Role of HR in Mergers & Acquisitions
| April 24,2012 05:30 pm IST
Abstract: With the advent of globalization mergers and acquisitions have become rampant in the various sectors of industry. The acquisition of a company or merging of a company with other demands a crucial role for the human resources.
HR has a Herculean task of integrating the cultures of the two organizations and is expected to exhibit expertise and skill in evaluating various options of combining the enterprises. Rather than take a risk-averse, wait-and-see attitude that can lead quickly to irrelevance, HR executives should be integral to all phases of due diligence, to easing the transition, and to focusing employees on the creation of shareholder value as soon as possible.
The paper describes the role of HR in the aftermath of the merger of a company and explores various initiatives for managing the human resources during its transition period. There's a lot to learn about managing the transition period, optimizing short-term performance, keeping the highest percent of talent, and integrating processes and systems. Many companies report that their mergers are successful but admit the end results aren't as successful as they could have been. Although a multitude of factors can contribute to a disappointing merger or acquisition, success depends ultimately on the effective use of people. Business research shows that organizational and cultural problems are more likely to derail a merger than are financial factors. In view of these developments the paper also highlights the challenges that are being faced by many companies after a merger or acquisition by attributing to the efficacy of HR.
1.0 Introduction: Mergers and Acquisitions
2.0 Role of HR before the Merger
3.0 Role of HR after the Merger
4.0 Opportunities and Hazards for HR
5.0 The Guiding Principles
1.0 Mergers and Acquisitions
Merger is a financial tool that is used for enhancing long-term profitability by expanding their operations. Mergers occur when the merging companies have their mutual consent as different from acquisitions, which can take the form of a hostile takeover. Mergers may be horizontal, vertical, conglomerate or co generic, depending or the nature of the merging companies.
Acquisitions or takeovers occur between the bidding and the target company. There may be either hostile or friendly takeovers. Reverse takeover occurs when the target firm is larger than the bidding firm. In the course of acquisitions the bidder may purchase the share or the assets of the target company.
Benefits of M and A:
The principal benefits from mergers and acquisitions can be listed as increased value generation, increase in cost efficiency and increase in market share.
Mergers and acquisitions often lead to an increased value generation for the company. It is expected that the shareholder value of a firm after mergers or acquisitions would be greater than the sum of the shareholder values of the parent companies.
An increase in cost efficiency is affected through the procedure of mergers and acquisitions. This is because mergers and acquisitions lead to economies of scale. This in turn promotes cost efficiency. As the parent firms amalgamate to form a bigger new firm the scale of operations of the new firm increases. As output production rises there are chances that the cost per unit of production will come down.
An increase in market share is one of the plausible benefits of mergers and acquisitions. In case a financially strong company acquires a relatively distressed one, the resultant organization can experience a substantial increase in market share. The new firm is usually more cost-efficient and competitive as compared to its financially weak parent organization.
It can also be noted that mergers and acquisitions prove to be useful in the following situations:
Firstly, when a business firm wishes to make its presence felt in a new market.
Secondly, when a business organization wants to avail some administrative benefits
Thirdly, when a business firm is in the process of introduction of new products
Key Issues in M and A:
As people look inwards to try to find their place in the merged company and attempt to see their future in it - or outside it - productivity drops. The grapevine can become a major source of headaches. Constant, consistent, and honest communication from leaders and HR is essential.
Power and conflict:
It is essential to bring conflict out to the surface and deal with power issues honestly. If one group is obviously in charge, that should be admitted early on so people dont waste time with second-guessing. Often, people get wrapped up in turf wars which are destructive to both sides, rather than trying to figure out roles for both sides and have a win-win situation.
Organizational culture is an organizations shared values, beliefs, and preferred ways to behave - is a key to success, and though many talk about it, few seem to have the skills to grapple with culture and work with both organizations to assure a good fit. Many organizations use a brief cultural fit survey to assist them during mergers.
Ideally, processes can be examined to see where true synergies lie. In many mergers and takeovers, power relationships determine operational changes, rather than actual efficiencies or quality concerns. By making changes with facilitated cross-platform teams, HR can help to ensure that the better of the two organizations are preserved.
Role of HR before Merger:
The HR leadership has an opportunity before the merger to ensure that both organizations have a strategy mapped out in advance. Once the merger starts taking place, people will often be too busy to keep a strategic perspective.
Before the merger takes place, the leaders of both organizations - at least, of the dominant firm - should have a strategy mapped out, including communications to employees and customers, where layoffs will take place (if any do), and how the cultures should be merged. A SWOT (strengths, weaknesses, opportunities, and threats) analysis should be done for the combined company. If possible, a brief culture survey (preferably done via interviews as well as paper or Web/e-mail) should be undertaken in both companies to discover what the cultural differences are. Sometimes this will be obvious in some aspects -e.g. one culture values teams and bottom-up innovation, the other favors command-and-control tactics - but not in others, such as how and whether individuals and teams are rewarded for innovations, how failure is dealt with, whether conflict is addressed openly, etc. This will prevent disconcerting delays between the announcement and the implementation of the merger/takeover.
If the real purpose of the merger is to acquire another companys assets, in terms of a particular product or brand, its factories or patents, etc., that should be acknowledged and dealt with up front.
Finally, before the merger or acquisition takes place, the leadership teams should consider the non-financial issues. Will people in the two companies be able to work together? Will acquiring a company, or merging with it, destroy the properties or drive away the talent that made it worth having? Can a simple partnership, alliance, or even stock ownership without integration provide more benefits than combining the two companies?
One way to get the answers to these questions is to have an outside agency speak with senior leaders, one at a time or, if that is not possible, to have them circulate a brief confidential survey and present the results at a facilitated meeting. Difficult questions, for example whether there are alternatives to a merger, should be raised as early as possible.
The HR manager may need to raise the issue of culture - how people work, how they think, what they value, and, of some importance, how they view the other organization. If the acquired (or acquiring) organization is viewed with disdain, these issues must be addressed up front. Likewise, severe cultural differences must be addressed. They can be overcome with attention and work.
The HR leadership may, because of its skill and background, be placed in the uncomfortable but important position of persuading corporate leaders to admit the truth to themselves, and to employees. HR may be in a unique position to question assumptions about the nature of assets and synergies.
Investment bankers have a narrower training, and are rewarded for making deals; human issues tend to get lost or overlooked. The HR manager, on the other hand, has an opportunity to influence events so that each company comes out ahead but, to do that, the HR manager must preserve their own position! Before, during, and after the merger, HR may be responsible for assuring that cultural issues do not derail integration; for increasing innovation; for keeping communication going in all directions (upwards, downwards, across departments, across organizations); and for lessening the impact on those who are reduced and on the survivors. Even at the highest level of the company, HR can have a role. The new leadership team will need to work together on a daily basis, despite cultural and personality differences, power issues, and other barriers. HR can act as a facilitator, and also as a coach to individual executives. Personal and team assessments can be helpful in enabling team members to work together constructively.