Mergers and acquisitions (M&As) are commonplace in corporate life today. Companies use them as stepping stones to boost performance or “jump-start” growth. For both the acquiring organisation and the acquired organisation, merging with another business can be an enticing option, however, this involves a great deal of number-crunching
and risk assessment. Most business leaders will focus on the obvious legal and financial implications, however, the importance of culture, communication, and people is often underestimated. Research shows that–out of thousands of mergers and acquisitions (M&A) that take place each year, most of them fail.
The failure rate is somewhere between 70 percent and 90 percent, only a third of mergers, acquisitions, and takeovers add value to the business. So why do things go wrong so often?
In this post-industrial age, the role of people has never been more valuable. The success of any merger depends not merely on the financial or technological aspects but very much on leadership and how the merger process is managed. The HR department can play a very important role in retaining the talent, helping cultures of the two companies in becoming one and ensuring a smooth transition–but its role is most often ignored. During the transition, there are critical people issues like leadership, employee communications, talent retention and cultural alignment that are important for the success of the merger. Yet HR professionals are not included by management in managing such a momentous and complex process. This can be a real obstacle to performance and progress. It’s clear that for mergers and acquisitions (M&A) to really succeed, employee engagement should be a top priority, right from due diligence to implementation and post-deal activities. For this, it is essential that HR professionals become involved in the pre-merger and acquisition processes.
Let us understand how a strategic HR perspective can make all the difference.
While designing the strategy, the HR department should be actively engaged in the process, preferably at the very early stages of any merger or acquisition. HR plays an essential role in working with leaders to overcome various challenges. HR involvement is important to quantify the financial aspect of the people issues like employment contracts, global staff costs and pensions, and severance liabilities. If HR is involved very late, then it doesn’t have the same influence and it becomes difficult for organisations to successfully navigate the transition journey.
Cultural integration is the most difficult part of any merger/acquisition process. When two companies merge there is a considerable difference in culture and work style that has to be dealt with. Human resource plays an incremental role in understanding each other’s culture and what it takes to successfully bring people from different workplace cultures together.
People fear change and they have a tendency to resist change. Whenever employees are asked to do things differently, there is an instant gut reaction of ‘fight or flight. A merger/acquisition can be tough on employees since it represents uncertainty and change for employees both of the acquiring company and the acquired company. HR in both the companies can help ease out the transition for employees by addressing employee concerns, answering questions about how the merger or acquisition affects each employee individually and guiding leaders on how to deal with resistance to change from staff.
It doesn’t matter how well your integration plans are, if employees object, most likely the plans are going to fail. During M&A leaders are more focussed on dictating people how things will be, rather than communicating with them the companies’ plans, strategies, and objectives. HR leaders can help to reduce this friction between management and employees by clearing their doubts about the goals, role conflicts, and operational processes. At every step of integration, listen to understand.
To conclude, M&A is an inherently risky business, therefore, it is imperative that HR leaders are involved early in the transaction lifecycle and are part of the leadership team that is identifying synergy opportunities, assessing potential risks, and developing a strategy. By doing so, we can greatly improve our odds of success by making sure that HR is able to influence and gain a thorough understanding of the deal’s goals and objectives that will help to identify and prioritize people-related strategies, risks, and opportunities. When equipped with the right tools for the job, HR can ensure a smooth integration process that supports the organization’s overall efforts and determines whether the M&A is successful or not.