M&A: Finance Seals the Deal, HR Makes It Work

By the Staff at GattiHR

Mergers and acquisitions are a fact of life for all types of organizations — global public companies, small private firms, not-for-profits, healthcare institutes and even private colleges and public universities. According to Harvard University’s annual M&A Report, 2016 saw more than 34,000 transactions worth more than $3.06 trillion.

Before the hard work to strike a financial deal is complete, the even harder work of successful integration must begin. Deal doing is driven by the financials, but deal success is driven by HR. A recent survey of Forbes 500 Chief Financial Officers reveals the top three reasons for M&A failure: incompatible cultures, inability to manage the new entity carefully and inability to implement change — not what the financials looked like when the deal was struck.

Forbes’ findings highlight the importance of workforce engagement and consequently, the critical role HR assumes in M&A success. HR should be an integral contributor to due diligence, not only to handle tactical requirements, such as estimating the cost of benefits and compensation harmonization, but also to determine priorities for talent and culture initiatives. And once the deal is official, HR must be the driver of the workforce integration plan. Here are a few critical M&A responsibilities typically handled by HR leaders:

  • Drive pre-acquisition planning. With intimate knowledge of workforce and talent issues, HR brings together relevant internal stakeholders to shape a multi-faceted plan for acquisition and integrati Even for companies that frequently acquire organizations, each integration is unique. So, rather than create a voluminous playbook that thwarts nimble decision-making, HR should craft acquisition principles that provide overarching guidance.
  • Conduct a quick, thorough talent & culture assessment. Who are the formal and informal leaders of the acquired organization? Employees will be watching with a hawk’s eye how these people are treated and how they respond to new leadership. Employee observations determine acceptance of the acquiring company’s leadership. HR should also help to identify the cultural icons that matter most to acquired company personnel. For example, one client described how the president of a company his firm had acquired pulled him into a conference room, clearly anxious. “Can we keep the beer frige?” he asked. The acquiring executive recognized the symbolic importance and replied, “Yes, assuming employees consume reasonably.”  To which there was a sigh of relief.
  • Resolve compensation discrepancies. Recognize the potential for compensation disparities and the cost to rationalize employee compensation. For example, small early-stage companies often have a comp structure heavily weighted to equity, with low base pay. HR must put a strategy in place to adjust compensation packages for fairness across the newly structured organization and explain the plan to all affected.
  • Create and execute a communication plan. Sufficient communications of company news is often considered the Holy Grail, therefore HR must work with corporate communications professionals to shape a multi-vehicle plan to regularly communicate important themes so all employees feel a part of one organization.
    • Overcommunicate. Oftentimes when an acquisition decision is announced broadly, HR executives think of it as old news while the general population is hearing it for the first time.  As Andrea Barry, CHRO at Methode Electronics points out, overcommunication is critical.  “When you finally announce an acquisition internally, as the CHRO you have discussed the ins and outs of the decision for up to six months prior.  You need to remember that your employees are digesting this information for the first time and you need to make sure you are overcommunicating every aspect.”
  • Draft and execute regular pulse surveys. Check in with acquired employees frequently to identify positive and negative trends and avert potential issues.
  • Perhaps most important, the HR team has to create a playing field consistent with the realities of the transaction. That’s not necessarily a level one, but one that best serves the interests of the new company.  In some cases, that’s a “to the victor” strategy (think Enron).  More often though, the brand, the people and the collective capabilities of the target are critically important assets.  Whether it’s a “bear hug” (anybody remember Paine Webber?) or a strategically important “bolt-on” (Whole Foods?), the leadership needs to get behind a clear, well-conceived and appropriate human capital strategy

Over the last few years, we have seen a steep rise in the demand for HR leaders with M&A experience. In the past year alone, more than 80% of our HR leader searches listed M&A experience as highly desirable. Too often, the demand comes after the transaction – when the gap in capabilities becomes all too clear. Integrating one corporate culture into another or shaping a new one is hard enough when the HR leader has been immersed in one of them.  When both companies in the transaction are brand new, the challenge is exponentially greater.  As more and more organizations navigate the M&A terrain, more and more HR leaders will be adept at leading the charge.