mergers and acquisitions keynotes

8/13/2019 Mergers and Acquisitions Keynotes

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Perspectives

This column addresses emerging trends and issues in the development and

implementation of human resource strategies. Please respond with your views

and [email protected]

Why Do Mergers Go RIGHT?

James W. Walker and Karl F. Price

A great many articles and studies on mergers dwell on why mergers failto

achieve their potential. A common theme is that people-related issues were not

addressed early enough or effectively enough. For example, aForbessurvey of

500 CFOs found that the top reasons why mergers failed were not financial issues,ut people-related issues! incompatile cultures, inaility to manage the ac"uired

company, inaility to implement change, synergy overestimated, failure to

forecast foreseeale events, or clashing management styles or egos.

#ergers oftengo rightin part ecause human resource leaders wor$ed effectively

with senior management to ensure that mergers and ac"uisitions are wellconceived, planned, and executed with regard to people. As leaders, we can

ensure communication of a clear usiness rationale, attention to people-related

ris$s in the %deal&, and effective integration planning. 'e can ensure effective

implementation of the merger y integrating and retaining vital talent,maintaining commitment and performance through the transition, and aligning

people-related systems, processes, and organi(ation with the new entity)s strategic

direction. *ere are seven "uestions we need to address.

1. Does he merger make sense?

As part of the leadership team, human resource leaders need to articulate a clear,

convincing usiness case for the merger. 'e can influence communications and

perceptions regarding the merger rationale, and therey affect implementationsuccess.

#any companies elieve that mergers and ac"uisitions are a $ey means for

growth. +y comining, companies may gain mar$et share, new mar$ets, a wider

range of product offerings, control over the supply chain, and cost efficiencies. tisn)t ust eing igger that matters greater capacity to compete effectively can

create greater shareholder value. /eople may not always agree with the mergerrationale, ut their understanding of it guides decisions and actions, motivates

them to devote the energy and time to changes, sustains their performance and

retention during the merger, and develops an enthusiasm for a etter future.

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#erger announcements should not simply e a clich3. 4tating that the merger

will enale us %to ecome more competitive gloally& or to %ecome the

technology leader in our industry& says very little to employees. +eyond increasedshareholder value, an ac"uiring company should define specific enefits expected

and how they will e reali(ed. #anagers need to evaluate assumptions regarding

costs, ris$s, and enefits early in the process. Companies typically expect to gain!

evenue enhancement! new customers, new mar$ets, mar$eting muscle, new

products or development capacity, customer services and capailities, accessto new distriution channels, sales force efficiency and cross-selling.

Operations and cost improvement! personnel costs6headcount, reduction of

overhead duplication, supply chain, procurement, manufacturing, warehousing

and distriution, new product development costs, outsourcing

4trategic positioning! mar$et leadership and the enefits of eing numer

one, protecting current position vs. competitors, vertical integration 7e.g.,

ensuring ready supply sources, distriution channels, or customer access8.

#ergers are more li$ely to e successful when a company explicitly evaluates the

synergy expected from a merger. A recent study y 9/#: found such evaluation

raises the chance of success to 2;< aove the average among mergers. Only ygaining a clear understanding of what and where value can e otained from a

deal can companies avoid %ad& deals and e in a position to wor$ out how,

during integration planning, enefits will e gained.

t is also important to clarify whether the action is a merger of %e"uals& or

actually an ac"uisition. Cisco unaashedly integrates ac"uired companies into the

existing Cisco culture and usiness model. Other companies approach a merger

as e"uals. n some of these cases one dominates as the merger progresses.Occasionally a company assumes they are ac"uiring a company, ut the partner

emerges as the stronger party and dominates the management of the mergedusiness 7effectively a reverse ta$eover8.

!. Wha are he "eo"le#relaed iss$es?

=arly in the merger process, we can help identify people-related issues > y

raising "uestions through due diligence and y eginning integration planning

even efore the deal is done. A human resource leader should press for activehuman resource participation on due diligence and merger planning teams.

Once a company determines it is interested in merging or ma$ing an ac"uisitionand ma$es its initial overtures to the candidate, it usually underta$es an intensive

review of information aout the usiness. Areas of study include factors affecting

value, financial ris$s, and implementation opportunities and pitfalls. /eople-related factors include!

etirement, pension or other liailities

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=xecutive contracts or other constraining compensation arrangements

=mployee relations ris$s, including union relationships, contracts, and issues

?egal actions or compliance issues

Availaility of capale management talent for $ey roles

=mployee commitment vital for retention of talent and sustained high

performance.

