Professional Documents
Culture Documents
Human Capital
Table of contents
Human Capital
Driving value through HR integration: Get it right from the start 4
Lead with a winning hand: Positioning leaders for integration and transformation 12
Authors 37
M&A Making the Deal Work | Human Capital
The evidence is overwhelming: Acquiring structure of the deal, effective timing for key Plan well: Understanding deal structure
companies can neither focus too much nor decisions and milestones, and development and HR’s role
too early on an M&A transaction’s people of strategies to support a smooth What should the “New Co” future state
implications. Chief Human Resources integration. HR leadership also can lead the look like?
Officers (CHROs) as leaders and the Human organization’s efforts to identify potential No two M&A deals are alike – each
Resources (HR) function as a whole play business and human capital risks, and shape transaction’s strategic and HR-related
critical roles in determining whether a the strategy and integration plan. With HR objectives may vary based on many factors.
potential deal realizes its strategic, financial, playing a leadership role from the beginning In general, most M&A transactions fall
and operational goals. As soon as an of the M&A process, it is more likely that the into one of four strategy classifications –
organization begins the M&A process, organization will optimize a deal’s financial transformation, expansion, assimilation, and
HR can share vital business information and operational synergies. add-on – according to deal objectives and
and expertise that may influence the the relative sizes of the acquiring company
identification of potential partners, the and its target (Figure 1).
Large
Expansion Transformation
Pace: Cautious/Moderate Pace: Moderate
Style: Coordinated Style: Collaborative
Target size Change in key areas Enterprise change
relative
to acquirer Add-on Assimilation
Pace: Fast Pace: Fast
Style: Selective coordination Style: Directive
Minimal change Significant change at target
Small
Low High
Integration
4
M&A Making the Deal Work | Human Capital
Transformation: Large target with high Assimilation: Smaller target with high
integration needs (i.e., merger of equals or “fish integration needs (e.g., target is assimilated
swallowing the whale”). into the acquirer’s strategic plans, systems,
In a transformative transaction, significant programs, and culture).
effort is made to consolidate HR systems, Assimilation-focused M&A usually includes
benefit plans, programs, and policies aggressive synergy goals for eliminating
for the newly combined company (“New a certain portion of the target’s systems,
Co”). Typically, executives take the most benefit plans, and redundant resources
effective processes and solutions from (including senior leadership). Assimilation
each organization or implement new, transactions tend to create significant
best-in-class solutions for the combined change management and cultural issues
entity. When executing a large scale for the target organization; however, the HR
transaction, HR leaders may face significant department should not underestimate the
challenges, such as meeting aggressive impact of the transaction on the acquiring
synergy targets for systems, benefit organization.
plans, and redundant resources; gaining
leadership and organizational alignment; Add-on: Small target with low integration
handling employee engagement and needs (e.g., the target is bolted on to the
retention concerns; and addressing cultural acquirer with limited integration).
differences. In a typical add-on transaction, the acquirer
is bolting on a new business that will not
Expansion: Large target with low integration be fully-integrated into the acquirer’s other
needs (i.e., large target that will maintain business. These transactions are generally
separate systems and/or programs with limited very fast paced, with selective integration
integration). between the organizations. It is important to
In a typical expansion-focused transaction, understand and plan for the long-term goals
the acquirer is widening its global footprint of these types of transactions to determine
or adding a separate business that will not the right Human Capital strategy to support
be fully integrated into its other business. the deal.
Some effort may be required to meet
synergy targets for systems, benefit plans,
and redundant resources, including senior
leadership; however, with limited integration,
synergy opportunities also may be limited.
For example, the existing HR organization
may not possess the competencies to
deal with the risks and needs of the new
businesses and/or geographies. In addition,
the expanded organization may need to
rethink its leadership structure, operating
model, and talent strategies, which adds
complexity.
5
M&A Making the Deal Work | Human Capital
HR’s role in an M&A transaction with getting its own house in order. The redesigning HR systems and services. A
Regardless of deal structure, it is imperative acquirer should not only perform due strategic HR implementation plan should
that HR leaders be members of the diligence on the target, but also conduct a take into account, among other things,
leadership team that is identifying synergy self-assessment to understand the issues the leading practices for the combined
opportunities, assessing potential financial and limitations of its own HR systems organization (including cost analysis)
and operational risks, and developing and processes: Has the acquirer closed and an understanding of the supporting
deal terms. By involving HR early in past deals that have not been integrated? infrastructure (e.g., communication, culture,
the transaction lifecycle, the function’s Does the current transaction provide the leadership, staffing, etc.).
executives can provide analysis and insight opportunity to fully integrate past deals
to help achieve the following deal objectives: or improve current processes? Can the In developing a strategic integration
acquirer’s systems and processes (e.g., HRIS strategy, the HR team should address the
Pay the right price for the business and Payroll) scale to integrate the target? following priorities:
being acquired These are just a few of the potential issues • Redesign or harmonize HR policies and
• Provide input on the purchase agreement facing HR in any deal. procedures
– Inventory all existing compensation and
• Assist with performing due diligence and Using a side-by-side, global and country-by- benefit plans and programs for both the
identifying and quantifying integration country comparison of the acquirer’s and acquirer and target, including service
risks target’s similarities and differences (e.g., providers/vendors used; identify key
• Help to mitigate identified risks structure, demographics, compensation differences (compensation, health and
and benefit plans, and HR policies, systems welfare, retirement, paid time off [PTO],
• Capture people-related integration costs and processes), the HR integration team can etc.).
develop an effective integration strategy. – Identify transitional incentive and
Achieve growth and cost-saving targets This should include guiding principles, retention needs, including:
• Retain key employee populations estimated complexity, timing, and costs, and » Broad-based compensation and
potential synergies and dis-synergies. employee job leveling
• Maintain employee engagement and
» Incentive compensation – short-term,
morale Based on the transaction’s size and scope, long-term, equity, and other programs
• Stabilize and optimize the workforce as well as the acquirer’s current state, the » Executive compensation and
deal team should also determine if this employment agreements, as needed
• Assist with quantifying one-time costs and is an opportunity for HR transformation. » Retention and severance plans.
ongoing savings Whether it’s a change in culture, systems – Define future-state global total rewards
• Enable productivity improvements implementation, or a harmonization strategy and philosophy
of HR policies, procedures or benefit – Perform gap analysis against the
• Help to restructure the business plans, M&A transactions can provide the inventory of existing benefits
opportunity to upgrade or transform the plans to determine plan design
In addition to providing input to the deal way HR supports the overall business. recommendations by country–
team, the acquirer’s HR organization This may include adopting the acquirer or including cost implications and vendor
will need to immediately execute on the target’s HR practices; combining the best requirements.
