Mergers & Acquisitions: How People Factor Into the Deal

2009 was a very interesting year as the economic turmoil inevitably reshaped the way that many companies run themselves. Now that we’re more than halfway through 2010, all signs are indicating continued improvement. Organizations that were able to weather the storm may be on the lookout for prime opportunities to grow (and in some cases downscale) their businesses. Likewise, organizations that didn’t fare so well may be looking for a safe harbor in the form of a more well run business to acquire them.

Upon reflection of what we’ve been through, organizations should be contemplating what the future economy will look like and how they organize their current business for optimal growth and survival. Part of these strategies may entail either strategically selling off certain business segments or buying new ones in order to further market share or innovation.

Beyond the business logic behind the strategy; beyond the price and scope of the deal; one thing always holds true whether you are the buyer or the seller: you’ve got to be organized and have a focused people integration strategy from the start. If you forget about the people–that create the technology; that innovate the intellectual property; that help you gain market share; and ultimately create revenue–then the very value that you are trying to secure can evaporate right before your eyes.

People Make The World Go Around?
Remember the song, “Money Makes the World Go Around”? Well, in the world of mergers and acquisitions, that is mostly true, but at the end of the day, it is actually people that make the world go around. Most deals start out being price-centric for both parties: the buyer wants to get the highest price and the seller wants to get the best value for their money. However, nothing erodes the value of a deal faster than when the people (i.e., the talent, the know-how, the intellectual capital) begin to jump ship because proper planning wasn’t done in advance to contemplate how they will “fit” during the transition.

Planning 101
Having established that people are a critical part of the deal, it is important to have someone with Human Resources experience to help you plan, coordinate and drive all of the people-related issues throughout each of the key phases of an M&A. Specifically during:

• Planning
• Due Diligence
• Negotiation
• Integration

Both the Buyer and Seller will have specific needs that they are trying to achieve and the associated people-related implications should not mistakenly be reserved for the very end during integration. A majority of integration headaches could easily be avoided by having someone paying attention to the people-related issues that exist right from the very beginning.

For example:

M&A Phase People-Related Issues
Planning
  • Are the cultures for the two organizations compatible? Are there contrasting work styles, communication styles or even time zones?
  • Is there a plan for merging the cultures? Will one be dominant, and, if so, how will people operating under the other culture be brought on board?
  • What overlaps exist (e.g., functional, positional, etc.)?
  • Location-specific issues (e.g., availability of talent to backfill, re-allocation of work or office space)?
Due Diligence
  • What are the implications if specific employees decide to leave the company?
  • What can you do to combat the risk or solve for the situation?
  • Are their potential people liabilities the Buyer will inherit (pending employee legal action)?
  • Are compensation and benefits philosophies in alignment (or will you have to upgrade both organizations to keep everyone happy)?
Negotiation
  • What are each organizations strengths, weaknesses, opportunities, and threats in terms of their people?
  • What is each organizations strategy for exploiting and combating these?
  • Will certain leaders of the acquired organization take on or take over a current buyer-side part of the organization? Or will they need to be demoted?
  • Do you need to put retention packages together in order to keep certain key talent around for a period of time post-acquisition?
Integration
  • What is our communication strategy for keeping employees informed? Telling key employees in a timely manner is key to eliminating rumors. Understand when you can share the news from a legal perspective and when you should share the news.
  • How will employee issues be addressed? Every staff person will want to know how the merger is going to affect him or her – Am I going to have a job; will I lose/get stock options, and will I get a pay cut or pay raise? Be prepared to address these and others that may come up.
  • Have you developed communication plans for both the acquired employees as well as your existing employees so that they know what is going on?
  • Is your employment brand intact or diluted? Does it need to be modified given the change in the organization?

Given tomorrow’s economic challenges and uncertainties, any organization contemplating a merger and acquisition will want to make sure they can have as successful of a deal as possible. The key to merger and acquisition success regardless of which side of the equation you are on is to eliminate as much uncertainty up front. The solution is simple: plan ahead and prepare your people-related strategies from the very beginning stages of any potential merger or acquisition. In the end, you’ll save yourselves not only headaches, but also money, which will truly help your world go around.

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