The most common objectives of mergers are – economies of scale, diversification or new technologies, and entry into new geography, sector, or markets. Generally, in a merger, the merging entities would cease to be in existence and would merge into a single surviving entity. Let’s see how organisations need to deal with it and does HR have a role to play.
I was cleaning my library to discard old books from the days when I studied science. The pages turned and my glance fell upon a page that read ‘The Law of Momentum’. I recollected the law that says, “For a collision occurring between object one and object two in an isolated system, the total momentum of the two objects before the collision is equal to the total momentum of the two objects after the collision”. Instantly, I was transported to a recap of all the Mergers & Acquisitions that Corporate India has witnessed in the last decade or two.
Isn’t the law relevant for M&As too? There are several aspects that businesses have to look into for a successful and sustainable merger. What are these? Let’s implore them one by one.
Collision or Coalition – ABCs of Measuring Readiness
Assess the Deal
Have clarity about what your business expects from the deal. The M&A strategy has to be in total alignment with the overall business strategy. The strategy should demonstrate the capability of higher returns so that the deal can be justified.
Build a Foundation
For a successful M&A, enlist factors to consider, see benefits of mergers and acquisitions in the context of developing a partnership strategy or see joint ventures.
Carry Out a Gap Analysis
Another strategy technique is the gap analysis. This involves a detailed analysis of where your business is now and where you want it to be in the future. By analyzing the gap between the two, you can find ways to bridge it. Remember that apart from paying for the business you acquire, you will have extra expenses to take into account like any professional fees during the process and other associated costs due to the acquired manpower.
Taking the Plunge! Approaching a Target Business
Once the strategy is in place, the business engages with the target company to initiate the coalition. The target needs to have complete clarity on the intent and the long term plan. This is usually a make or break opportunity, encash it!
There is nothing called as a foolproof plan. Each merger and acquisition comes with its shares of challenges and it’s important to navigate these pitfalls with utmost care to ensure successful transition during M&A. Here are some red flags HR professionals should be aware of-
Uncertainty of Leadership – Find it & Fix it!
A major pitfall to watch out for is the mood of uncertainty that creeps up during M&A talks. This could emerge as a significant dampener to the progress of the process. Find it and fix it!
There could be other pitfalls such as the financial health of the target business, departure of key talent, ambiguity in defining the business culture, etc. These are all people related and hence the Human Resource function takes centre stage here.
The M&A strategy has to be in total alignment with the overall business strategy. It should demonstrate the capability of higher returns so that the deal can be justified.
Enter Team HR: Tackle The People Factor – Whose Deal is that anyway?
The role of the Human Resource function is to understand with empathy, anticipate in advance and resolve on time. Here is a glimpse of the critical role played by this function.
Aligning Cultures – Leave it to the Experts
Many M&As fail awfully owing to cultural disparity, clash in leadership, need of management commitment, absence of common objectives, or weak change management, which may turn into a matter of grave concern. Human-resource leaders who feel the pulse of the organisation know how to analyze and align cultural disparities. They are experts in understanding the demographics and also what drives them.
Organisational Design – A Peek into the Future
It is a myth that the acquired organisation alone goes through a cultural change. The HR function plays a pivotal role in busting this myth by starting to articulate the ‘New Way to Work’ by way of organisational design, people process reviews, etc. This involves detailed planning around just a sufficient amount of communication and change management.
Holding Forte – Keeping Morale Upbeat
Human Resource experts know the tips and tricks to convey the right messages using the right channels. They drive communication, both direct and indirect so that all employees are sufficiently insulated from the unnecessary details surrounding the M&A. The HR function plays ‘The Wall’ and continues doing so until a steady state is attained. During the entire transition, there are various aspects of change including harmonization of benefits, rationalization of roles, etc. which continue to require special expertise to deal with.
Let HR play its role by leveraging the People Power!
Many M&As fail awfully owing to cultural disparity, clash in leadership, need of management commitment, absence of common objectives, or weak change management. Human resource leaders who feel the pulse of the organisation know how to analyze and align cultural disparities.
The Armour – Due Diligence
Last but not least, the Business controllers play a role in due diligence and verify the financial and legal aspects of the deal. Due diligence is the process of uncovering all liabilities associated with the deal. It is also the process of verifying that claims made by the vendors are correct. Directors of companies are answerable to their shareholders for ensuring that this process is properly carried out. For legal purposes, it is important to obtain proof that the target the business owns key assets such as property, equipment, intellectual property, copyright, and patents, obtain details of past, current or pending legal cases and also to look at the detail in the business’ current and possible future contractual obligations with its employees (including pension obligations), customers and suppliers to consider the impact of a change in the business’ ownership on existing contracts.
Seal the Deal, finally! Isn’t a successful M&A a concerted effort between the business leaders, Human Resource experts, and business controllers? Isn’t it worthwhile to rewrite the law of momentum in the context of M&A as, “For a coalition occurring between organisation 1 and organisation 2 in business, the total business agility of the merged organisation after the coalition is greater than that of the two put together?”