Misconceptions about HR in M&A

Posted by Tom Joseph and Kyle Forrest on March 08, 2019.

Imagine if… every M&A transaction was run with seamless cross-functional coordination, starting as early as the target screening process.

Imagine if… potential culture and employee experience risks were identified earlier, leading to deals being avoided or people-related risks being properly mitigated.

Imagine if… impacted employees were given extra attention beyond just the time it takes to close the transaction, leading to higher engagement and improved retention.

In Deloitte’s 2018 Global Human Capital Trends Report, the need for a Symphonic C-suite was introduced. While many organizations have become more team-centric at lower levels of the business, often executives still behave as independent, functional experts, when instead members of the C-suite should be working together in “symphonic” harmony.

According to the Global Human Capital Trends survey, organizations with the highest level of CxO cross-collaboration were the most likely to anticipate a growth rate of 10 percent or more. This correlation of cross-functional teaming is especially relevant during turbulent periods for an organization, such as M&A activity.

Below are four common misconceptions about the role of HR in M&A—if addressed effectively, executives can maximize deal value and drive growth.

Misconception #1 – HR should not be involved in target screening or pre-LOI (letter of intent) due diligence

At many organizations, HR is often not involved in the M&A process until late in the due diligence period, and even then, the focus is primarily on compensation and benefits.

At Deloitte Consulting LLP’s second annual Human Capital DealMakers workshop, 33 HR M&A professionals from Fortune 500 companies came together to discuss some of the most pressing issues facing HR in M&A. One of the key discussion topics was about the benefits of engaging HR sooner. When brought in earlier, HR can significantly impact deal value and decision-making by identifying potential deal breakers, transaction price adjustments, transaction agreement protections, and integration issues.

Misconception #2 – HR should only focus on execution for legal Day 1 during a deal

Often, HR is asked to focus on a core set of activities in a deal, such as transitioning acquired employees to the new payroll and benefits plans, delivering offer letters and employee agreements, and other tactical activities

However, as discussed in a prior blog post, M&A can often be used as a catalyst for transforming the HR organization, which means HR to strategically plan for both the interim period after legal Day 1 and the long term.

Given that M&As are highly cross-functional teaming events, by bringing transformational initiatives to the table, HR has a significant opportunity to gain buy-in and support from cross-functional stakeholders who are committed to making the transformation happen.

Misconception #3 – Change management should only be owned by HR

One of the biggest misconceptions is that HR should own all change management, since many of the changes associated with a deal are people-related. Instead, change management should be elevated to a role within the broader Integration Management Office (IMO).

Change management is a critical success factor in M&A, and is inherently cross-functional (e.g., new laptops from IT, new expense policies from Finance, new commercial go-to-market strategies, and many other changes).

While the team executing change management strategies may come from HR, elevating change management to the IMO and giving the change leader the remit to address change across the entire organization emphasizes the importance of proactively planning to address the variety of changes which impact employees at both the Target and Buyer organizations.

Misconception #4 – HR’s role in a deal stops shortly after legal Day 1

As any organization that has been through an M&A transaction knows, just because payroll has been processed accurately once or twice for the acquired employee population does not mean it is time for HR to disengage.

Instead, one or two months after the deal has closed is when HR should be doubling down on the attention provided to impacted employees—both the acquired employees and current employees who may be perceiving that their job security or career prospects have changed because of the deal.

The first several months in a new job are often the most critical months for engaging and retaining new-hire employees. That same principle applies during M&A activity, as the first months after a deal are when impacted employees are deciding about whether they have a career at the new organization.

HR plays a critical role in advising leaders and managers about how to engage and retain impacted employees and can proactively communicate career opportunities to drive excitement.

Don’t let misconceptions lead to missed opportunities

According to Deloitte’s 2019 M&A Trends report, both corporations and private equity firms anticipate deal volume to increase in 2019. As organizations plan for future transactions, M&A leaders should proactively challenge themselves to look for opportunities to improve cross-functional collaboration.

Given that execution/integration gaps were the #2 internal factor cited as a reason why deals do not achieve their expected value, addressing the misconceptions identified in this post will help companies begin to team better across the deal life cycle.

Imagine a future when… cross-functional alignment is the norm across the deal life cycle, enabling avoidance of bad deals, proactive mitigation of risks, and higher employee engagement and retention than planned for. That future is just around the corner for organizations that successfully improve teaming in M&A.

Tom Joseph is a principal in Deloitte Consulting LLP and has more than 15 years of M&A consulting experience. He works closely to plan integration strategies, plan for an issue-free “Day 1,” manage enterprise-wide organization readiness, and design the cross-functional integration program.

Kyle Forrest Kyle Forrest is a senior manager in Deloitte Consulting LLP and has 10+ years of HR and M&A consulting experience. He works across the M&A deal life cycle, partnering with clients on integration/divestiture strategy and execution and how to infuse digital behaviors and technologies within the HR organization.

1 The symphonic C-suite: Teams leading teams
1 The state of the deal: M&A trends 2019

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