?eading companies 7e.g., :eneral =lectric, A@@, ?ucent @echnologies, andCisco8 apply protocols for analysis of issues in pending deals. := even provides

an on-line guide for managers, that includes anecdotes gleaned from past deals,

names of := contacts with merger experience, and tips for forming integrationteams.

%. Ho& &ill &e inegrae and reain alen?

*uman resource leaders can play a $ey role in helping senior management

identify, involve, and assess the $ey executives and other critical talent who wille vital for the success of the new usiness. 'e may ta$e the lead to!

Befine the future roles of executives in oth merger partners 7particularly the

executive team of an ac"uired company8

Befine management capailities re"uired for the future success of the usiness

dentify individuals who will e critical and any capaility gaps that will need

to e filled

Betermine actions re"uired to retain $ey individuals through the merger

=stalish ways to share $nowledge and learn from each other.

Capale leadership is vital for the success of a merger. @he selection process

should e ased on oective assessment of s$ills and competencies, not on

political compromise. @he process for appointments should e seen as fair andrational. t should also e timely > moving "uic$ly to get the team in place and

accelerate integration.

Few issues stand out more than the choice of managers for the new, comined

organi(ation. A merger of e"uals 7eyond the financial6tax implications8 implies

management representation from oth parties. 'hen the merger of :laxo

'ellcome and 4mith9line +eecham was announced, the top five executives were

named and within a month the executives to fill the remaining nine seniorpositions were named. Of the fourteen top positions, executives from each

company filled seven. At Chase #anhattan, the top fifteen executives werenamed with the announcement, and the next two tiers of management were in

place within four months.

A company needs to pay close attention to its $ey talent to ma$e sure they will

stay through the transition > and ideally five or ten years eyond. ohn

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Chamers, C=O of Cisco said, D 'hen we ac"uire a company, we aren)t simply

ac"uiring its current products we)re ac"uiring the next generation of products

through its people.D =mployees in an ac"uired organi(ation may not feelconnected to the new organi(ation. 'hat will it e li$e in the futureE 'ill this e

a culture want to e part ofE Can do what have een doingE 'ill it e etter

or worse than eforeE /eople li$e to have a positive picture of the future, and howthey fit into it.

As human resource leaders we can lead the way for special compensationarrangements, including retention onuses and special grants of stoc$

options. 'e can emphasi(e involvement of people and effective

communications. 'e can help managers target the individuals most

vulnerale 7li$ely to leave8 and tal$ to them individually to understand theirconcerns and then customi(ing solutions for them.

'. Ho& &ill &e inegrae c$l$res and rans(er kno&ledge?

'e can examine culture differences and identify issues that will affect merger

success. =ven in the same industry, companies that seem compatile may havedramatic differences in their values and the way they function. @hese need to e

understood and dealt with astutely. #ichael +onsignore the C=O of *oneywell

after its merger with Allied signal stated! %m not naGve aout the fact that atsome point in time, one of those two cultures, or a derivative of them, will prevail,

as long as it is a net positive for the company, don)t have any preconceived

notions aout the *oneywell culture eing etter.& Culture may e a %soft factor&

in a merger, ut its influence is great.

4ome companies ma$e $nowledge transfer a primary oective in merger

integration, particularly when each organi(ation has strengths that contriute tothe value of the %deal&. @his $nowledge exchange helps the ac"uired organi(ation

introduce new practices which enhance revenue generation and which enale

accelerated cost improvements. n many cases, the $nowledge that the ac"uirergains also spurs improvements.

). Ho& &ill &e mainain commimen and "er(ormance d$ring he merger

"rocess?

'hile communications is critical in any usiness change, mergers re"uire

extraordinarily effective communications and change management. *ere again,human resource leaders can play a proactive role. #anagers and employees in

oth the ac"uiring and ac"uired organi(ations want to now how the merger will

affect their os, their pay, and their careers. +ecause cost savings may e part ofthe merger rationale, some employees may e displaced. @he "uic$er the

organi(ation can deal with employee concerns, the sooner the organi(ation can

focus employees on the future.

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'e can help shape plans for regular, candid, and consistent communications with

employees regarding merger progress and specific merger issues. t is ama(ing

how companies restrict information flow, assuming it must e held confidential >even though rumors run rampant. nformation should e provided in multiple

ways, in the right forums for the organi(ation, including group meetings, one-on-

one, memos, etc.

'e can also ensure that communications is interactive. ?istening to the merger-

related "uestions and concerns of employees allows management to tailorcommunications to needs. #ore roadly, employees provide genuine insights

into potential arriers and opportunities that may enhance merger integration.

