Mergers and Acquisitions
Table of Contents
Table of Contents
What Are Mergers and Acquisitions?
Mergers and acquisitions (M&A) occur when two or more companies combine. M&A is a strategy companies use to increase their market share, enlarge their customer base, or add new business lines and capabilities to existing products and services.
Types of Mergers and Acquisitions
There are several types of mergers and acquisitions, but all share one similar characteristic: they combine two or more companies. Companies may choose one or more types of M&A depending on their objectives for the transaction. Here are the most common types of M&A.
- A merger typically occurs when two companies come together to form a new, joint entity.
- An acquisition usually refers to one company being absorbed or taken over by the other.
- A horizontal merger is when two companies that are in direct competition with each other come together. They share the same products and markets.
- A vertical merger is when companies in similar industries and supply chains come together.
- A conglomerate merger is when two distinct and unrelated businesses come together.
- Strategic acquisitions and buyers usually intend to integrate the new company into its existing operations.
- A financial acquisition or buyer has the funds available to support the new company but may have a shorter time horizon to grow and sell off the operations. One example of a financial buyer is a Private Equity (PE) firm.
Reasons for Mergers and Acquisitions
The main reason companies explore mergers and acquisitions is for growth. Growth from mergers can come in a variety of ways and produce different objectives based on what the company is trying to achieve. Below are a few additional objectives that companies may have for their M&A activity.
- Increase market share. Instead of solely relying on organic growth, a company may merge with another company to improve their position and market penetration.
- Expand geographic footprint. A company can merge with a competitor in a geographic market where they do not have a presence or may have only a limited presence.
- Add new products and services. By merging with a company that has complementary yet different products and services, a company can add to its offerings to new and existing customers.
- Improve talent and capabilities. One strategic advantage of mergers is the ability to add new talent, technology, or core capabilities to the company’s portfolio. The company essentially buys another company in order to add skilled workers, knowledge or systems that they don’t currently have in-house.
- Reduce competition. If you can’t beat ‘em, join ‘em! Companies may acquire competitors not only for growth reasons but to reduce or eliminate competition for customers and resources.
HR’s Role in Mergers and Acquisitions
HR plays many essential roles in the entire lifecycle of the merger and acquisition process. From performing due diligence, planning the future organization, or integrating combined companies, HR may have a hand in a variety of important activities to bring the companies together both structurally and culturally.
Due diligence generally refers to the processes and period of time prior to the merger where the companies exchange information and do additional fact-finding on each other’s practices, policies, financials, and operating results. Often the information-sharing is more heavily weighted on the company being acquired so that the acquiring company can assess the position, performance, and set-up of the company they are looking to acquire.
The role of HR during the due diligence process varies from company to company. Some frequent roles that HR plays include:
- Producing reports on benefits costs and claims.
- Providing employee data and costs such as salaries, bonuses, commission, titles, organization charts, and job descriptions.
- Sharing employee handbooks, benefit summaries and plan descriptions, labor contracts, employment contracts, severance policies, vacation accruals and other relevant documents.
- Participating in discovery sessions or discussions of talent programs, policies, metrics, and practices.
Manage Employee Communication
Communication during mergers and acquisitions is one of the most critical ways HR can make a positive impact. It is a delicate balance between creating open communication and transparency and ensuring that confidential or proprietary information is not made public. There are several communication types in which HR may provide input and assistance.
- External communication such as descriptions of packages offered to staying/separating employees.
- Formal written internal communication. HR may help write a variety of communications for distribution to employees or certain groups of employees. These may include:
- Frequently Asked Questions & Answers
- Talking points for managers
- Offer and Separation documents
- Formal virtual or in-person internal communications. HR may provide verbiage or help facilitate meetings about the merger or integration activities, such as:
- Town Halls or video meetings
- New company orientation sessions
- Benefits presentations
- Question and answer sessions
- Group meetings for teams being retained
- Individual meetings for employees being separated
- Informal internal communications. HR is often a key resource for informal communications. We have frequent opportunities to speak with leaders and employees and are considered a confidential place for people to turn to with questions and concerns. In addition to fielding employee and manager questions, HR may also have ways to keep a pulse on the rumor mill within the organization. Savvy HR reps can leverage the information they collect to proactively address questions and concerns that haven’t been previously covered.
