Mergers and acquisitions are on the increase as business confidence grows. Deloittes recent report on M&A trends suggests that during the next 24 months there will be a significant rise in M&A activity. Of the 2,500 corporate and private equity respondents, 84 percent of corporate executives anticipate a sustained, if not accelerated, pace of M&A activity in the next 24 months. The vast majority of private equity executives (89 percent) are expecting average to high deal activity going forward. LINK
Having lead due diligence (DD) and the post integration activities for over 20 companies, as well as having been “ acquired “ myself I wanted to share my lessons learned which I hope will be of value and/ or stimulate some debate on the lessons we can learn when tasked with integration and transformation of a new acquisition or merger.
1. Its not a big TUPE* and sometimes it may not be a TUPE at all if it’s a share sale acquisition Its important to clearly understand if there is a difference here as failure to consult can be expensive .My preference would be to communicate and consult at every opportunity regardless as this will be important for engagement and retention of your talent base. Most often peoples skills knowledge and experience is key to current and future success. People like to know where they are going and feel connected and be in “charge “of their own destinies. The fundamental difference between a TUPE and acquisition or merger (M&A) is that M&A is a permanent enforced change. Many staff aligned to service contracts that are periodically subject to change have probably now experienced TUPE on a number of occasions and are familiar with their rights and are used to their employer changing. However in an M &A activity this often is the first experience of this kind of change for many and can therefore be very unsettling .Loyalties don’t change overnight and you will need to support your people through this change. Personally I have never been very good at swapping T-shirts and prefer to change industries rather than work with a team from the competition. This is how it can feel for some people who may have last week been competing for contracts and now are all on the same ship. Ensure you have a good communication strategy and plan in place and make sure that there is an opportunity to make this a two way process
2. The importance of analysed Due Diligence data cannot be understated. You need to know the details of what you are buying and as with many things the devil is always in the detail. HR should be fully involved in this detail pre acquisition and manage the HR risk register accordingly .Whilst working for one highly acquisitive company over the space of 4 years we acquired around 25 small companies. Most industries are very small and people become individually known when you get to that acquisition level. In fact one person who had been compromised (now called settlement agreements) from the purchasing company turned up on the due diligence list on two separate occasions. He moved each time he became aware that he was going to have an enforced return to a company that he did not grow well in. Personally using the” HR is a Gardener” analogy I believe that flowers planted in the right environment can grow much better if replanted somewhere else. Some plants prefer clay soil and some extra sunlight.
3. Post-merger integration – short term versus long term. This invariably leaves us pushing back on our finance teams who are always keen to integrate quickly to reduce opex and take pre acquisition cost . This is probably the most dangerous time in terms of losing key Talent. Talented people have the ability to choose for you and will move if they are unsettled and cannot see a way forward. I remember working for one company that was being acquired and having a very strange corridor conversation with a member of our team who was close to the purchasing company telling me not to move as they valued the contribution I was making .Whilst probably not the best way to deal with this it’s important that people know as quickly as possible where they stand and to do that you need to ensure that you have a good handle of where you talent actually is within a new company. It takes time to understand where your key talent base is so work should start as soon as you start to understand your DD information. Sometimes a little less haste during integration can save a lot of issues later on which leads us nicely into organisational design and development which goes hand in hand with this.
4. ODD (Organisational Design and Development.) What will the organisational structure it look like when it’s finished is a very key question that needs to be answered as soon as possible so you can ensure you are moving in the right direction and this acts as a template for decisions and communications. There are likely to be geographical location differences between sites and two head offices to deal with. Support staff such as finance, HR and IT are normally the most impacted by changes but this in turn will have a ripple effect on all people. Often this area is left and raises it head at around six months post acquisition. Clarity as soon as possible on this is helps people understand the new vision of the company. This is where again your due diligence information comes into its own so that you can start designing from that point. Actually in an ideal world some of this design will have already taken place and examined in the business case for the acquisition so it’s important that the HR teams have input and access to this to enable them to identify risks and advise correctly.
