Mergers & Acquisitions are by their nature times filled with emotions, mixed feelings, excitement, fear, uncertainty, resistance and enthusiasm, felt at all levels of the organization. How the employees are dealt with during this emotion packed time is critical to the successful of both the M & A strategic goals and to the financial goals of both organizations. It is for this reason that HR is a critical component to the success or failure of a Merger or Acquisition. HR must take the lead in channeling and retaining the intellectual talent, blending the cultural assets, and ensuring the smooth management of these “soft” issues which directly affect the financial outcome of the M & A.
The term “merger” refers to the merging of two companies where one new company will continue to exist and the two original companies will be reorganized or dismantled. The objective for the merger is to achieve economy of scale to carry on business more economically and efficiently. The term “acquisition” refers to the acquiring of the assets by one company from another company. The objective of an acquisition is the growth and expansion of the acquiring company’s assets, sales and market share.
For HR to be effective in the M & A process it must avoid these mistakes right from the beginning. These mistakes can be the main factors of why a Merger/Acquisition is not successful:
1. Not getting HR involved early enough. Being a part of the initial due diligence and contributing to the people issues in the first steps of the process is essential.
2. Not working with both the receiving company and the selling company. To coordinate successfully HR must orchestrate from both sides.
3. Not understanding the functions of the leadership teams during this process. Leaders must stand together and share the same strategic goals.
4. Not understanding the needs of the employees of both companies. The first question every employee will have is “How will this affect me?” HR needs to address that question as soon as possible. If employees are uncertain of what the result for them will be, key employees will leave soon, as they are the ones sought after by competitors first. Also, if the employees do not have an understanding of what is expected of them, morale will plummet.
5. Not understanding the huge, detailed, and time-consuming amount of time and work that is mergers and acquisitions require.
HR related factors, such as blending culture, different management styles, lack of communication, retention or loss of key talent, and with an uncertain vision of long-term objectives must be handled properly and in a timely manner. Navigating the employees successfully through these people-related issues is what often determines the success or failure of the M & A objectives. At this critical time, HR must be skilled and knowledgeable at recognizing the potential problems. HR must be proactive with solutions, while keeping the goals in focus during the entire M & A process.
There are thousands of pieces involved in merging and integrating organizations into one entity. Some of the many key issues that HR must be prepared to manage to guide the organization through the realities of M & A transactions are:
1. Employee Communications: Management of external and internal information, including the HRIS system. Employee questions and concerns should be addressed as soon as possible. Share the goals of the M & A, share the vision for the future, and alleviate the “stress of not knowing” for the employees as much as possible.
2. Talent Management – Retention of key talent, employee selection and downsizing. HR must ensure that the best talent from each company is not lost due to lack of communication or compensation level regarding these key employees. HR must also be sure to comply with all State and Federal laws, legal guidelines regarding discrimination, LOA management, WARN Act, and the mandated employee rights.
3. Develop Compensation Strategies – Retention bonuses, Severance, Benefits, and integrating the different compensation structures in to one, compliant compensation plan.
4. Integrating Culture – Merge from “We” and “Them” into “Us”, managing through the post-merger challenges.
5. Integrating and blending human resource management goals, strategies, and systems together to preserve the overall mission, strategies, and success of the new Company. The integration must meet the needs of not only the employees but also the stakeholders.
HR must be not only skilled but also empowered to provide high-level counsel to senior management on topics as strategic staffing plans, incentive plans, and methods and plans for developing a forward moving, high functioning workforce. Early HR involvement is essential. Throughout the M & A process, HR must be ready to make difficult decisions strategically and to make those tough decisions quickly. HR must be sensitive to individual and to cultural differences while keeping the goals and objectives in focus. In order to meet these demands, it is essential that HR have a thorough working knowledge of the business functions, including its goals, financial operations, a product/service models, and the challenges that may stand in the way of the success of the organization.
M & A’s have the potential to provide growth, financial gain, and long term stability for participating companies. But they are a very expensive and risky way to grow a business and the success rates are not high. When HR can effectively manage the people issues during a Merger or an Acquisition it will greatly increase the probability that the goals of the process will be achieved. The role HR plays during the M & A often determines whether the M & A is successful or not.
Eileen has practiced HR for over 30 years and has served in both large companies and boutique companies, including Disney, Hasbro, and Umpqua Bank. She currently serves on the board of directors for the EDD/EAC as well as the NCHRA. A Bay Area native, Eileen enjoys visiting Lake Tahoe, reading, and spending time with her family.