What to ask before, during and after the deal
Although economic headwinds persist, M&A has displayed resilience and innovation over the second half of 2022 and into 2023. Whether you’re working through due diligence now, or evaluating options for the future, human resources have an important role to play. Knowing what to evaluate from an HR perspective is vital to acquisition success and compliance.
Consider the below a guide for deal teams to avoid HR-related pitfalls before, during, and after an acquisition.
Pre-Deal Due Diligence
“Married in haste, we may repent at leisure.” – William Congreve, 1693
The HR aspects of acquisition are significant since leaders, employees, workplace processes and culture are often the essence of an organization’s value. Before investing, assess the HR function, human capital, and culture as part of the due diligence process alongside typical functions like finance and IT. When assessing, consider these questions:
- Culture. What are the company’s core values? Do they align with the acquirer’s principles? Will these cultures be accretive, or do they appear dissonant? How will the employee experience and customer experience change?
- Processes. What is the company’s performance management program? How are employees compensated? How will compliance requirements change as a result of the transaction? Which HRIS does the target company use, and how is it utilized? Will there be significant changes to pay processes and benefits post-merger? Will employees need to learn new systems for HR-related functions?
- Employees. What knowledge, skills, and abilities (KSAs) are critical to achieving the deal thesis? Between the companies, are there very different functions and roles, or is there redundancy? Which roles and individuals are considered key to success, and what plans are in place to retain them through a reasonable period of time?
- Vision & Leadership. Should the founder and/or leadership team transition to the new company? Do the leaders of both companies have alignment in goals and approaches? Can their personalities and work styles mesh? Are they effective communicators, and are they equipped to communicate the necessary information to their employees? What will the impact be on post-merger integration efforts?
Looking for red flags early on in these areas can save time and resources, directly impacting the ROI of the deal. Furthermore, clarity and understanding of these core areas of HR enables more effective integration plans and Transition Services Agreement (TSA) preparation.
During a recent acquisition process, someone who could have been valuable to the transition team didn’t understand her role. With little communication provided, this individual hung back, waiting for instruction and guidance. The lack of clarity cost the team her insights, but also made her appear expendable in the new organizational structure.
Not identifying each individual’s role and communicating clear expectations can harm integration and cause value loss. This is the time when most employees are at risk for attrition.
During the deal close phase of an acquisition, HR should focus on the following:
- Payroll & Benefits. Prioritize activities to ensure continuity and a seamless transition of payroll and benefits without lapses or inaccuracies.
- Compliance. Become familiar with employment law and requirements in the geographies the new entity will operate. If layoffs or a reduction in force occur, understand applicable regulations and plan accordingly.
- Compensation. Create a new compensation and incentive model, ensuring no surprises. Clarify timetables and any applicable grandfather clauses. Pay utmost attention to payroll processes that may be changing. There is huge financial risk in not staying compliant through payroll issues.
- Job Architecture and Leveling. Be ready to share comprehensive job details with each employee. Confusion, errors, and decreased morale result if this is not done. Critical deal dynamics, like key-person compensation, can and should be planned for during this time.
- Staying Human. Dedicate time and effort to change management and communication. The acquirer’s leaders must meet employees where they are, virtually or in person. Ensure employees understand their value and that what they bring to the new organization is essential and desired.
- Formal Onboarding. Provide employees with a positive, welcoming experience. Spell out precisely what employees can expect to experience – on day one, 30, 60, and 90 of the transition. This includes compensation and benefits, roles, reporting structure, and performance management guidelines.
If you’ve done a good job with integration planning, you’re ready to implement key activities right away. From an HR and compliance lens, now is the time to:
- Maintain Clear Communication. When performance management is put into place, ensure that all employees know the company’s desired behaviors and how they’re being evaluated. Make roles, responsibilities, and reporting structures clear and proactive.
- Standardize Processes. Try to eliminate “legacy to acquired” differences by establishing standard operating procedures in all HR policies for the new organization as a whole.
- Deputize Champions. Tap key executives and influencers to support and drive integration. Align incentives accordingly.
- Prioritize To Optimize. Tolerance for change wears thin quickly. Space out new initiatives and allow for adjustments and feedback along the way.
- Reflect And Reinforce. Communicate the case for change widely within the organization and reinforce the “what’s in it for me.” Tell small success stories and share results as you go.
- Evolve Culture. Meeting in the middle can invigorate culture, keeping what works and leveling up what didn’t before. Celebrate change as progress, support workload management, and reward behaviors (not just results).
All too often, HR is an afterthought to financials, technology, operations, or sales during M&A activity. Your HR team needs to be at the table. Supporting people-related elements throughout a deal’s lifecycle can make the difference between a transaction that exceeds expectations or misses the mark.