Mergers and acquisitions are risky business.
If we haven’t experienced it ourselves, we have heard the stories; cultures clashing, employees walking, and value evaporating overnight. So how is it that mergers and acquisitions are more prevalent now than ever?
The reality is that despite the risks, acquiring a new business is an attractive fast track route to growth. Last year Comcast grew revenues organically by an impressive 6.4%. However this year, as the dust settles on their acquisition of Time Warner Cable, their combined revenues should deliver the 34% growth, five times the growth of 2014. But that growth will depend on a successful merger, and history is not on their side.
Once the fanfare of fast track growth has blown over the reality sets in. The newly combined business has to manage a more diverse customer base, a more complicated product mix, and a wider geographic region. Most importantly people and processes have to be integrated. The most tangible benefits, cost savings, often take priority over managing business continuity. It is far too common for the first post-merger figures to show an alarming drop in customer service alongside soaring operations and IT integration costs. Most damaging however, is the exit of key talent. Senior executives and key staff, uncertain of their future in the new business, are lured away by competitors. In the six months following Hewlett Packard’s $10bn acquisition of Autonomy, 20% of the acquired staff had resigned. That included almost the entire leadership team.
The good news is that HR can make the difference between a disastrous failure and resounding success. But to make a difference you have to get involved from the beginning, and be willing to operate beyond the realms of day-to-day HR. Here we outline the key stages that HR should be managing to ensure a successful outcome.
Target Selection
As the business begins to search for appropriate targets, your role is to refine the people requirements and scope the challenge of any deal. Take time to explore what your organization hopes to gain from mergers and acquisitions.
Are you looking for a compatible culture that will slot right in, or is this an opportunity to add some innovation or entrepreneurial flair? Are you seeking specific skills, knowledge or capabilities? How will you measure those in a target?
Organizational structure will also have a big impact on subsequent integration. Merging a highly centralized business with one more used to decentralized autonomy could be problematic. Then again two centralized organizations are going to have a lot of duplication at head office. Thinking through these challenges will help to define what type of organization you are seeking and help to manage expectations of the challenges ahead.
This discussion happens early, and usually behind closed doors. To get a seat at the table you will need to make sure your CEO knows that you have value to add, even at this early stage. It can do no harm for you to let your CEO know that you are ready to help and support if the need arises. One way to do this is to discuss it with your CEO as an addition to your job description. If you are responsible for defining the people requirements of any potential acquisition, then your CEO will know to get you involved early.
Due Diligence
Once a potential acquisition target has been identified your role becomes more focused on gathering data related to your defined requirements. In a hostile takeover this can be difficult as you will have very limited access to information about the employees, structure and operations. In a friendly deal your challenge will be making sense of the data. Drawing up a chart to compare your business with theirs will help to make sense of the information. But you will still need a way to quantify the cultural fit and management style. Some aspects will be relatively straightforward. You can tell a certain amount about the culture by examining the holiday plans and expense policies. But you may need specialist help to dig deeper and to examine the leadership style and the capability for innovation. It is important to work closely with the financial team to understand where cost savings might come from and what impact they are likely to have on the newly merged business.
The Deal
Once mergers and acquisitions have been announced you will be faced with a barrage of questions from employees of both organizations. Job security, relocation, new reporting structures and changes to benefits will create uncertainty. That in turn leads to rumors and anxiety that can easily lead to a talent exodus. Time is of the essence and you will need to act fast, so you should have already created your integration plan. That way you can work through critical decisions before the pressure is on and integration can begin immediately. In particular carefully pre-planned communications will be vital. Uncertainty grows exponentially with time so the worst thing that can happen here is that changes are left undefined. Quickly helping employees to understand how the deal impacts them personally is the best way to minimize talent loss.
If your industry is highly regulated or the deal big enough to require regulatory approval, you might look at putting together a clean team. Members of the clean team all operate under confidentiality agreements which allow them to review each other’s competitive data that would otherwise be off limits to your employees. While the deal is being reviewed by regulators the clean team can be busy preparing detailed people and technology integration plans. As soon as the deal is passed you’ll be ready to go, saving weeks of uncertainty for everyone involved.
Integration
Over the months, and even years, after mergers and acquisitions there will be a lot of integration work. There will be workshops and task forces, committees and reviews. If management allows itself and the organization to get distracted, the base business of both companies will suffer. The best way to manage this is to be clear who is managing the integration and who is responsible for maintaining the ongoing business. Running an integration team is an excellent way for a number 2 to gain valuable experience and prove themselves. And having people seconded to the integration team for short periods of time helps to build involvement and keep integration teams fresh.
The number and value of global M&A deals last year was higher than at any time in the past five years. M&A may be inherently risky, but the upsides for rapid growth are undeniably attractive. Whilst we can’t take the risk out, we can greatly improve our odds of success by making sure that HR is involved from the very beginning in identifying and planning the people aspects of a deal. There is no doubt that HR can make or break an M&A deal.
Do you need support to start the mergers and acquisitions process? We have the experience and the resources to support a seamless transition. Contact us today!