HR integration strategy – and this starts approaches from each organization; or fully
6
M&A Making the Deal Work | Human Capital
– Develop strategy to harmonize HR – Define relocation strategy, policy, vendor RFPs), including interfaces with
policies and procedures, including and costs, including expatriate general ledger (GL) systems and other
performance management and training responsibilities. enterprise resource planners (ERPs).
and development. – Identify HR interventions to support – Estimate HR synergy savings and
– Develop communications strategy for organizational design (e.g., talent any dis-synergies from migrating to
changing compensation and benefit management priorities: job design, consolidated HR operations, technology,
plans, policies, and procedures (e.g., performance management, leadership and vendors (HRIS, payroll, time and
Frequently Asked Questions [FAQs], development, learning and training, attendance, learning management,
Summary Plan Descriptions (SPDs), career mapping, succession planning). recruiting, etc.)
employee handbooks, intranet sites,
etc.). Obviously, there is a lot to consider from
• Harmonize and/or transform HR
an HR perspective when developing an
operations (payroll and HRIS systems,
effective integration strategy. By taking a
• Manage talent shared services, etc.)
leadership role from the beginning of the
– Develop detailed, future-state – Develop country-by-country inventory of
transaction, HR will be able to influence
organizational structure in collaboration current payroll operations, vendors, pay
and gain a thorough understanding
with business leaders. calendars, HR data management, and
of the deal’s goals and objectives and
– Review the future-state organizational HRIS tools/systems, including time and
develop an effective short- and long-
structure and staffing model based on attendance systems and shared services
term integration plan that aligns with
deal objectives and adjust as necessary. support structure.
and supports the organization’s overall
– Review the current employee census – Identify country-specific data privacy
efforts.
against the future-state staffing laws that impact payroll function and HR
model and organizational structure data management.
to determine where talent gaps or – Coordinate with the legal department
redundancies exist. on legal entities and country-specific
– Define the talent assessment and payroll registration process, and with
selection criteria, considering existing the finance department on banking and
quality, productivity, and responsiveness general ledger requirements for the
measures. payroll function.
– Assess the selection process, including – Develop high-level integration roadmap
title/band mapping process and for HR operations, technology, and
relocation opportunities. vendors.
– Identify global employment issues – Determine implementation timing
including unions, works councils, and any required Transition Services
transfer of Undertakings (TUPE), Agreements (TSAs), including service
acquired rights, notice requirements, delivery requirements and costing.
and potential redundancy payments. – Develop and implement go-forward
– Identify potential reductions in force, HRIS/HR operations approach (HR
including severance costs. people, processes and technologies, and
7
M&A Making the Deal Work | Human Capital
HR value impacts: may reveal potential “deal killers” in these HR operations-related risks: This is a
Integration and transformation areas, as well as other factors that could bit of a catch-all topic, but it can still be
During an M&A transaction, HR significantly hamper the long-term success significant. It is critical that an acquirer ask
professionals are often expected to work of the transaction. Some of these key the target about the number of open Equal
across the enterprise to drive significant discoveries include: Employment Opportunity Commission
synergies through headcount reductions. (EEOC) claims, active employment
This traditional view of HR’s role is often Executive leadership risk: An acquiring litigation, current Office of Federal Contract
overstated and, in some cases, myopic. company’s HR and executive leadership Compliance Programs (OFCCP) audits, and
When two organizations are combining, should partner to review the target’s current Department of Labor investigations.
operations are often complementary development and succession planning A preponderance of these issues can
rather than redundant. Sometimes, these for the C-suite and other executives. This provide significant clues as to the target
organizations also have optimized their analysis can identify if there is significant company’s HR’s governance, its position on
administrative functions to the point risk or weakness in the governance of risk avoidance, and its corporate culture.
where the additional scale of the combined the business. Also, many executives This area tends to be “feast or famine”: In
organization does not provide much have “change of control” clauses in their most cases, there are no significant issues,
opportunity for synergy realization. That is employment contracts that can drive large which would seem to indicate a properly
not to say that HR cannot drive value in a cash outlays upon deal close. In addition to managed HR risk position. When trouble is
transaction; however, HR should understand risk and cost identification, C-suite analysis uncovered early, however, the acquirer may
the value that can be realized through both can help the acquirer’s leadership team be better-positioned to mitigate or avoid
traditional and non-traditional means. The determine priorities for organizational associated risks and costs.
key is to dig deep from the beginning of the changes at deal close.
transaction and follow through well beyond NOTE: It is very important to involve internal
deal close. HR operating model misalignment: or external employment legal counsel during
Does the target have multiple HRIS or these activities to ensure that the analysis is
Deeper diligence: HR-driven value in payroll systems? Has it executed a number accurate and follows all legal guidelines.
pre-close planning & preparation of acquisitions but not had the time or
Prior to an M&A transaction, both acquirer resources to do a full HR integration? Finally, M&A team members should
and seller routinely conduct thorough Does the target have multiple HR business acknowledge that human capital
due diligence. This process is vital for partner structures, or multiple shared opportunities and risks exist in every deal,
the acquirer to fully realize the strategic service centers? How many benefits regardless of scope. Giving HR an active
expectations set forth in the initial deal programs does it have? Bottom line, there voice early and often during a transaction
valuation, and is critical for the seller to are many reasons why misalignment may may lead to significant cost savings and a
determine that the acquirer is viable and exist in an HR model, any of which could reduction in employee-related risks.
capable of executing the transaction. sidetrack successful deal execution. An
Given that many deals are executed to acquirer should assess challenges and
gain operational economies, market risks early to determine the potential
share, technology, or geographical scale, cost of misalignment and proactively
due diligence often centers on meeting develop a strong integration roadmap.
regulatory requirements, financial This assessment also might highlight
statement implications, and basic business potential delays in achieving some of the
functionality. There are significant HR- deal’s strategic, operational, and financial
related value drivers in this diligence phase, targets, and influence the overall deal price
such as analyzing retirement funding (the accordingly.
lack of which could add significant costs at
deal close), and proper valuation of health
and welfare plans. Thorough due diligence
8
M&A Making the Deal Work | Human Capital
Keeping the lights on throughout may cause disruptions in downstream Separate cleanly. Creating and executing
integration: HR’s value as a business HRIS and payroll systems. It may sound a consistent and concise severance
steward obvious, but ensuring that everyone process can drive significant value during
As explained in this paper, strategic HR in the new organization receives an integration. HR can strengthen employee
leadership can provide significant value error-free, first post-close paycheck goes trust and protect the company’s reputation
during the M&A lifecycle. However, a a long way in helping employees at all by implementing a separation process
number of tactical HR actions, when levels settle in to the new organization. that meets local legal and regulatory
proactively implemented, can also add requirements and is guided by firm
business value by “keeping the lights on,” Headcount synergies milestones, clear communication, and strict
particularly during integration. As stated earlier, a well-known HR rigor.
responsibility during M&A is facilitating the
HR Day 1 focus areas realization of headcount synergies. Often
While Day 1 is a significant milestone in a this is seen as identifying and eliminating
new company’s life, it typically requires few, organizational redundancies. For many
if any, noteworthy HR operational changes, companies this is where the exercise begins
such as benefits integration or payroll and ends. However, strong HR leadership
adjustments. That said, employees who are can transform the pursuit of headcount
joining the new organization are likely to synergies from a pure cost play to true
have questions and concerns that HR can organizational alignment. There are a
help to address. Important HR Day 1 focus number of ways that HR can add business
areas include: value during this process:
1. Clarifying leadership structure:
Facilitating organizational design Understand retention. Well-planned
changes that become effective Day retention strategies can have significant
1 means going beyond the typical impact and make every dollar paid count.
announcement of who is in what HR staff should understand who the key
leadership position. Using meetings and employees are, why they should be retained,
select strategic materials, HR should aid and what it will take to make retention
employee understanding of what the meaningful.
new leadership roles might mean down
and across the organization, therefore Match the organization structure to
alleviating some anxiety. the business model. HR should work with
2. Managing and communicating C-suite executives and department heads to
change: HR should work with match the expanded organization structure
Communications, Marketing, and other to the combined company’s operational
functions at both the acquirer and target needs. The degree of alignment between
companies to develop and communicate operations and organization structure
a change management strategy and directly drives optimal cost reduction and
implementation plan for Day 1 and operational efficiency.
beyond. The plan should address
reporting structure changes, process Select talent wisely. Talent selection is
redesign, technology changes, corporate fertile ground for inconsistent decision-
branding, and more. making among hiring managers and senior
3. Striving for zero “breakage”: HR, IT, executives. HR can help to drive logical,
and other departments should strive business-based employee selection by
to make sure that any Day 1-related optimizing the process design, extracting
changes do not “break” existing systems. the right data, and providing consistency
Even limited organizational changes throughout the hiring process.
