How to Handle Incoming People in M&A

How to Handle Incoming People in M&A

What is the biggest value leak post-close? People. Not only does the company lose tribal knowledge of the business, but it must also replace those positions, and take the time to train new people. According to studies done by Wharton, acquired employees are twice as likely to leave compared to employees hired off the market. This article discusses how to handle incoming people in M&A to increase deal success.

“If you don't have a happy workforce, you don't have a productive workforce, and therefore you don't have a profitable workforce. And that can really affect your deal outcomes.” - Klint Kendrick

Identifying Key Employees?

Let’s face it; not all employees are equally valuable. Even though 100% retention of the target’s employees is ideal, the deal team must prioritize retaining the key employees early on in the process.?

If a team wants to retain key employees post-close, they must start with a clear understanding of the deal rationale.?

The acquisition’s strategy will define the exact people buyers need to retain. For instance, if an acquiring entity is after a product, then it must retain the people responsible for inventing and managing the product. If a company acquired a target for their software code, then it must retain the person who wrote the code.?

In addition, influential people inside the business must also be considered key employees. These people contribute massively to the culture and are mostly under the radar. Trusted middle managers are often extremely influential. Getting buy-in from middle managers is essential for a smooth transition. People trust middle managers and will listen to them more than the acquirers.?

Ideally, buyers should convince the leaders to stay. Leaders have a massive impact on business and people, and retaining them should be considered a win.?

Improving Retention

After identifying the key people, take the necessary steps to improve retention. After talking to many world-class practitioners, we have compiled a list of the best tips:

1. Build Relationships

From the beginning, start building strong relationships with the key employees. There are instances where corporate development gains access to key employees during the targeting phase. But commonly, the team will meet them during diligence. Spend more time with the key employees and let them know they are well appreciated. Making an effort to get to know them will go a long way, and use the relationship building to learn more about the business.?

2. Empathy During an Announcement

Most employees will be shocked by the acquisition news during the announcement. According to Klint Kendrick, Sr. Director - HR M&A and International Workforce Strategy at Walmart, three major questions go through employee’s heads that acquirers must address to increase the chances of retention:

a. Do I Still Have a Job?

If there are layoffs, be honest about it. The worst thing you can do is lie about layoffs and lose the trust of every employee in the company.

b. Are They Going to be Fair?

Like every other acquisition, there will be process and policy changes. Be sure to talk about the changes and let employees know that your policies make sense, are fair to the employees, and apply to everyone.

c. Will my Job be as Good?

With all the fear of uncertainty, employees need to know that their job will be as good as the one they had before. Think of it as re-recruiting your employees and selling your company as to why they should stick around and experience their new job.?

Acquirers must show empathy and let the people know they will be cared for. If you want to make the most out of your employee announcement, click here:?

3. Handling Negative Employees

During the announcement, there are always going to be employees that have a negative outlook on the transaction because they don't know the acquiring company, and they don't know what will happen to their jobs. As the buyer, the worst thing to do is ignore these people. All of their concerns are valid and must be recognized.

“No one's going to listen to anyone from the company that's acquiring, as much as someone within their own company.” - Briana Elkington?

This is also where the middle managers or the leaders come in handy. Employee messages can have a more significant impact if they come from someone in the company that the employees trust. Middle managers can urge a positive outlook on the acquisition because people already trust them.?

4. Incentives

Signing bonuses are the most common incentive acquirers use for retention. There are also the golden handcuffs, where employers give bonuses to employees if they stay for a period of time. However, incentives don't always work well, especially if the employees don’t want to be there. They could perform on a sub-par level as they try to complete their time-based contract, and this is why Sallie J. Cunningham, Director of People M&A at Apple, refuses to offer time-based incentives.?

“If you're giving someone cash incentives, ensure it's tied to a specific goal or a deal value driver. Something that the business is expected to deliver post-closed, whether it's the launch of a product, moving into a new market, or going to live with new systems and tools.?

I have never given cash incentives that are time-based. I don't like driving people out any longer than we have to. There is nothing more poisonous than a visible leader who doesn’t want to be there.” - Sallie Cunningham

5. Employee Experience

We are now in the era of employee experience, and money alone is no longer enough to keep employees happy. People are looking for work-life balance and career advancement opportunities, which is why culture plays a huge role in retention.

Employees must be happy working for the acquiring company. If the working environment drastically changes from what it was before, employees will most likely leave.?

When employees leave, the people they will work with, and their work, often go with them.

6. Leadership Onboarding

Leaders have a lot more responsibilities than regular employees, which makes onboarding them harder. Integration can happen quickly, and the worst thing to do is to overwhelm a leader with new information while they are trying to run the business. When leaders are overwhelmed, their productivity goes down.

"There's no magic formula in onboarding leadership except for time, attention,?empathy, and curiosity to work through it." - Kim Jones

According to Kim Jones, HR Director M&A at Microsoft, acquirers must customize each onboarding based on the leader’s experience and position. Onboarding a CEO should look different from onboarding a manager. But the most important thing is to stay connected to the leader and help them understand what's coming.?

Microsoft created a community for leaders who came from acquisitions where everyone can share their journey, experiences, and success stories during the transition. They call the community "inside-Microsoft," Learn more about it here.

8. Listen

One of the most crucial things to remember is that acquired employees did not choose to be acquired and they did not choose the acquirer as their new employer. Therefore, acquired employees cannot be treated like new employees. Always consider that acquired employees are already used to a set of processes and tools, and changing that will be hard for them.?

Remember, acquired employees are already successful in their respective markets, hence the acquisition. Always be open to learning from them and adopting their best practices.?

Layoffs

Layoffs are also inevitable. When acquiring another company,? there will always be role duplications. Layoffs are required to streamline the new company. Letting people go is never easy, but with the right approach, acquirers can minimize the damage to the individuals and the company’s reputation.?

"Whether it's in M&A or at any time, the minute the word layoff gets into the water in a corporate environment, everybody goes into a panic." - Evelyn De La Cruz

According to Evelyn De la Cruz, Head of North America Administrative Operations at Spencer Stuart, there are four steps to lay off people properly:

Step 1: Get the right mindset

Laying people off in a poor manner will not end well for acquirers. Miscommunicated layoffs can damage a company’s reputation and cause more employees to leave. Instead, acquirers must treat people with dignity and respect. Show empathy in the message.

Step 2: Create the message

Communicate why the layoffs are happening. Explain to people the company's objective and why there are too many people.?

Step 3: Severance planning

When planning a severance package, use a standard one. Whether the package is from the target or parent company, just be fair. Avoid customizing the severance too much.?

When an acquirer gives too little, it might damage their reputation among the other employees. On the other hand, if an acquirer is too generous, the remaining people might expect the same in the future.?

Step 4: Execution

Provide an intimate setting where people can receive the message individually. However, relay the message fast, especially if there will be thousands of layoffs. Avoid sending people home with job uncertainty.?

Last Word

If a deal involves people, prioritize them. People are the most important part of any transaction. Employees are the ones who will run the acquired business, and they must be happy and dedicated to the new organization to ensure deal success.?

--------------------------------------------------

The M&A Science Academy?is your best resource to learn exclusive insights and stay on top of your M&A game.?

We've invited the best M&A practitioners to share their biggest M&A failures, best practices, and proven techniques. Get access to over 20+ instructors, 50+ courses, unlimited workshops, and more! We add new courses every month PLUS all the recordings from quarterly events so you can always catch up on all of the fun.?Join the Academy here.