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Where does employee engagement fit within M&A deal priorities?

Mergers and Acquisitions
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By Duncan Smithson and Jill Havely | February 23, 2021

Serial acquirers recognize that employee engagement driven by a positive employee experience isn’t a nice-to-have, it’s a must-have.

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About the article

This article is based in part on findings from the M&A Roundtable, a group of senior M&A experts from serial acquirer companies. Each firm’s participants are drawn from their in-house M&A functions, representing either corporate development, business development or corporate strategy (the term varies based on each firm’s internal definition of the role) and their HR M&A or HR Acquisitions and Divestitures group. Throughout the series, the content reflects the discussions within the group and not the practices of any single firm.

The employee experience is the sum of all the touch points and moments that matter between an employee and their employer. Employee engagement is one component of the overall employee experience. How leaders and the organization “show up” for employees during a corporate transaction has a direct (and long-lasting) impact on employee engagement, talent and customer retention, productivity and the overall success of the deal.

Increasingly, serial acquirers are recognizing that employee engagement driven by a positive employee experience isn’t a nice-to-have in a deal, it’s a must-have and should be prioritized along with other critical drivers of deal success.

Summary of key points

  1. Employee engagement is difficult to prioritize in M&A transactions because it can be hard to link it to specific deal goals and risks. Leading companies push to have employee engagement as an explicit deal goal to ensure it is prioritized appropriately. In practice, however, this may depend on the size of the acquisition and the integration strategy.
  2. Engagement surveys and other listening tools (e.g. in-person or virtual focus groups) are the main tools for assessing employee engagement. Most buyers focus only on the acquired group of employees (as opposed to including current employees), possibly with customized questions specific to the cutover or transition into the acquiring organization.
  3. Companies that do not measure engagement explicitly may still capture some aspects of engagement in their culture surveys, since employee engagement and productivity is an important element of culture in M&A.

The risks of under-prioritizing employee engagement in M&A

Employee engagement is a challenging issue in M&A, not because engagement is unimportant, but rather because it can be difficult to demonstrate the links between engagement and deal goals and risks. Many argue that it’s a trailing issue, not a leading one.

The corporate development team or business leadership will say that M&A is a disruptive event, with so much going on that there is not enough time or resources to prioritize any activity that doesn’t support a specific deal goal or mitigate a specific deal risk. Unfortunately, this can lead to employee engagement getting lost in the prioritization of other initiatives.

Early engagement can help identify potential deal problems and risks when there’s still time to mitigate the impact.

Leading acquirers, like the companies on the HR M&A Roundtable, however, strive to increase their odds of success by using all the strategies and tactics at their disposal, including keeping employees productive. Having employee engagement as a specific deal goal can ensure engagement is prioritized appropriately. And, early engagement can help identify potential deal problems and risks when there’s still time to mitigate the impact.

Challenges in practice

During a recent session, we asked HR M&A Roundtable participants if they have employee engagement as a specific deal goal. All the companies agree that measuring and tracking employee engagement is a worthwhile activity; but many M&A teams struggle to translate that activity into specific actions that support transaction objectives or mitigate transaction risk. In fact, half the group surveyed did not feel that they are currently doing that to the level that they would like. Note that the engagement needs of companies selling or spinning off business units will likely differ from those of companies making acquisitions. In this article, we focus primarily on acquirers.

The level of focus is context-dependent

Another theme developed in the discussion with serial acquirers is that the approach to employee engagement in transactions, and whether to have engagement as an explicit deal goal, may depend on the size of the acquisition and the integration strategy.

Consider for example, a tuck-in acquisition where a small business unit is going from a large, global seller to a large, global buyer. Culturally, from the perspective of those acquired employees, that might not be much of a change. If the employees are currently somewhat standalone and will remain so in the future, then there may be limited or no negative impact on talent or changes to the work that’s being done or how the work gets done. So, employee engagement (as a deal metric) may or may not be an immediate priority, given other competing priorities.

Conversely, one of the participating companies shared during the discussion: “We are a large, mature organization. We do a lot of smaller, high-tech owner/founder-type acquisitions where even though the size is small, it’s a talent acquisition. It’s not about plant or machinery, or even intellectual capital in the absence of the talent that harnesses that intellectual capital.”

