Empowering Human Resources in the Merger and Acquisition Process: Guidance for HR Professionals in the Key Areas of M&A Planning and Integration PDF
Preview Empowering Human Resources in the Merger and Acquisition Process: Guidance for HR Professionals in the Key Areas of M&A Planning and Integration
Page ii Empowering Human Resources in the Merger and Acquisition Process Guidance for HR Professionals in the Key Areas of M&A Planning and Integration Mark N. Clemente David S. Greenspan i-01.gif Clemente, Greenspan & Co., Inc. Management Advisors Glen Rock, New Jersey Page iii Copyright © 1999 by Clemente, Greenspan & Co., Inc. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, scanning or otherwise – except as permitted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of Clemente, Greenspan & Co., Inc. or authorization through payment of the appropriate per-copy fee. All inquiries should be addressed to: Clemente, Greenspan & Co., Inc. 233 Rock Road, Suite 260, Glen Rock, New Jersey 07452; (201)444-1236; www.CGadvisor.com ISBN 0-9671204-0-3 Page iv Clemente, Greenspan & Co., Inc. Clemente, Greenspan & Co., Inc. is an M&A consulting and training firm that specializes in helping companies ensure the success of strategic mergers and acquisitions in order to increase shareholder value. CG&Co. is comprised of veteran consultants with expertise in M&A planning and integration – as well as in strategic marketing, training and development, and organizational communications. CG&Co. focuses on the synergy between the merger partners' people, products and processes to develop strategies and tactics that drive long-term corporate growth. Mark N. Clemente and David S. Greenspan, SPHR, the firm's principals, are frequent speakers before major companies and business groups on the topics of pre-merger planning and post-merger integration, and are the authors of Winning at Mergers and Acquisitions (John Wiley & Sons, 1998). Page v CONTENTS Section One: Empowering Human Resources in the Merger and Acquisition Process Successful Mergers and Acquisitions Require Broad Involvement of Human 1 Resources HR's Role in Acquisition Planning and Implementation: 10 Critical Success Factors 11 Section Two: Role of Human Resources in the M&A Process Today: Results of a National Survey How the Findings are Reported 21 Timing, Volume and Nature of Respondent Companies' Acquisitions 27 Evaluating Managerial Performance of Acquisition Planning and Integration 35 Critical Post-Merger Issues 47 HR's Current Role in Acquisition Planning and Integration 64 Post-Merger Integration: Tactical Execution 77 Importance of HR in the M&A Process: A Self-Assessment 89 Future Role of HR in Acquisition Planning and Integration 101 Page vi Section Three: M&A Skills Development for Human Resource Professionals Introduction 115 Acquisition Process 117 Due Diligence 121 HR Due Diligence Checklist 127 Employee Communications 129 Communication Critical Success Factors 134 Organizational Behavior 135 Employee Sensing and Research 140 Assessment and Selection 146 Training and Development 150 Marketing and Sales 154 Conclusion 157 Page 1 Successful Mergers and Acquisitions Require Broader Involvement of Human Resources Mergers and acquisitions (M&A) continue as a primary means of effecting speedy and substantive corporate growth, yet several studies indicate that more than half of all M&A deals fail to meet management's strategic, operational and financial objectives. Going forward, acquirers must ensure that their transaction does not become another corporate combination casualty. There are literally hundreds of reasons why the M&A failure rate is so high. But many can be traced to the exclusion of human resource professionals in the pre-deal planning phase and the function's last-minute inclusion after the transaction has closed. It's a classic case of "too little, too late." To help improve the odds of orchestrating a successful transaction, HR must be broadly involved in (cid:151) all phases of M&A pre-deal planning, target company evaluations, due diligence, and post-merger integration. What are the specific activities HR professionals should undertake to help ensure the success of their companies' M&A program? It depends on the various, and inter-related, stages of the M&A process. Page 2 (cid:151) M&A Planning and Due Diligence Where's HR? The traditional focus of M&A has been on "making the numbers work." Typically, an investment banker or corporate development officer presents an acquisition candidate to management. If doing the deal makes financial sense, the wheels are set in motion and the due diligence phase begins. Due diligence keys primarily on financial, legal and regulatory, and accounting and tax issues. Thus, (cid:151) when everything in the examination checks out, the merger partners plunge forward assuming that the strategic benefits of the merger will necessarily fall into line. Statistics on the failure rate of M&A transactions suggest this is erroneous thinking. The financial and legal aspects of M&A planning are critically important to the success of any transaction. But the traditional "ledgers and liability" orientation toward M&A planning highlights its principal shortcoming. If people issues are so important to the success of the deal, how can such little focus be paid to those issues in the strategy development, target company screening and due diligence phases? Clearly, in most cases, the merger partners have not sufficiently assessed the strategic variables that lie at the heart of the deal; these include the all-important "people component." When a strategic (cid:151) (cid:151) vision drives an acquisition as opposed to cost-cutting synergies or stock prices it requires the critical up-front participation of HR professionals to assess the valued human assets that never show up on a balance sheet or income statement. What's more, identifying key human assets in a target company and quickly taking steps to keep them from walking out the door on announcement of the deal is an HR-related imperative every company must take. Yet, historically, HR comes into the M&A process too late to make this vital contribution. Page 3 In most companies, HR gets involved in the M&A process well after the initial pre-deal planning. Once the up-front groundwork has been laid and the deal announced, the legal, financial and accounting participants have all moved on to the next deal or gone back to work. HR is left with the hard part: developing communications strategies; aligning payroll, benefits and compensation paradigms; and trying to meld disparate processes and corporate cultures. Unfortunately, by this point, key employees have headed for the exits. Those remaining are mired in confusion and inertia, and HR is forced to play catch up. Is there any wonder why after the first six months, most merged firms are left with less value than on the day the deal was announced? HR: The Power to Make the Deal Succeed HR professionals must participate at a higher level and play a much broader role in the following areas: Acquisition Strategy HR professionals should be among the senior managers who help guide the strategic vision of an M&A transaction. Unless it's a pure asset acquisition (e.g., obtaining manufacturing facilities or (cid:151) sources of raw materials), every deal involves securing people people who possess distinct skills and capabilities. Those attributes will be needed to advance the merged company's strategic objectives. But HR professionals must familiarize themselves with their company's business, strategic and marketing plans. This will put them in touch with the business issues that drive M&A decision- making. It is from this vantage point that people issues can best be linked to the very business strategies that spawned the acquisition in the first place. Page 4 Target Company Screening Once merger or acquisition candidates have been determined, HR can play a valuable role in screening and evaluating those companies. Contributing a people perspective to a process that is traditionally focused on numbers will reduce the likelihood of the acquiring company making a disastrous decision on a would-be merger mate. Many corporate marriages, much like those between people, have an underlying element of incompatibility that dooms them from the start. HR professionals can contribute to the evaluation process by assessing such crucial variables as a work force's possible response to an acquisition, marketplace perceptions of the employee base, and organizational differences that may exist in the merging companies' collective belief systems and attitudes. Culture is one important part of the investigation. But there are many others factors that determine the level of "integrate-ability" of two companies. HR professionals are clearly the best judges of these distinctly people-oriented issues. HR Due Diligence As mentioned, in traditional due diligence, HR issues are not typically addressed with the same level of scrutiny as financial, legal and tax considerations. Including HR as early as possible in the process makes the entire due diligence effort a more comprehensive and informed undertaking. Issues brought to light via HR due diligence will help shape the longer term integration effort and help guide the scope and pace of the non-HR aspects of the acquisition effort. Following are the key areas of investigation: Culture The broadest issue confronting the HR professional is
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