@he most powerful signal to employees is the enthusiasm shown y their leaders.At every opportunity, supervisors, managers, and unit executives should invite

"uestions and suggestions. @hey restate, from their perspective, the rationale of

the merger, the enefits anticipated, the $ey milestones of merger integration. 'e

can help them report on progress, recogni(e important achievements, and discussostacles that are eing addressed. Open, candid communication is far more

powerful as a motivational tool than most managers recogni(e.

*. Ho& &ill &e align "eo"le#relaed sysems+ "rocesses+ and organi,aion?

+ecause much of the value of a merger lies in achieving synergies, it is vital to

determine the extent to which the organi(ations will e integrated and how this

integration will e achieved.

As human resource leaders, we can help examine the infrastructure of each

organi(ation, determine what is re"uired in the future for the new organi(ation,

and address the differences or gaps. @o uild a truly high-performingorgani(ation, it is necessary to align the organi(ation structure, usiness

processes, people and culture with strategy. 'e can guide initiatives to address

$ey alignment issues, which may go well eyond traditional human resourceprocesses 7compensation, performance management, etc.8.

n ac"uisitions, many companies plan to put all of their entities on the same

common management systems, therey avoiding redundancies and costs. n othersituations, ac"uired organi(ations are encouraged to retain their identity and

conduct usiness in the manner appropriate to their mar$ets and functions. @heir

cultures are thus respected and preserved, within a framewor$ of overall companypolicy and practice. @his is especially important where the ac"uisitions are

valued for their entrepreneurial capaility and culture.

@here have een many successful mergers in which the struggle for the new

identity sorts itself out one way or another. @his approach simply re"uires more

investment of time and effort to engage staff and uild a %new organi(ation& from

the est of two. *ere it is commonly considered good practice to select the est

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processes and practices of oth organi(ations. /roect teams spend considerale

time examining the "uality of oth sides systems and processes. @his approach

implicitly focuses on differences etween the organi(ations and encourages eachside to argue the merits of their current practices. +ecause neither side is li$ely

to e world class, the parties may wor$ to identify a %new and etter& approach.

-. Ho& &ill &e im"lemen he merger $ickly and e((eci/ely?

@he actions y management in the first hundred days greatly influences thesuccess of the deal after three years 7the point at which oservers udge the

merger a success or failure8. @his %honeymoon& period goes y "uic$ly, and

unless plans are in place or underway, this window of opportunity to estalish a

sound foundation and achieve early results will e lost. t is far etter to mesh theusinesses "uic$ly and then pursue refinements later.

*uman resource leaders can help ensure that the first hundred days set the stage

for successful implementation. 'e can guide senior management to!

/ic$ the right people for a dedicated integration management team 7and give

them sufficient resources and authority to act8

Orient employees to thenew organi(ation and the vision of the future "uic$ly

and directly.

=stalish a clear sense of urgency to act uild an enthusiasm for a successful

merger completion

4et clear oectives and hold individuals and teams accountale for achieving

them

Communicate clearly, honestly, and fre"uently clearly explain decisions once

they are made 9eep senior management on oth sides highly visile and involved

Change plans if conditions change or if ostacles are insurmountale 7it)s the

merger that counts, not the plan8

A period of six to nine months is ideal for implementing a merger. t is not ust

the organi(ation)s eagerness to move ahead swiftly. 4hareholders loo$ for

%unloc$ed value& to result and if they see it, they will provide sustained supportfor the merger decision. f not, share price may fall and the success of the

initiative may falter.

As human resource leaders we can facilitate integration planning. *owever, there

is a tendency in many situations for executives to e forceful and directive in

implementing changes, with minimal involvement of *, lower-level managers

or employees. @his may e appropriate in some situations 7e.g., ac"uiring andconverting ac"uired retail stores or hotels8. *owever, in other situations the

involvement of employees may e important 7e.g., high technology, professional

services8. nvolvement generates ideas for improved integration and uildssupport for rapid integration.

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@o develop effective merger implementation plans and to ensure that those plans

are executed, many companies utili(e merger integration teams and assign mergerintegration responsiility to specific executives. *ere again, human resource

leaders can help the teams or to wor$ effectively and swiftly > y facilitating their

wor$ or y actually serving on teams.

*uman resource leaders want to contriute directly to usiness performance.

'hat etter opportunities could appear than a merger or ac"uisitionE *ere wecan apply > and further develop > our capailities for leading effective strategic

change. As the fre"uency of mergers and ac"uisitions increases, and as senior

executives recogni(e the critical impact of people-related issues, we should e at

center stage to help insure that mergers go right.

'hat has een your experienceE 'hat are your viewsE

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