Ensure M&A success by "locking" top talent into the deal
16 February 2009 8:31am
The success of a merger or acquisition hinges on HR's capacity to seamlessly integrate cultures and "lock" acquired talent "into the deal", according to Mercer's Australian and New Zealand M&A leader, Michael Hill.
"If you're buying a company you're buying the experience and the intellectual capital," Hill told HR Daily.
And if you lose any of that company's partners, executives or emerging talent then the asset loses value.
HR managers, therefore, must identify key talent during the M&A process and implement the "retention mechanisms" most likely to keep them, including contract clauses, incentives and training and development, Hill says.
They should identify "drivers of behaviour" within the acquired organisation and develop strategies to align the companies' respective cultures.
According to Hill, M&A activity has slowed over recent months due to the uncertain economic climate. The crisis can affect the timing and types of deals, he says, with more distress sales and hostile bids, but many organisations have adopted a "wait and see" approach.
M&A activity, however, is expected to continue, with companies cautiously engaging in deals to ensure they "extract the maximum value", he says. HR departments will increasingly have "a seat at the table" as executives grasp the financial implications of the "people aspects" of acquisition deals.
"Business leaders realise human capital issues are critical to the potential success or failure of an M&A deal," Hill says.
"M&A success will increasingly depend on the HR capabilities an organisation can deploy before, during and after a deal is made. Failure to recognise and manage cultural differences during a merger or acquisition results in slower and more painful integration."
Such a failure, he says, could lead to:
a decline in employee performance and engagement;
a misunderstanding or misinterpretation of priorities;
employee resistance to change;
tension and poor morale; and
Hill suggests, therefore, that during the M&A process managers should consider:
due diligence - all people issues should be explored in addition to financial status and profit margins.
Managers must consider the potential for duplication of roles and pay discrepancies, location changes, management structures, varying reward and training schemes and other organisational cultural differences.
Supervisors need to be trained to relay information to new staff, and the possibility of redundancies must be carefully planned for;
communication - M&A plans should be communicated to staff and be as transparent as possible.
A lack of communication can lead to a high level of uncertainty, and many employees will begin to seriously consider outside opportunities. This is particularly true for executives, Hill says;
the law - employers need to explore their legal obligations and know what they can and can't do throughout the M&A process, particularly in regards to redundancies and outplacement procedures.
Companies can be fined for failing to consult or report information to the relevant authorities over a variety of M&A issues; and
deploying a "clean team" - in some cases M&A integration planning can be inhibited during a "blackout" period as regulators process M&A requests. During this period the companies involved in the deal cannot release confidential information that could affect competition should the deal fall through.
A clean team is a third party that gathers and analyses the data from both companies in the pre-closing period so that all the relevant data is at hand should the merger or acquisition go through. This can cut six to eight weeks from the ultimate M&A process, Hill says.
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