10.5 Things HRs Need To Know About Mergers

Posted on 20 September 2019 by IRIS FMP

Mergers and acquisitions are complex situations. Your business is about to absorb the infrastructure, staff and assets of an entirely different business. There is so much to untangle and a lot riding on your HR teams to get it right.

Why? Because 70% to 90% of all mergers and acquisitions are financial failures. This is often attributed directly back to HR-related activities.

According to the Harvard Business Review study, “people issues” are largely to blame when it comes to the failure rate of mergers and acquisitions.

Yes, mergers happen successfully, but when the dust has settled, was the activity actually profitable?

The key to successful mergers is planning, effective processes and a seamless day 1 transition.

7 Reasons Why Mergers Fail

  1. Incompatible cultures
  2. Management style
  3. Poor motivation
  4. Loss of critical talent
  5. Poor communication
  6. Loss of trust
  7. Business uncertainty

Pre-Merger Prep

Before a merger or acquisition takes place, due diligence must be exercised. This will give you an understanding of the target company’s current HR status. It will also put you on notice of any risks that could impact you and the deal.

1. Give yourself a head start

When it comes to managing mergers and acquisitions, the sooner you can start working, the better. As soon as the deal is confirmed, figure out who you need to speak to at the target company to get the information you need.

Build relationships early and get a feel for the size of the task ahead of you. How many staff will you be merging and onboarding? What systems do they use? What do their policies look like?

The sooner you can get the groundwork done, the sooner you can turn your focus towards preserving and integrating company culture.

2. Break your silos

Mergers affect your entire business. HR is often the link that connects all the issues at play. As such, make sure you collaborate with all your stakeholders during a merger.

Reach out to your CFO, as they will need to understand any financial impacts retention and downsizing might have. You should also keep in touch with your Chief Information Officer or IT Manager to understand the data security and transaction issues involved.

When it comes to mergers, you need to tap all available internal resources.

CFOs increasingly are partnering with their chief information officer and working with human resources. Emphasize the need for this type of cross-functional collaboration during a merger. Your transition team should include colleagues from across the organization.

3. Do your due diligence

The need for due diligence extends from the organizational to the managerial level. Identify skills gaps and technical issues to be addressed, such as challenges integrating financial systems and complying with regulatory mandates.

Make sure you consider the following:

  • Employment contracts
  • Past or pending employment litigation
  • Benefits
  • Compensation
  • Change in control provisions
  • Entity and employment structure
  • Policies
  • Union or bargaining agreements
  • Organizational structure

During The Merger

Whilst the merger or acquisition is taking place, it is important to preserve HR compliance to ensure adherence to relevant legislation.

You also need to maintain clear communication between all parties, across both businesses. Remember, your target business may not have an HR department moving forward, so it is up to you to maintain effective communication. This is also the time to start your integration process.

3.5 Stay compliant

This is a half-tip because it should be second nature. During your merger, both businesses must conduct business as usual. For HR, this means staying compliant. The challenge can come when you are transferring data and rolling out new policies.

For example: If you are merging an EU business, you need to make sure that onboarding staff’s personal data is protected according to GDPR at all times. Failure to do so, could lead to a breach of compliance and a fine.

4. Maintain communication

Communication is the first step towards an effective cultural transition during a merger. Stay attuned to your new employees’ workloads and concerns. Anticipate their pain points, and look for ways to help them navigate the transition.

People are going to have a lot of questions. What happens to their PTO? What about healthcare? Do they have to personally take any actions to protect their benefits?

If you cannot offer employees any guarantees right there, manage their expectations. If employees can see that you are taking their concerns onboard, they will feel confident in your merger and your HR team. They will also see you as a reliable source of information. This is critical for keeping ahead of the rumor mill.

5. Make integration efforts an ongoing priority

Ups and downs are inevitable as two organizations become one, and change management must be a central focus. Conduct regular check-ins with staff throughout the transition and beyond to ensure processes, teams, and goals are aligned.

Post-Merger Transition

The post-merger transition is a key time for HR teams. You are responsible for maintaining a consistent working environment for all employees.

Primarily, this will involve introducing new policies or amending old ones. You will also have to manage the rollout of technology and training. Retention and any downsizing could cause major disruption, so be prepared for that, too.

Ultimately, your goal is to instigate your company culture into the merged business. From both a policy standpoint and a personal work ethos perspective, culture is key to success.

6. Ensure seamless, Day 1 operations

Your HR department will undergo some serious changes during a merger. You may find that policy changes affect your team directly, even while you are busy trying to manage other parts of the target business.

One solution is to temporarily outsource your HR function until you can get your department settled. This means that a trusted third party will be the first point of contact for staff. This ensures a seamless transition to new HR operations, enabling an uninterrupted user experience for everyone involved.

7. Figure out which new policies you need

New policies will need to be created to help smooth over the transition. This means creating all new versions of…

  • benefits policies
  • vacation policies
  • pension policies

…and so on.

It is vital that all relevant policies are considered and evaluated consistently to ensure a good fit with the target business. Failure to do so could result in a loss of confidence and productivity from your staff at best. And resignation and strike action at worst.

8. Decide which HR tech and/or outsourcing you want

Managing HR technology and deciding which systems to keep or replace, as well as which functions to outsource, can be a highly complex undertaking.

Technology integration must occur thoroughly and quickly enough that normal operations never appear disturbed to users. If your target business outsources its HR, work closely with the provider to transfer operations.

9. Manage retention and downsizing respectfully

Much more than business acquisitions, mergers often mean that you have redundant staff. The task for HR is to understand who to keep and who to let go.

In addition to considering the ability of each member of staff, you should be sensitive to the effect downsizing could have on the morale of the rest of your staff.

However, this may not be necessary. Sometimes, departments continue working on that specific brand instead of being completely integrated.

Take, for example, some mergers simply turn the target business into a subsidiary of the purchasing business. This makes it technically the same business, while maintaining its own corporate culture, and departments.

10. Remember: culture is key

Culture impacts everything in business operations. It influences what people value, how they set priorities and make decisions, what types of individuals are successful, and how people behave in the face of challenge or crisis.

If you fail to understand the cultural differences between your business and the target business you risk being blindsided by those differences, which can impact the results of your post-merger integration.

This is where the “people issues” start to undermine your merger goals. The most important tip is to make sure you evaluate the cultures before the merger or acquisition event.

By doing due diligence, you can uncover potential problems before they happen, allowing you to address them properly.

Manage Your Merger Or Acquisition With IRIS FMP

Get seamless transition on your international merger or acquisition. Our expert team of global HR consultants will help you save time and money on the cost of managing and organising the transfer of business assets.