Mergers and acquisitions, an example of changes
Definitions
The term 'merger' refers to combining two businesses that agree to integrate operations on an equal footing, since these companies have complementary resources and capabilities that can provide a competitive advantage.
An acquisition is an act to gain effective control of assets or management of other company’s business without combining their businesses. Two or more companies can remain independent after an acquisition, but control of the target company may change. An acquisition strategy involving takeover occurs when the acquiring firm has not been solicited by the target firm. Thus, a takeover is referred to as a 'forced' or 'unwilling' acquisition.
The use of mergers and acquisitions (M&As) by businesses is an important tool to reach organizational objectives, a tool that is impactful to employees of the organizations on every level as two organizations seek to combine. Generally, a merger is a combination of two or more organizations under one common management and ownership structure. During an acquisition, one corporate entity purchases, swaps stocks with, or otherwise acquires control over another corporate entity.
How successful were these operations? Is the new company's bottom line stronger as a result of mergers and acquisitions??Could there be a lot of turnovers, a loss of talent, and a conflict of cultures?
In the end, HR has the responsibility of facilitating a smooth merger and acquisition process by integrating two diverse cultures, a department whose job it is to ensure that this seamless integration is achieved.
Mergers’ Major Classifications.
Horizontal mergers
When Two companies merge where they produce very similar products within the same industry.
Vertical mergers
A merger takes place when two firms, each involved in a different stage of production, combine.
Congeneric mergers
Occur where two merging firms are in the same industry but have no mutual buyer/customer or supplier relationship.
Conglomerate mergers
Take place when two firms operate in different industries.
M & As Pros and Cons
Advantages of M and A
·???????? Faster market entry occurs as a result of increased speed in market acquisition.
·???????? In order to gain more market power, firms must have a size and resources large enough to compete in the market?
·???????? Taking on differentiated products and scaling economies of scale that present entry barriers to new entrants.?
·???????? In comparison to a company's internal product development process, acquisitions provide greater predictability and faster entry into the market.
·???????? Risks are lower than those associated with developing new products-the internal product development process can be risky.?Acquisitions are viewed by managers as carrying lower risks.?
·???????? Diversification-clients and markets are changing at a fast pace, making it difficult for companies to develop new products.
·???????? Neutralize competitors and avoid excessive competition?
Dis-advantages of M & A
·???????? Inability to achieve synergy: Synergy occurs when units working together create value greater than those units would be able to create individually.
·???????? Risk of excessive diversification: in general, companies employing related diversification strategies perform better than companies employing unrelated diversification strategies. Diversification strategies are not infallible, but overdiversification is typically the cause of declining performance regardless of the type of diversification.
·???????? The tendency for acquisitions to be substitutes for innovation is another problem caused by too much diversification.
·???????? Too large: The evidence suggests that smaller firms are more efficient in various organizational functions than those that are too large.
·???????? Excessive focused on acquisitions: A focused acquisition process: Managers spent a lot of time searching for qualified acquisition candidates, completing effective due-diligence processes, negotiating, and preparing for transactions.
The Rocky Results of Mergers and Acquisitions
The highly competitive global environment has made mergers and acquisitions (M&A) a common phenomenon for companies large and small. M&A deals are an effective growth strategy for companies, helping to:
Statistically, 80% of mergers and acquisitions fail from a financial standpoint, with firms failing to achieve their objectives. Human resources-related activities are largely to blame due to:
Despite being categorized, all above factors might be gathered below “resistance to change” headline. So, the failure rates of mergers and acquisitions can be largely attributed to "people issues.". Here HR comes in.
It's rare that we get to see what mergers or acquisitions entail since the news media only reports on them when they occur. We imagine high-powered executives attesting documents and cashing checks in flashy offices, as if we were watching a movie. Actually, it's the people in those departments who make mergers and acquisitions happen.
HR has a few important things to focus on during a merger or acquisition, including:
·???????? Creating new policies to guide the new organization.
·???????? Retention of key employees.
·???????? Employee selection and downsizing.
