Human resource officers play a vital role during mergers or acquisitions. The function of the HR department is to collect and analyze data from the target organization and assess whether or not the decision to merge is viable. To reach a decision, HR personnel will collect and analyze information related to HR and subsequently identify issues, risks, costs, opportunities, and potential savings.
The HR leadership of both companies should be able to quickly develop strategies to help the companies achieve the synergies they are looking for. Before a merger or acquisition takes place, the HR managers of both firms should advise management to prepare a roadmap in advance so that the merging companies can stick to it as the M&A process goes through.
The strategy should emphasize the organizational communication structure, layoffs (if any), and an amalgamation of corporate cultures. This initiative on the part of HR leaders helps management conform to a specific set of objectives, thus removing all the misunderstandings and differences that may arise in the future.
By expanding its interventions, the HR department of any organization can facilitate a successful M&A. Since HR covers the employees of an organization and deals with critical issues related to employees, the involvement of HR professionals is imperative for successful mergers and acquisitions. Thus, during an M&A deal, HR plays the role of a catalyst as well as a coach to enable the employees of the merging companies to work together collectively and creatively.
What Are the Potential HR Issues During Mergers and Acquisitions?
From implementing new company policies to navigating talent retention, here is a list of the leading HR challenges you may face during the merger and acquisition process:
- Assessing cultural differences
- Downsizing and talent retention
- Maintaining benefits and contracts
- Working under the new business regulations
1. Assessment of Cultural Differences
When two organizations merge, there may be an issue of cultural conflict. One company’s focus may be on sales, while the focus of another company may be on customer service or product innovation. Even the decision-making process can be different, with one adopting a top-down approach while the other has a more democratic approach. It is the job of HR to determine the compatibility between the two entities and then integrate them into a cohesive whole.
The challenge is getting two different work cultures to click. HR needs to analyze demographics, work practices, and even company values to build a better foundation for a smooth transition. Employee conflict issues or situations where work processes lead to conflict also need to be addressed quickly and systematically.
Essentially, HR needs to develop a good understanding of both work cultures, particularly concerning any sociology cultural differences between the two organizations in different locations.
2. Downsizing and Talent Retention
Each merger and acquisition process is different. In some cases, there will be no changes in personnel; in others, the changes can be drastic.
When organizations branch out into overseas territories, acquire new facilities, or merge with other corporations, there is always a need for either downsizing or talent retention. This will usually lead to a reorganization within the company. The main challenge, then, is to adapt to this restructuring so that the key players remain within the company, still enjoying the benefits and work processes they used to experience. It is also about ensuring job security.
Negative employee feedback is a common occurrence during the M&A process because change can sometimes feel threatening. HR must be open in its communication of planned changes and build trust within the transitional process. If you’re expanding into overseas markets, you don’t want to be weakened by considerable losses in key talent who have the necessary knowledge to operate in that market.
3. Benefits and Contract Retention
One of the main challenges HR faces during the merger and acquisition process is maintaining employee benefits.
This may include many different aspects such as:
- Health insurance
- Annual leave
- Pension allowances
- Childcare subsidies
These are complex issues for HR professionals because each person within an organization is different and requires different treatment depending on their background, position, and employee role.
It is necessary to use proactive financial management during mergers and acquisitions. While legal and finance teams prepare records of contracts, payment terms, and accounting history, HR needs to review contracts for employees to ensure they are consistent with any new infrastructure.
4. Working Within the New Business Regulations
A critical exercise for HR is to gain a comprehensive understanding of the new laws and regulations that are found in a new market.
Trade laws, tariffs, and any legal fees associated with mergers and acquisitions are essential to understand how to navigate smoothly.
Fortunately, within the M&A process you will be taking in a wealth of knowledge about these new terms and working within them for a long time, so ideally you can try to commit them to memory for future use.
Similarly, HR needs to be aware that both labor and employment requirements change from country to country, meaning any contracts for migrant workers need to change to reflect that.
For example, many European countries maintain a fourteen-week maternity leave allowance for employees, but the US doesn’t require such leave.
In emerging markets, regulations have the potential to be misdefined, so it is more important for HR representatives to remain adaptive and proactive within their knowledge and practices in order to maintain compliance.
Obviously, HR has a lot on its plate when it comes to mergers and acquisitions. However, it is possible to maintain a successful M&A process by obtaining outside assistance—especially help pertaining to mergers and acquisitions and particularly in foreign markets. That’s the job of a global PEO, and you can discover the vital work they do in our guide.
Other Issues for HR Executives in Mergers and Acquisitions
The Top Ten Issues in Merger and Acquisition Transactions
- The Purchase of Stock
- The Sale of Assets
- The Merger
- Cash vs. Equity
- Working Capital Adjustment
- Escrow and Earnings
- Representations and Warranties
- Target Compensation
- Joint and Multiple Liabilities
- Closing Conditions
What Is a Significant Reason for the Failure of Many Mergers and Acquisitions on the Part of the HR Department?
Often cited root causes for such a high failure rate include not being vendors, culture shock at the time of integration, and poor communication from the beginning to the end of the M&A process.
What Are the Benefits of Mergers and Acquisitions?
Benefits from mergers and acquisitions include:
- Obtaining quality employees or additional skills, knowledge of your industry or sector, and other business intelligence.
- Acquiring access to money or valuable assets for new development.
- Having access to a lifeline in the event that your business is performing poorly.
- Reaching a broader customer base and increasing your market share.
Stages of Mergers and Acquisitions
Keep in mind that there are three stages in mergers and acquisitions: the run-up, the transition, and the integration. HR has a vital role to play in each of these stages.
During the first phase, perform your hard and soft due diligence. This should involve identifying cultural challenges from the outset (ideally long before the deal is closed) and the processes needed to address them. Explain the type of integration required. Clarify the levels of HR planning needed; for example, participating in “100-day plans” and designing the new organization. Begin planning how to deal with the “people mechanics” of mergers before the transition begins.
During the second phase, structure and staffing organizations should articulate roles and responsibilities for finding and retaining key talent to implement a specific policy and process to enable appropriate high-performance work processes. Structure and staffing overall provide training as necessary and track progress against transition goals. Ensure transition values and principles are followed in all transition activities. Build a culture that supports business strategy, policies, and procedures for all people to support the new organization’s business objectives more directly and quickly strengthen its culture by driving employee behavior toward crucial goals. Deal with redundancy and support line managers as needed.
During the third phase, continue to build critical processes for a newly aligned high-performance culture, ensuring, for example, that performance management systems and reward management systems act as coaches and mentors to senior management while making sure that the line managers are the role models for the desired behavior. Combat potential resignations following a merger by continuing to address the issue of employee retention in the new organization’s culture. This can be done, for example, by monitoring the organization’s strengths through survey design and working towards a strategic HR agenda, including communication of the evaluation based on the Strategy Support Team Development Integration Success ACT. Act as a knowledge hub, spreading good practice around the organization.
HR Due Diligence Checklist:
- General Human Resources
- HR Policies
- Post-Merger Integration
Phidelia Johnson is a global Human Resources Practitioner with eighteen years of leadership success. With a focus on streamlining Human Resources administration, she’s well-equipped to find the right solution to a myriad of concerns. Her experience as a commercial business leader gives her a unique ability to advocate for both the employer and the employee.
In her down time, Phidelia is a master of her kitchen, creating wonderful dishes filled with passion and flavor. If she’s not cooking delicious food, she’s stretched out with a good book. She hopes to use her experience to help others, guide company leaders to best practices, and help build better professionals and stronger organizations.