The right leadership team, the right skill sets and the right understanding of organisational goals is often what drives deal value. Yet these issues are often neglected when putting a deal together, or viewed as things that will ‘get figured out’ after day one, even though half of all failed deals cite an inadequate focus on people issues as the cause of failure.
“A lot of deal value is based on how successful the deal was several years down the line, but too much focus is placed on flicking the switch and just getting the deal done,” explains Julian Bell, partner and senior M&A engagement lead for Mercer. “If the deal thesis was to acquire new talent and break into new markets, but 40% of the employees have gone within the first two years, or the sales team are still selling the old products, the deal is unlikely to realise its value.”
He adds, “People issues need to be considered from the outset, but HR is often one of the last stakeholders to know about a deal, by which time finance has worked out a price and made assumptions. This can make it difficult to retro-fit the budget needed to harmonise terms and conditions and identify and address all the people risks that will need to be addressed.”
With so much to think about, it’s important to develop an HR M&A playbook, that utilises best practice and establishes clear roles and tasks to help address the following hurdles.
Aligning pay and benefits
Having people in the same office on different compensation and benefits can drive resentment between new and existing employees, says Julian. “We’ve seen two employees going to the same meeting, on the same flight, where one was allowed to travel business class, while the other had to travel economy.”
Rob Scarth, HR consultant and actuary for Mercer agrees, “We’ve also come across an individual who was claiming for cancer treatment through health insurance provided by their employer, only for the insurer to suddenly refuse to pay their bills. The company carrying out the acquisition had overlooked bringing that benefit over with devastating consequences.”
Rob adds, there’s so much more to aligning pay and benefits than delivering the payroll on day one, “HR needs to be brought in from the outset as it can take months to carry out the necessary due diligence and set up new plans, especially when it comes to pensions. Upfront planning is key and even if the HR team has the capability to do this work, do they have the capacity on top of their day job? If not, things can get overlooked, so it can be a good idea to outsource this work stream to a specialist.”
According to research carried out for our Delivering the Deal Report, one in five employees leave within the first three months of an acquisition, and double that during the 18-24 months post close. “A major reason for talent flight is cultural misalignment between the two companies,” explains Julian. “If you mash two companies together with very different cultures, you’re at risk of a lot of people leaving. Something as simple as someone not being allowed to wear smart casual clothes, bring their pet to work or have their own office can make them feel like the new company doesn’t “get” them and may make them want to leave.”
He adds, “It’s important to talk to the leaders of the company you’re acquiring and live in the shoes of the employees to find out what the culture looks like and what employees think. Is the culture broadly aligned or are there red flags that can cause big clashes? If you bought a company to acquire innovative digital employees, who enjoyed working for a start-up, don’t be surprised if they don’t like the constraints of working for a larger corporation. You might need to review your EVP Employee Value Proposition to offer everyone more autonomy, all of which takes time.”
It’s not enough for just the HR function to get its own house in order, explains Julian. “Even if HR is aligned, it’s still important to communicate with the rest of the business. Otherwise, you can have a situation where HR is promising everyone they will keep their job, but finance is planning to make redundancies. Or some parts of the business are planning to change job titles, but Legal wants everyone to keep them the same. Not to mention all the workforce and organisation design challenges ahead.”
Rob concludes, “A good playbook can act as a roadmap to guide you through the process, whether you’ve done this before or just want some good templates and checklists to make sure nothing gets missed. The more you can prepare in advance the better. Acquiring a company is a stressful time for everyone concerned and employees know the point is often to generate synergies, which will generate job losses. By taking care of the technicalities, you can free yourself up to focus on the communications and employee listening which can ultimately make or break whether the deal delivers in the long term.”
Want help to create your acquisition playbook? Our dedicated M&A team are strategic HR experts equipped with a flexible model and tools. We can work with you to produce a playbook tailored to your organisation’s specific structure and requirements.
We also offer ‘M&A Ready' training to help bring you up to speed or fill in gaps in your knowledge of how HR can best support M&A activity. Get in touch with us to set up a free meeting to discuss your needs.
- HR Consultant and Actuary, Mercer
- Partner, UK Leader M&A Advisory Services, Mercer