Mergers and acquisitions are common occurrences in any economic environment. Whether the markets are up or down, or the deals are friendly or hostile, M&A can be a key element of your company’s strategy to create additional value and maximize sustainable competitive advantage.
A number of factors – including strong corporate balance sheets, cash-rich companies looking to consolidate their industry positions, and low interest rates that allow for greater leverage – are driving high levels of M&A activity in today’s marketplace.
M&A is here to stay.
Every company and working professional should expect to be involved in a merger or acquisition at some point in time. This is especially true for individuals based in North America, where deal activity annually outpaces the rest of the world in terms of volume and size.
However, despite the potential downsides and general uncertainty typically associated with mergers and acquisitions, this shouldn’t necessarily be cause for concern. Well-conceived and executed transactions can dramatically alter the competitive landscape, giving companies a sudden and distinct advantage over their rivals. Smart deals also allow companies to rapidly accelerate their growth and development in ways they often could not have achieved by organic means alone.
At the same time – even assuming the perfect confluence of elements – the success or failure of a particular deal ultimately lies with the implementation. Combining product and service lines, employees, functions, locations and brands are but a few of the challenges that must be overcome to realize a transaction’s full potential.
Each of these potential integration stumbling blocks raises important human capital issues that must be addressed – from the announcement day through to the formal close of the transaction and beyond. The marketing, legal, human resources, accounting and finance departments are certainly no exception and will have its own set of integration issues to manage.
As such, Lee Hecht Harrison developed the following recommendations to help business leaders better prepare for and manage through a merger or acquisition.
Be prepared.
One of the primary issues to overcome is the uncertainty created, particularly among employees and customers – your company’s most valuable assets. Employees will be justifiably concerned about job stability. This is certainly true for various functional areas including marketing, legal, human resources, accounting and finance departments where there are likely to be talent overlaps. Additionally, customers will be on alert to potential changes in product/service offerings or pricing. Depending on the degree of interaction between employees and customers, this can pose a significant risk.
Is your company an acquisition target?
First, understand if your company is a potential acquirer or acquisition target. Review public documents and statements by senior management. If the company is publicly traded, read earnings releases, securities analysts’ reports and the ‘management discussion’ section of the annual 10-K and quarterly 10-Q reports.
Also, study the industry at large. Where are the new growth avenues? How are customer demands evolving? What are your competitors doing to adapt? Understanding the underlying economic and competitive drivers will help you understand whether your company might see strategic value in a merger or acquisition of some kind.
Whether a potential acquirer or acquisition target, list the rationale or “why?” behind the deal. Among the most common reasons companies become involved in M&A include creating synergies, increasing market share, vertical integration and geographic expansion.
Should a deal ever occur, answering these questions will help you understand the underlying factors for both the buyer and seller, as well as the rationale for the combined entity in terms of creating value. It also will allow you to make an informed projection as to the potential impact on the company as a whole.
Preparing yourself mentally for several different scenarios will lessen the element of surprise upon learning of a merger or acquisition. This is a critical head start. Employees tend to react poorly to surprise, which can be disastrous for the organization. Distinguish yourself by getting ready to move quickly and with certainty to help the combined entity realize the full promise of an M&A.
Create standby plans.
While you may not receive advance notice of a merger or acquisition – given the confidentiality involved – this doesn’t mean you will be completely unprepared. Regardless of whether your company is the acquirer or the acquired, there is a fairly standard set of steps necessary to complete a deal and begin the integration.
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Address all constituents.
In almost every case – despite rampant use of the term “merger” – one company is typically dominant and the other subordinate. Since deals aren’t legally consummated until the formal close, both companies need to prepare communications plans for the announcement day through the pre-close period. Acquiring companies will need plans that extend further to include the deal close and the beginning of the integration.
Among the primary, core audiences for your company to address through M&A communications plans are senior managers, rank-and-file employees, customers, shareholders, partner companies and key suppliers.
Begin by drawing up a list of appropriate company spokespeople for each audience and list the preferred communications channels to reach each audience. Then, create a simulated calendar of activities beginning with the day of the announcement and continuing approximately 90 days to a proposed close date.
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Staff communication is key.
Of course, until the deal closes, there is very little a company can share about specific plans for the integration. Compensate by increasing the frequency of communications – specifically to employees – on issues large and small.
By nature, accounting and finance departments communicate throughout the day on a range of issues. Capitalize on that internal traffic by providing small but meaningful reassurances to employees at each level.
Designing an “inside-out” approach to communications that starts with employees will begin to temper some of the uneasiness caused by the deal announcement. At the same time, such a campaign will provide employees with key messages to amplify and extend to external audiences.
