M&A for HR Leaders: Best Practices from Serial Acquirers

Submitted by M&A Leadership ... on Tue, 08/29/2017 - 17:42

Successful Acquirers Include HR on the M&A Deal Team
By Kelly Karger, Senior Mergers & Acquisitions and Retirement Consultant, Willis Towers Watson, a Partner of the M&A Leadership Council

What are the leading causes of M&A deal failures? Research over the past years has consistently highlighted the role of people issues (from talent retention to organizational culture) in M&A deal value erosion.

Not every organization fails at mastering issues. On the contrary, successful serial acquirers have learned invaluable lessons about the vital role HR has to play in every M&A deal, and making them an integral part of the deal team. Here are three for your deal team to follow:

Lesson #1: Treat HR as an integral part of the M&A team—and train HR leaders accordingly.

Take a moment to consider some key responsibilities of an HR professional: compensation and benefit programs; talent recruitment and retention; learning and development, communication, and motivation…all factors that could significantly impact valuation and success of a merger or acquisition.

Thus it’s no wonder that the most successful serial acquirers consistently incorporate HR leaders into the M&A process early on, so they can lead the charge on HR due diligence and integration strategy. As part of the M&A deal team, you’re poised to identify potential hidden costs—and synergies—of each deal during the due diligence process, such as:

Executive and contractual issues
Retirement and related plans
Cost structure
Overall integration strategy and costs
Talent needs and cultural “fit”

However, it’s not enough to simply include HR leaders on the M&A deal team. Investing in specialized M&A training for your HR team will help maximize deal success by giving them the tools and mindset necessary to effectively navigate due diligence and integration. Look for training specifically developed for HR professionals. It should provide a strong foundation for guiding the critical actions in capturing deal value through people, during each phase of the M&A deal cycle.

Lesson #2: Investigate the unique people issues around each deal.

Serial acquirers will tell you that every deal is absolutely unique, and people issues are a frequent source of differences. While your HR due diligence checklist is a great starting point, it won’t be sufficient for evaluating the nuances and idiosyncrasies of every M&A deal. A well-designed M&A playbook should provide you with the tools, processes and methods for working through the deal process. This is the foundation on which to apply your experiences and focus on the unique features of the deal.

Why is there so much variation? To determine each deal’s investment thesis, you must answer three key questions:

What are we buying, and why?
What key value drivers must be preserved and leveraged?
What specific integration principles and decisions will best accomplish this deal-specific integration mandate?

The potential response combinations to these questions are limitless, because a number of important deal factors are generally unique to each deal:

Scale
Scope
Efficiency
Capabilities to be leveraged
Research & Development/Critical talent
Potential to diversify and/or transform

One way to think about these numerous potential variations is in terms of our own genetics. DNA can be combined in countless ways, resulting in organisms that are essentially the same, but never exactly alike. So think of these factors as the “deal-type DNA,” which makes each M&A deal unlike any other.

The deal-type DNA also determines potential HR priorities. For instance, when the purpose of the acquisition is consolidation, HR leaders may focus on ensuring a robust, ready capability for restructuring, talent selection and reductions. However, if the main goal of the acquisition is to gain new R&D or talent, the HR team may concentrate on outstanding change management or clear communication of strategic vision.

Lesson #3: People issues are grounded in the business strategy – so begin with the end in mind.

For a buyer, there are no profits on closing day. The true value of an acquisition will be realized after managing through the integration and achieving ongoing business results. HR’s first viewpoint of the deal value comes from understanding how people play a role in the business strategy of the acquisition. Key questions that will set the foundation include:

Why do we want to buy it, and where does it fit within our growth strategy?
Where will it go within our organization?
Who will lead it?
How will we integrate it to achieve the deal goals, and what risks do we face?
Most deals fail to achieve the stated deal objectives. What makes us think we can make this one work?

Due diligence isn’t a one-time event. It’s a process that begins with your first conversations in evaluating potential targets and continues to become a foundation for integration planning and execution.

In most cases, organizations are committing a lot of money to close a deal. Beyond the financial aspects, deals fail because the buyer doesn’t define the blueprint for the organization post-acquisition, or fails to execute the integration. Serial acquirers have long recognized the need for a defined integration team and process rigor, to ensure the integration is completed and deal value is not left on the table. This requires a coordinated cross-functional effort; clear work plans and identification of “who’s doing what”; and leadership accountability.

Putting the rigor around your integration process provides the framework for getting the right decisions in the right order, and organizing the vast amounts of work across all functional areas. HR often has a disproportionate impact on Day 1, and it’s essential to get it right!

To learn more about best practices in M&A for HR Leaders, please join us in May for The Art of M&A for HR Leaders. Designed specifically for HR professionals, this workshop not only dives into the business case for HR as a key component of overall deal success, but it also provides an ideal overview of the M&A deal cycle; best-practice solutions and tools to support HR due diligence and integration; and much more.