How to reduce the HR risks of an international M&A transaction
M&A specialists and analysts agree: One of the biggest risks of a takeover or merger is that the cultures of the companies involved are incompatible.
In fact, the influence of corporate cultures on the integration process is so great that, in the event of incompatibility, the hoped-for synergy effects may fall short of expectations or fail altogether - which would destroy the added value of the merger.
When developing a harmonization plan, I usually proceed as follows:
1. Identify the cultural values of the target company during the due diligence process
Identifying the corporate culture of the target company during the early due diligence phase is of immense importance.
An analysis can be based on a number of factors.a. public statements about
- the company values and
- the employer brand (employer value proposition)
. Internal data, such as
- quantitative employee data on age and seniority distribution or diversity alongside
- qualitative data from employee satisfaction studies.
In the further due diligence process, it is also essential
- to use personal interviews
to find out more about the core values practised - and to anticipate potential HR challenges at this early stage.
2. Assessing the potential degree of cultural fit
As mentioned above:
If the cultural dissonance between the buyer and the target company is too great, there is a risk of missing one of the main objectives of M&A activities, the generation of synergies. This would turn the takeover or merger into a costly adventure, with all the damage not only to your own balance sheet, but also to your reputation with PE investors and/or on the stock market.
The HR evaluation from the due diligence phase should therefore be part of the purchase or merger decision, but not only with regard to the real and potential personnel costs, e.g. pension obligations to be entered into. The HR evaluation of the cultural match of the companies involved is clearly more important.
This is - or should be - the decisive factor: If the discrepancy is too strong, the merger should be avoided altogether.
3. Develop a differentiated talent retention strategy
For a successful takeover and post-merger integration, it is essential that the key people of the target company do not leave (early on). After all, key employees who are motivated and actively support the merger are of immense value to the integration process. As far as their "cultural fit" allows, every effort should therefore be made to retain them.
As Towers Watson (now Willis Towers Watson) pointed out in its study from 2012, this
- firstly requires a well thought-out tactic, which
- secondly, the earlier you start identifying the "key talents
in the M&A process, the more successful it will be.
This means that the identification of "key talents" should already be a focus of the HR evaluation during due diligence.
As soon as it is clear who these primi inter pares are, the buyer should start planning tailored measures for the individual employee in order to not only retain the employee: It will be crucial for the success of the integration process to involve these individuals in the integration process.
If the (planned) transaction is a global takeover or merger, regional differences also play a role here. For example, the different expectations of a possible bonus payment in North America, Europe and Asia should be considered.
4. Define the desired degree of harmonization
The company strategy and the product or service portfolio will determine the degree of centralization and harmonization, which can also vary depending on the department or process.
This is precisely why it is important to agree on the actual M&A transaction and company objectives with the management teams of both companies - in other words, to work out these objectives and the reasons for them and to record them explicitly, both in general and in specific terms.
Typical questions here are, for example:
- What aspects will the focus of integration be placed on?
- What does the timeframe look like?
- Which company values and competencies should be sustainably developed, changed or strengthened?
and of course:
- What budget is available?
5. Carry out an actual/target analysis and implementation planning
Once the priorities and goals have been set, the detail (gap) analysis begins, followed by implementation planning.
At this stage at the latest, you should engage in intensive discussions at all levels with the relevant specialist experts in the company. It is also advantageous to consult the identified "key people" of the target company not only as technical advisors. If possible, they should be given responsibility for specific change projects, possibly together with the specialist colleagues on the buy-side.
A major risk of this phase is neglecting
- country-specific,
- cultural and
- company-specific
characteristics - which can lead to unrest among employees, resistance and ultimately missed targets.
Any planning should therefore carefully consider the existing circumstances - including and especially the unspoken ones - as early as the conception and implementation phase of the integration.
6. Communication, communication, communication!
The following applies to every change and therefore also integration project: You cannot communicate too much!
A multi-layered communication plan with many contact moments and graduated addressees (all employees/all managers/departments) is therefore essential. This should
- explain and justify the change objectives,
- celebrate successes and
- show progress.
In addition to these factual messages, it is also important to win hearts after the M&A transaction. After all, employees should start to identify with the new company and its core values.
However, you should avoid focusing too much on efficiency: If the CEO shows an interest in the local particularities and takes the time to talk to employees on site - this will achieve much more willingness for the change process than any well-structured video presentation.
Conclusion: How to reduce HR risks in M&A activities
A harmonization plan reduces the risk of a merger or takeover failing in the end - if the cultural differences prove to be too great.
The starting point for planning is always a differentiated analysis of the respective corporate cultures. Among other things, publicly represented company values and the employer value proposition are taken into account, but data on the personnel structure, personal interviews, etc. also play an important role.
The HR evaluation of the cultural match should take place before the final merger or purchase decision is made.
The most important points
- The cultural values of the target company should already be identified in the due diligence process.
- The extent to which the cultural values of the target company can be assessed before the purchase or merger decision.
- In order to retain key people at the target company, you need an individualized talent retention strategy.
- The degree of harmonization should be defined based on the company and transaction objectives.
- Regional aspects should also be taken into account when planning measures
- Communication is everything!