5. To harmonise terms and conditions -to integrate o not? This can be a massive additional cost that needs to be thought through carefully as in my experience harmonisation always means an increase in cost. People like to harmonise their terms and conditions up not down. One way to move forward here may be to introduce a flexible benefits package if you don’t already have one. In this way you can allow people to choose what benefits they want to a certain monetary level and keep within budgets. This also gives a level of control back to the individual and allows them to choose the benefits most appropriate to them. It’s important to be back in control for those being” acquired” as it helps starts the healing process and reduces the natural grieving that people go through for the “ old “ company. I worked for one organisation who brought companies that had synergies and complementing skills with each other but instead of integration and harmonisation left them alone completely, set up a small group office structure and gently nudged them together and overtime they naturally integrated themselves. This worked really well from a cultural point of view and there was no dip in any company’s performance and actually the business grew as a result. In some cases it may be an option to do nothing and adopt a less hands on approach to managing the new group of companies depending on your vision of the future .(see 10 below)
6. Who is in charge and why this is important? I recognise the propensity to call acquisitions “mergers” when in fact they are acquisitions for cultural reasons as this is more palatable but this can cause organisational confusion and organisational stress.. If you don’t know who is in charge quickly the organisation loses direction fast. No direction means a reduction in profit even if you do benefit from pre- acquisition cost. If it is an acquisition and you call it a merger please remember people are not dumb and will know the reality so don’t overplay it or you will come across as insincere. (Back to communications strategy). That leads to lack of trust which again doesn’t support performance. You can consider naming the transformational project something a little more neutral and positive. In one acquisition I dealt with the decision was made to make the acquired company in charge of the integration which they also called a merger. This lead to a horrendous amount of politics being played as there were two managing directors and two senior teams who had different agendas that did not meet. This lead to a dip in overall company performance of both companies not a good start to the “merger “. So the lessons learned to recognise that you can’t have two people in charge, particularly if they are both competing for a potentially only one role. You should fairly select and establish your leadership team as soon as possible and make sure they live, review and refresh the new organisations vision and values and goals. You will need to quickly establish your transformation team, use the DD information and ensure you have a wide range of cross departmental change projects leads. Ask for volunteers but remember this work is often more than the day job and there is a headcount increase initially for successful transition to happen .Take care that you keep your eye on the ball in terms of current business performance people naturally focus on what is going to happen to them and it has already widely known that lack of certainty is a key stressor for most people. Any kind of certainty positive or negative helps people move forward with change. To support the organisation through change it’s a good time to gain interim support for key areas on acquisition that are likely to feel the largest pressure e.g. Finance, HR, Telecoms and IT. Many interims can offer support to review transformational strategy, risk management, OD plans etc. and offer a neutral view of the way forward as well as extra hands during a peak in workload. Ideally these should be engaged to work on DD prior to finalisation. A robust non-disclosure agreement (NDA) should be put in place – most interims are used to this.
7. Talent management: Talent management and succession strategy is key. All HR strategies would need to be refreshed in any case unless already aligned to an M&A strategy which is often not the case. Many companies don’t like to be known to be on a acquisition trail because this puts the market price up and can be share sensitive. So information of impending acquisitions is often limited and not all the key players are involved enough to be able to prepare. As identified earlier talented people can and do make choices to leave. Key things to highlight: What are the business critical roles? What roles can you identify as transition roles? Do you need to think about a retention strategy for key talent? Is the current leadership able to take on this change and what additional support is needed to ensure we don’t take our eye of the ball in terms of performance? What are your talent gaps and how will these be filled in the short medium and long term. If it a choice between two FD’s both equally talented how can you use those talents elsewhere in the business without demotivating people and making sure that they can add value? Synergies are the name of the game post acquisition but care should be taken to make sure that you don’t throw the baby out with the bath water, cutting too quickly and too deep has long term implications.
8. Remember when you are in the forest you may not be able wood from the trees .This is the time to turn your helicopter view on and stand well back. This is not as easy as it sounds because potentially you will be one of those affected and will be going through your own change curve. The increased level of politics is evident and my advice here is not to play. Focus on what needs to be delivered from a professional point of view and get on with the day job. I can remember being acquired by one company and feeling very sure that I would be made redundant only to be offered the Group HRD role in the new organisation – so don’t assume that the new company will not see your talents.
9. Processes and tools. In my experience not enough time is spent examining tools and processes that may currently exist in the acquired company and what is needed for the future growth and faster organisational stability. As a result there is an assumption that the acquiring company has this sorted and an “imposed culture” starts to emerge as things rapidly move to the new way of working. Often this leads to data loss as changes are made and people disengagement. Again this is a big area for your transformational team. People integrate one by one and person to person as new relationships form. Setting up working groups with representatives from both old and new companies to look at the best way solution for all processes is a good way forward, promotes team building, ownership, and engagement.
10. Refreshing the Vision and Values. This could have been number one lesson learned. The vision has changed for at least for the acquired group of people and potentially everyone depending on the reasons for the acquisition. Use your transformational team to ensure that everyone clearly understands the impacts of changes to the Vision and that interim goals are clearly laid out so that there is clarity of purpose for everyone to engender staff engagement. Communicate Communicate and Communicate.