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Mergers and Acquisitions: Everything HR Needs to Know

19 minute read

In today’s world, companies are bought and sold at a rapid rate. We see smaller tech companies being bought by larger ones, we see huge conglomerates merge together under one banner, and a combination of other integrations that largely fall under the the 'mergers and acquisition' header.

Mergers and Acquisitions

Despite this trend, though, we see very little about HR’s actual role in all of this. HR, after all, will be the department that helps this integration go smoothly, the department that is tasked with making sure that the two companies and cultures that come together during a merger and acquisition can do so in a way that keeps the businesses running.

Download our HR Guide for Mergers and Acquistions!

So, to help put an end to this, we’ve decided to make a guide for HR professionals who are about to go through a merger or acquisition so that everyone is prepared for the immense amount of change that is about to happen to them. And we mean immense.

Let’s dive right in.

First, What Is a Merger and Acquisition?

While mergers and acquisitions are generally talked about together - usually referred to as M&A - they are quite different from one another and can create different results and problems for HR (and the businesses generally involved).

A merger is when two or more entities come together under one management style, combining forces for whatever reason. You can read about all of the different types of mergers here. In short, the name is spot on: it’s when a company literally merges with another to create a larger company, usually retaining one of the previous company names or joining them together.

On the other hand, we have acquisition, which is when a company buys another company and absorbs them under their management style. This is in the news a lot with tech companies because larger companies want to absorb the technology created by a smaller team and bring those coders and engineers onto their roster instead of competing with them.

This isn’t the only reason a company would want to buy another, though. There are tons of reasons, much too many to go into here. All we really need to know is the difference between mergers and acquisitions for what we will be covering today.

Mergers and Acquisitions

As the Society of Human Resource Management (SHRM) puts it:

“Mergers and acquisitions (M&As) are tools businesses use to achieve organizational objectives—tools that have profound impacts on the employees of the organizations at every level as two organizations attempt to integrate into one. A merger is generally defined as the joining of two or more different organizations under one common owner and management structure. An acquisition is the process of one corporate entity acquiring control of another corporate entity by purchase, stock swap or some other method.”

So, are these operations successful? Do mergers and acquisitions actually strength the new organization’s bottom line? Or is there a lot of turnover, a lot of talent loss, and a conflict of culture?

Good question. In short, results may vary... wildly.

The Rocky Results of Mergers and Acquisitions

According to SHRM, 70 to 90 percent of all mergers and acquisitions fail in a financial sense with most companies missing their objectives. They say that this is largely due to HR related activities, such as:

  • Incompatible Cultures
  • Management Styles
  • Poor Motivation
  • Loss of Key Talent
  • Poor Communication
  • Loss of Trust
  • Uncertainty

In other words, “people issues” are largely to blame when it comes to the failure rate of mergers and acquisitions.

This is where HR comes in.

While the news media typically only covers when a merger or acquisition is happening, we never really get a chance to see what that entails. We think of these events like a movie with high-powered executives in flashy offices signing papers and cashing checks. In reality, it’s the people in the departments who work there that make the merger or acquisition work. And the main department responsible for this is HR.

Mergers and Acquisitions

SHRM goes on to say that HR has a few key things to focus on during a merger or acquisition, such as:

  • Creation of new policies to guide the new organization.
  • Retention of key employees.
  • Employee selection and downsizing
  • Development of compensation strategies
  • Creation of a comprehensive employee benefits program

With all that said, it’s easy to see why mergers and acquisitions are a stressful time. Employees are worried about fitting in, what their benefits will be now, how their retirement has changed, if they’ll like their new managers, and a slew of other things.

Again, HR needs to step in and make sure these issues are ironed out. The good news is that one organization’s HR team should be able to work closely with the other company’s to make sure of this. With two expert teams - both knowing a ton about their respective organizations - these issues can be addressed quickly and professionally to ensure a good fit.

“The HR leadership of both companies should be capable of promptly developing a strategy to help out the companies in accomplishing the synergies they are looking for. Before the merger or acquisition takes place, the HR managers of both the firms should advise the management to map out a roadmap in advance so that the merging companies can stick to it as soon as the M&A procedure gets going,” reports Anupam Jauhari from People Matters.

