Skills create or erode M&A deal success 

Black businesswoman talking on cell phone

Most deals fail due to a lack of focus on people. But that mindset is changing as it’s people that can unlock deal value.

In pre-COVID times, it was common to hear business leaders refer to the talent portion of merger and acquisition (M&A) deals as "soft." But that mindset is changing as the global labour and skill shortage is impacting organisations’ growth.

Most deals fail, however, due to a lack of attention to the people dimension. Getting a read on skills pre- and post-deal often comes second to evaluating an asset's potential for value and growth. People risks are often neglected during the deal process, even though the workforce is the delivery vehicle for revenue and growth.

According to Mercer's 2022 Global Talent Trends, 89% of C-suite executives believe a loss of talent has impacted their organisation, and a further 66% think they're facing a labour market shortage. Thirty percent of HR leaders indicated that finding or acquiring skills through deals is the most impactful way to quickly address their organisation's current skill gap, reinforcing their strategy to buy skills rather than build or borrow them.

According to our research, the three top drivers that business leaders believe deliver deal success are leadership alignment, culture alignment and talent identification/retention. Proactively identifying potential people risks and strategic planning for mitigating those risks are fundamental.

Using insights from AI

With most deals failing due to a lack of attention to the people dimension, financial investors are looking for ways to get more talent insights across the deal phases to make more informed workforce and talent decisions investments — and companies are turning to data and AI to shift the odds into their favour. Using AI can evaluate skills and experiences pre- and post-close for early-on risks and integration matching and staffing needs.

Such insights empower organisation leaders to address questions such as:

  • What skills are we purchasing and in what quantity?
  • Are there skill gaps across the organisation?
  • Are critical skills plentiful or rare?
  • What skills risks are we buying into?
  • Will we be able to deliver on short- and medium-term growth?
  • What are the post-close skills/talent needs we will need to invest in?
  • How do we best match skills to roles at speed and scale?
Talent intelligence platforms can link real-time intelligence with analytics to make a significant difference in M&A deals. By providing insight on the skills a company is acquiring, you can now quantify the intangible people assets to be gained and clarify those to be retained.

Skills drive deal value

As global deal volume settles back to historical, pre-pandemic levels business leaders and deal professionals must navigate new market dynamics to achieve deal success. One of the biggest challenges in 2021 and most of 2022 was the intensely competitive labour market. With news of layoffs and hiring slowdowns, it may feel like the labour challenges are easing. Mercer’s latest executive outlook survey of CEOs and CFOs shows a majority of businesses planning a reduction in force (RIF) in 2023. At the same time, the tightening labour market and the “war for skills” have laid bare inadequate talent models. As a result, companies are taking action to strengthen their agility muscles. This is especially needed in deals where understanding the skillsets present (both current and potential) in a target’s workforce is critical to driving deal success.

Below are two scenarios we anticipate will define the M&A deal landscape, with skills being at the core of priorities on which to focus.

Labour issues will persist

Companies will continue to experience ongoing labour and skill shortages across all industries, ultimately impacting deal value and business growth. Mercer's Global Talent Trends study showed that 98% of organisations report having skills gaps within their workforce. Buying and retaining talent with the right skills needed to deliver on deal success will be a greater priority due to an increased appreciation of the value of the right skills and increased sophistication in the ability to assess their value.

The right knowledge will help you move fast

Continued high valuations and condensed deal timeframes will require access to early insights into the skills risks and advantages to deliver on the anticipated deal ROI. Understanding the skills included within the deal helps quantify the intangible people assets to be gained and verifies their alignment with expected long-term returns during negotiations. Organisations must home in on skills data to plan more effectively around workforce implications, investments and implementation.

Achieving financial targets means analysing workforce issues with the same rigour as other strategic elements. If not adequately mitigated, people risks in transactions can enormously negatively impact deal value. With investor pressure coming from all sides, deal success requires a combination of speed, capability and execution to deliver sustainable value. At the core of this success is being intentional in gaining insight into skills with the power of AI to make faster, more accurate and more impactful decisions about talent.

M&A Advisory

Private Equity Advisory

Mercer’s comprehensive private equity advisory informs, operationalises, and refines strategy to accelerate value creation through human capital.
Contributor
Jeff Black
Julie van Waveren
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