9
M&A Making the Deal Work | Human Capital
10
M&A Making the Deal Work | Human Capital
11
M&A Making the Deal Work | Human Capital
A merger or acquisition (M&A) is one of to engage stakeholders in fulfilling the • Lead differently. Post-M&A
the biggest game-changing opportunities vision for the new organization. Both the transformation often calls for new people
available to an organization and its executive leadership and transaction management skills, especially if the deal
leadership. M&A can open doors to leadership teams must be committed combines organizations with dramatically
new markets, fill talent gaps, improve and patient throughout the deal lifecycle. different cultures. Executive and functional
operational performance, grow shareholder Transactions require a steady hand, so leaders should be coached on what to say
value, and even allow the expanded it’s imperative to find leaders who won’t and do to help move their organization
organization to shape a new culture. To get flustered during this uncertain and in a positive direction. Training support
fully realize anticipated deal synergies, dynamic time. should include establishing a collaborative
the management team needs to lead with environment with transaction planning
• Engage: Define each leader’s role in
a winning hand: Achieving the desired that is transparent and synchronized;
the new organization and address their
results often hinges on executives’ ability to encouraging leaders to talk candidly with
individual questions or concerns. You can’t
engage the workforce and lead proactively, their people at every level and promote
engage your workforce with a disengaged
positively, and enthusiastically throughout idea-sharing; and asking leaders to
leadership team; leaders need to know
the transaction lifecycle–including communicate specific ways their people
what is expected of them and have no
post-deal integration and organizational can contribute to the new organization’s
confusion about their roles if they are to
transformation. goals and how they will be rewarded for
achieve the desired result.
those contributions.
Stacking the deck: Preparing the • Communicate: Tailor messages to
• Cultivate patience while driving
leadership team address the concerns of each leader’s
performance. M&A-related
Experienced CEOs know that a component key audiences. Employees notice when a
transformation is an iterative process
of an effective M&A transition includes message has been carefully crafted with
that for many employees may seem
insulating customers from the uncertainty their specific issues in mind.
chaotic or disorganized. The resulting
that a proposed deal may present. For
• Practice: Provide rigorous training anxiety and frustration can interfere
this to occur, leadership should rigorously
and practice sessions to help leaders with effective day-to-day performance.
prepare to guide employees through the
polish their deal management and Leaders should set realistic expectations
deal process while keeping it “business as
communication skills. for employee performance, allowing
usual” for customers. Preparation begins
them time to adjust to new ways of doing
with selecting an operating model and
Upping the ante: Engaging leaders for business. When leaders inspire and
leadership team to take the helm during the
success model positive behaviors, they can help
transaction. Smart first steps to consider
Identifying capable individuals to lead the to ease employees’ concerns resulting
include:
organization through an M&A transaction from deal ambiguity, thus allowing them
• Design: Define the new operating model, is an important step forward; however, to concentrate on delivering an excellent
overall organization structure, and effectively engaging these leaders to customer experience.
leadership roles that will support it. transform the post-M&A organization can
make or break the deal. Preparing leaders
• Select: Choose top-tier, transformative
for this important role may require that they:
leaders–those who are able and willing
12
M&A Making the Deal Work | Human Capital
Play it forward: Aligning the team • What’s required to realize the deal Double down: Building a high-
It’s easy to spot a well-aligned leadership strategy? Project into the future. What performing culture
team by observing what they say and do. needs to be done and how long will it take A company’s culture can be described as
Acting as a unit, they share a consistent, before the new organization achieves “why things work the way they do around
clear vision of the future organization and anticipated deal synergies? here.” Building or reshaping culture as a
the value it can provide to all stakeholders, • How will the team execute a seamless result of M&A takes planning and time.
including employees. With everyone transaction? Has anyone on the leadership Transformational leaders can help to mold
playing the same game, the organization team been through an M&A previously, the future organization’s culture through
can attain the stability and direction it or does everyone need to sharpen their their words and actions–the way they treat
needs to undergo an effective post-M&A abilities and expand their skills to lead stakeholders and where they focus their
transformation. Unfortunately, there’s no through the transformation? energy and attention. Table stakes for a
straight path to alignment. The process positive company culture include a clear
begins with a hypothetical future-state Turn the tables: Creating positive buzz operating model that each stakeholder
vision; one that changes and evolves as the understands; an organizational structure
It typically takes weeks, sometimes months,
leadership team debates ideas, concerns, that shows people where they fit and
of thorough due diligence and skilled
and alternatives. provides them with the proper resources
negotiations to arrive at mutually agreeable
and reporting relationships that they need
M&A deal terms. It’s no wonder that
An effective way to develop and test various to be successful in their jobs; leadership
leadership teams sometimes forget that
hypotheses is for senior executives to that’s aligned to support common principles
certain stakeholders–including employees–
sponsor a leadership summit to explore and objectives, and that is committed to
may be caught off guard when they hear
operating models, cultures, and structures “walking the talk”; rigorous standards for
about a pending deal. Controlling the flow of
that may allow the combined company to how leaders communicate; and talent
information is critical to gaining and keeping
deliver more synergistic value. Observing strategies that are focused on retaining key
the trust of the workforce. As mentioned
how the participants conduct and express competencies and engaging employees.
previously, this means that news should be
themselves during the summit can also
communicated with clarity and enthusiasm. Split the pot: Everybody wins
give senior executives insights to select the
go-forward leadership team. The goal of the An M&A deal can provide a rare opportunity
Leaders should strive to move beyond
summit isn’t to gain consensus. Rather, it’s to bring together the very best people,
effectiveness to become influential
to extract sharp thinking that can drive the products, and operations into one
communicators who create positive
organization forward. To that end, leaders organization; to create more value in months
“buzz” around the deal. Effective leaders
should aim to answer questions such as: than in-house development can in years.
control potential rumors and speculation
However, delivering on this opportunity
by considering the perspective of their
• Where are we going, and how can we requires leaders to demonstrate skills that
stakeholders—analysts, shareholders,
get there? Start a conversation with the go beyond those needed for business as
employees, vendors, and customers—as
leadership team about how the new usual. By aligning, acting and speaking as
they respond to each group’s concerns.
organization will create future value. one, they can help create a compelling
Influential leaders go beyond control;
The exciting thing about an M&A deal is vision for the future company and provide
they build stakeholder excitement and
that the place the new company is going the support and resources to achieve this
anticipation by communicating the
doesn’t exist yet–leaders and employees vision. A successful M&A deal requires
anticipated value that the combined entities
get to invent it. Collaboratively developing transformative leaders who will empower
will generate in messages tailored to specific
a clear end-state vision and an actionable and inspire employees to pull together and
groups’ interests.
strategy for how to get there are key steps collectively achieve more than they ever
to fostering an engaged transformation imagined possible.
leadership team.