“The strategy should stress on the organizational communication structure, layoffs (if any), and amalgamation of corporate cultures. This initiative by HR leaders helps the management to conform to a specific set of objectives, thus driving away all misunderstandings and differences that may come up in future.”

Mergers and Acquisitions

Okay, now that the role of HR has been spelled out in detail. Let’s take a look at what a merger or acquisition is like on a process level to better understand how to nail all of these tasks before they get out of hand.

The Phases of Mergers and Acquisitions: How the Process Works

Like any business deal, there are steps or phases that need to happen in order for a merger or acquisition to take place. Generally, HR professionals break down M&As into five of these phases.

Phase One: The Buyers

As with any deal, the first step is for the two (or more) parties involved to identify themselves and start discussing the possible merger or acquisition.

The name of the game here is discretion. If you have a large company, one that the public has a special interest in, the two companies need to sign a whole bunch of non-disclosure agreements - often called NDAs - to ensure that nothing is leaked before the appropriate time.

These talks are often highly secretive because nothing is final yet and there is no need to cause alarm. Take, for instance, the recently approved acquisition of Time Warner by AT&T. These are two gigantic entities. In fact, AT&T reportedly bought Time Warner for a whopping $85 billion.

Needless to say, there were A LOT of talks happening between the two companies before the news made it to the media. In this case, though, it was mainly due to the fact that antitrust issues arose, causing a judge to have to step in and rule if the acquisition was even legal in the first place.

“After a six-week trial, Judge Richard Leon ruled that the government had failed to prove that the deal violates antitrust law, and ripped apart its case in his opinion,” reports CNN.

“AT&T celebrated the ruling and vowed to close the deal by June 20 — meaning that HBO, CNN, Warner Bros. and Time Warner's other brands will change hands next week. The deal will unite Time Warner's TV shows and movies with AT&T's enormous distribution system, including cell phone and satellite networks.”

Now, most mergers or acquisitions will not have this high of stakes, but still, you do not want anything leaking out until the deal is final or about to be final.

Mergers and Acquisitions

For HR, this means working closely with the legal counsel and is also the time to start preparing for the event even though it’s still far out. After all, given the list of tasks mentioned above, it’s going to be a bumpy road for those who do not plan.

Phase Two: The Third Party

Since both companies will be trying to get the very best deal, it’s important to bring in mediators who can work as middle men to ensure that the transaction and all of the documents about the transaction are on the up and up.

Here’s SHRM again:

“Phase 2 involves the legal, accounting, regulatory and technical aspects of completing the transaction. It is during this phase that third-party professional services are secured (e.g., lawyers, accountants, investment bankers and M&A advisors). These individuals or groups are critical to the success of the transaction and will be involved in the development of the structure and content of the legal agreement. An HR professional might be involved in interviewing the third-party professional and negotiating an independent contractor agreement.”

This is all happening, again, before the deal is final to make sure that everyone is represented in a legal way. These teams will look at things like antitrust and all of the laws that regulate how a merger or acquisition can happen.

At this point, it’s go-time for HR to start looking into what management changes need to take place when this deal closes. Start looking into cultural problems, redundancy issues, and what key employees need retained. It will vastly help in the near future.

Mergers and Acquisitions

Phased Three: Prep Time

Okay, now we’re on the cusp of the event. At this stage, both parties need to fill out all of the required paperwork:

  • Option Plans
  • Director’s Notes
  • NDAs
  • Agreements
  • Benefits Packages
  • Government Paperwork
  • Proper Financial Documentation
  • Marketing Campaigns
  • Other Documents

These items should all happen right before due diligence takes place. You can learn more about HR due diligence here:

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When all is said and done, the parties will sign a letter of intent, signalling that they are all in agreement with the terms and conditions of the event. These documents also come before due diligence and before a board votes formally on the merger or acquisition, reports SHRM.

After that, it’s time for due diligence where everything is looked over and carefully combed through by HR and management to ensure that nothing messes up the delicate deal. The last thing either company wants at this point is a surprise that could derail everything.

