Human Resources Role in Mergers and Acquisitions.

Mergers and acquisitions are complex events in organisational life for which we have incomplete understanding, in part because researchers have tended to consider only partial explanations of them. The authors addressed that problem by developing a conceptual framework that integrates theoretical perspectives from economics, finance, and especially strategy, organisation theory, and human resource management to offer a broader process-oriented integrative model. 

The integrative model explicitly describes how synergy realisation is a function of the similarity and complementarity of the two merging businesses (combination potential), the extent of interaction and coordination during the organisational integration process, and the lack of employee resistance to the combined entity. 

The approach differs from traditional methods of studying mergers and acquisitions in three ways:

(1) the success of a merger or acquisition is gauged by the degree of synergy realisation rather than more removed and potentially ambiguous criteria such as accounting or market returns;

(2) the key attribute of combination potential is conceptualised not only in terms of the similarities present across businesses, as in most studies of mergers and acquisitions, but also in terms of the production and marketing complementarity between the two businesses;

(3) the data are derived from a case survey method that combines the richness of in-depth case studies with the breadth and generalise-ability of large-sample empirical investigations.

The framework was tested empirically across a sample of 61 mergers and acquisitions. The extent to which a merger or acquisition resulted in synergistic benefits was related to the strategic potential of the combination, the degree of organisational integration after the deal was completed, and the lack of employee resistance to the integration of the joining firms. 

Furthermore, the analysis revealed that:

(1) independent of any similarities across joining firms, the presence of complementary operations increased the probability of acquisition success by boosting synergy realisation,

(2) organisational integration was the single most important factor in explaining synergy realisation, even to the extent that M&As with high combination potential were significantly more successful when coupled with high organisational integration than when integration efforts were less forceful;

(3) mergers and acquisitions that were dependent on gains from combining similar production and marketing operations tended to elicit more resistance from employees than M&As focused on realising complementary benefits. 

Overall, the findings provide strong support for an integrative theory of mergers and acquisitions.

Whether your business is the purchaser or the target company in a merger or acquisition, your human resources department as well as the human resources workers in the other company play a vital role in the process. Human resources assist or manage any problems or challenges related to people in the organisations as the merger or acquisition process unfolds.

Company Culture

Human resources assists determine if the cultures of the two companies that are becoming one through a merger or acquisition are compatible. Human resources must have a firm grasp on the culture of the company for which they work and must study the culture of the other organisation to make such a determination. Cultural differences may include how the two organisations define and measure success within the organisation; benefits employees enjoy, such as personal time and insurance; how problems within the organisation are handled; the management styles of the two organisations; and the overall attitude of the employees and managers toward business functions and the industry in which they work.

Benefits Problems

During the due diligence portion of a merger or acquisition, which comes after the purchasing company makes its initial offer to purchase the other company, management from the purchasing company assess whether the deal makes strategic and financial sense. Human resources from the purchasing company specifically assess the benefits structure of the other company to uncover any potential problems, such as a pension plan that is running low on funds or a health insurance package that will cost a significant amount for the company to continue offering.

Employee Concerns

People often fear change, and a merger or acquisition creates uncertainty and change for employees both of the purchasing company and the purchased company. Human resources in both companies help smooth out the transition for employees, helping calm any fears as well as answering questions about how the merger or acquisition affects each employee individually. If the employees of both companies do not have as much fear over the change, productivity is more likely to stay at previous levels. Human resources can detect and address any rumours about layoffs, office relocation or other changes employees fear, giving feedback to management about employee concerns.

Changing Roles and Structure

When one company merges with or acquires another, some changes to both organisations may occur, such as eliminating redundant positions or combining teams and departments. The process of altering the two organisations so they work together as one can take months to complete, and human resources plays a vital role in the changes. Human resources communicates to employees changes in who they report to within the company, what team or work group employees are assigned to as well as any changes to different positions’ roles in the organisation. Human resources may work with management and employees to alter the job descriptions of various positions, ensuring everyone understands his role in the newly altered organisation.

R should expect some resistance. However, because HR professionals often get blamed if an acquisition fails, their early involvement is even more critical.

