A merger and acquisition is complete when the integration of the two companies is complete, not when the deal is announced to the marketplace or consummated according to a legal or financial transaction. Mergers and acquisitions (M&As) are a significant activity for many organizations. Yet most mergers are not successful, primarily because the "merger of two organizations is actually a merger of individuals and groups," according to Buono and Bowditch, authors of The Human Side of Mergers and Acquisitions: Managing Collisions Between People, Cultures, and Organizations.
A merger means that two previously separate organizations are combined into a third, new entity. An acquisition involves the purchase of one organization for incorporation into the new parent firm.
Too many companies enter into M&A activity without recognizing the impact on the organization and the overall affect on the human element within the two merging companies. M&A activities that do not meet corporate objectives can result in lost revenue, customer dissatisfaction, and employee attrition issues.
M&A researchers, consultants, and internal practitioners agree that using transition teams, an integration manager, and a comprehensive employee communications strategy rank among the best practices. Supporting best practices include; implementing strong communication skills, having an unwavering commitment to the integration, being open with employees, and making visible movements towards integration milestones and 100-day goals to help increase the success of merger and acquisition activity.
M&A integration examines all the tasks and plans required to successfully bring the two companies together. When an intended M&A transaction is announced, employees of both companies expect change. The early days following the deal's close are a critical time for the company to initiate integration of the organization, processes, people, and systems.
Focusing on M&A's Human Dimension
One of the most important resources a target organization has is its talent pool, yet the human dimension receives woefully inadequate attention during M&As. Fail to pay attention to the human dimensions and human dynamics of M&A activity, and you'll lose key talent. Organizations typically focus on a target's intellectual property and capital, while failing to recognize the capabilities and strengths of their employees, even though the latter enhance their competitive edge. As researchers Pfeffer and Tromley put it, "See the workforce as a source of strategic advantage, not just as a cost to be minimized or avoided."
Layoffs and turnover can and do happen at all levels of an organization. Approximately 25% of executives in acquired companies leave within the first year - a rate three times higher than companies not acquired. That's according to M&A researcher Jeffrey Krug, who reviewed business literature going back two decades to calculate that statistic. Another study shows that nearly one-half of senior managers in an acquired firm leave within one year, and 72% are gone within the first three years if retention efforts have not been made. (Tetenbaum, 1999).
To minimize departure rates, consider using alternative practices. When Wells Fargo made a particular acquisition, the firm undertook no reductions after an analysis of annual attrition rates suggested that recruitment would be required within six months of completing the acquisition.
How can you help prepare an organization for change? Two options include polling and surveying the employee population, and developing information and communication strategies aimed at introducing opportunities for employees to participate in the change process.
M&A practitioners who respond to questions and concerns about structural, cultural, and role-related issues, and revise expectations, will achieve a degree of organizational stability.
The goal of integration is to achieve key actions as quickly as possible-with "prudent" not reckless speed. One high-tech company took sixty executives off-line for five months within two weeks of the deal announcement, in order to integrate and develop the vision for the combined company. Eventually, 2,000 employees were involved, demonstrating a successful balance between the need for confidentiality and the need for communication.
The M&A experts also favor appointing an integration manager with primary responsibility and accountability for managing the integration process and acting as a bridge-builder between companies. Look for visible, internal candidates who are respected, available for this full-time role, and report to the business leader.
M&A experts recommend assembling teams of employees from both parties to participate in integration planning. Transition teams (internal practitioners prefer the term "integration teams") that involve employees from both the target and the acquiring company ensure a successful deal completion. Consider the transition team a lever to share cultural intelligence between the two companies. My research indicates that the integration team should stay in place until 80% of the value capture intended for the acquisition is in place. Value capture opportunities include reduced expenses from operating efficiencies achieved as a result of the M&A.
Both internal and external M&A experts recommend that the new leadership team be named on Day One. If possible, appoint and announce other layers of the management structure at the same time. One expert commented that not announcing the leader on Day One is a "de-accelerator," but here's a caveat to that approach: Don't announce a new management structure in situations where the management team is going to be replaced.
Develop a Strategic Employee Communication Strategy
Both external and internal experts agree on the importance of developing and executing effective employee communications, particularly conveying how the transaction will impact organizational members. Also, get supervisors to talk to people one-on-one about their future after the change in ownership. Supervisors need to be aware of, and address, morale and personal issues individuals will face. Everyone in both organizations needs to understand the reasons for the combination.
Make communications open, honest, frequent, early, repeated, and strategic. Identify constituents, messages, mode, and frequency. Take all communication opportunities to drive the implementation of the strategy. Management and others should avoid using "killer phrases" such as "a merger of equals" (this does not exist) or "We will only tell employees something when there is something to tell." Information can always be shared-even if it is simply the progress of the deal or integration. (Buono & Bowditch, 1989).
Communication is vital throughout the M&A process. The employee communication strategy is a clear opportunity to provide employees with information to reduce uncertainty. Internal practitioners in particular emphasize the need for meetings with all employees, and the need for a communication plan for customers, partners, investors, and the analyst community as well.
Communication recognizes that the respect for confidentiality of the process and communication updates can be balanced in M&A activity, might lead to less uncertainty and insecurity for employees.
According to Buono and Bowditch, "organizational members are more likely to react positively when they are well informed-exposed to unfavorable as well as favorable possibilities-than when they are forced to rely on hearsay and speculation." One high tech company communicates directly with employees immediately following deal closure. The company recognizes that personal issues such as job security are uppermost in employees' minds in the initial days following an M&A announcement. This practice ensures that employee concerns about job security and their role in the organization are dealt with first.
As Buono and Bowditch state, "Attention to the details involved in a merger or acquisition requires a concern for both obvious and less apparent matters. Indeed, many of the 'little things' in an organizational combination signal the intention and concern of the acquiring firm."
Communication figures heavily throughout the entire M&A process as a best practice. It provides employees with valuable information and addresses the uncertainty that exists during this period of transition.
Conclusion
M&A practitioners have rich opportunities to humanize what is often treated by companies as merely a business and financial transaction. Focusing on the human dimension of M&A will significantly impact the bottom-line success, result in less organizational turmoil, and ultimately determine the overall success of M&A transactions.
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