Human capital risk critical to success of M&As

Identifying people, cultural issues early is key: Study
||Last Updated: 01/28/2013

Only one out of five finance executives who have been involved in mergers or acquisitions during the past five years say their transactions were very successful. And yet more than 80 per cent are at least somewhat likely to do another M&A in the next 24 months, according to a study conducted by the Canadian Financial Executives Research Foundation (CFERF) and sponsored by Towers Watson.

The study had 78 respondents and took a look at what highly successful companies did differently in their mergers and acquisitions.

"Human capital risk stands out as a critical area for the success of an M&A and, as such, requires management's attention as soon as an organization enters into discussions with another entity," said Michael Conway, chief executive and national president of FEI Canada, which owns CFERF. "Companies that very successfully completed an M&A all paid unwavering attention to human capital at all stages of the process, while this was not the case for less successful transactions."

The companies that were most diligent about identifying people and cultural issues to address early in the M&A process, well before the integration stage, were best positioned for a successful M&A.

"In order to effectively manage a cultural integration, organizations should upgrade their tool kit before the next deal" said Eric D'Amours, account director and Canada leader of mergers & acquisitions at Towers Watson. "When the next transaction comes up, they would then be better prepared to prioritize issues to be addressed as part of the due diligence process, including plans to help employees cope with the upcoming change."

Survey respondents indicated they determined the success of their transactions by measuring different metrics:

•69 per cent of respondents measured revenue growth.

•63 per cent of respondents measured achievement of specific synergies other than cost reduction.

•45 per cent of respondents measured retention of key talent.

The research found most companies with a recent history of very successful transactions shared a set of specific strategies that were different from other respondents.

1. Very successful companies used these M&A processes and governance policies:

• Identified integration managers.

• Communicated approval authority early in the deal process.

• Updated periodically their internal M&A processes and tools.

2. During the due diligence review of human capital matters, very successful companies:

• established a timeline of events

• sought out specific human capital-related synergies

• had a summary description of their own cultural attributes

• established staffing needs and a selection process

• had pre-determined opening positions on how employee programs and policies would be integrated.

3. During the integration planning stage (pre close, before day one), very successful companies:

• put a process in place to monitor employee attitude and engagement

• had an integration plan template available before day one (date of deal closure)

• had a plan in place to help employees cope with changes

• created a planning template or process to address a list of integration issues post closing.

4. During the implementation stage (day one and beyond), very successful companies:

• improved access to learning and development opportunities for employees

• used communication plans and employee surveys to address cultural differences

• had mentoring programs in place

• were less impacted by the loss of key talent or executives

• used tactics such as frequent communication from leadership to boost employee productivity

The full report can be found at human capital risk.

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