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”
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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)
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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.
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Business Functions Are Not Mutually Exclusive
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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.
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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.
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