13
M&A Making the Deal Work | Human Capital
14
M&A Making the Deal Work | Human Capital
15
M&A Making the Deal Work | Human Capital
Outline work council/regulatory body message content, the integration team also Establishing communications
considerations performed an analysis of the mediums that governance
On deals with significant international reach, most effectively engaged employees on A structured communications and
remember that work council and regulatory both sides of the deal and harnessed the change management program provides
body considerations may exert considerable power of those platforms to control and a foundation that can flex to manage
influence when determining access to regulate pre-Day 1 messages. ambiguity and respond to changes
personnel data (e.g., employee email throughout post-deal integration.
addresses for communications), the timeline Relevant questions: How are target employees Choosing the integration team, designing
for organizational decisions, the sensitivity accustomed to receiving news? Does the comprehensive plans to regulate the flow
of communications approvals, and the target company have an intranet page for of information, and generating a positive
sequence of messages in communications integration-specific communications? Would company culture can accelerate and
cascades. employees respond well to a joint message actualize the integration.
from the leadership of each organization?
Relevant questions: Which integration team Is the target organization accustomed to Pick the right team
members are managing work council/ receiving surveys? Pick buyer and seller integration team
regulatory body relationships? What is the members who have relevant expertise and
work council approval process for employee Facilitate functional integration a commitment to collaboration. Develop
communications? Does the organization Develop targeted communications that champions and change agents in both
have a strong working relationship with local functional leadership can use to explain organizations to promote positive employee
work councils? Are work councils aware of integration objectives to their employees. participation. The team should include
and aligned to the organization’s high-level For example, the communications team collaborative, consensus-driven leaders
decision timelines? can support the sales function by designing who are dedicated to the effort and who
sales handbooks to promote cross-selling, understand the critical importance of
Connect with target employees creating a tailored sales communications communications and change management
pre-Day 1 plan, and featuring the function in broader to engage employees and realize post-deal
Build strong relationships with target integration communications as an employee synergies.
company communications counterparts group that is successfully adopting a “best of
to understand the types of messages both” strategy. Plan key activities
that resonate with their employees. Use Partner with leaders to communicate tough
this understanding to effectively connect Relevant questions: How will functional strategic decisions such as office closures
with target employees prior to deal close expectations change? Will targets and or separation notification timelines as early
and employee Day 1 – this can help lay metrics change? What does success look like as possible. These key activities are not only
the groundwork for a positive employee in the new organization? critical to meeting synergy capture timelines;
experience. they represent significant change for
employees and require extensive planning
Case in point: During a recent multi-billion and preparation to execute successfully.
deal at a technology company, messaging Planning key activities goes hand-in-hand
was distributed across a diverse range of with monitoring effectiveness: Establish
communication platforms including blogs, targeted and measureable metrics to
live webcasts, traditional newsletters, evaluate the impact of change management
and an internal company social media efforts on integration.
site. In addition to developing compelling
16
M&A Making the Deal Work | Human Capital
Enhance execution
Generate excitement throughout a
sustained integration campaign to create
a positive company culture. Hold leaders
accountable for engagement and retention.
Build a strong community and support
network (e.g., by establishing a buddy
program).
17
M&A Making the Deal Work | Human Capital
The Watercooler Conversation The deal has closed and you are welcoming 1. Provide a positive and seamless
the target company employees into your employee onboarding experience-
“Did you hear the news? We’ve been acquired.” organization. What happens after “Day address the “what’s in it for me” factor
1”? How do you engage with this group of 2. Be visible, accessible and aligned-the
“I just heard, and I’m not surprised. We were all employees and help them integrate into combined leadership team must share
expecting it, I just didn’t know it would happen their new organization without disrupting the same vision, strategic objectives and
so soon.” the business? How do you deal with the values
watercooler chatter? 3. Actively engage with employees-get
“So what happens next? Do we all still have a them excited about the future of the
job and do we still report to Bob? He’s been a In the Deloitte 2015 Integration Report,1 combined organization
great mentor for me and I know how close you almost 30 percent of respondents said 4. Be mindful of the longer-term future-
both are even outside of work. Do you think that their integration fell short of success, deal with the present while moving
we’ll be able to sell the acquirer’s products with the top reasons being the inability toward the future state
along with our own? That would be a plus for to deal with unexpected challenges and lack
my career aspirations.” of preparedness. In this same survey, In this article, we will examine key drivers
respondents also concurred on the key for successful integration and offer lessons
“Just be happy you have a job for now–if I drivers for successful integration: executive from client experiences about how they
guessed we will probably have less than more leadership support, involvement of addressed people-related challenges in the
as a result of this integration, and let’s be clear, management from both sides and a robust first 100 days of integration.
it’s an acquisition–not a merger.” communications program.
“True. I hope that I maintain my job, title, pay, Regardless of which approach a company
continue reporting to Bob, and keep all my selects, ensuring a smooth transition from
benefits. I also can’t afford to move locations the beginning of the integration has a
and I hope I can keep using my Mac laptop.” high correlation with overall success of an
integration1.Below are some critical people-
related should-haves in the first 100 days of
an integration to support success:
18
M&A Making the Deal Work | Human Capital
Provide a positive and seamless Day 1 is your biggest recruiting day. This is • Day-to-day job functions–Provide
employee onboarding experience- when you recruit and re-recruit your people. information required for employees to
address the “what’s in it for me” factor Set the tone effectively by considering the continue operating effectively in their roles
following:
One reason that M&A transactions may – How to use newly required systems
• Deliver inspiring messages about the
fail is poor preparation for the critical post- – How to collaborate with employees
future company vision, talent, and benefits
merger period1. Issues often overlooked in throughout the organization using
to employees for both the acquirer and
the planning phase of an integration include technology
target
not only onboarding acquired employees – How to access new facilities
so they can be successful in their new day- • Utilize multiple communications vehicles – How to locate information about
to-day roles, but also preparing for difficult to reinforce excitement cross-company product lines for the
conversations with employees by being as salesforce if cross-selling is applicable
• Conduct celebration-related events to
transparent as possible.
highlight Day 1 as a significant milestone
While these tactical steps seem easy enough
A successful onboarding program can make • Provide people leaders and managers to complete, they also have potential to go
a complicated process feel simple and with expectations, tools, and resources to wrong. A coordinated, well-planned and
effortless. It starts with acknowledging that share information and feedback well-executed integration is critical for
there is no such thing as “business as usual,” success.
and it’s not necessary to pretend otherwise. The following checklist can help the
Start by addressing the elephant in the onboarding team to onboard employees
room: What’s happening to people’s jobs, during the first 100 days.
roles, titles and reporting structures? To the
extent possible, address these questions
• Policies–Provide sufficient
before Day 1 and reinforce the message
communications, documentation and
during the first 100 days. Also, create a
training, as appropriate. For example,
positive–and seemingly effortless-employee
policy changes in the first 100 days could
onboarding experience coordinating across
include information about insider trading,
the organization with a dedicated team
code of conduct, gifts & entertainment,
focused on onboarding. This team will play
travel, etc.
