The deal landscape over the course of 2022 shifted compared to the years before, deals are closed much slower and more cautiously. This has various reasons: high inflation, rising interest rates, higher financing costs and the increasing market uncertainty associated with the overall economic slowdown. This results in a shift of focus for transactions, which now lies in stabilizing the strengths of an organization. 

 

Talent and skills have always been a critical revenue synergy component to deal success and driving growth. However, talent and people risks are frequently underestimated or neglected in deals. Recent events like the COVID period helped business leaders to truly realize how important their talent is. This is mirrored in Mercer's 2022 Global Talent Trends study: 66% of executives believe they are facing a labour shortage. 89% of executives expect the loss of talent to have an impact on their business. With 40% of critical talent leaving an organization within 18-24 months post-transaction, the people factor becomes a key risk to business operations. 

 

The former “soft” people dimension is becoming an M&A driver through targeted acquisition of competencies and skills to strengthen the business in European companies. The increasing importance of HR in M&A is also reflected in our study, according to which the three most important factors that contribute to the success of a transaction are the alignment of leadership, the adaptation of corporate culture and the identification and retention of talent.

 

We expect two trends to dominate the M&A landscape in Europe for the next months and potentially through 2023, with skills at the centre of priorities.

 

Trend 1 – Roles vs. Skills

The war and competition for talent is expected to increase significantly in the next few years. As a result, specific skills rather than roles or job titles will be targeted in the future. By focusing on capabilities instead of roles, businesses are able to increase their agility in the long-term and adapt more quickly to the demands of the market. In addition, enterprises are put in a better position to cope with uncertainties and establish a sustainable learning and human resource structure.

 

Trend 2 – Understanding the labour market as a solution to labour shortages

Given the current labour market situation, with the prospect of labour shortages in particular, a deep understanding of the labour market and internal skills of organizations is critical. With labour shortages driving M&A deals, the analysis and retention of the right talent and hot skills will determine the success of the organization.

Talent Insights supported by Artificial Intelligence (AI)

Mercer’s M&A Talent Insights portfolio can help companies to know the quality, quantity, competitiveness and talent gaps early on in a deal. This creates exponential returns in value. Through Talent Insights and the AI underlying the platform, skills are captured and inferred from public data and, if available, additional company data. This information is enriched by comprehensive industry insights, salary studies and further information.

 

This gives companies a huge advantage as fundamental questions posed by the management can be discussed already early in deals. Indicative questions could be:

  • What roles exist at the target and in what quantity? 
  • What skills are associated with certain roles?
  • Which are the hot skills in my industry and how does the demand develop in the future? 
  • Do the skill profiles in the target match the capabilities we are looking for?
  • How is the skill profiles compared to benchmark companies?
  • Which are the critical positions in the company, are they few or numerous? 
  • How easy would it be to replace certain talent?
  • How can I make reasonable retention considerations?

Talent Insight combines real-time intelligence with analytics to gain a comprehensive picture of the individual workforce, skills, comparison to benchmark companies and critical talent. Besides giving a broader perspective on workforce skills, it evaluates trends of the industry as well as increasing and decreasing capacities, which enables a short- and medium-term analysis of future growth.

 

In conclusion, in the deal environment talent is becoming a critical deal driver in acquiring niche, fast growing, competitive capabilities and skills. Understanding a companies’ and an individual’s capabilities gives a unique edge to making the deal successful and to lower risks of derailment. Central to achieving this success is the targeted extraction of talent insights using AI to enable faster, smarter and efficacious talent decisions. 

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