- July 23, 2019
- Posted by: Ramkumar
- Category: Mergers And Acquisitions
Employee management during post-merger integration
Post Merger Integration forms a critical part of the success for any M&A deal.Employee management during post-merger integration is critical. In fact, many acquisitions were not able to derive success due to the failure in integration efforts.The integration forms the final stage of a M&A life cycle.Hence this could be the reason why executives do not focus a lot on integration after spending huge time and efforts in getting the deal closed.
The strategic planning done to identify areas for acquisition followed by target evaluation, due diligence and final valuation for the deal also determines the success of the integration.If any of the above areas were poorly executed, then this shall affect the success of the integration activity.For instance, if the acquirer has overpaid for the deal by overestimating the synergies that could be realized, inorder to get speedy approval from the board, then this shall place huge pressure on the integration team to achieve the synergies targets that was envisaged during the deal phase.
For an integration activity to be successful, it is essential that target customers and its employees support the decision for the proposed acquisition.Any failure to secure a buy-in from the customers and employees will result in value erosion.
Employee management during post merger integration overview
- Target employees have the most impact on the acquisition decision. Post acquisition, the target employees face anxiety on their future and how they shall be affected as the result of the acquisition. With M&A having a negative reputation of resorting to cost cutting initiatives post acquisition, employees will be anxious and uncertain about their future.
- On the other hand, the acquirer will generally pay a premium like retention bonus to retain the key target employees post acquisition.In fact, in many employee agreements, a part of their retention bonuses is linked to minimum period the employees are needed to stay in the organization post acquisition.
- Acquirer knows that getting support and co-operation from target employees is extremely critical if they are required to achieve success in attaining the synergy targets.
- Following are the steps that acquirer needs to take to improve employee engagement and retain key employees from leaving the organization post closing.
Setting up an Integration Management Office
- Acquirer should have created an interim group that will purely be focused on employee onboarding and act as single point of contact between the target employees and the organization.
- The IMO should comprise of cross functional teams from functions like Finance, HR, Legal and Sales who will be tasked to help the target employees to be able to settle down in the new organization.
Employee management during post-merger integration – Understand the Deal Rationale
- Following the closing of the deal, both the leaders of the target and acquirer group should address all the target employees in Town hall sessions and have all hands meeting.
- The Town hall session should involve the participation of all the employees in the target organization. In case of target company having presence in more than one location, then the employees are required to join through virtual conferences.The purpose of having a town hall session is to have the CEO/senior leadership of the combined entity address key basic questions:
- What factors in the market situation triggered this acquisition?
- How will the acquirer and target company be benefited from this acquisition?
- What was the deal rationale that brought the two companies together?
- How will this acquisition impact the target employees?
- What are the key goals and targets expected out of this acquisition?
After the leadership team gives a clarity to the target employees on the rationale behind the acquisition, they should be ready for a Q&A session where they should allow target employees to ask any questions on the acquisition.The leaders should be honest with its answers to all the questions asked, rather than sugarcoating the responses.The target employees would want to know the reality in order for them to plan on their future.
- After the townhall sessions addressed by the leadership team is completed, the target employees should also be informed by the respective managers regularly on the progress of the integration.
- If target employees face any uncertainty or unable to get a satisfactory response, this will only increase their anxiety.The key employees will start to look for opportunities outside and this can derail the objectives of the deal.
- The target CEO is the key catalyst to the success of the deal.Hence it is important that the CEO is kept in loop and his inputs taken when deciding the future path.The target CEO who had the authority to take any decision prior to acquisition would now be an employee post acquisition and would need to secure approvals to execute any plans.This might sometime cause frustration to them and they might think of leaving the organization even before collecting their earnouts.
Communicate, Communicate and Communicate
- The acquirer should look to over communicate on the rationale of the deal and on the progress of the integration.In a normal situation, any communication that is repeated for atleast three times would be registered in the minds of the people.In the case of the stressful situation like integration, more communication is necessary in order to give clarity to the target employee.
- The internal communication channel should comprise of circulating FAQs to the employees on the key areas like employee onboarding and also have road shows and group meetings that gives information on the organization structure, target operating model and their reporting structure. There should also be a SPOC assigned for each area of concern and even a buddy system concept where each target employee is paired with employee from the acquirer organization, who shall help the target employees to get settled fast.This will also help foster collaboration among the target and acquirer employees.
Cultural Fitment and Integration
- The IMO should also study the ways of working of target employees and how different it is from acquirer.This will include how approvals are secured, if the decisions taken are consensual or by command and whether the target follows a bureaucratic or entrepreneurial setup.
- In the case of huge gaps in processes between the target and acquirer, the acquirer should allow the target to retain those processes as any compulsion to follow the acquirer processes will disrupt the current working of target, which will impact the overall revenues.On doing gap analysis, if acquirer finds out some of the target processes are following best practices, then the acquirer should allow those processes to continue and also should look to build those best practices into acquirer organization.
- In case of processes that are similar, the acquirer should look to integrate those processes and realize benefits. These benefits will acts as quick wins which will give impetus to focus on much thornier issues.
Update the progress on Integration
- The target employees should be updated regularly on the overall progress of the integration.The target employees would be updated on the integration happening in their respective functions, but it is also important they get a view on the overall integration.
- Any significant milestones achieved needs to be celebrated with target employees.This will improve motivation in target employees and increase their support for the deal objectives.
- Townhall meetings and roadshows should be addressed by the leadership team regularly.This will help the target employees understand the current progress and the future roadmap.
- Employee management during post-merger integration is critical. A demoralized and insipid target workforce post acquisition, will spell disaster to the success of the deal.
- Employee engagement should start from the top with leadership addressing the target employees by having Townhall meetings that provides details on why the acquisition took place and what is the road ahead for the organization and employees
- Communication and quick decision making is important for the successful integration.Any uncertainty will increase the anxiety among the target employees which will generally result in a poor result for the organization.Speed is more important than perfection in making quick decisions as any delay in decision making will only increase uncertainty.
- Communication with target employees should be honest and frequent.Being honest is very important for the acquirer in order to win trust and remain credible.