an integral role in supporting employees by
providing the tools and resources they need • Offer letters–Provide reminders for
to perform their jobs in the new company employees to review and acknowledge
and environment. receipt of their offer letters
19
M&A Making the Deal Work | Human Capital
Be visible, accessible and aligned - the managers have more information than their Continuously monitoring employee
combined leadership team should share employees about what the road looks like engagement through mechanisms such as
the same vision, strategic objectives ahead, and are often more approachable pulse surveys and focus groups will give
and values for employees than senior leaders (it’s not companies insight into trending issues and
often that employees will ask senior leaders employee concerns. Successful companies
Leaders can influence and manage how about job security or how to access new may implement a two-way feedback
organizations are integrated. Successful IT systems). Not all leaders and managers mechanism and a demonstration that
integration may require leadership to accept know how to lead well so be prescriptive leadership is willing to listen to concerns
and commit to the new organization before about how they should act and what and engage in a dialog with employees.
the employees – then set an example and they should say. It’s important to provide According to the Human Capital Trends
expectations for the employees to follow enough resources, tools and support to report2, there is a new generation of “pulse”
their lead. drive the integration and make it stick with survey tools and open anonymous feedback
employees. systems that can allow employees to share
To ensure leaders are prepared to achieve their experience on a near-real-time basis.
integration priorities, the combined The Watercooler The thoughtful use of such tools can create
leadership team should be aligned on the a true “listening environment” for employees
strategic vision and path forward for the “Who is going to lead our function? Will we still while giving leaders critical insight into
new organization early in the process. have enough influence and authority over our what’s working and what’s not working
Organizations often host leadership products and sales approach? And what do you throughout the integration. This helps
summits bringing their combined leadership think of our new CEO? Does he/she ‘get us’ and leaders to adjust their communications
teams together to align on the combined how we operate?” approach accordingly.
company vision, strategic objectives, and
values as well as other important business “I guess we’ll have to wait and see. I just hope The Watercooler
topics. These are then cascaded throughout our leaders have enough courage to stand
the organization. In addition to a leadership up and help preserve our values and pride “I can’t decide if being acquired is a good or
summit, business leaders should engage in and ownership over our products. I hope the bad thing.”
tactical execution planning that focuses on acquiring leadership team understands what
how to influence and support the first 100 matters to us most.” “It’s usually a bad thing, but let’s give it a
days as individual leaders and collectively as chance and see what leadership says and more
a leadership team. Actively engage with employees - get importantly does. Let’s see what type of tone
them excited about the future of the they set.”
Employees want to hear from their leaders combined organization
just like the media wants to hear from
athletes following a win at a sporting event. More and more, it is critical to pay attention
Sharing specific information and being as to the employee experience, and even
transparent as possible, will go a long way more so during times of change, such as an
to inspire and motivate employees who integration. The Human Capital Trends 2016
are wondering about their opportunities in report2 found that employee engagement
the new organization. Employees want to is a business imperative for leaders at all
understand the combined company vision, levels – above all, the CEO – and no longer
stay informed through regular updates something to be measured just once a year
about the integration progress, and receive by taking a look in the rear-view mirror.
direct, tactical communications from their Engagement is an aspect of workplace life
functional leaders regarding actions that that should be continuously monitored in
directly impact employees. While it is a proactive way. It is about the future of
important to have leaders champion the an organization; a measure of corporate
change, mid-levels managers are important health and a key window into the potential
influencers as they can hold the key to for future issues and workers’ support for
whether employees will stay or go. Mid-level change.
20
M&A Making the Deal Work | Human Capital
21
M&A Making the Deal Work | Human Capital
End Notes
1. The Integration Report, “Putting the Pieces Together”, Deloitte LLP, March 2015, www2.deloitte.com/content/dam/Deloitte/us/Documents/mergers-integrations/us-
ma-integration-report-030415.PDF
2. Global Human Capital Trends, “The New Organization: Different by Design”, Deloitte LLP, March 2016, www2.deloitte.com/content/dam/Deloitte/global/Documents/
HumanCapital/gx-dup-global-human-capital-trends-2016.pdf
22
M&A Making the Deal Work | Human Capital
The culture-performance connection The bottom line is that culture is inextricably Cultural issues may derail integration
Company culture can have a significant linked to performance, especially in an planning
impact on company performance. Indeed, M&A context. The question is not if—but A mismatch in the values and resulting
decades of research support a direct link how—companies should manage culture to behaviors that companies consider core
between culture and indicators of financial safeguard the value of an M&A deal. to their existence can create challenges
and nonfinancial performance.1 While during integration planning and, possibly,
the exact formula relating culture and Managing culture clash deep-six integration efforts. Consider the
performance has proved elusive, it is clear While business leaders generally recognize case of an American company that decided
that companies should consider culture as the importance of assessing and managing to acquire one of its Japanese competitors.
one of the key levers they can pull to sustain culture during M&A, many apparently do The integration process was expected to
and improve performance. By effectively not feel equipped to make culture-related be fairly straightforward. Executives at the
understanding and shaping their culture, strategic decisions. According to one study, acquiring company were used to setting and
companies can drive business strategy 54 percent of leaders believe that neglecting achieving targets fluidly by making quick
and achieve their operational and financial to audit non-financial assets such as decisions and rapidly iterating on those
objectives. organizational culture increases the danger decisions. Substantial, cyclical restructuring
of making the wrong acquisition; however, of large swathes of the workforce typically
Performance is always a top-of-mind issue only 27 percent of them made cultural was part of the process.
for executives; even more so during a compatibility a priority during due diligence.2
merger and/or acquisition (M&A) because Executives at the Japanese target had a
M&A transactions are subject to increased Yet, it doesn’t have to be this way. By very different approach to decision-making.
investor scrutiny. Moreover, M&A introduces recognizing cultural differences and applying They believed it was important to carefully
an element of uncertainty and potential a structured, objective approach to work build consensus to achieve buy-in and
volatility into financial results, even for through the barriers created by misaligned alignment across the organization. During
consistently profitable companies. As a cultures, merging entities may mitigate integration planning, some key decisions sat
result, there is an imperative for executives the risks of a culture clash on the way to a on the table for more than a year while all
to carefully manage their company’s culture successful, value-generating integration. stakeholders engaged in the discussion.
throughout a transaction.
In addition, Japanese company executives’
Failure to address culture during M&A deals understanding of the employer-employee
can impact a company’s performance in relationship differed. To them, a corporation
subtle ways. Delayed integration due to existed first and foremost to employ people.
cultural inhibitors can lead to opportunity Many employees expected to work at the
costs or breakup fees if the deal stagnates company for their entire career, with an
or gets called off. Productivity and average tenure of over 25 years. Leaders
innovation can decline if employees begin believed that reductions in force were simply
to question if the culture they “signed not an option.
up for” will change. Employees of the
acquired company may experience a sense Together, these cultural factors—the
of alienation when confronted with the magnitude of which was not fully
perceived dominant culture of the buyer, appreciated during due diligence—
leading to turnover. The departure of key combined to prolong, complicate, and
talent with unique, high-value skill sets can frustrate integration planning efforts.
erode profit margins as hiring managers Ultimately, the failure to consider culture
scramble to fill gaps. hindered the companies’ ability to preserve
the transaction’s short- and long-term value.
