Many mergers and acquisitions are characterised by the lack of planning, limited synergies, differences in the management/organisational/international culture, negotiation mistakes and difficulties in the implementation of the strategy following the choice of an incorrect integration approach on the part of the merging organisations after the agreement is signed.
For the first year ever, global M&A volume in 2015 surpassed $5 trillion, according to Dealogic data. This record-setting volume breaks the previous record of $4.6 trillion set in 2007, by 9%. There were 10 $50bn+ M&A transactions announced in 2015 worth a combined $798.9bn. That's five deals more than the previous record high activity set in 1998, 1999, and 2014. US targeted M&A ($2.5tr) accounts for half of 2015 volume and seven of the top 10 transactions.
There are fine-tuned models of quality of earnings where due diligence has been virtually perfected. Historical financials drive the purchase price of most transactions, but what about all the intangible elements that influence an acquisition’s success? Harvard Business Review reports that 85% of the value of a company is derived from components such as skills, culture, speed, flexibility, technologies and brands.
The role of HR in the M&A Process can be quite varied based on how they are engaged in their organisation – many are involved only in the Integration Phase. The integration playbook derives itself from the deal. There are some things that can be done to make things easier but that leeway is limited. It is no surprise that HR organisations feel like they have landed into the deep end of the pool with their hands tied.
When looking at M&A, there are influences to consider. Strategy, creative deals, melding cultures, the transformative role of HR in integration and employee value proposition all need to be taken into account. If HR wants to move the needle, they need to strategically manage expectations.
Culture is an interesting topic in the M&A Space. In a joint research effort with the University of Muenster, a leading university in Germany, Johannes Gerds, Freddy Strottmann & Pakshalika Jayaprakash, found that - 46% percent of the management interviewed shared the opinion that soft factors like motivating people becomes more essential to merger success than hard factors like project management. That seems logical given that companies generate value through the people they have - so consequently it is expected that when two companies are brought together the people aspect of the integration is vital.
Thomas Gelmi, International Executive Coach says “merger between two organisations is a coming together of two cultures with their respective values, backgrounds and experiences. In my experience it is of utmost importance that leaders learn to create a new culture that brings together the best of both worlds and that would allow them to win in the marketplace rather than picking one over the other. The role of HR and leadership is key to strike a good balance between the human aspect of the integration and the focusing on structures and processes.
This is consistent with the findings of the study out of University of Muenster: “the empirical analysis suggests that it is important to address both soft and hard factors” not the commonly held belief that soft factors are more important. The “balance” that Gelmi references in his comments is a balancing of hard and soft factors.
This is further underscored by an April 2016 article in Harvard Business Review: “Culture Is Not the Culprit” by Jay W. Lorsch and Emily McTague, whichhighlight that culture isn’t something to be “fixed”. The culture evolves and new processes or structures are put in place to tackle tough business challenges like reworking an outdated strategy or business model. HR has a key role in the establishment and ongoing evolution of the culture.
Moving the needle
HR teams need to be more deliberate about how they approach the culture topic in their organisations. They need to be able to work out what the “shared beliefs are” (defining the culture) and then determine if and where they would like to evolve it to. This can really help assess the impact of introducing a new set of variables through an acquisition. However, HR must guard against falling into the trap that culture alone works magic. It is an enabler and should be treated like one within the context of the overall merger or integration of one.
This is Part One of a two-part series on M&A published on HQAsia.org. In Part Two I explore other areas where HR can strategically add value to a merger and acquisition.