In 2019, corporations and private equity firms expect M&A activity to continue to rise. According to Deloitte’s 2019 M&A Trends report, 76 percent of corporate respondents (up from 69 percent the prior year) and 87 percent of private equity respondents (up from 76 percent the prior year) expect an increase in the average number of deals completed over the next year.
In addition to more deals, 70 percent of respondents also anticipated that the average transaction size in 2019 will exceed the size of transactions in 2018—primarily due to respondents predicting a significant increase in the total annual dollar value of deals between $500 million and $10 billion.1
With M&A predicted to stay hot, organizations need to address the key challenges faced over the last few years of deal activity. There were eight internal factors identified in the 2019 M&A trends report as top reasons why transactions have not generated the expected value. For three of those factors, HR Shared Services (HRSS) can move the needle in a positive direction:
- Execution/integration gaps
- Not achieving expected cost synergies
- Not achieving cultural alignment
1. Plugging execution/integration gaps with HRSS
Execution/integration gaps were the #2 internal factor for why deals had not generated their anticipated value.2 These gaps can be caused by several items, including lack of knowledge transfer between deal teams as employees move within/away from an organization; lack of documented playbooks or tools to support repeatable M&A processes; teams working in silos; or any number of other items.
A shared services organization represents the consolidation of operations within one or more functions of a business, generally resulting in increased operational and cost efficiency. This consolidation is often made possible via an enabling technology (such as a cloud HCM platform) and by identifying a common set of skills/capabilities needed to execute the consolidated services in a repeatable fashion.
Effective HR Shared Services functions tend to have a few common traits which can help address M&A execution/integration gaps, including:
- Robust project management capabilities, with clear roles, responsibilities, and tools supporting execution of activities in a fast-moving environment
- Strong execution of repeatable activities
- A focus on continuous improvement, with clear metrics to measure progress over time
- Cross-functional teaming environments
- Ability to scale to meet M&A needs
HRSS functions are often also leading the way in using digital technologies that drive a positive employee experience, which is an increasing trend being seen in M&A. These digital technologies often decrease the manual workload on deal teams, providing more time to focus on more value-added activities.
For organizations pursuing M&A, leveraging the processes, tools, and mind-set of your HRSS/HR Operations teams will help begin to address potential execution/integration gaps.
2. Achieving cost synergies through shared services
The #4 internal factor for why deals had not generated expected value was that expected cost synergies were not reached.3 HR Shared Services traditionally are a source of delivering services in a cost-effective manner, and this is no different in an M&A environment.
First, HR Shared Services can own the execution of activities that are standard and easily repeatable from deal to deal—for example, the development and delivery of offer letters or employment agreements. This allows the activity to be delivered at a lower internal labor cost.
Second, depending on the maturity level of the HR Shared Services organization, there may be higher skilled resources who have the capacity to manage a broader range of M&A activities, and do so from a lower cost position within the organization. This benefits the organization in two ways, as higher paid non-HRSS resources remain more fully dedicated to their current roles, and the internal labor cost allocated to the M&A deal is decreased.
Third, HR Shared Services can help identify and standardize operational M&A activities, and often deliver ongoing improvements to those activities, resulting in improvement and a decreased cost to deliver over time.
By decreasing the internal cost to execute an M&A transaction, it allows an organization to have more flexibility in the number of cost synergies that need to be pursued. That said, if an organization invests in HRSS to support M&A activity, it must ensure employees have the right skills (such as those mentioned above) to plug execution gaps. The creation of tools such as an M&A playbook can help standardize and institutionalize core M&A capabilities within an HRSS group.
3. Enabling cultural alignment and integration
A third internal factor highlighted for why deals haven’t generated expected value was by not achieving cultural alignment.4 Surprisingly, HR Shared Services can play an important role here by partnering with the Integration Management Office (IMO) on activating the future culture integration strategy.
After leadership and the IMO have assessed cultural similarities and differences between the Buyer and Target, chosen a deliberate culture integration model, and identified the key behaviors they are trying to drive in the combined organization, HRSS can reinforce the new way of working in many ways.
For example, if the Buyer is bear-hugging the Target into its existing culture, the HR Shared Services team can create a tailored onboarding program that not only explains “how the work gets done around here” (which could be as simple as file-saving nomenclature), but also “why it’s done that way” and how those behaviors enable the business strategy. Onboarding is an important part of activating the new culture.
From a change management perspective, it also spreads out the volume of training, communications, and other items that the acquired employees might otherwise be overwhelmed with. As the volume of change is decreased, employees are provided the space to adjust to a new culture, which is then further reinforced by HRSS in a continuous circle of activation.
Lead with HRSS strengths
The use of HR Shared Services has evolved over the past 10–15 years within organizations. As shown through Deloitte’s biennial shared services survey, organizations are continuing to push the boundaries of the types of services which can be delivered from a shared services function.
As M&A becomes more of a business-as-usual event across many industries and sectors, now more than ever organizations should be looking to leverage their HR Shared Services group. These teams are tailor-made to help address execution gaps, achieve cost synergies, and support cultural alignment, ultimately helping to realize maximum deal value and drive sustainable success.
1 The state of the deal: M&A trends 2019