Being involved from the beginning of the process minimises problems and increases the likelihood that the M&A will be successfully implemented, he says. At a minimum, employees from an acquired company will need to be paid the right amount and on time—something that is not always easy to accomplish if HR is called upon after the fact, he explains.

If there is a problem with the amount or delivery of pay checks/wages, the ramifications will be long-lasting because those employees “will never forgive the company.” When HR is included from the start, it has time to put the proper systems in place to ensure accurate, on-time pay checks/wages.

HR also plays a central role in the integration of new employees into the company, especially in cases when an organisation purchases a company specifically to acquire its employees—a concept called “acqui-talent” or “acqui-hiring.”

Get educated about M&As.
“That does not mean you have to be an expert,” Humba-HR-Consultants explains. However, HR professionals who are educated about the M&A process are more likely to be included from the beginning, he says.

HR tends to be considered “more of a roadblock than a help” during the M&A process because HR is likely to address topics such as the difficulty of integrating two cultures and how cumbersome it is to get everyone on the payroll system. But learning about M&As by reading books, attending classes, and participating in online webinars on the subject can help HR professionals position themselves as strategic thinkers in the M&A process.

Be proactive.
“Don’t wait to be told what to do,” he says. Instead, present management with your recommendations to consider as the organisation researches whether to acquire a particular company and before it integrates employees from an acquired company into the organisation. Topics to address include payroll, benefits, policies and procedures, succession planning, training, job descriptions, and titles.

Expedite the layoff process.
If layoffs are necessary during an M&A it is critical to move that process along as efficiently and as transparently as possible. “One of the worst mistakes people can do when they know they have to downsize is to draw it out.”

Bridge the work-forces.
The “absolute best way” to bridge two work-forces is to ask for volunteers from your organisation to transfer for a minimum of 6 months to the newly acquired company and vice-versa, he says, adding that people are often interested in a transfer to be closer to family or for other reasons. “I have never not had a volunteer.”

Ideally, three people in sales and marketing, operations, accounting, or HR from the acquiring organisation should go to work in the acquired company, and three people from the acquired company should be transferred to the acquiring organisation. This approach enables those employees to “truly understand the culture [of the company that is new to them] and become embedded in it.”

Look for role models.
Identify other companies that have completed successful M&As. “Try to reach out to them and learn from them.”

Risk Assessment

Compliance shortcomings could jeopardise a merger when the cost of correcting them affects the offer price and feasibility of the deal. HR must verify a laundry list of compliance reports related to Equal Employment Opportunity,  disclosure mandates. If the company did federal contracting or subcontracting, HR must review documentation for compliance. HR also confirms that internal control procedures for employment, payroll and benefits administration comply with the law. By combing through employment policies, programs and commitments, as well as agreements with labour and outsourcing partners, HR ascertains risk exposure to avoid post-merger surprises.

Cultural Assessment

According to Deloitte, cultural clashes lie behind one-third of merger failures. Culture touches on decision-making, work and management styles. It defines workplace atmosphere, values and risk-taking. Other distinguishing characteristics include dress code, communication practises and career opportunities. Successful integration of two different cultures requires a vision for how the merged company will look and feel. A compatibility assessment by HR identifies that culturally related practises from each company can best support the new organisation's vision. Adopting a best-practises approach establishes a foundation for combined synergy.

Staffing Alignment

HR's cultural integration efforts require a workforce management strategy that considers the skills, competencies and organisational structure warranted by the new entity's strategic objectives. Health, welfare and training programs must be aligned, as do compensation and benefits policies. A personnel profile -- location, function, seniority and experience -- sets the stage for post-merger assignments. Once talent needs are known, HR can use the profile to identify key players and formulate a retention strategy. Concurrently, HR develops relocation, termination and severance policies and timetables to accommodate imminent staffing changes.

Communication

Although employee communications may fall under the domain of corporate communications, HR guides message development. HR's input can ensure that the company keeps everyone informed about time frames, compensation, benefits and other issues that affect them. HR-initiated surveys conducted at each stage of the merger gauge employee acceptance and pinpoint concerns. By advocating management appreciation of and respect for the acquired company's heritage, HR paves the way for a smoother integration. To instill a sense of belonging, Tool pack Consulting suggests the human resource communication strategy include merger milestone celebrations.