Although rising interest rates have slowed the pace of merger and acquisition activity, 2022 M&A transactions in the United States and Canada still amounted to almost $1.5 trillion. Among these, some of the largest deals included Microsoft’s purchase of Activision, Kroger’s merger with Albertsons and Elon Musk’s private takeover of Twitter.
The Most Difficult Challenge of Mergers and Acquisitions
Although the companies mentioned above are in diverse industries and were joined through different legal paths, they have all faced the most difficult challenge of partnership: how to combine two corporate cultures into one cohesive team. Their degree of success in meeting this challenge and completing a smooth M&A transition will not be determined by their business prowess, a healthy cash balance or a charismatic leader.
Rather, their success (or their failure) in creating one team from two different companies will depend on the ability of the human resources team to anticipate problems, ease the transition and engage the workforce in a new vision and mission.
Mergers and Acquisitions Look Simple…On Paper
At first glance, a merger or acquisition may look like an easy win. With a successful merger, a business can buy market shares, control unique intellectual property, consolidate assets, acquire top talent, trim operating costs and increase profits. However, business leaders who ignore the present value of their human capital do so at their peril.
Failure to Achieve the Objectives of the Transaction
According to a Harvard Business Review study, up to 90 percent of mergers and acquisitions fail to achieve the original objectives of the transaction. The senior management perspective of an acquisition or merger typically prioritizes the smooth transition of financial assets, such as store locations, production equipment, patents or established customers. However, they may not give adequate consideration to the very difficult task of replacing two companies with one new corporate culture.
A Brick Wall of Cultural Differences
When Sprint merged with Nextel, the objective seemed obvious: joining forces against mutual industry rivals, combining customer bases and cross-selling phone products. However, soon after their merger, both companies collided with a brick wall of cultural differences and divergent management styles. Where Nextel was freewheeling and customer-centric, Sprint was bureaucratic and product-centric. As both companies tried to impose their style on each other, executives and key employees began to resign in large numbers.
Before the Transaction: Due Diligence
To join the 10 percent of companies that successfully achieve their objectives during a merger or acquisition process, it’s essential to involve human resources from the start, beginning with due diligence in the form of a comprehensive assessment of the human capital of both companies.
HR leaders must examine the relative compensation plans, workforce demographics, employee benefit programs, organizational hierarchies, talent management and other HR practices. The objective of this analysis should be to identify potential synergies and potential challenges.
The Role of HR in Strategic Planning
In the merger and acquisition process, the human resources team of each company should collaborate with executive leadership to define an overall integration strategy, which includes decisions about leadership structure, compliance issues, cultural alignment, management styles and workforce consolidation. The insights of an HR team are invaluable in shaping these decisions to ensure they align with the overall business objectives while fostering a positive employee experience as the two teams become one.
The Role of HR as Communication Ambassadors
Effective communication is at the heart of successful M&A integration. HR professionals are well-qualified for the role of employee communication ambassadors, which includes gathering employee feedback while transparently conveying information to employees at all levels in both organizations. Human resources team members can be trusted to address concerns, provide clarity and manage expectations, thereby reducing uncertainty and resistance.
The Role of HR as Change Managers
After the transition into one company, change management becomes the critical role of the HR team. M&A transactions introduce significant changes to an organization’s structure, processes and culture. HR experts can develop change management strategies that guide employees through the transition process toward engagement with the new entity and their new HR systems. These strategies may involve training programs, town hall meetings, team-building activities, orientation programs and regular updates to help employees adapt to the changes and feel a sense of ownership in the transition.
The Role of HR in Cultural Integration
The alignment of cultural differences is often a make-or-break factor in M&A success. HR plays a central role in assessing the nuances of company culture and identifying commonalities and differences. By recognizing these cultural attributes, HR professionals can develop a plan to integrate the two corporate cultures seamlessly into one new company.
Cultural integration involves defining shared values, behaviors and norms that will guide the organization. HR plays a key role in ensuring that these cultural elements are embedded in all aspects of the organization, from leadership behavior to employee interactions. By creating a unified culture, the HR department helps build a sense of belonging and reduces the “us vs. them” mentality that can hinder integration.
The Role of HR in Talent Management and Retention
During a merger or acquisition, the key talent pool can become highly competitive. Employees may feel uncertain about their roles, leading to increased turnover and loss of employee knowledge if their concerns are not addressed promptly. HR’s role in talent management becomes crucial as they identify high-potential employees, provide them with growth opportunities and devise retention strategies that keep team members engaged and committed to the new organization.
The Role of HR in Compliance
M&A transactions bring about legal and compliance complexities that HR must navigate. Employment contracts, benefits packages and labor laws may differ between the merging entities. HR professionals work closely with legal teams to ensure a seamless transition that adheres to relevant regulations and protects the rights of employees.
The Role of HR in Integration Management
After a merger or acquisition, HR must continue to monitor and evaluate the effectiveness of integration efforts. This includes gathering feedback from employees to identify areas that require further attention. By addressing ongoing challenges and adjusting strategies as needed, human resources is well-positioned to ensure that the integration process remains on track and that employee concerns are promptly addressed.
The Role of HR in Continuous Improvement
Quantifying the success of an M&A integration is essential to refining future strategies. HR develops key performance indicators (KPIs) that track the change process, including employee satisfaction, productivity, retention rates and other relevant metrics. By analyzing these data points, HR can identify areas where objectives are being met and areas that need improvement, enabling the continuous enhancement of the company’s integration process.
Managing the People Side of the Equation
When an enterprise seeks a merger or acquisition, the role of human resources must extend far beyond workforce recruiting and benefits administration. HR professionals are instrumental in shaping the success of high-stakes M&A transactions by strategically managing the people side of the equation.
From due diligence and assessment before the transaction, to change and performance management after the deal is done, HR expertise is indispensable in ensuring smooth transitions and effective employee integration. As mergers and acquisitions continue to evolve, organizations that recognize the strategic importance of HR to a blended organization will be better positioned to meet the challenge.
Elevate your M&A Experience with Higginbotham
Unlock the full potential of your merger or acquisition with Higginbotham’s comprehensive HR services. Our experienced consulting and outsourcing teams understand the critical role HR plays in a successful merger or acquisition. From due diligence to change management to cultural integration, Higginbotham HR Services will offer insights and strategies tailored to your unique business objectives.
Don’t let cultural differences or employee engagement issues hinder your merger or acquisition success — utilize Higginbotham’s HR Services to integrate your companies into one cohesive team. Contact us today to explore how Higginbotham can elevate your M&A experience by focusing on HR strategies that lead to long-term growth and success.