Adding Value in Mergers - Part two
Like a business partnership, a merger hinges on factors like balancing culture & background and realizing shared goals. Traditionally, HR becomes involved in M&A at the last stage, which raises the question: how can HR best contribute to a successful strategy for M&A?
This is Part Two of a two-part series, “Moving the Needle: the Role of HR in M&A”.
Strategy Diligence and Creative Deal Making
Understanding the drivers of the M&A for the firm is crucial in this stage as that drives the way that the deal is structured. The ability to be part of this discussion is vital. Sunil Puri , Head of Research at HCLI, rightly points out “HR is often engaged as an ‘after thought,’ while to the contrary, it should be the first department to partner with the strategy team as the company thinks about a merger/integration”.
For example if the acquisition is to gain access to crucial talent / intellectual property (IP) / products then the HR team needs to pay special attention to the way these talents can be retained and engaged. This would be markedly different to a deal where the intention is to take capacity / competitor out of the marketplace. In that case the deal can be structured in a completely different way for the people side of the equation. Out-of-the-box thinking – like using service level agreements, IP protection and knowledge transfer, smarter management of pensions and benefits at the deal level can save a lot of pain and heartache during the integration process.
As Sunil says, “A smart HR partner is in a unique position to identify cultural, talent and even compliance risks that impact the deal and integration planning.” Addressing these in the deal can lead to much higher chance of integration success.
Moving the needle: So what’s stopping the leaders to engage HR in this process is because HR can’t engage in the conversation meaningfully. Most business leaders see HR only talking about “soft touchy feely issues”. These touchy feely topics become real and more meaningful when they are discussed within the context of the business model and the business outcomes.
HR is engaged very heavily during the integration process. It is usually a time and labour intensive exercise. Most HR teams spend a lot of effort on policy, terms and conditions, compensation plans and employee contracts. While this is critical to complete as an activity – it lends itself to completely, which consumes the bandwidth of the HR team for months on end.
Moving the needle: If the HR team is involved in deal making and has indeed moved the needle by creating creative-principle based deals, then the integration will proceed smoothly. That would really give time for the HR team to focus on activities that truly bring the two companies together. HR can play a transformative role in organisation design, fine tuning the business process / route to market and identifying and placing the right people in the roles. All this-- if done well-- can contribute significantly to strengthening the culture of the organisation.
Change and Employee Value Proposition (EVP)
All mergers are big change management projects. As soon as the deal is announced – there is a buzz in both organisations and employees start to create their views of what this would all mean. There are a number of factors that contribute to the way employees perceive this change – partly driven by their past experiences, the current messaging – in a bid to ascertain what it would mean for them.
Kit Foong, Regional Business Development Director APAC at Universum says“EVP is what the employees believe to be what the oraginsation has to offer. It drives engagement of the employees with the goals of the company. The EVP ofthe two companies might change after the merger. It is critical to assess the EVPs and define a clear plan to evolve this. The mapping of EVPs will provide insights to the leadership on the common areas and effective ways to integrate the differences”.
Moving the needle: Change management is critical and needs to be planned well in advance. Evaluating and assessing EVP will help to bridge the differences. Perceptions and rumour mills take on a life of their own if not effectively addressed. Managing perceptions through focussed communication and talk points will bring greater clarity and reduce the risk of disengaged employees and turnover.
Mira Gajraj Mohan, Practice Director – AP, Talent Management & Org Alignment, Willis Tower Watson believes that“regular and targeted communication is now a standard practice. HR leaders could add significant value by ensuring leaders in both organisations are equipped to manage through this period of uncertainty. HR needs to coach leaders to become more effective by better supporting their teams, being inclusive in decisions, and take their teams with them on the journey to deliver the vision of the future.”
Performance of HR as a strategic partner to the business has stalled and the business leaders who are the biggest consumers and supporters of the function believe that there’s more to offer. The contribution of HR in the area of M&A is no exception to this viewpoint.
Towers Watson recently surveyed senior HR managers who have been through mergers and acquisitions. The leading metrics used to judge success were revenue growth (94%) and profit margin growth (83%). That lends itself to the fact that HR managers have a low estimation of their ability to affect these financial metrics.
HR professionals currently create impact in the areas related to Mergers and Acquisitions integration.
As Mira Gajraj Mohan rightly points out: “HR professionals supporting deals need to have broad skills; however their ability to be valued partners depends to a large part on their business acumen –a deep understanding of the industry and the people implications of strategy as well as the ability to influence leader behavior”.
Clearly there are opportunities to further enhance the value being added by moving up the chain of acquisitions towards the deal making and pre-integration planning stage. There is also a lot more value to be realised during integration phase. especially in areas of synergy organisation design, fine tuning EVP, aligning culture and providing better leadership support.
In their article “The New M&A Playbook” Clayton M. Christensen, Richard Alton, Curtis Rising, and Andrew Waldeck theorise: “Many acquisitions fall short of expectations because executives incorrectly match candidates to the strategic purpose of the deal, failing to distinguish between deals that might improve current operations and those that could dramatically transform the company’s growth prospects. As a result, companies too often pay the wrong price and integrate the acquisition in the wrong way”.
People and HR related topics contribute to more than 50% of the reasons why acquisitions fail. When it comes to HR’s role in mergers and value creation, it is completely up to us to move that needle to bring greater impact.
It is imperative that in order to change the game on the value that HR brings to the table in a merger, they have to bring a different approach (simplicity and speed) and higher capability (business acumen and people related modeling) to move up the chain.