Phase Four: The Agreement

After all of that, it’s time to get down to business, literally. At this point, all of the nitty gritty paperwork has, for the most part, been completed and the two boards of directors start to negotiate price.

There are probably whole books written about how valuation is calculated in various industries so we won’t go into all of that here. The most important thing is that the boards of both parties will come to an agreement on what price (if it’s an acquisition) to go with and legal documents will be drawn up.

This is where other filings come in, such as with the secretary of state, tax documents, and other government bodies who will need notified of the event. Typically, this is where the public starts to learn about the deal as both parties go back and forth on how much to pay and the government starts to get more involved because the deal is right around the corner.

Mergers and Acquisitions

Once everything is filed, the two entities are now one, legally speaking. The next part is where the real, on the ground, work comes in because management and HR has to now bring the workforces together.

Phase Five: Getting Started

After all that, it seems like there shouldn’t be anything more to do, but the real work is just getting started.

“In this phase, the two organizations are combined into one. New workgroups are established, and redundant employees are laid off. The corporate culture for the combined organization is established and communicated to all employees,” reports SHRM.

“HR professionals may be involved in formulating a new mission statement, vision statement and possibly a values statement. Organizational policies and procedures will be revised and coordinated with significant input from HR professionals.”

HR is now tasked with selecting employees to be let go because of redundancies, create a new, unified corporate culture, help implement work groups, and a whole bunch of other issues that involve the people from both companies.

HR’s Role in All of This

In short, it’s now HR’s job to manage the integration of both companies if the deal is going to succeed in the way that both parties want.

“Once the reorganization event is complete, HR remains active in ensuring employee concerns are collected and addressed in an organized, efficient manner,” reports Michael Jacobson, JD, for XpertHR.

“Designating employees to manage and receive concerns from employees, while conducting periodic team meetings and maintaining an internal communications structure can go a long way toward managing employee expectations. If HR specialists are successful in addressing employee concerns, they may substantially improve the new company's chances of success.”

Mergers and Acquisitions

SHRM states that one of the biggest problems is uncertainty. If you have a staff that is unsure if they will have a job in the next couple months, many of them can start jumping ship, which is exactly what you don’t want to happen.

“The longer the period of uncertainty lasts, the more attractive alternative employment becomes. To make things more difficult, the best and brightest managers are the ones immediately targeted by recruiters attempting to lure them to other organizations,” they report.

“The loss of key employees can seriously erode the potential value of a transaction for the acquiring firm. Perhaps equally damaging, and just as costly, are those people who stay on the payroll but who emotionally "check out" and do not perform at their previous levels of productivity.”

Let’s dig into the key factors SHRM lays out for HR to do during these trying times.

Before and During the Deal: What Is HR’s Role?

HR plays a pivotal role during the whole deal. Mainly, HR is tasked with the due diligence process, which aims to look at possible pitfalls of the merger or acquisition on a talent level.

If you have two organizations that have cultural conflicts, they need to be addressed up top if everything is to go over smoothly.

“During the initial evaluation of a potential reorganization, HR helps determine whether the existing culture is compatible with that of the new or resulting company. Throughout the transition process, the HR specialist is often the point-person in transitioning employees between cultures while also helping them to migrate from and to benefits plans,” Jacobson states.

This sentiment is brought up by countless HR experts who say that cultural fit is of utmost importance during the whole M&A process.

“Analysis of the demographics by the Human Resource team goes a long way in helping firms that are planning an M&A. In case the HR notices any cultural differences during the analysis, such problems should be tackled without delay,” Jauhari reports for People Matters.

“Similarly, if the HR senses any feeling of disdain between the employees of the merging companies, the issue should be addressed upfront. Thus, it is imperative for human resources to have a firm understanding of the work culture of the organization wherein they work, along with the work culture of the other organization.”

Mergers and Acquisitions

Besides culture, you also have to check for other things like how benefits will change when the two companies come together. Will they be the same? Will the policies change dramatically? What can your employee’s expect? And what can you do to make the process easier?

This is where HR will need to work together to see what benefits and programs from each company need to stay and which need to go. The benefits swap over can be incredibly challenging and needs to be examined thoroughly by everyone involved.