23
M&A Making the Deal Work | Human Capital
24
M&A Making the Deal Work | Human Capital
Global deals: Unprecedented a similar focus on the customer, they pull Global deal’s communication
complexity and cultural variability different cultural levers to achieve their breakdown
Today’s cross-border deals present goals of efficiency and innovation. Cultural As cross-border M&A becomes more
tough choices for leaders, even those variability also may be observed in regional common, business leaders will need to
who make culture a priority. In a review and country-level nuances and norms. account for the cultural realities of where,
of complex global organizations, James Commonly accepted beliefs about how why, and how the deal participants do
Heskett observes, “In many cases, a ‘one business is conducted can play a major role business. A merger involving two American
company’ culture is very difficult, and may in global mergers and acquisitions. Attitudes companies illustrates the challenges of
be uneconomic, to achieve. A common set about the social impact of restructuring and managing culture in a global deal. Regional
of values may be the most that a global how decisions should be made are among and country-level cultural nuances were
organization can hope to achieve. But the common cultural differences that can not initially considered to be limiting
same value may be interpreted in different directly affect an integration team’s ability to factors in this deal, as both companies
ways depending on local assumptions deliver on a deal’s projected value. were headquartered in the United
… what does it mean to managers on an States. However, the target company
everyday basis in similar jobs around the Geographic boundaries are not the only had a significant workforce population in
world? How do they interpret it in practice?”4 hallmarks of cultural divides in modern Germany, while the acquiring company did
organizations. Differences may also exist not. As integration work began, country-
It can be difficult to manage cultural nuances within organizational subcultures–functions, level differences in business norms and
in deals that span multiple countries or subsidiaries, and prior acquisitions. In a attitudes began to undermine the cultural
regions. During integration planning, deal health plan example, one company may integration of what appeared to be two
teams should account for both companies’ have an Information Technology (IT) function American companies with similar interests.
geographic and cultural variabilities, and where the top priority is innovation while the For example, some of the target’s German
use them to develop integration strategies other company’s IT department is primarily employees felt that from the time the deal
to bridge any gaps. However, integrating focused on mitigating cybersecurity risks. was announced the buyer’s CEO had an
company cultures is not the same as Failure to recognize and manage influential overly bold leadership and communication
integrating business processes—it is not subcultures can undermine integration style. The CEO quickly earned a reputation
possible to simply select best practices and efforts and, ultimately, the ability to achieve for being brash, which delegitimized his
rationalize workflows. Organizational culture synergy targets. role in leading the integration process and
spans borders and functional boundaries, hindered the two companies’ ability to work
and is of profound importance to employees together to realize deal value.
and leaders alike. Cultural integration should The CEO’s style was just a symptom of a
be handled with care, given the volume of fundamental cultural issue: American and
simultaneous changes occurring during German workers tend to communicate and
a deal. Leaders need to take into account collaborate in different ways. Recognizing
both companies’ distinct cultures and this, the deal team developed cultural
subcultures, which likely have developed interventions for both organizations’
organically over time, and select positive leaders and integration team members.
aspects from each to incorporate in the new By educating them about the differing
company’s culture. work styles, cultural norms, and employee
perceptions, the team was able to help
When two companies merge, the most the companies establish a foundation for
apparent cultural differences typically are cultural understanding and integration. This
at the corporate level, where shared beliefs enabled everyone to work together more
about the company’s mission, collective effectively and created a tangible financial
values, and work processes are common impact by averting a prolonged integration
foundations of organizational culture. In process.
the health plan example, the buyer might
Cases like these show that failing to
frame its mission as a commitment to be
address culture early and often in an M&A
as efficient as possible to reduce costs
transaction may have disastrous results,
for members; the target, meanwhile,
including jeopardizing leaders’ ability to
might place a premium on innovation and
meet immediate commitments to the
integrated care to improve health outcomes
investment community when synergy
for members. While both companies have
targets are missed.
25
M&A Making the Deal Work | Human Capital
Managing cultural issues throughout Pre-close preparation: Developing a In some cases, companies may decide
the deal lifecycle cultural Integration strategy to conduct a culture assessment before
While almost all executives recognize the A cultural integration strategy should align selecting an integration strategy so that they
value of managing culture in M&A deals, it is with leaders’ future-state vision and support better understand the cultural attributes
not easy to turn that understanding into a the deal’s value proposition and targeted of each company – what each values and
viable and actionable integration approach. business objectives. Merging entities may believes and how each behaves. This
Part of the challenge is that some leaders choose to maintain separate and distinct assessment can provide early input into
do not address culture early enough in the cultures with little or no overlap; synthesize what the high-level cultural integration
deal lifecycle. Many of the most successful an entirely new culture; combine the existing strategy may be. In the vast majority of
acquisitions will identify each company’s cultures by incorporating the best aspects cases, however, leaders typically select
core cultural strengths and acknowledge of both; or adopt the dominant, status quo the strategy based on deal due diligence.
cultural differences early on – preferably as culture (Figure 1). For instance, if a holding Companies that delay selecting a cultural
soon as the due diligence stage, given the company acquires a smaller company integration strategy and implementation
deal constructs. with the goal of bolting it onto the existing plan risk undermining the potential long-
portfolio of companies, it might make sense term value of the deal.
For culture change to be sustainable, for the buyer and target to maintain and
issues must be managed throughout the respect their distinct cultures. Conversely, if
deal’s lifecycle, starting before the merger the deal rationale is to achieve economies of
is announced, accelerating during the first scale through consolidation, the preferred
100 days of post-deal integration, and strategy may be to combine cultures or
continuing even after the integration is well adopt the dominant culture to maximize
underway. This vigilant approach requires operating synergies.
that the integration team develop a cultural
integration strategy to enable the desired
business outcomes based on the deal’s
investment thesis.
26
M&A Making the Deal Work | Human Capital
First 100 days: Assessing cultural Culture assessments are not solely for systematic communications and actions
variability and opportunity areas identifying risks or differences. They also to reinforce key behaviors of the desired
It is critical that cultural integration teams may be used to identify the underlying culture. To illustrate this point, if a culture
develop an objective understanding of the strengths of the existing cultures so leaders of courage is desired, leaders from both
cultural variability that exists both between can preserve, reinforce, and leverage them companies should consider modeling
and within consolidating companies so for competitive advantage. this behavior by demonstrating courage
that cultural interventions can be targeted throughout the course of the deal. The
when and where they will be most effective. Finally, diagnostics can be used to measure degree to which leaders from the acquired
Cultural assessments use qualitative results and reassess cultural fit over time. company demonstrate courage and
activities, such as interviews and focus Starting with a baseline at the beginning of maintain focus on business as usual will go a
groups, and quantitative diagnostic tools a merger, diagnostics can be deployed in long way towards calming target employees’
to provide the information needed to multiple iterations to understand if cultural nerves. Similarly, if the combined company
understand and act on cultural variability. reinforcement mechanisms are successfully does not perform financially as expected
bringing the two cultures into alignment. The after deal close, how leaders respond may
Deploying a diagnostic tool such as results of the assessment should be used prove to be a watershed moment for the
Deloitte’s CulturePath™ facilitates an to develop short- and long-term integration new company.