·???????? Developing compensation strategies
·???????? Creating a comprehensive employee benefits program
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Now, it's feasible to see why mergers and acquisitions times are full of stress. Employees worry about whether they will fit into the company, what benefits they will now have, how their pension has changed, whether they will like their new managers, and a host of other things.
Again, HR needs to step in and make sure these issues are addressed. The good news is that one company's HR team should be able to work closely with the other company's team to ensure this happens. With two teams of experts who both know a lot about their respective organizations, these issues can be addressed quickly and professionally to ensure a good fit.
The HR executives of both companies should be able to develop a strategy in a timely manner to help the companies achieve the synergies they seek. Before the merger or acquisition takes place, the HR executives of both companies should advise management to create a roadmap in advance so that the merging companies can stick to it once the M&A process gets underway.
The strategy should focus on organizational communication structure, layoffs (if any), and merging corporate cultures. This initiative by the HR executives will help the management to stick to a specific objective and thus eliminate any misunderstandings and differences that may arise in the future.
The Phases of Mergers and Acquisitions: How the Process Works
A merger or acquisition involves several phases, as with any business deal. Human resource professionals generally break down mergers and acquisitions into five phases.
Phase I: The Buyers
like any deal, to begin discussions about a possible merger or acquisition, the merging parties need to identify themselves and explain their business objectives.
In this case, discretion is crucial. Large companies, or companies that the public is especially interested in, need to sign many nondisclosure agreements, or NDAs, to ensure that nothing gets leaked before a certain date.
Since nothing is final yet, these meetings are typically highly secretive since there is no need to cause alarm.
While the event is still far away, HR should be working closely with the legal counsel during this time and also beginning to prepare in advance. Moreover, without a plan, those who do not do their homework will have a bumpy road ahead.
Phase II: The Third Party
Both firms will want to get the best deal, so it's important to bring in mediators who can serve as middlemen to ensure that all aspects of the transaction are handled in a clear and fair manners. Professional third-party services are secured during this phase (e.g., lawyers, accountants, investment bankers, M&A advisors). It is extremely important that these individuals or groups are involved in the development of the legal agreement, including the structure and content. Often, HR professionals will interview third-party professionals and negotiate an independent contractor agreement.?Antitrust laws and all laws that regulate how a merger or acquisition can happen will be addressed by these teams.?It's now time to get HR started investigating what changes need to be made in the management structure after this deal closes. Investigate issues of culture, redundancy, and what key employees need to remain. Future operations will be aided greatly by this.
Phased III: Prep Time
So, we're closer to the big event now. All parties involved need to complete the following paperwork at this point:
Due diligence should be performed as soon as possible after these items are completed.?As a final step, the parties will sign a letter of intent, which recognizes that all parties have agreed to the terms and conditions of the event. A board votes formally on a merger or acquisition after reviewing these documents, as well as before conducting due diligence.?Then it is time for due diligence, when HR and management look over everything and examine it very carefully to ensure that nothing is messed up. At this point, neither firm wants a surprise that could derail everything.
Phase IV: The Agreement
Finally, that’s the time to get down to business. The board of directors now move forward with the negotiation of price, with most of the tedious paperwork completed.
The calculation of valuation in different industries has probably been the subject of multiple books, so we won't get into that in detail here. There is no doubt that it is important that both boards of directors reach agreement on a price (if it's an acquisition) and legal documents are drafted.
Here are other filings, such as the state's secretary of state, tax documents, as well as notices required by other government agencies. As both parties are still negotiating how much to pay, the public starts to hear about the deal, and the government becomes more involved since the deal is just around the corner.
Legally speaking, once all the documents have been filed, both entities will become one. Next, management and HR must bring together the workforces to begin the real, on-the-groundwork.
Phase V: Just started.
Even though it seems like there's nothing else to do after all that, the real work is just beginning.?A fusion of the two organizations occurs in this phase. The formation of new workgroups and the termination of redundant employees is taking place. All employees are made aware of the corporate culture of the combined company.
