- September 24, 2019
- Posted by: Ramkumar
- Category: Mergers And Acquisitions
Employee retention post acquisition
In this blog, we shall discuss on the steps needed to be taken to improve employee retention of the target company post acquisition.As acquisitions in digital world are done to access the skills and capabilities, employee retention is a critical success factor that determine the success of the acquisition.
From employees in the target company perspective, acquisitions create anxiety in their minds.Hence it is extremely important for the acquirer’s Integration office to assuage the concerns of employees so that they are able to focus all their efforts in their job.
Scenarios faced by employees post acquisitions
Employees in the target company face unique scenarios post acquisition. This scenario is dependent on the deal rationale and how the acquirer leadership wants to integrate the target company.
Some of the common scenarios that employees face are:
- Target’s existing office locations would cease to operate and employees are given options either to move to acquirer locations or leave.In many cases, the acquirer offices may not be in the same city as the target offices.
- In other cases, the acquirer would either deprecate or close the product lines that the target employees were working on.This could be due to the reason that the acquirer does not consider these product lines as strategic to it’s long term plans.
- In few cases, when acquirer buys a target company that is either big in size or has a higher reputation, then the acquirer would preserve the target identity and would retain its brand.When the target operates in a high growth market, the acquirer would deprecate its existing service offering and would adopt target service offerings.This happens in Transformational acquisitions, when the buyer wants to enter into a new market or service because its existing services has become commoditized.
Key steps for Employee retention
- If the acquirer wants to retain maximum employees in the target company, then the most important trait required in the acquirer’s Integration team is Empathy.
- The acquirer should not only be concerned about the value of customers and services acquired, but recognize the value of the talent that is necessary for continued growth of products/services.
Key elements of success from an employee’s point of view is:
Employee retention key factor 1 – Have an M&A Integration team with strong sense of empathy
- The acquirer’s leadership team and their Integration office should have the empathy and understand the mix of emotions including uncertainty and fear of the employees that come with being acquired.
- If the buyer has done acquisitions before, then they should learn from the mistakes they have done in the past when integrating the target company and should refine their integration planning/execution.
- Integration is an ongoing process and the acquirers should always strive to improve their playbook, in order to be more successful.
Employee retention key factor 2 -Importance of Change Management
- Acquisition is a life changing event and can create anxiety. The best way to overcome anxiety is to embrace change sooner rather than later.
- Change can cause anxiety but also provide opportunities.In many cases, acquisitions can provide hosts of new opportunities to employees of target firm which could revitalize the career paths.
- During the integration, the acquirer should analyse the target processes and its employees and be open to adopt some of the target processes and provide key roles/positions to target employees in order to take the combined entity to the next higher level.
Employee retention key factor 3 -Importance of Communication strategy
- Communication and clarity is the most important focus of the integration activity.Right from the time the deal is announced, the acquirer should hold communication with Target leadership to start finalizing the integration strategy, target operating model and the revised organizational structure post acquisition.
- The acquirer’s leadership team should communicate to the target employees, the overall vision of the acquisition, how the target company fits into the vision and their expectations.
- These communications should happen through townhall sessions, team meetings and internal webinars.The communication channels needs to be open even months after the acquisition is closed.
- The acquirer should nominate an Integration manager who will be responsible for managing the integration.The Integration manager will be the single point of contact for all employee clarifications and transition of processes for atleast 18 months post deal close.
Employee retention key factor 4 -Start Cross team projects
- The best way to initiate collaboration with target and acquirer teams is to identify engagements to work on cross team projects .This will create more traction among the employees of both the organizations and eliminate any reservations that the target employees might have.
- These joint projects will foster collaborative culture and create the necessary teamwork among the employees to provide the best possible services to customers which shall justify the deal rationale.
- Employee retention post acquisition is challenging.Although the deal teams structure earnout provisions and retention bonuses to retain key employees of the target company, the acquirer’s integration team should have right employee engagement plans in place to motivate the target employees to deliver value.
- It is imperative that the Integration team display empathy towards the target employees and understand their anxiety, have a robust communication and change management plans for target employees to embrace change sooner.