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WENDY ELLEN INC.

April 2018 Newsletter
In This Issue
  • Thanks for Joining Us!
  • HR Activities During the Mergers and Acquisitions Process
  • A Thorough Human Resources Integration Plan Can Mean the Difference Between M&A Success and Failure
  • The Role of Human Resources in Mergers & Acquisitions
  • Business Functions Are Not Mutually Exclusive
  • Quick Reference: Answer the Basic Questions First
  • Quick Reference: Consider Your Contracts
  • Quick Reference: Analyzing Organizational Cultures
  • Quick Reference: HR Challenges During Mergers & Acquisitions
  • Coach's Corner: Boosting the Morale of Anxious Employees
April 2018
Volume 5, Number 4
April has arrived, and dare we hope that "sprinter" may be coming to an end? After a long, hard, cold winter - everyone is ready for a change of seasons. 

Depending on your perspective, organizational change - like seasonal change - is either a chance for positive renewal or something to be avoided at all costs. This month we are focusing on one of the largest organizational changes of all: mergers and acquisitions. 

Mergers, acquisitions and joint ventures present exciting opportunities and potential for organizations; they also present significant challenges. An effective Human Resources plan - led by individuals with strong skills in the M&A cycle - helps shape the entire workforce and all related business elements in the future. By keeping the people issues in the forefront of every decision, understanding HR's role in each of the phases of the transition, and working from a detailed, well-developed plan, a skilled HR team can effectively support the business and help achieve positive results from the transaction. 

Keep reading for more learning.
HR Activities During the Merger and Acquisition Process
Adapted from Cengage Learning

A Thorough Human Resources Integration Plan Can Mean the Difference Between M&A Success and Failure


Consider the following:

M&A failure can be financially devastating

• For a large corporation, a failed M&A means substantial financial losses. This value erosion can lead to long-term growth impairment and in some cases, insolvency.
• For a mid-market company, the path to insolvency is shorter and more certain, as it is unable to absorb the same level of losses as its larger, more affluent counterparts.

M&A failure is more likely than success

• The statistics are astounding: most sources assert that M&A's fail more often than they succeed, estimating a failure rate between 50% (*1) and 70% (*2)
• This staggering failure rate points to the need for well designed interventions that address common M&A issues: inadequate or inappropriate communication, cultural mismatch, poor workforce planning, and insufficiently understood terms & conditions (e.g. retirement plan costs).

With so much at stake, integrated human resources planning can boost the success rate of mergers and acquisitions.

Most mergers and acquisitions experts agree that human resources planning that addresses those core M&A areas – communication, culture, workforce planning, and terms & conditions – improves the likelihood of M&A success. 


A Human Resources professional can assist with addressing the core areas, and also perform the following functions:
  • Assessing the cost of benefits plans and comparing them to your company’s plans.
  • Making recommendations on what benefits to offer current staff.
  • Reviewing employment contracts and compensation commitments for risks and implications.
  • Making recommendations about compensation to senior executives and key employees.
  • Considering the impact of loss of talent.
  • Assessing and making recommendations about talent.
1 Source: Forbes, “Why half of all M&A deals fail.”
2 Source: Ward et al., “Positioned: Strategic Workforce Planning that gets the Right Person in the Right Job”

 
Human Resources plays a crucial role in integration by selecting the right integration leaders, engaging top acquired talent, retaining leadership of the target organization, and driving cultural assimilation while preserving positive aspects of the acquired company. ...a list of desirable attributes in an integration leader includes: project manager, liaison, troubleshooter, change agent, role model, communicator, integration advocate dedicated to delivering growth and cost synergies

- John Lynch, Senior Vice President of Corporate Human Resources at General Electric Company (GE)

The Role of Human Resources in Mergers & Acquisitions

Whether your small business is the purchaser or the target company in a merger or acquisition, Human Resources play a vital role in the process. It helps manage any problems or challenges related to people in the organizations as the merger or acquisition process unfolds. Some of the critical steps that need to be carried out under the guidance of skilled professionals include:

Review Confidential Materials
Review of all employee files and examination of confidential files containing employee relations matters, including any matters under review, under grievance, and in litigation, as well as review all collective bargaining agreements, labour-management memoranda and results of union organizing efforts, if applicable.

