Under the pressure of fierce competition, companies often resort to mergers and acquisitions (Merger and Acquisition, M&A), trying to get the necessary technologies as quickly as possible, expand the geography of their presence, ensure entry into new markets, master new industries, etc.
The approach to the implementation of such transactions is standard and, it would seem, well known:
- Strategic planning of the deal.
- Evaluation and so-called due diligence of the potential object of the transaction.
- Negotiations and conclusion of an agreement.
- Integration planning.
- Implementation of the M&A transaction.
Due diligence is a comprehensive audit of the investment object, which includes an independent assessment of the investment object, investment risks, the legality and commercial attractiveness of the planned transaction/project and many other factors, including personnel management issues.
Then why, judging by various estimates, more than half of mergers and acquisitions cannot be called successful?
Among the main reasons for failure:
- incorrect determination of the cost of objects/projects;
- incorrect assessment of the main risks;
- poor business results of the company due to the protracted integration, distracting management from the main business tasks;
- loss of key talents.
And if a lot of attention is usually paid to the financial and strategic aspects of the transaction, then managers often remember the personnel only at the stage of integration planning (often only in the context of compliance with labor law requirements and optimization of labor costs).
The results of the research revealed that different factors are responsible for achieving the synergy effect in transactions:
- 70-80% strategic, organizational, and people-related (such as culture, communications, career, and customer relationships);
- only 20-30% – financial and legal.
Among the reasons for the failure of mergers and acquisitions, the factor “failure to integrate culture” ranks second (it is mentioned to one degree or another in 85% of cases). This suggests that the role of the HR manager is underestimated, which means that due attention to talent management issues can significantly increase the likelihood of success.
The role of HR drivers in the process of concluding an M&A transaction
Among the reasons causing the outflow of talents, experts identify:
1) inefficient planning;
2) slow introduction of new organizational structures;
3) conflict of corporate cultures;
4) bad communications.
Let’s consider these factors in more detail.
Among the areas that M&A consultants strongly recommend paying attention to are:
1) retention of key talents;
2) corporate culture;
3) integration of the HR model and policies in the field of personnel management.
Today experts recommend:
- involve HR managers or HR consultants in the planning of the deal at the earliest stages (no later than the due diligence stage of the
- potential facility/project) in order to assess the impact of the “human factor”;
- conduct thoughtful and balanced communications – from the planning stage to the full integration of companies.
A preliminary analysis of the human capital of both companies (Talent Due Diligence) allows, even before the entry into force of the transaction:
- develop an effective organizational structure;
- carry out staff reductions (if necessary) without significant losses in expertise, connections and competencies;
- develop programs to retain key talents;
- prepare an effective communication plan.
The most important criteria for recognizing the integration of companies after an acquisition or merger are considered successful:
1) retention of key employees;
2) maintaining a high level of their involvement.
At the same time, studies show that voluntary staff turnover after mergers and acquisitions increases (usually several times) – in acquired companies:
- about half of the leaders leave the organization in the first year of work;
- three quarters – during the first three years.
At the same time, the business not only loses its expertise, but also incurs significant financial losses (the cost of replacing a manager is at least two or more of its annual salaries), misses profits, etc. Therefore, EY consultants recommend:
- identify key talents in both organizations at the stage of assessment and due diligence procedures;
- the most important decisions “on people” (who exactly will be the leaders of the new company) be made immediately after the deal is approved;
- give leaders the opportunity to quickly form new teams, involve them in planning the integration of the company and determining the
- target corporate culture;
- when planning changes, set strict deadlines and be sure to implement everything planned according to the plan.
Why do decisions about key employees need to be made quickly? There are two main reasons:
As soon as competitors find out about the deal, they will immediately begin to poach the best employees. At the same time, uncertainty and poor communications can shake the loyalty of even the most loyal of them, pushing them to accept an interesting offer from a competitor without waiting for the deal to close. In addition, as practice shows, delaying the adoption of complex decisions “for people” only makes them more difficult.
Uncertainty about the future fate of the leaders gives rise to doubts and key clients of the company; they, too, can become easy prey for competitors.