It is possible that HR professionals will be involved in the process of drafting a new mission statement, vision statement, and values statement. Human resource professionals will contribute significantly to the revision and coordination of organizational policies and procedures.
A new set of responsibilities has been handed over to HR, and that includes selecting employees to be let go because of redundancies, implementing a new corporate culture, and coordinating work groups for both companies.
If the deal is going to succeed, HR's responsibility should be to oversee the integration of both companies.
Human resources remain active following the reorganization event to ensure employee concerns are gathered and addressed in an organised, efficient manner.
Issues in M and As.
·???????? Lack of or inefficient communications.
·???????? Lack of training, unfit of training programs to changes intended to be managed.
·???????? Loss of key people, either due to faulty selection criteria, or failure to control fear and anger.
·???????? Power and politics. Power shifting can be disappointing to executives and key employee.
·???????? Culture clash.
·???????? Employee resistance, either to changes, new polices, power shift, etc.
What should be communicated?
If leadership cannot stand up in front of the company and say the following, resistance will worsen:
· “We’re doing this because we have to do, it is a must.”
· “We’re doing this because we are failing. and if we don’t, we all stand to lose our jobs.”
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·?“We’re doing this because it will help us. It is going to allow us to grow. We’re all going to be better off during and after this transitional period.”
·?“We MUST make this change or we may not be in existence 2 years from now.”
·?“opponents and competitors are growing, we have to grow too”
Where HR comes in?
·???????? Train managers on the nature of change
·???????? Technical re- training
·???????? Family assistance programmes
·???????? Stress reduction programmes
·???????? Explaining new roles
·???????? Helping people who lost their jobs
·???????? Post merger team building
Uncertainty is one of the biggest problems. The last thing you want to happen is for your staff to jump ship if they are uncertain, they will have a job in a few months. losing 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.
If HR specialists are successful in addressing employee concerns, they may substantially improve the new company's chances of success.
Role of HR in Mergers amp; Acquisitions
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.
Culture conflict, analysis, Detection, report, and actions
It's important to resolve any cultural conflicts that exist between the two organizations at the top of the organization if you want everything to go smoothly.
HR team help evaluate if the existing company culture is compatible with the new or resulting one during the evaluation process. 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, n.d.).
Many Human resources experts believe that cultural fit during the entire merger and acquisition process is of utmost importance. Demographic analyses by the Human Resources department can be of great assistance to firms planning an acquisition. During the analysis, the HR should address any problems encountered because of cultural differences as soon as possible. (Jauhari, n.d.).
Employees of organization, along with their management, count on the Human Resource department for advice when it comes to M&A transactions. It is the responsibility of human resources to analyze the cultural amalgamation between two organizations, taking into account the demographics of the partnering organizations, which includes several factors, such as:?
·???????? A comparison of the two organizations' management styles.
·???????? What is the mentality of employees of the two companies?
·???????? Rate of growth of the merging companies.
·???????? Differences in cultures between the organizations.
·???????? The respective perspectives of the two organizations.
·???????? Selection of employees..
·???????? Employee perks and insurance, as well as other benefits, provided by the company..
·???????? Statistical data on employee turnover.
·???????? The degree to which employees feel estranged.
·???????? Employees' ability or willingness to embrace new corporate culture.
Throughout the M&A process, the HR should take effective steps to ensure that issues arising from cultural differences do not disrupt the M&A deal and are handled professionally. It should also facilitate in :
·???????? Build the confidence of employees.
·???????? Provide adequate training for managers to get used to the nature of change and new organizational culture.
·???????? To remove fears and doubts of employees in order to maintain productivity.
·???????? To ensure the safety of the workplace.
·???????? Explaining the new roles to each employee.
·???????? Explaining the hierarchy structure of the organization after the merger..
·???????? improving efficiency by identifying leaders from both organizations.
·???????? Enhancing innovation by placing the right employee at the right position.
·???????? Complying with labor laws and other governing and applicable regulations.
·???????? Keeping the communication channel open through constant communication with the employees and conveying their concerns to the management.
