We’re halfway through 2016 and the brisk pace of mergers & acquisitions (M&A) continues. Through April, global M&A activity had already eclipsed $1 trillion in deal value.1 This is strong evidence that C-suite executives continue to view M&A as an effective way to increase shareholder value. As a result, HR functions must be prepared to support their organization’s people, processes, and technology through the entire M&A life cycle.
To help achieve this, HR leaders should understand the overall M&A strategy of their organization and build capabilities that fit this profile. Some key considerations include deal type, size, complexity, and frequency. For example, organizations with aggressive inorganic growth targets (or “serial acquirers”) may require a high level of integration support, while organizations preparing to shed non-core business units could benefit more from sell-side carve-out experience. Although the M&A strategy varies by organization, our experience shows that internal M&A capabilities consistently result in quicker, more efficient—and ultimately, more successful—deal outcomes.
When to build M&A capabilities
M&A activity is often initiated by a small group of individuals; HR leadership may or may not have a seat at the table when large-scale acquisitions or divestitures are conceived. However, HR must be prepared to support these transactions whenever they arise. This means establishing HR M&A capabilities as soon as possible.
By building M&A capabilities prior to deal activity, the HR function can immediately add value to deal planning and negotiations. Critical decisions are made early on in deal negotiations, and HR’s involvement can significantly impact the terms of the merger agreement or divestiture planning. This in turn may affect the organization’s ability to successfully integrate/divest over the next 6 to 24 months, as merger agreements become binding covenants between the buyer and seller.
For example, decisions regarding employee health & welfare program harmonization may prove challenging to execute if the appropriate HR subject matter expert is not involved.
Additional HR-related deal considerations include retaining key employees, assessing and facilitating cultural “fit,” or executing transition service agreements. Each of these factors has the potential to significantly influence the success of the transaction, but the risk is mitigated by involving skilled HR M&A practitioners in early stages of deal activity.
Organizing to support M&A
M&A capabilities should be scalable to meet the needs of the organization. In today’s business environment, a number of factors—from outside investors to rapidly changing economic and regulatory pressures—can shift an organization’s M&A strategy on short notice. HR should be prepared to take on the time and resource demands of M&A while also maintaining continuity of services. This may include proactive plans to support business-as-usual activities with contingent labor, or tapping “bench” resources with M&A capabilities during high-volume periods of deal activity.
In many cases, organizations planning for significant inorganic growth may require a dedicated team of HR M&A specialists, involved in not only post-merger integration activities but also deal screening and due diligence. Organizations with less frequent M&A activity may not need a dedicated staff of HR M&A specialists, but HR leaders should proactively identify talented individuals who are capable and willing to take on the added demands of an acquisition or divestiture. By involving subject matter experts with previous M&A experience, the HR function (and broader organization) can benefit greatly when it comes to the difficult task of transaction execution.
Each HR function should approach M&A capabilities in a manner that supports its own organization. However, the following leading-practice approaches can often be found in HR functions with successful M&A track records:
- HR M&A Community of Expertise: Common among large serial acquirers, these dedicated resources have previous M&A experience and are comfortable operating across the entire deal life cycle. Often involved in the early stages of the transaction, these specialists coordinate with other business functions (such as IT and finance) and guide M&A-related activities of other subject matter experts within HR.
- HR M&A “Tiger Team”: Common in organizations with sporadic deal activity, a team of existing HR resources are identified as the go-to M&A practitioners. This strategy is paired with a plan to support business-as-usual activities while this team is engaged in M&A situations. To establish this team, leadership should identify subject matter experts in key HR work streams (for example, compensation & benefits, talent, service delivery) to represent HR in areas that may impact deal negotiations or value capture.
- Standardized HR M&A Processes & Toolkit: Developing a deal playbook for M&A activity (due diligence, divestitures, integration, etc.) allows HR to follow a structured approach based on repeatable processes. Deal playbooks and toolkits can be updated with each subsequent M&A transaction, and should act as a repository of past experience. This allows HR to continuously build upon internal M&A capabilities, and tailor the function’s approach to future deal activity.
HR has an opportunity to become a strategic player in future M&A activities due to increased focus on workforce planning, talent retention, and employee engagement concerns. By building a strong set of M&A capabilities, the HR function can be prepared to not only support the organization through these transformative events but also help extract maximum value from all M&A activity.