How HR Drives Success in Mergers & Acquisitions

While mergers and acquisitions (M&A) have become an increasingly common business strategy, approximately 70% to 90% of M&A transactions fail to reach their expected strategic and financial goals, according to research from the Harvard Business Review.

Why do so many M&A transactions fall short? These failures can often be attributed to people-related factors, such as mismatched cultures and management styles, lack of communication and trust, and loss of key talent. The impact of these key people elements exemplifies how HR plays a pivotal role in setting mergers and acquisitions up for success. As such, it’s essential to understand HR’s role in M&A and how they can help at each stage of the deal cycle.

Before the Transaction: Setting the Stage for Success

HR’s primary role prior to any M&A transaction is conducting due diligence. During a deal, HR professionals provide critical information to assist in evaluating the transaction and assessing potential risks and liabilities.

HR evaluates the following aspects of a target organization:

• Talent
• Culture
• Employee benefits plans
• Compensation programs
• Potential liabilities
• Employment contracts and policies

HR usually works closely with legal teams to ensure organizations comply with federal, state and local laws. Failing to conduct careful due diligence can result in organizations assuming significant liabilities during M&A transactions.

In addition, HR professionals from both organizations need to determine whether the entities’ organizational cultures are compatible. This might include analyzing respective growth and turnover rates, management styles, employee attitudes, and benefits programs.

For organizations being acquired, HR professionals typically partner with the other organization’s HR team to resolve potential issues and provide information and data related to due diligence. They may also support employees impacted by the transaction and ease their concerns and doubts to increase employee confidence in the deal and help maintain productivity during the transition process.

During the Transaction: Making Pivotal Decisions

HR professionals also play a vital role during an M&A transaction as they typically own or play a role in a variety of crucial tasks, including employee communication, culture integration, compliance, and making decisions regarding technology and systems.

Employee Communication

Employee communication is a critical HR function during M&A transactions. How HR shares information with employees about the transaction, especially those most affected, can greatly impact the deal’s success. Employee communications during the transaction should provide crucial timelines and updates but also convey the shared vision of the new organization. HR teams should emphasize transparency in communication to help employees understand what’s happening now, what may happen in the future and when key decisions will be made.

Integration of Cultures

M&A transactions often can lead to a culture clash. Since culture issues can sink the success of any M&A deal, blending culture is a top HR priority. HR professionals must integrate and redefine the new organization’s culture and values. It’s important to establish a shared vision, mission and strategy, and effectively communicate those new organizational pillars to employees.

Legal Compliance

Ensuring that organizations comply with applicable laws often falls on HR’s shoulders. Employees are often released as a result of M&A activity, and each organization’s HR professionals must ensure they follow all applicable laws and notification requirements when reducing staff.

In addition, M&A transactions may result in organizations being forced to comply with new laws. M&A transactions are often legally complex, and we recommend that employers consult legal counsel throughout the deal cycle to ensure compliance with all relevant requirements.

After the Transaction: Integrating the Organizations

Once an M&A transaction is completed, HR plays a key role in integrating the organizations. Their responsibilities often include the following:

• Creating new policies: After an M&A event, HR must create or merge employment policies, rules and guidelines to establish workplace governance and set employee expectations for the new organization.
• Managing & retaining talent: HR plays a critical role in determining which employees will stay, are replaced or are eliminated after an M&A event, as well as developing retention strategies to ensure key employees stick around.
• Developing compensation strategies: HR often creates cohesive compensation structures for the new organization, including executive compensation strategies.
• Creating employee benefits programs: Similar to creating compensation structures, HR may need to fit existing employee benefits programs into a unified plan for the new organization or establish new benefits programs.

Connect with CBIZ For End-to-End M&A Guidance

HR is essential to the success of any M&A transaction, but HR teams can quickly become overwhelmed by time-consuming tasks at each stage of the deal cycle. CBIZ can help. Our team of benefits, insurance and HR specialists are well-versed in the unique requirements of mergers and acquisitions and can step in to assist with due diligence, strategy development, transition planning, integration, optimization and more.