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People issues are business issues in M&A

Mergers and Acquisitions
Mergers and Acquisitions

By Kelly Karger , Gabe Langerak and Alberto Mondelli | July 30, 2021

To ignore or underestimate people issues in mergers and acquisitions is to ignore a core business issue, so it is important to include HR early in the transaction process.

We recently discussed the role of HR in M&A with a client, and made a regular comment about the role of culture in M&A: “No company has ever stopped a deal from happening because of culture, but looking at the reasons deals fail — culture is often blamed by the leadership as a key reason.” This time, there was a CFO in the room who challenged this. We grew excited, could we have found another of those relatively rare organizations that consider culture in their due diligence phase?

While the CFO believes they look at culture — and feels it is important — his comments were all about gut feelings and alignment of values. The chief human resources officer (CHRO) in the room immediately took the opportunity to state that neither culture assessments nor other people related topics were considered in previous deals, unless they were directly translatable into the financial modeling. Sound familiar?

This situation remains true in many companies, and the fundamental flaw in this situation is not recognizing that people issues are business issues, and corporate transactions are all about achieving stated business goals. To ignore or underestimate people issues in a transaction is to ignore a core business issue.

Globally, we do see a trend of HR, as leaders and champions of the people issues, receiving a seat at the table earlier in the deal life cycle — much like the aforementioned client — and expanding their remit to include aspects beyond the obviously financial. HR leaders have learned how to quantify their companies’ deal-breakers, red-flags and synergy opportunities. As a result, deal teams have included HR to help get the people strategy of transactions right in order to deliver on deals’ goals.

Identifying the people risks

During a transaction’s early stages, all functions are starting from the same vantage point:

  • Why this deal?
  • What is the strategic business rationale of this transaction?

With this common basis, HR can work collaboratively with the deal team and functional leaders to identify the true people risks (and opportunities) that may emerge. Reflecting on such questions will immediately identify whether all the employees are equally important, or whether there are key individuals or groups that require special attention. This will also (usually) identify what the integration or separation strategy is, which will define your approach throughout the process.

HR professionals provide key insights and often function as stewards of the employees — supporting and enabling management, leaders and senior managers in their communication and discussions with employees and their representatives.

HR’s many roles

HR professionals play several roles in corporate transactions:

Strategic business partner

Fully involved in important decision making and overall management through all stages of the M&A process

Advisor to leaders

Acts as a guide through the M&A process, supplying feedback and best practices, and providing strategic input for critical decisions

HR workstream project manager and thought leader

Responsible for developing protocols and methods for project coordination related to people issues throughout the M&A process

Steward of the HR function

Guides and manages the implications for the HR function as a result of the integration

Employee champion/advisor

Energizes employees and builds momentum to carry the organization to a higher level of performance, or equipping leaders and managers to do so

Change leader

Ensuring employees are led through change via effective communication, unwavering commitment, and the anticipation and mitigation of potential risks

HR professionals who understand M&A challenge the deal team and critical decision makers to fully recognize the people impacts on the deal, both the value they can create and the potential to erode value. They speak the language of the deal team, collaborate with other functional leaders, identify the people risks, and drive the activities to manage those risks throughout the deal life cycle. And yes, they ensure that all the HR roles are being played in each deal.

Now that HR has identified the people issues linked to the business issues, the aforementioned CFO has become more engaged and we have started working with them to assess the people risks, starting with culture and leadership assessments, earlier in due diligence.

Authors

Senior Director, Global M&A

Senior Director – Mergers & Acquisitions, Western Europe

Senior Director – Mergers & Acquisitions, Latin America

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