Successful HR Integration During a Merger/Acquisition
Mergers and acquisitions (M&As) are an increasingly prevalent feature of American business, with deal volume doubling in the past 20 years, according to statistical studies.
According to McKinsey, private fundraising grew from $96 billion in 2003 to $1.2 trillion in 2021. Even as the number of transactions lagged investment value, the disruptive effect on human resources (HR) has been profound.
The Society for Human Resource Management (SHRM) estimates that some 70% to 90% of all M&As fail to achieve their anticipated strategic and financial objectives. This rate of failure is often attributed to various human resource-related factors like incompatible cultures, management styles, poor motivation, loss of key talent, lack of communication, diminished trust, and uncertainty of long-term goals. The goal in any transaction should be to creatively leverage the buying power of a larger organization and to reduce the residual impact felt by employees of the existing and target company.
If your company is planning a transaction, the cohesion of your HR team relies on leadership having ample preparation and communication both before and during the M&A process. The following tips provide the framework.
Plan with trusted partners
HR should be a core focus in the due diligence process, understanding the goal is a seamless experience for employees and recognizing that compromises must be made to join two workforces. In the case of an acquisition, the guiding question is typically, “How will this impact our people?”
This is important for developing a plan to merge existing HR policies, managing expectations, and assumed norms about remote work, vacation time, and paid time off, and financial concerns related to differences in employee benefits programs, profit-sharing programs, 401(k) company contributions, and supporting vendors. Once the differences are identified, management can make strategic decisions to enhance the companywide experience.
Develop the plan around core priorities
Core priorities will almost always include establishing HR systems, merging benefit plans, and communicating information to employees from both companies; examining and adjusting HR policies; examining pay scales and staff numbers; and instilling confidence in the new company’s management.
When it comes to the use of technology, the C-suite needs to ensure systems are not overwhelmed — or worse, down — in the first days or weeks of a merger or acquisition. Payroll software, HRIS (human resources information system), point of sale, time and attendance, applicant tracking software, learning management, and performance management systems are all crucial to get right following a transaction. Make sure due diligence is completed on the front end. Otherwise, it will appear to employees that the company is unprepared.
Clarify the company’s leadership structure
People need to know not only who they’re answering to, including simple confirmation if it’s the same person, but also how the management chain looks holistically. In addition, how will their role change? Simple communication techniques can curb employee anxiety.
Confirm the new hiring process
As one company, you will need a new handbook. Onboarding, training programs, employee benefits, and materials will need to be reconsidered. New hires who have done their research may have questions about the merger or acquisition, including what changed after the event.
Incorporate people and technology
Find an HR partner that you trust to manage the lion’s share of due diligence and empower that partner to reconsider all aspects of the newly formed organization’s human resource needs. This will allow time for company leadership to digest, review, and manage any potential issues. Discovering landmines on the front end and adjusting appropriately will increase stakeholder satisfaction tenfold in the transaction.
Over the past 20 years, CEO and CFO leadership summits have found technology at the top of their agendas — sometimes leading to net negative changes. Implementing an expensive new technology is exciting, but sometimes it ignores the key support elements needed from an HR partner.
As new systems were implemented to streamline HR processes, team members became responsible for requisite tactical activities, such as payroll, compliance, and benefits administration, while inevitably the strategic initiatives became a thing of the past. Technology no doubt improved accuracy and completeness over time sheets, paid time off, and employee onboarding. But the responsibility to manage systems fell solely on HR, with little support from the booming SaaS (software as a service) vendors.
It has been said that HR professionals spend nearly 75% of their time on administrative activities, and the technology implemented over the past 20 years has not given HR departments more time for strategic initiatives as originally expected. Finding the right support system in service partners is crucial to give HR departments the freedom to spend more time on those strategic initiatives, ones like improving employee recruiting, culture, engagement, training, and retention.
Refine your vision
Anticipate potential employee responses. Ultimately, you and your team are bringing together two separate workforces as one. Previously separate leaders and the two cultures will need to mesh as one. For acquisitions, anxiety will be the main emotion for the workforce of the company being absorbed. Will everyone keep their jobs, and if so, will those roles and expectations be the same?
By incorporating the above six steps, the resulting company will experience benefits from the transaction, which were intended and led company leaders to explore the opportunity in the first place, without pitfalls from unexpected HR roadblocks.
If you remember nothing else, perhaps you will remember a simple formula created by a wise business leader, “The 5 Ps of Success.” Namely, "Prior Planning Prevents Poor Performance." Do this, and your HR team will become a reliable profit center for your business.
This article originally appeared in the Memphis Business Journal and was written by Joe Morrison of Adams Keegan.