan which areas of the businesses will be integrated. Considerations include: financials; systems; data; leadership; talent; compensation and benefits; policies; facilities; branding; products and services.
When key members of the target company are not invited to participate in these planning activities, it can have a profound impact on employees and management. The acquiring firm will also make critical decisions as to how much information will be disclosed and the level of transparency. “Silence can be deafening.” Whether or not details of the integration plan are shared, avoid making promises that can’t be kept. In other words, avoid making any promises! Those who have lived through an M&A transaction may have heard these famous last words:
- Seller will continue to operate as a standalone company.
- Nothing is going to change. It will be business-as-usual.
- The name of the company, branding, products and services will stay the same.
- We will blend the cultures and take the best-of-both-worlds.
- Employees are the most valuable asset and everyone will receive an offer letter on Day One.
Integration teams should be established prior to the closing, so that once the ink dries, they can begin implementation efforts. A solid game-plan clarifies roles and responsibilities, reporting relationships, success criteria and completion dates. A best practice is to design some early wins into the timeline to build momentum and silence the cynics.
Following executive approval, it can be game-changing for HR leaders to reach out to their counterpart to discuss personnel decisions, cultural overlap, project plans and specific deliverables. HR often serves on several cross-functional integration teams with Finance and IT, so relationship building becomes another key competency. While disruptive, large-scale projects such as benefit consolidation or HRIS conversion can deliver powerful synergies.
Implementation and Realization of Synergies
Newly acquired organizations need a road map with well-defined integration goals. Once the deal closes, it is essential to coordinate early communications and give employees a collective sense of purpose. A strong sense of urgency will boost chances for long-term success and prevent a slowdown in productivity. This is an opportunity to build trust and momentum and have a positive impact on employee morale, performance and retention. On the other hand, negative impressions are difficult to erase. There is much to be gained, or lost, at this stage.
An effective communication strategy will have a positive impact on employee engagement and success of the deal. Potential HR initiatives may include:
- Harmonized performance management, compensation and bonus programs
- Consolidation of benefits to achieve economies of scale
- Alignment of cultures
- Conversion of HRIS/payroll system
- Standardization of policies
- Succession planning & retention of key talent
- Identification/elimination of duplicate positions
- Training on Mission, Vision & Values
As a key member of the integration team, HR can provide valuable insight and help shape the future of the combined organization. Human capital initiatives impact financials, operations, performance and achievement of M&A objectives. HR is in an ideal position to help assimilate the workforce, manage the culture, identify cost synergies, facilitate fast change and refocus energy on the achievement of integration objectives. HR plays a pivotal role during the M&A process and beyond.