HR’s role in mergers and acquisitions

HR’s role in mergers and acquisitions (M&As) is one that focuses on the issues affecting the people in the organization. HR issues arise before, during and after M&As. These issues include: • Assessing the human resources of both organizations to determine whether a possible merger or acquisition is of interest Conducting surveys and otherwise using metrics to gather data relevant to potential issues affecting employees • Communicating with the divisional managers within an organization and with those managers’ counterparts at the company involved in a proposed merger or acquisition • Conducting layoffs of superfluous employees after a merger or acquisition • Creating efficient work groups after a merger or acquisition

HR challenges during mergers and acquisitions HR leaders encounter many challenges throughout the M&A process. HR leaders should: Gain credibility and have a broader business perspective.  Understand the strategic objectives of deal. • Adequately identify significant human capital risks that impact deal appraisal and integration success. • Proactively plan and respond to identified human capital integration risks. •Monitor and proactively respond to human capital barriers to integration success. • Measure HR M&A performance to ensure future improvements in M&A success. •Assess whether the organization has acquired expanded capabilities and developed organizational synergies.

Phases of the M&A Process HR should be active in the M&A process from beginning to end. The four phases of the M&A process include: • Prepare • Perform due diligence • Integrate business entities •Implement, monitor and measure

Phase 1: HR’s role during preparation: Because mergers and acquisitions may occur very quickly, HR must ensure that the necessary knowledge and skills have already been developed among HR staff and that processes are in place to manage the transition.

Initial planning from an HR perspective includes the following tasks: • Identify issues. Begin to assemble information about the organizations involved in the M&A to investigate possible implementation process issues more thoroughly through the due diligence process. •Form and train teams. An M&A team must be assembled, and HR should help ensure that all members understand the organization’s strategic goals and the implications of the M&A to those goals. They should be familiar with the requirements of the due diligence process. •Prepare for change. Change factors must be identified, and plans for effecting change must be drafted.

Phase 2: Perform Due Diligence If the decision is made to proceed with the M&A, HR ordinarily is directly involved in the due diligence process. Due diligence is an intensive investigation of the organization being considered for merger or acquisition to understand the associated risks. These risks may be cultural, structural, technological, financial or legal. Therefore, there will be a specific due diligence for each function in the organization. HR should work with the other functions to prepare the consolidated due diligence document.

A proper due diligence process uncovers all liabilities associated with the purchase. Organization directors are answerable to their shareholders for ensuring that this process is properly executed. Conducting due diligence is one effective method to reduce the risk of the transaction and improve the chances of its success. Reuvid states: “Well-conducted and well-managed due diligence can help a business transaction to proceed smoothly, and can even enable companies to find ways of adding value to major business transactions.”

HR should ask questions similar to the following: •Are the cultures of the organizations distinct? Can the organizations’ separate cultures be successfully merged or at least maintained? • What will be the effect on employee attitudes, and what actions can be taken to support morale? • What is the degree of redundancy in the merged organization? How many employees and departments will have to be eliminated to meet the strategic goals? How much retraining will be necessary? • In the case of a divestiture, does the divested unit perform a non-core function? If the divestiture leaves gaps in skills and functions, how will those gaps be filled? Does the cost of filling the gaps outweigh the financial benefits of the divestiture? • What must happen to integrate the organizations’ information systems, technology and processes? • How will differences in compensation and benefits be handled? • What collective bargaining issues exist? What are the financial liabilities in terms of severance and continuation of benefits? • What is the value of the organization? (If the value is in the employees it may affect what HR offers.)

Many organizations have developed their own due diligence checklists. Figure 12 on the next page lists typical factors HR should include in its due diligence investigation. This topical list was written by Roger Herod for his book International Human Resources Guide.

Source: learnhrm.shrm.org