Protecting Valuable (Employee) Assets In The M&A Minefield

By Harry Cruickshank

Our previous article looked at de-risking the impact of M&A from a customer perspective. Now let’s consider the employee angle.

Businesses are reliant on the collective capability of their workforce to execute their operating plans and deliver the expected results (even if they sometimes behave in a way that suggests they really don’t understand and appreciate this).

And therein lies the root of most people-related issues for M&A transactions.

As with customers, it’s a double-headed monster. In the employee case, it’s even more fraught, because of the critical need for successful post-deal integration of the businesses. Pulling together two disparate cultures is hard enough. Throw in employee nervousness, driven by an uncertain future, and the difficulties multiply. Towers Perrin (prior to the merger with Willis) identified that people issues are the predominant destroyer of value in M&A deals.

We’re regaled annually by Gallup’s global employee engagement surveys. Over the last 20 years these have starkly illustrated average levels of employee engagement that are typically sub 20%. In other words, the majority of employees are not fully engaged with their work or their employer.

Now add in the tremors induced by M&A activity and consider the potential impact on employee productivity and retention.

You would expect that due diligence would explore this in some detail, engaging employees early and communicating often throughout the extended deal process, to answer questions, allay fears and project a positive future vision.

Keeping, and effectively combining, the experience, talents and commitment of the two workforces is key to unlocking post-deal value. Plus, extensive research proves that a high performing employee experience underpins a high performing customer experience. This umbilical link is so obvious that M&A practitioners should be well-versed in helping companies engage, coach and encourage the buyer’s and seller’s employees to protect their post-deal ROI.

Once again, reality bites.

One USA company was bought by a UK company for $250m. As little was done to understand the employees’ expectations in advance, within 12 months of the deal completion, the top 200 people – the talent of the company – had left. Shortly after the acquired company was closed.

Most of the checklist on employee-related matters focuses on tick-box assessments of headcount, compensation, contractual commitments, potential litigation and pension funding. Assessments of cultural considerations and the perspectives of the two workforces are typically absent.

The key: properly assessing the expectations of employees in both the acquiring and the target companies and measuring current performance against them. This provides a treasure trove of insight to help businesses address the performance gaps, deliver some quick wins and provide employees with a more positive outlook on the deal. It facilitates pre-deal action to enhance the deal itself.

This approach will prove invaluable as an aid to decision-making in post-deal integration and provide a baseline against which to re-assess the combined workforce 6-12 months after the deal.

Investors and business leaders often talk about employees and their value, in the context of M&A, but this must be a dialogue supported by data-driven, actionable insight rather than gut feel and good intentions.