HR professionals may be an integral part of determining what the future organization looks like. They can aid leaders in determining the number and type of roles needed in the combined companies and assist with identifying required skills, capabilities, and geographic placement of those roles. Once the future state is determined, talent leaders may facilitate conversations around placing key talent and how to fill talent gaps.
Align Culture and Values
Did you know that a large percentage of mergers fail out of misaligned cultures? It is important for HR to help leaders define the new culture and values in a way that helps the combined companies come together. A shared sense of goals, culture and values can help break down silos and reduce an “us versus them” mentality.
Integrate HR Policies and Procedures
The employee handbooks of each of the merging companies is a good place to start when HR begins to align its policies and practices for the combined company. HR should modify company policies to:
- Be as consistent as possible.
- Comply with laws or regulations pertaining to new lines of business or new locations where there are employees.
- Support the desired culture and values of the new company.
Develop Retention Strategies
Retention programs provide incentives for key talent to stay before, during and after the merger. There are several types of retention programs that can be developed and implemented.
- Retention bonus. This is generally a cash bonus paid after a specific period of time. An employee might be required to sign a retention agreement (a document specifying the terms and period of time required to be eligible for the bonus) at the start of the retention period in order to receive the bonus.
- Spot bonus. This could be a cash payment for achieving certain objectives or completing a project.
- Employment contract. One way to entice an employee to stay would be to offer them an employment contract for a set or recurring period of time.
- Other strategies. Employees could also be offered a variety of options depending on what is important to them. Some items for consideration are offering to pay for a conference or training, providing tuition reimbursement, offering career development through a special project, or coaching or mentoring.
One of the most sensitive roles that HR plays in the M&A process is in leading and orchestrating many parts of a layoff. From end to end, HR will likely have a part to play in determining who is selected, documenting the process, determining any adverse impact, and communicating final decisions. Ideally, managers will be informed about the staffing needs of the organization going forward and can provide the best input on the employees that should be retained. However, the HR team can ensure that different managers follow a consistent, defensible process for making selection decisions. HR is often involved in the notifications to individuals who are being laid off so that those employees are made aware of the benefits and resources available to them as they transition out of the organization.
Provide Support to Managers and Employees
As mentioned previously, HR can be a place for employees and managers to go to when they need support or a confidential place to ask questions and share concerns. Employees may have questions about mental health, finances, benefits, or employee assistance. HR is best positioned to be able to direct concerned employees to resources that may assist during uncertain times.
Align Compensation and Benefits
Consolidating compensation structures and benefits programs usually comes some time after the merger occurs.
Compensation. A lot of factors are weighed to determine the future compensation structure and how different roles fit into it. It is important to take time to understand individual jobs, how titles are used, how people are compensated, what if any bonuses or commissions are offered, etc. It is best to do a thorough evaluation of all of the factors before placing employees into the new structure and communicating to them.
Benefits. Benefit plans are often on an annual renewal cycle, so timing is an important factor. Companies generally look at other factors as well, such as the total cost, co-pays, company versus employee premiums, locations of employees, number and types of benefits offered, just to name a few. In many cases, companies align their benefits programs at the start of a new plan year or fiscal year. That means that the combined company may be on separate plans for a period of time.
Train New Employees
When two companies come together, there are quite a few unknowns for employees. One way for HR to help is with employee training. Depending on the organization and the changes, HR teams may participate in new employee orientations, benefits presentations, job-specific training, or hosting workshops on topics like change, resilience, and company values.
Integrate HR Technology
The companies coming together will probably have different technology platforms that require integration. Many organizations use a variety of systems to manage payroll, benefits, employee communications, on-line training, employee data and more. HR professionals may be involved in the evaluation of systems and their functionality. They may provide input and recommendations for which systems to be used going forward. HR may also play a role in the migration of data and educating employees on how best to use the systems.
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Carol Cooley is a People & Talent executive known for creating holistic, integrated people strategies that drive business results. She has 20 years of deep expertise in all facets of HR, particularly in the healthcare, financial services and technology space. Carol is a culture catalyst and helps organizations and their people grow, change and transform. When she’s not at work, you may find Carol in the garden, cooking or spending time with her family and 2 dogs.