objective assessment of the organizations’ action plans and prioritize the focus for
current state and helps define culture ongoing cultural implementation. At the employee level, it is important to
in tangible and measurable terms. A create goals, metrics, and performance
diagnostic tool analyzes core indices that are Year one and beyond: Sustaining the management processes to incentivize
foundational to organizational culture and new culture desired behaviors that may help sustain
differentiating indices that can ultimately Sustaining a changed or new company the cultural change over time. Systemic
drive differentiated business performance.5 culture is not a one-time project that ends reinforcements can be ingrained in
In the first 100 days after deal close (or at Day 100; it requires ongoing action plan the company’s talent infrastructure,
before close, if possible), it is important to execution and reinforcement during year including hiring strategies, performance
identify where each company falls on the one and beyond. Based on the results of management system, training programs,
spectrum of core and differentiating indices the cultural diagnostic assessment, the and compensation and benefits schemes.
to make the decisions needed to achieve integration team should develop short- and For instance, if a culture of ownership
business synergy targets. long-term plans to drive alignment to the and accountability is desired, then it is
combined company’s end-state vision. important to build these qualities into the
The ability to leverage differentiating Effective culture plans typically include competencies required for recognition and
indices of culture can be a critical enabler quick-win projects as well as long-term promotion. Consider, too, a company that is
of cost and revenue synergies, especially strategies that provide the infrastructure focused on promoting product cross-selling
during the first 100 days. For example, an and processes to drive and sustain the in the new entity’s first quarter to signal
organization with a courageous, committed desired behaviors. Similarly, effective culture strength to investors. A sales incentive
culture may face adversity more confidently, plans are targeted. Tools like CulturePath™ plan can be structured to reward teams
overcome resistance to aggressive synergy allow leaders to identify which divergent that collaborate to close deals, rather than
targets more easily, and be less reluctant to groups should be focused on and which reward individuals with commissions that
make tough decisions such as headcount aligned groups can serve as role models. could increase competition.
reduction. An organization with an inclusive Like any major initiative, these culture
culture may be more open to accept all plans require strong and visible executive By embedding cultural reinforcements into
ideas, no matter how out-of-the-box, to sponsorship. enterprise-wide value events and processes,
identify potential synergies that could it is possible to influence a greater number
increase the overall deal value. Implementing high-impact quick wins often of employees in a meaningful way and
signals that cultural integration is a business reinforce desired behaviors across
Cultural diagnostic tools like CulturePath™ priority, helps address key issues quickly, countries, sites, and functions.
help empower leaders by providing the and provides momentum for the transition.
cultural data points they need to identify Efforts could include adopting revised
unanticipated risk and opportunity areas. cultural symbols such as logos, badges,
They also allow leaders to get to the and uniforms; redesigning the workspace;
heart of what is needed to make an M&A or migrating to a common e-mail format.
deal successful and lay a foundation for Longer-term cultural interventions start
differentiated performance in the future. with executive leadership and focus on
27
M&A Making the Deal Work | Human Capital
Use culture to take integration to the Early alignment with the desired future-state no easy task, especially in the context of a
next level cultural vision and integration strategy, global deal. However, it is something that
Companies should skillfully manage the and smooth translation of the vision into leaders should and need to do—and do
cultural aspects of global and regional action plans can better enable companies well—to deliver on promised deal value.
M&A to meet immediate commitments to safeguard the short- and long-term value
to the investment community and build of their deals. The ultimate goal is for a new
a sustainable foundation for the future. company to emerge from the integration
By addressing culture early in the deal process with a high-performing, sustainable
lifecycle, consolidating companies have a culture with employees who are committed
greater chance of realizing the transaction’s to growing and succeeding against the
anticipated value. organization’s strategic priorities. This is
28
M&A Making the Deal Work | Human Capital
End Notes
1. Sackmann SA, 2010. “Culture and performance.” In: Ashkanasy N, Wilderon C and Peterson M (eds) Handbook of Organizational Culture and Climate. Thousand Oaks,
CA: SAGE, 196.
2. “Dangerous liaisons; Mergers and acquisitions: the integration game,” Hay Group, 2007.
4. Heskett, James. The Culture Cycle: How to Shape the Unseen Force That Transforms Performance. Chapter 10. Upper Saddle River, NJ: FT Press, 2012
29
M&A Making the Deal Work | Human Capital
30
M&A Making the Deal Work | Human Capital
Transformation opportunity: HR service • HR shared services efficiencies–How Process, system, and data consolidation
delivery do shared services support the HR challenges typically center on project size,
When identifying M&A-related HR service delivery model? Even mature complexity, and scope. Making service
transformation opportunities, it is important organizations can find ways to gain delivery model and technology selection
to consider changes that create business efficiencies through simplified and decisions early will drive other consolidation
value. An initial focus area should be the standardized processes and policies. decisions, such as business process and
overarching HR service delivery model–how Additionally, organizations can segment system design. Some activities critical to
HR serves its business customers. The transactional HR activities into low-cost the success of process, system, and data
service delivery model incorporates many areas, realizing savings from labor consolidation are:
of HR’s most critical (and costly) activities. arbitrage.
An optimized model can not only improves
• Technology–Do current HR information • Data clean-up–Thorough clean-up
HR’s support of the business, it can also
systems (HRIS) enable efficient HR efforts can increase data accuracy prior
improve the effectiveness of both internal
services? Advancements in HRIS may help to system consolidation. As part of the HR
and external resources.
the HR function move beyond master data functional transformation, there may also
management and payroll processing into be opportunities to improve existing data
A Chief Human Resources Officer (CHRO),
a new realm of employee and manager tracking and reporting processes.
supported by his or her leadership team,
self-service. New systems may allow HR to
may consider assessing the end-to-end • Data standardization –HR data should
achieve technology-enabled efficiencies,
processes within the HR function. This be business-driven, standardized,
especially since organizations often are
includes a functional self-assessment, and aligned with other aspects of the
faced with both an expanded employee
as well as candid conversations with budgeting process, financial planning, and
base and budget limitations.
customers. As HR service gaps are position management.
identified, the team can formulate a plan • Controls & accountability–Who really
• Single source of truth–Building a solid
to address issues and better utilize HR owns the HR function? By realigning
foundation of consolidated company
resources. Oftentimes, leaders decide to budget ownership and reporting
data will be important to sustain the new
either expand the existing service delivery relationships, HR leaders may more
organization and its future initiatives.
model or engage in a full redesign of HR effectively drive activity across global
Storing data in one system may reduce the
processes. High-impact HR service delivery regions. Additionally, clearly-defined
amount of required future maintenance
transformation opportunities may include: reporting relationships (both direct and
and enable better data management,
indirect) can improve leadership’s line-of-
reporting, and business performance
sight across the function and verify that
• HR business partner (HRBP) monitoring.
the global organization is operating in
optimization–How do HRBPs add
unison. • Business process design –The new
strategic value to the business? Many
organization’s business processes will
organizations provide HRBP services
Transformation opportunity: HR have a direct impact on forms, workflow,
reactively and do not strategically align
process & data management and security, and should be prioritized
them to the business. Integration offers
Often/Typically one of the most challenging and aligned with the scope of the system
the opportunity to review the HRBP talent
post-Day 1 initiatives is integrating and consolidation.
pool, the level of service provided by each
consolidating business processes, systems,
individual (and as a whole), and ways to
and data. These activities are integral to an
more proactively and strategically partner
organization’s ability to function as a single
with customers in the future.
enterprise. One of the initial activities in any
• Talent management–Do the talent system consolidation is to define the effort–
strategies of the two entities align? what does consolidating processes and data
Rather than force alignment to an mean to the organization? How will it impact
existing strategy, integration is a good existing or planned initiatives? Once leaders
opportunity to review and improve define the consolidation effort, they should
performance management, career pathing identify and align key stakeholders and set
and leadership development, topics that expectations for the scope of consolidation
are generally sensitive and often not activities to support Day 1 and beyond.
strategically aligned to business outcomes
in large organizations.