Employment and Departmental File Audit
Review HR department employment files for consistency and completeness to ensure security, job description, work records, attendance, performance appraisals, emergency contacts, and other employment-related information. 

Benefits and Any Related Problems
Assessment of the benefits structure of each company to uncover any potential problems, such as a pension plan that is running low on funds or a health insurance package that will cost a significant amount of money.

Changing Roles and Structure
Identify and implement change to both organizations, such as eliminating redundant positions or combining teams and departments. Also communicate to employees changes in who they report to within the new company, what team or work group employees are assigned to as well as any changes to different positions’ roles in the organization. 


Policies, Procedures and Training
Study the employee handbooks, policies and procedures of both companies to determine differences between that of the acquired company and the new owner; combine or amend the handbooks, policies and procedures; discuss training programs; new hire orientation; and professional development for employee groups, preserving existing and integrating new elements where appropriate.

Communication Planning
When two companies begin the process to merge operations, communication is key. Successful mergers and acquisitions aren’t just about having a strong operational integration plan. In order for the transition to be smooth, a well thought out merger and acquisition communication plan is a vital component. According to PricewaterhouseCoopers’ U.S. M&A Integration Survey in 2011, “the need for effective communication is often overlooked or underestimated in the flurry of activity surrounding a deal. Executing a strong and clear communication strategy is critical to successful integration.”


Company Culture
Detailed analysis to determine if the cultures of the two companies that are becoming one through a merger or acquisition are compatible. It is critical to have a firm grasp and understanding of the culture of each company involved - and the ability to develop a plan to integrate the two successfully. 

Employee Concerns
Smooth the transition for employees in both companies in order to allay the fear of change and the uncertainty about the future, and answer questions about how the merger or acquisition affects each employee individually.


 

Business Functions Are Not Mutually Exclusive


 Business functions never take place in a silo; each is interconnected to the other. During a merger or acquisition it is even more important to analyze all the functions for compatibility and integration. And because each overlaps the other - and ultimately involves people - Human Resources planning must play an integral role here as well. 

 

Coach's Corner: Boosting the Morale of Anxious Employees


During the process of M&A, some employees may be reluctant to adapt to the new work culture thus creating a serious culture clash. It is a common human tendency to resist change and since M&A's bring in an element of apprehension and change for the employees of both merging companies, adept Human Resources professionals can act as a reassuring intermediary and take measures for sorting out the transition process for employees by:
  • Boosting the confidence of employees
  • Offering adequate training to managers so that they can acclimatize themselves to the nature of change and new organizational culture
  • Calming the fears and doubts of employees, so as to retain productivity
  • Ensuring job security
  • Explaining news roles to each employee
  • Expounding the hierarchy structure of the organization post merger
  • Clarifying how the joint venture will affect each employee in person
  • Upholding efficiency by identifying leaders from both organizations
  • Enhancing innovation by placing the right employee at the right position
  • Complying with labour laws
  • Supervising personal records
  • Keeping the communication channel open through constant communication with the employees and conveying their concerns to the management.
  • Providing timely input throughout the M&A process
  • Conducting orientation programs on welfare schemes, compensation, benefits, and company policies and norms.
  




 


Quick Reference: Answer the Basic Questions First


Long before any merger or acquisition is finalized, there are critical questions that demand detailed answers and a thoughtful integration plan. 

Who are the key people in the organization being considered for acquisition? Will they be needed after closing? For how long?

How will your organization identify strong performers?

What pay will new employees receive, and what benefits will they get?

What liabilities do the organization’s current benefits plans bring, such as pensions or retiree medical care coverage?

How will your organization pay new senior executives?

How will your organization transition employees such as a chief executive officer, a founder and redundant staff?

