Worldwide mergers and acquisitions (M&A) activity hit US$3.6 trillion during full year 20221, a 37% fall year-on-year compared to 2021. Despite this drop-off, there was still almost 55,000 M&A deals completed globally in 2022, which shows there is still a great deal of appetite for deals to be done.
However, according to Harvard Business Review, between 70% and 90% of mergers and acquisitions eventually fail after completion.
Despite this, a quick search for ‘mergers and acquisitions’ on the CIPD website, and our own experiences as employment law advisers on all kinds of business purchases, suggests that, even though people are often pivotal to the success or failure of an acquisition, HR’s vital role can often be overlooked.
So, what can HR do to contribute successfully? Here are a few tips:
- Get in early – Most organisations, regardless of size, will include acquiring (or being acquired by) another company in their strategic business plans. Don’t wait to be asked at the last minute to produce employee schedules for due diligence, or to issue new contracts after the deal has completed but ask to see a copy of the business plan, ask questions and put forward proposals for how HR can help with areas such as due diligence, employee communications, assessment of leadership capability in the target organisation and post-acquisition integration.
- Know your stuff – There are many different types of mergers and acquisitions, but broadly speaking they fall into two types. Either one company can acquire the entire shareholding of another company (share purchase) or it can acquire the business and assets of another organisation (asset purchase). Unlike in an asset purchase, in most share purchases there will be no change in the identity of the employer and therefore no TUPE transfer. Understanding the mechanics of a deal and the employment matters that need to be considered, such as what information and consultation obligations apply, can prove invaluable to the success of the transaction.
- Be a trusted adviser – Mergers and acquisitions are often frenetic, stressful, exciting and emotional and attention focuses on the detail of what needs to be done to get the deal over the line. Participants can lose focus and research by our own consultancy business, Kiddy & Partners, has shown that cognitive biases can convince M&A teams that things – and people – are better than they actually are. HR’s role is to inject honesty and impartiality to the process and point out gaps and inconsistencies. This may involve an objective assessment of leadership capability, both in one’s own business and the target organisation and the courage to point out that, sometimes, they are not all that.
- Take the long view – With people’s focus on getting the deal completed, longer-range plans for post-acquisition integration can be overlooked. Depending on the business plan, the newly purchased company may be left as a stand-alone subsidiary or there may be extensive integration and harmonisation plans. Take for example the financial case for acquiring a complementary business that relies on quickly integrating the two organisations into one. That is going to involve a great deal of change and inevitably redundancies and a requirement to communicate, inform and consult with employees that could add previously unconsidered costs. Acquiring organisations should also be aware of the risk of post-acquisition integration plans triggering a TUPE transfer.
All too often the HR aspects of a prospective acquisition are some way down the priority list as a transaction develops, even though HR is often crucial in understanding and mitigating risk before, during and after a transaction. It is the nature of M&A work that it can be very stressful and intense, often working long hours to tight deadlines, and with huge amounts of work to follow in implementing change and strategy post acquisition. If you can adopt these tips, it may just be possible to avoid sleepless nights and enjoy the process.