31
M&A Making the Deal Work | Human Capital
Transformation opportunity: HR Managing transformative change new strategies for the combined entity.
technology Getting senior executives to acknowledge Differing salary ranges, titles, and
Consolidating and integrating HR technology and align behind the need for an HR benefits can be a hot-button issue. A
with other operational systems during an transformation can be challenging, given good approach to successfully execute
M&A transaction is a large and complex the other issues and priorities associated employee mapping is to research and
process. By considering technology with M&A-driven integration. Some common evaluate industry standards and leading
consolidations in tandem with service hurdles include: practices. Retaining both entities’ current
delivery, an HR organization may better compensation structures until the new
achieve anticipated deal-related efficiencies year may provide enough time to complete
• Competing business priorities–While the
and synergies. Executives should select necessary due diligence.
HR team may recognize the importance of
technology that aligns with and supports
investing in post-close HR transformation, • Endless “to-do” list– Completing myriad
strategic objectives such as talent strategies
other organizational initiatives may also M&A-related tasks may feel overwhelming
and other business-driven requirements.
require funding. HR leadership should to HR staff members, especially since
Another key consideration is the time and
prepare a business case for senior they must do so while also conducting
cost to deploy a consolidated, integrated HR
executives detailing the importance of regular business activities. To help ease
system. The longer an organization takes
HR transformation and its impact on the the integration process, staff should first
to consolidate, the higher the cost will be
entire enterprise. tackle the tasks that align with the new
to support multiple systems and business
business strategy and have the most
processes. Common questions during a • Post-Day 1 uncertainty–M&A often
significant impact on employees across
technology assessment include: generates a lot of uncertainly: Employees
the entire organization.
wonder if they will have a new job, a new
manager, a new office, etc. HR, in tandem • Returning to business as usual–Once a
• Can an existing investment be leveraged
with Communications, is responsible deal closes, many employees will no longer
for the new organization? Or does the
for managing this uncertainty. Typically, view the integration as a critical focus area
organization need to go through a vendor
organizations focus on pre-close and return their attention to business as
selection process for a new technology
communications; however, post-close usual. While deal close represents the
investment–one that can support the
communications should be a priority, legal transfer of ownership, integration is
consolidated entity’s size and complexity,
as well. Creating a transparent, two-way not complete. HR leaders should charge
including possible expansion into new
communications process will likely help their team with carrying out post-close
regions or rapidly-changing markets?
ease post-Day 1 employee anxiety and aid responsibilities for both HR functional
• Do the skill sets and experience needed in retaining talent. Furthermore, a clear changes and enterprise-wide initiatives.
to implement a system consolidation governance and decision- making model Designating an integration leader to
reside in house? How about long-term should be established to reduce role handle pre- and post-close responsibilities
operational support? ambiguity among leaders. can help keep all processes moving
forward.
• Does the technology have global coverage • Departmental roles and
and scale to support current and future responsibilities–Integration is an
As a company’s primary liaison with current
business requirements? important time for all functions to
and new employees, HR leaders and team
work together. While HR typically leads
• Is the technology flexible enough to members may feel they have more than
people-related change management,
support legal, union, or regulatory enough responsibilities on their plate
communications, and organizational
requirements if the delivered functionality during an M&A transaction. However, with
design, it requires significant input from
cannot accommodate them? Will the the proper mix of planning, process, and
all areas of the business. Engaging with
consolidated entity be able to support execution, HR leadership can harness the
functional leaders early in the M&A
ongoing compliance and regulatory integration’s momentum to transform the
lifecycle will give HR an opportunity to
updates? function, optimize HR’s service delivery
understand their needs and consider
model, and better support the new business
their input on how employees should be
and its employees.
managed pre- and post- close.
32
M&A Making the Deal Work | Human Capital
Stakeholders and Wall Street typically greet Phase 1: Set the stage with strategic Example of stretch thinking
the announcement of an M&A transaction planning The CEO of a major consumer products
with excitement and energy around the company sought broad advice on “any
creation of a new business entity and the Leading practice #1: Agree on what you and all” leading practices to improve the
growth opportunities it provides. However, can afford company’s enterprise and functional
once the deal is finalized and the dust Companies that begin post-deal HR structures as it integrated new businesses.
settles, management usually is left with organization design by clarifying integration He wanted to create a climate of fresh
the highly complex task of implementing synergies and people-cost assumptions thinking and big ideas at the start of
the numerous operating model and help set the stage for an effective end-state the organization design process, before
organization changes required to realize transformation. Establishing cost envelope everyone focused on the nuts and bolts of
expected deal value. Often this process targets early in the design process helps integration. This approach helped the firm
begins by getting “down and dirty” in increase the likelihood that the transaction’s infuse the design process with innovative
organization design, where many companies financial goals will be met and provides a ideas to drive greater deal value, ultimately
find they can attain substantial accretive basis for comparison with external leading resulting in a nearly $2 billion increase in
deal value through human resources (HR) practices as the organization design market capitalization.
synergies. progresses.
So how does a company lock in deal value? Identifying clear cost targets also can
Seven leading practices have been shown help leadership understand and align on
to consistently drive value from post-Day what part they will need to play in meeting
1 organization design. These activities are those targets. This early clarity may drive
applicable in virtually all industries and deal faster decision-making and provide greater
types, from traditional mergers to small transparency to the investor community.
integrations to full-scale separations.
Our experience and research from the
The following seven leading practices Deloitte Global Benchmarking Center
provide focus for the HR organization design suggests that these cost targets should be
process and emphasize critical components a “stretch” and based on the organization’s
for each phase – strategic planning, design, operational needs, leadership’s aspirations,
and implementation – that may help the new and commitments to shareholders, as set in
organization avoid common organization the deal valuation. Starting with low targets
design pitfalls and realize projected deal tends to produce even lower outcomes.
value.
33
M&A Making the Deal Work | Human Capital
34
M&A Making the Deal Work | Human Capital
35
M&A Making the Deal Work | Human Capital
Case study
36
M&A Making the Deal Work | Human Capital
Authors
Davi Bryan Don Miller
Senior Manager Managing Director
Deloitte Consulting LLP Deloitte Consulting LLP
dabryan@deloitte.com domiller@deloitte.com
37
About the Deloitte M&A Institute
The Deloitte M&A Institute is a community of clients and practitioners focused on
increasing the value derived from M&A activities, powered by Deloitte’s M&A
Services capabilities. The Institute serves as a platform to build connections,
showcase thought leadership, and accelerate experience and learning for those
involved.