 
Quick Reference: Consider Your Contracts

 

A time-consuming (but critical) component of an M&A due diligence inquiry is the review of all material contracts and commitments  of each company. The categories of contracts that are important to review and understand include the following:
  • Guarantees, loans, and credit agreements
  • Customer and supplier contracts
  • Agreements of partnership or joint venture; limited liability company or operating agreements
  • Contracts involving payments over a material dollar threshold
  • Settlement agreements
  • Past acquisition agreements
  • Equipment leases
  • Indemnification agreements
  • Employment agreements
  • Exclusivity agreements
  • Agreements imposing any restriction on the right or ability of the company (or a buyer) to compete in any line of business or in any geographic region with any other person
  • Real estate leases/purchase agreements
  • License agreements
  • Powers of attorney
  • Franchise agreements
  • Equity finance agreements
  • Distribution, dealer, sales agency, or advertising agreements
  • Non-competition agreements
  • Union contracts and collective bargaining agreements
  • Contracts the termination of which would result in a material adverse effect on the company
  • Any approvals required of other parties to material contracts due to a change in control or assignment
Knowledgeable HR professionals can assist with the review, analysis, and integration of organizational contracts.
 
Source: Forbes.com


Quick Reference: Analyzing Organizational Cultures


One of the most elemental requirements of mergers and acquisitions is determining if the organizational culture of two companies are compatible enough to be meshed as one. When two corporate cultures integrate, it is critical to facilitate a smooth transition by assisting the employees to comprehend and embrace a new organizational culture. However, this may turn into a daunting task; many M&As fail owing to cultural disparity, clash in leadership, need of management commitment, absence of common objectives, or weak change management. Organizational culture analysis is one of the most important tasks human resources professionals are responsible for;  they consider the demographics of both organizations and review multiple factors such as: 
  • Management trend of the two organizations
  • Thought processes of the employees of two organizations
  • Growth rate of the merging companies
  • How the two organizations view each other
  • Selectivity in hiring
  • Benefits offered the employees, such as insurance and perks
  • Rates of employee turnover
  • Level of estrangement experienced by employees
  • Readiness or attitude of employees to embrace new corporate culture
  • Cultural differences between the two organizations

Cultural differences may include how the two organizations define and measure success within the organization; benefits employees enjoy, such as personal time and insurance; how problems within the organization are handled; the management styles of the two organizations; and the overall attitude of the employees and managers toward business functions and the industry in which they work.
 
Quick Reference: HR Challenges During Mergers & Acquisitions

There are a number of human resource challenges that take place during a merger or acquisition, and organizations must engage experienced professionals who are able to:

* Maintain an internal status quo, or to effect change—either to facilitate or thwart (in the case of a hostile takeover) a possible merger or acquisition, as instructed by upper management.

* Provide guidance to upper management from a "people" perspective as to whether organizational goals will be better fulfilled in the form of a merger versus an acquisition, or by making internal changes.

* Assuming that a merger or acquisition has been approved, discern all aspects of the two separate organizations and the one combined organization that will be affected.

* Communicate with employees at every step in the M&A process with both an appropriate level of disclosure and an appropriate level of confidentiality.

* Devise ways to meld the two organizations most effectively, efficiently and humanely for the various stakeholders.

* Deal with the reality that M&As usually result in layoffs of superfluous employees under the combined organization. This reality entails coordinating separation and severance pay issues between the combining organizations.

* Proactively avoid legal issues for violation of federal and provincial labour laws.

* Participate in the defense of lawsuits or grievances that may be brought as a result of a merger or acquisition.

* Align the HR function to achieve the organization's strategic objectives. 

* Address any ethical dilemmas involved.





 
Mergers and Acquisitions call for knowledge and skill.

Contact Wendy Ellen Inc. for assistance today!
About Wendy Ellen Inc.
 
Wendy Ellen Inc. specializes in providing human resource and benefits management skills to small to mid-sized companies on an as-needed basis. From recruitment, Human Resource policy development and legislative compliance, employee retention and engagement, individual advisor/coaching, succession planning to employee development and performance, Wendy Ellen Inc. will help you protect your most valuable resource, your people.
 
Contact Us
http://www.wendyelleninc.ca
wendy@wendyelleninc.ca