The HR team needs to also be fully aware of policy issues that can lead to lawsuits. These lawsuits can be for a number of things from sexual harassment to EEOC violations and many others.

It’s important, therefore, for HR to make sure all of the necessary policies are in place before the merger or acquisition takes place. The last thing you want is for there to be a hole in your policies where actions can impact the process.

This step requires working closely with your legal team - or both legal teams and maybe a third-party - to ensure that you and the newly formed entity is complying with all local, state, and federal laws.

There are tons of laws out there that go into how workers rights that are laid out by the EEOC and other groups. Far too many for us to dig into here. With that said, as part of the due diligence process, a strong legal team is required, one that can examine and correct any potential oversight. We must note that we are not lawyers and this blog is meant to be a high level overview of what needs to be done during a merger or acquisition. Always consult a legal counsel before implementing any sort of transition event.

Mergers and Acquisitions

The takeaway here is that HR needs to be involved in the entire process. The department needs to closely examine the companies cultures to make sure they fit, addressing any issues that might arise. HR needs to be explicitly involved in the due diligence process for a number of reasons and policies need to be put in place before the event.

Again, after all of this over, the name of the game moves to integration. How are you supposed to get all of these new people to work together? Will they want to work together? Will there be too much turnover? These are all concerns.

HR’s Role After the Merger or Acquisition

After the merger or acquisition, HR is now primarily tasked with making sure everything continues marching forward.

This involves a couple of things:

  • New policies
  • Key employee retention
  • Downsizing and redundancy management
  • Compensation, benefits, etc
  • Cultural fit overtime
  • New policies
  • Key employee retention
  • Downsizing and redundancy management
  • Compensation, benefits, etc
  • Cultural fit overtime

Let’s take a look each one to get a better understanding of the challenges.

New Policies After a Merger or Acquisition

As we touched upon earlier, new policies will need to be created that help smooth over the transition. This means HR will have to create new benefits policies, new vacation policies, new drug testing policies, and everything else in between.

It’s hard to put a number on everything these policies need to cover, but it’s vital that they are all considered and evaluated consistently to ensure a good fit.

People are going to have a lot of questions. What happens to their PTO? What about healthcare? Do they have to personally take any actions to ensure these policies do what they are supposed to?

Mergers and Acquisitions

Many of these policies might stay the same because there are best practices that many organizations use. It can be, however, a good time to update dated policies to make them more enticing and accurate based on the latest research and HR trends.

Retention and Downsizing

When it comes to merger and acquisitions, you have whole companies coming together under one roof. This means that there will be a lot of people who are no longer needed at the new organization.

It all depends on if the merger or acquisition will dissolve both parties into one unified one. For example, just because a giant corporation merges with another doesn’t mean that they will now be a complete, single unit. Sometimes, departments continue working on that specific brand instead of being completely integrated.

Take, for example, how Ebay bought PayPal back in 2002. eBay didn’t extinguish PayPal and roll it under the eBay brand. Instead, PayPal became a subsidiary under eBay, making it technically the same business overall while still having very much its own corporate culture, departments, etc.

Either way, downsizing is likely needed when it comes to mergers and acquisitions because redundancies happen. Will your organization need two different marketing teams? Or will the marketing teams join forces with work-groups working on different tasks? If it’s the latter, you will most likely have to layoff some members of one of the marketing teams.

Mergers and Acquisitions

The same can be said for just about every department at an organization.

“A major challenge for the acquiring company is in deciding who to retain, who to redeploy and who to terminate, as well as effectively managing those processes. Relocating key personnel or even entire departments may be necessary,” reports SHRM.

“Ideally, the HR and management teams will have been able to assess the skills, capabilities, potential and motivations of key employees involved in the merger or acquisition.”

To figure out where these redundancies lie and who to let go, managers need to perform various performance reviews and spend time workforce planning. You need to look into employee knowledge, job performance, and other things. Then, when the evaluation is complete, offboard staff members using layoffs, retirements, and other tools.

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You can learn about the importance of good offboarding practices here. And, as always, make sure you provide the individuals proper severance and outplacement support to not ruin your corporate brand during these trying times.

The tricky thing is retaining key talent during all of this commotion.