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Identify key assets.
Deals announced to great fanfare that create high expectations among core audiences often wind up actually negatively impacting the value created independently by the two companies. Key metrics such as stock price, return on equity and return on assets commonly lag below pre-announcement levels long after the deal is completed.
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Merger failure.
What’s the cause? For one, integrating two companies takes resources away from day-to-day operations. Second, the upheaval caused by mergers and acquisitions creates problems specifically in the areas of employee retention and customer attrition. Finally, and somewhat incredibly, acquiring companies often conduct poor or incomplete due diligence. As a result, companies can find themselves the owner of something quite different than expected.
Job number one during the pre-close period is to avert any disruption that might cause the other party to reevaluate the initial terms of the deal or scuttle the agreement completely. If one or both companies are publicly traded, this applies to the shareholder base(s), which can actively oppose a deal.
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Preserve your top performers.
From a human capital perspective, every good manager can instantly cite a list of productive and prized employees. Compile that information to identify valuable individuals across the entire organization.
Clearly establish what assets need and deserve “protection” during the pre-close period and integration process. Create formal action plans to secure critical employees and customer relationships. Establish formal and informal channels to collect feedback. As much as possible, eliminate unnecessary distractions. And finally, aggressively work to maintain productivity at all levels. |
Focus on the integration.
Agreeing to terms on a mutually acceptable deal is a difficult and daunting task. The urge to “relax” once the terms are agreed upon must be resisted. Actually melding operations and corporate cultures is where theory meets practice and the hard work begins.
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The big picture is key, but don’t lose sight of critical business tasks.
Mergers often fail not because of faulty vision or a bad fit, but poor communication and execution. The integration effort diverts resources and attention from key day-to-day activities like financial planning, budgeting and month-end close – all of which must continue seamlessly. In addition to regular duties, employees are tasked with new projects and other activities related to the effort.
Before beginning the process, it’s important to recognize that no two companies are alike. Different organizations have different processes and protocols that have evolved over time and work specifically for them. Two companies that, from all outward appearances seem alike, may not even share the same perspective on the marketplace!
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Aligning corporate cultures.
Start by identifying the primary obstacles to integrating the companies and realizing the full value of the combination. For the accounting and finance department, documentation maintained on internal processes and controls for Sarbanes-Oxley compliance can serve as a useful tool for the re-engineering of functions and employees.
From a cultural perspective, put your knowledge of your own company – both the good and the not so good – to productive use. From the first interactions, take notes on the substantive differences in the two companies’ outlook, processes and styles. Be agnostic when evaluating best practices. In particular, resist wherever possible simply adopting the processes of the dominant company. |
Communicate (relentlessly).
Tensions among senior management and employees on both sides will run high from the outset. Since eliminating redundancies provides immediate cost savings, those most at risk following a merger include employees working in duplicated roles and those whose value to the organization isn’t immediately apparent. Organizational changes, major and minor, are certain.
During the pre-close phase it’s important to constantly communicate to internal audiences, even when there is little “new” information to report. Leaving a communications void in such an environment will only increase the sense of uneasiness among employees and allow negativity to creep in.
As mentioned, once the deal is finalized, the senior management team must be fully invested in making the new venture work. The first challenge for the combined entity is to mesh the communication style of the two companies. While specific details of the integration are under consideration, begin to communicate – in one voice – the process by which decisions will be made.
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Energize and motivate your new staff.
In advance of the reorganization announcement, utilize key managers to assess mood and morale. Prepare answers to the tough questions so employees understand how the management team arrived at its conclusions. In the event job cuts are necessary, make them swift. Following the announcement, schedule presentations by senior management to all remaining employees on the specific plans for the combined entity to compete in the marketplace.
Typically, there’s a strong sense of relief among the remaining employees that can be energizing. An effective communications program can help generate momentum among employees moving forward.
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Proactive management is your best tool.
Mergers and acquisitions are a common occurrence, presenting companies large and small with uncommon challenges. Aside from the operational aspects of combining the assets of two companies, there are significant human capital issues to address – beginning with the initial announcement, all the way through the integration. Complicating matters are the personal and professional uncertainties individuals face during such a deal – from senior management to rank-and-file employees. In order to realize the full potential of a deal, your company must anticipate and actively manage these issues at every step.
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Interested in learning more about M&A trends and how to effectively manage your company’s valuable human capital assets? Contact your local Lee Hecht Harrison branch today! Visit our website at LHH.com for more information or to locate an office nearest you.
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