2. ✔ Mergers and acquisitions (M&A) is a general term that refers to the
consolidation of companies or assets through various types of financial
transactions.
Drivers of M & A:
✔ The aim is achieve “Cost cutting SYNERGY” AND “Stock price”!
✔ But if they were driven by true strategic vision instead, HR professionals
would need to be involved from the beginning to assess the people
implications that do not feature in balance sheets or income statements.
What is Merger & Acquisition:
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3. The focus is on ‘making the numbers work’.
The sequence begins with an investment banker or equivalent, presenting an
apparently suitable candidate company to management.
If this makes 'financial sense' the process is launched. The due diligence phase
then begins.
DUE DILIGENCGE involves a detailed examination of issues such as:
1. Financial
2. Legal and regulatory
3. Accounting
4. Tax
How an M & A is done usually ( Process):
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4. • There are numerous reasons why the M&A failure rate is so
high.
• 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".
Why M&A fails?
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5. M&A Failure:
• When the Due Diligence check out, the merger partners
'plunge forward', assuming that all the strategic
aspects will somehow fall in line.
• Studies show, the statistics on failure suggest that this
is often highly erroneous thinking.
• Clearly, the 'ledgers and liability' aspects of the process
are extremely important but the all-consuming focus
on these matters ignores people issues.
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6. M&A Failure: Poor HR Strategy
1. Cultural mismatch and no integration of two sets of Human
Resource
Often due to a cultural mismatch, or failure to ensure the new entity is
able to effectively integrate two teams of people.
2. Involve HR as soon as possible
HR needs to be involved as soon as possible once the decision to
proceed with a deal has been agreed, and stresses the need to focus on
people, particularly where the skills-base is an important reason for the
transaction.
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7. Failed M & A due to uninvolved HR
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New York Central and Pennsylvania Railroad
Two longtime railway rivals, New York Central Railroad and Pennsylvania Railroad
merged to become Penn Central, the sixth largest corporation in America. What
Penn Central did not expect was that years of fierce competition made it
impossible for the two companies to work cooperatively together. The company
filed for bankruptcy after only two years.
AOL/Time Warner
In January of 2000, Time Warner stock sold for $71.88. By 2008 you could buy
a share of Time Warner for less than $15. What happened to the media giant?
A failed $350 billion merger with AOL. Culture clash was widely blamed for the
failure of the joint venture. Said Richard Parsons, president of Time Warner: “
remember saying at a vital board meeting where we approved this, that life
was going to be different going forward because they’re very different
cultures, but I have to tell you, I underestimated how different… It was
beyond certainly my abilities to figure out how to blend the old media and the
new media culture.”
Sprint/Nextel
In 2005, in a bid to keep pace with industry giants like Verizon & AT&T, Sprint acquired rival
Nextel for $35 billion. By 2008, the company had written down 80% of the value of the Nextel,
confirming the widely held belief that the merger had been a failure. That failure is widely
attributed to a culture clash between the entrepreneurial, khaki culture of Nextel and the
buttoned-down formality of bureaucratic Sprint. A Washington Post article written two years
into the merger stated: “The two sharply different cultures have resulted in clashes in everything
from advertising strategy to cellphone technologies.” In early 2012 Sprint announced it would be
ridding itself of the Nextel network, marking what CNET calls “a concluding chapter in one of the
worst mergers in history.”
HP and Compaq
And finally, a story of hope. In 2001, struggling computing giant Hewlett Packard announced it
would acquire similarly struggling competitor Compaq. The merger was ill-fated from the start,
as critics pointed out how the HP engineering-driven culture was based on consensus and the
sales-driven Compaq culture on rapid decision making. This poor cultural fit resulted in
years of bitter infighting in the new company, and resulted in a loss of an estimated 13 billion
dollars in market capitalization. Though the merger itself was widely regarded as a failure, the
company has hung on, and has been able to make significant cultural and leadership changes
that have resulted in long-term success.
8. Question then arises: 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?
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• The belief that they are too soft, and, therefore, hard to manage.
• Lack of concern by top management for the impact on employees, unions and
communities.
• Lack of awareness or consensus that people issues are critical.
• No model or framework that can serve as a tool to systematically understand and
manage the people issues; and therefore
• The focus of attention in M&A activity is on other activities such as finance,
accounting, and manufacturing
• Lack of knowledge on culture and its impact.
Thus, historically, HR comes into the M&A process too late to make this vital
contribution.
10. What happens when you don’t involve HR from
beginning?
• In most cases, the deal-making is more or less complete by the time that
HR gets involved. HR specialists are left with the difficult role of:
1. Developing communication strategies
2. Aligning payroll, benefits and compensation systems
3. Combining different and possibly incompatible processes and
cultures.
But by this time a number of key personnel may have gone and those
remaining may be confused or hostile.
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11. Recommended HR Strategy for M&A
1. HR professionals should be involved in the earliest stage (HR Due diligence) of any M&A involving
people
•Culture • Employee demographics and competency analysis • Key talent analysis •
Benefit and compensation structure and how it compares with that of the parent
company • Any legal issues relating to outstanding employee litigation, workers’
compensation and union contracts and related issues
2. This means that HR specialists must be familiar with the organization's strategic objectives, and its
business model and marketing plans.
3. HR professionals must contribute to 'target screening' to identify and evaluate the worth and
'integrate-ability' of the proposed merger partner's human assets. This includes an evaluation of
the two cultures and their potential compatibility.
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