While will definitely be a lot of people let go during a merger or acquisition, you must also retain major players, some of whom might be looking to leave after such an event.

To do this, you will need to start the conversation with these employees early, explaining to them that their jobs are safe and they are valued at the organization.

“This means requesting access to conduct confidential interviews with key employees in advance of the actual closing date. Most importantly, management should be very careful not to undercommit to these key people, or they will consider other employment options. Star performers know who they are and understand their personal and professional marketability,” SHRM goes on to say.

If you do not protect your key personnel, you could wind up with a strange workforce that is unable to provide the level of work needed, causing financial stress and even more layoffs. You don’t want this to get away from you so it requires a delicate, yet persistent, touch from HR and managers from departments.

Compensation, Benefits, and More

Like the newly added policies, you will need to work with managers and your board to come up with new benefits and compensation plans for the entire workforce.

People are going to wonder about how their raises will be impacted, how they can take time off, and how their healthcare, 401K, and other things will work now under the new structure. It’s vital that HR handles all of these concerns before people start to leave the organization.

Mergers and Acquisitions

This is largely where proper communication comes into play. You need to be open about all of these changes and make sure that your staff can find information about all of them through a company intranet or by holding training sessions to inform the staff members.

We can’t tell you exactly what benefits you need to cover because this is usually a case-by-case process that requires knowledge of the organizations at play.

Culture, Culture, Culture

This is the big one. The one that will last for years and years: cultural fit.

Possibly HR’s biggest role in the whole process is to make sure the cultures of both organizations can come together instead of clashing against one another.

“M&A growth strategies promise a multitude of strategic opportunities; from rapid growth, to eliminating competition, to access to new markets. And many organizations are currently, or have, embarked on merger and acquisition growth strategies to varying effect,” writes Chris Cancialosi for Forbes.

“When asked about the primary causes of these mixed results, most leaders cite a misalignment between the two organizations’ cultures. This friction can wreak havoc as the members of different groups assimilate to drive the performance gains that M&A strategies forecast.”

There are many strategies out there that go over what it takes to integrate cultures and foster friendly growth. But the most important tip is to make sure you evaluate the cultures before the merger or acquisition event. By doing due diligence, you should be able to uncover potential problems before they happen, allowing you to address them properly.

Mergers and Acquisitions

Sometimes, cultural mismatches will strike down a deal. Or, at least, they should, since poor cultural fit seems to be the biggest problem when it comes to M&A practices in the first place.

Work closely with managers to help bring people together and make sure you continually focus on corporate culture in your day-to-day activities.

“In the spirit of keeping the lines of communication open, it’s important to bring people along with you throughout the integration process,” Cancialosi continues.

“Creating opportunities for people to come together to look each other in the eye, ask questions, and discuss the realities of the integration in a purposeful way can help people express their anxieties. Dialogue also connects employees with a larger support system as they work through the nebulous days of integration.”

HR’s Roles in Mergers and Acquisitions: The Final Say

There is a literal ton of things HR has to worry about when it comes to mergers and acquisitions. The biggest being cultural fit, though you cannot ignore any aspect that we’ve covered above.

Remember, these are the key concerns you should have:

  • Incompatible Cultures
  • Management Styles
  • Poor Motivation
  • Loss of Key Talent
  • Poor Communication
  • Loss of Trust
  • Uncertainty
  • Incompatible Cultures
  • Management Styles
  • Poor Motivation
  • Loss of Key Talent
  • Poor Communication
  • Loss of Trust
  • Uncertainty

And here are the things you need to pay special attention to once the merger or acquisition takes place:

  • New policies
  • Key employee retention
  • Downsizing and redundancy management
  • Compensation, benefits, etc
  • Cultural fit overtime
  • New policies
  • Key employee retention
  • Downsizing and redundancy management
  • Compensation, benefits, etc
  • Cultural fit overtime

It’s important that you work closely with the board and managers during the entire process to ensure that everything will run smoothly. Pay close attention to due diligence and start planning way ahead of the event.

Mergers and acquisitions, if done correctly, should boost the business - not hurt it. HR’s role in all of this is vital for that success. Learn more by downloading our guides here:

Download our HR Guide for Mergers and Acquistions!

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