When a deal is primarily a talent play, a purposeful focus — and metric — around the employee experience and employee engagement is a critical indicator of deal success.

When a deal is primarily a talent play, a purposeful focus — and metric — around the employee experience and employee engagement is a critical indicator of deal success.

There isn’t really a standard approach that can be applied every time. Although fostering a positive employee experience and focusing on employee engagement is always a key consideration in every talent strategy, when it comes to prioritizing engagement during a live transaction, buyers need to look at the size of the acquisition and the plan for the acquired business.

Tools and approaches for assessing engagement

The other key theme that emerges is that engagement surveys (traditional or pulse surveys) and other listening tools such as in-person or virtual focus groups are the main tools for assessing employee sentiment and engagement, which makes sense. The best way of figuring out what people are thinking is to ask them.

There is an interesting divergence of opinion as to whether to target engagement surveys on the acquired employees only, or to also include the buyer’s existing employees. The most common approach is to focus only on the acquired group, possibly with customized questions specific to the cutover or transition into the acquiring organization, with the idea is that over time, phasing the acquired employees into the next all-employee survey cycle. However, this fails to recognize the potential impact the deal may have on current employees on the buyer side too.

A key learning from the HR M&A Roundtable companies is to flag the acquired employees in the buyer’s human capital management system, ideally using the project name or the acquisition name so that companies can track cohorts of employees from different legacy acquisitions and analyze them by their specific subgroup. That’s obviously a good way to identify whether there was a problem with that specific acquisition, or whether there is a general problem with the acquisition approach and how the buyer integrates acquired employees.

Although employee engagement surveys are the most commonly used tools used for assessing employee engagement, there are lots of other tools, processes and procedures available to create employee connections, protect employee engagement and foster the desired employee experience:

  1. 01

    Day-one onboarding

    Day-one onboarding messaging is a critical time to capture attention and set the tone for the newly combined company and integration process. It is the first “real” opportunity to directly connect with and energize acquired employees about the new company. If done well, it creates a positive foundation to build upon. However, if done poorly, or not done at all, it introduces higher levels of risk of employee disengagement, lost productivity, lower retention and short or long term deal success.

  2. 02

    Gathering employee input and insights

    During any period of change, employees need to believe that their needs are understood and their voice matters. One of the best ways to do this is through small group roundtable discussions or in-person or virtual focus groups hosted or led by the buying company’s leadership with groups of employees across functions and job grades.

    Focus groups, which are increasingly virtual especially since the COVID-19 pandemic, provide an opportunity to understand employee sentiment and dig deeper into some of the qualitative findings from the engagement survey. Typically, roundtables and focus groups are structured so that findings have some degree of statistical credibility.

  3. 03

    Change champions (or ambassadors)

    An effective way to drive engagement with acquired leaders is to have the buyer’s functional leaders present to the leadership of the acquired company function by function the various integration plans that the buyer has been working on, get input from the acquired leadership and give them a sense of ownership. In that way, companies create change agents who will go out and talk to their employees — the acquired employees — and be change advocates and change leaders for the buyer.

  4. 04

    Incentive plans

    It is quite common to explicitly link executive incentives or retention payments to broader employee engagement and to use employee retention as a proxy for engagement. So, if there is an increase in turnover and resignations from an acquired employee group, then that would impact negatively the incentive or retention payment of the head of the acquiring business unit.

  5. 05

    The broader link to culture and the employee experience

    The HR M&A Roundtable also discussed culture and culture surveys, given that employee engagement and productivity is an important element of culture in M&A. Several companies said they may not measure engagement explicitly, but they do capture some aspects of engagement in their culture surveys. The group also discussed the importance of culture training for acquired leaders. Most agree it’s best to delay culture training from onboarding or cutover until after a few months in, so employees can bring a newcomer’s perspective of the buyer’s organization to the culture training.

    For more details, see our series of papers on culture in M&A.

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Authors

Senior Director, Mergers and Acquisitions

Managing Director – Employee Experience

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