Five steps to take before your next deal
Five key human resources (HR) & mergers acquisitions (M&A) considerations
As business leaders focus on synergies, pricing and the go-forward strategy during an acquisition, the human capital aspects of a deal are often overlooked. To ensure effective execution and successful integration, HR needs to play a strategic role in driving and aligning the human capital approach. For experienced organizations, this is table stakes. But most organizations aren’t serial acquirers, and these critical aspects can be easy to miss.
Mercer’s research suggests that seven out of 10 deals fail to realize objectives, and almost 50% of those failures are due to people-related issues. M&A presents challenges for even the most experienced and prepared organizations. The HR function can help the organization successfully navigate this transition, it's part of performing HR due diligence in mergers and acquisitions.
To be an effective strategic partner, HR needs to be involved early in the process, prepared to drive the human capital strategy from day one. Here are five key considerations to help HR provide the best support for the deal thesis:
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Create an effective HR governance, playbook and operating modelA comprehensive HR governance model is vital. The approach must align with the organization’s deal philosophy and directly support the key tenets of the deal thesis. Anything less is likely to result in a disappointing outcome. A comprehensive approach leads to clear people-related decision-making and reduces the risk of disruptions to employee onboarding and integration — which can directly impact key business objectives. Involving stakeholders in the development process will help ensure the approach is sound and create business buy-in.
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Align the integration philosophy with the organization’s culture
Typically, acquisitions are characterized by one of three distinct philosophies:
- Portfolio — This represents an autonomous entity with no integration.
- Partial integration — Levels of integration generally include either sales and go-to-market strategy; integrated organizational design, structure and processes; or back-end systems and reporting — and sometimes include more than one of these.
- Full integration — All critical processes and functions are integrated into a single, unified approach that often reflects the acquirer’s current state. An organization may choose to adopt aspects of the acquired organization or create new approaches, this can be defined by the HR due diligence strategy.
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Identify individuals, and actively upskill the teamDeal preparedness requires identifying and training the right HR subject matter experts and leaders. Ensuring that all HR deal resources thoroughly understand their roles and responsibilities can prevent gaps in knowledge and ensure a smooth and rapid start. M&A readiness training can be effective in this regard to tackle other possible HR challenges.
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Assemble a robust HR project management office (PMO) functionWhether in-house or an external partner, the HR PMO is pivotal to deal success. Most organizations will have an enterprise integration management office (IMO) that oversees a deal’s most critical aspects. However, the IMO will not drive the HR workstream, which is critical to integration. A strong HR PMO function that manages and executes all aspects of the human capital strategy, governance, structure and execution is paramount. Many HR functions assume this critical role can be accomplished part time or on top of day-to-day responsibilities. Although this may be feasible in certain cases, it’s hardly a prudent approach. A small deal can be just as complex and time consuming as a transformational one.
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Demonstrate thought leadership, instill confidence and increase organizational awarenessThis is critical for ensuring HR has a “seat at the table.” The organization must be confident that HR can be a business thought partner. If HR is seen as a bottleneck, the enterprise will circumvent the function. HR must demonstrate clear understanding of the organizational business drivers and an ability to move and react at the desired pace. Once HR has developed its governance and processes, an “HR Roadshow” that demonstrates HR’s business acumen and highlights the function’s M&A preparedness can help HR become “top of mind” with key leadership in advance of a deal.
Attempting to build governance, process, execution and credibility while the deal is in motion is an unenviable task. A lack of forethought can increase the risk of missteps and undermine confidence in HR during mergers or acquisitions.
Deals create enormous pressure. It can be extremely hard to get a distracted workforce focused on business as usual. A comprehensive HR strategy and playbook is a must to hit the ground running and get people refocused on the task at hand.
Employees are often the cornerstones of a deal. Understanding the acquired organization’s culture and gaining insight into how the acquired employees view the deal are both crucial. Whether business leaders see employees as a critical asset or merely as a means of ensuring knowledge transfer, an organization can’t afford to fail. And nothing dampens employee morale faster than paycheck mistakes, benefits enrolment confusion and unaddressed concerns. The resulting loss of engagement can put everything in jeopardy. That’s why human resources is critical to every deal — and failing to execute effectively will emphasize its importance for all the wrong reasons. The grand strategic vision and tenets of the deal thesis cannot be recognized until the employees are reenergized and refocused on the future. Tactical execution lets an organization focus on the strategic vision.
Mercer recently launched the Mercer M&A Ready Academy, a comprehensive online and interactive training program designed to help your organization prepare for deal success. This is just one of the many tools Mercer has to offer to help your HR function get prepared. M&As can be disruptive and are often a resource drain, requiring a journey into uncharted territory for many otherwise-well-run organizations. Don’t leave your next deal’s success to chance. Preparation is the key to successful execution not limited to the HR services areas.
Mercer’s Global HR M&A Advisory Services is ready to help. We offer the breadth and depth of expertise to help you navigate the deal landscape, and we’re ready to partner with you to ensure your HR function is prepared.