·???????? Providing timely input throughout the Merger / Aquisition process.
·???????? Conducting orientation programs on welfare schemes, compensations, benefits, and company policies.
Equal Opportunity, Benefits, and legal determinants
Human resources should be alert to any feelings of disdain between employees of merging companies and address the issue right away.
As well as culture, there will be changes to polices including benefits and compensations when both companies join forces. What policy changes are in store? What can your employee’s expect??If possible, what should be done to facilitate the process?
Here's where HR has to work together to determine which benefits are to stay and which need to be removed from each company. Changing from one system to another can be incredibly challenging, and all involved parties should examine it carefully.
Likewise, the HR team needs to be aware of potential lawsuits resulting from policy issues. From sexual harassment to employment discrimination, to violations of the Seafarers Protection Act, to numerous other regulations both locally and internationally, these lawsuits can be filed for a number of different reasons.
Accordingly, it is important for HR to ensure that all policies necessary for successful integration of the company are in place prior to the merger or acquisition. In order to make sure their policies are strong or adequate, leaders must take care to avoid weak or inadequate policies that might negatively impact the process.
It will be necessary to work closely with the legal team and possibly a third party, to ensure that you and the newly formed entity comply with all local, global, and applicable laws.
The HRM of any organization can facilitate a successful M&A throughits intervention. As human resources deals with important issues related to employees, the involvement of HR professionals is key functional for successful mergers and acquisitions. Thus, during an M&A deal, a HR plays the role of both a catalyst and a coach to enable the employees of the merging companies to work collectively and constructively.?
Once all of this is done, the focus turns forward to integration. What's your strategy for ensuring that all of these new people work together? Are they interested in working together? What if there are too many changes? These are all legitimate concerns.
A successful HRM of M & AS should consider the merger-emotion syndrome
·???????? Denial-------- following news of the merger, followed by Fear, which turns into Anger, and Sadness, then Acceptance, followed by Relief. Here is the point where leadership of the organization and Human resources Management need to encourage employee to grow positive emotions, that will help employees develop, Interest leading to Liking, and ending with Enjoyment-----commitment to the situation
Human Resources Management’s Role following a Merger or Acquisition
HR is primarily responsible for making sure there is no stalling after a merger or acquisition, HRM must ensures plans marches forward, according to milestones and strategies set.
The following are developed and maintained:
·???????? Introduce new policies.
·???????? Retain key employees.
·???????? Downsizing and managing layoffs and redundancies.
·???????? Compensation, benefits, etc.
·???????? Cultural fit overtime.
To fully appreciate the challenges, let's take a look at each individually.
Policies and fit Post a Merger or Acquisition
For the transition to go smoothly, new policies will have to be developed. Consequently, HR will need to develop new benefit policies, new vacation policies, new drug testing policies, and everything in between.?The importance of considering and evaluating them consistently can ensure that a good fit is achieved.
It will be a question-and-answer session. How PTO is affected? What about healthcare? To ensure these policies work as intended, do employee need to take any actions themselves?
There are best practices that many organizations follow, so many of these policies might remain the same. Although it can be a good time to update dated policies in light of the latest HR trends and research, it is nevertheless a good time to update outdated policies to make them more appealing.
Retention and Downsizing
A merger or acquisition brings together whole companies under one roof. It will be necessary to let go of a lot of people in the new organization.
This depends on whether or not the merger or acquisition will dissolve both parties into one. A merger between two giant corporations, for instance, does not mean that they will now operate as one. In some cases, departments are still working on their specific brands rather than becoming fully integrated.
Consider how Ebay acquired PayPal in 2002. PayPal didn't disappear and become part of eBay. However, PayPal became a subsidiary of eBay, so it is technically the same business overall, though it retains some of its distinct corporate culture, departments, etc.
Redundancies are inevitable when merging or acquiring businesses, so downsizing may be necessary. Does the new firm plan to have two different marketing teams? Could marketing teams team up with work groups carrying out different tasks? some marketing team members?likely have to lay off??if it's the latter.?A company's departments are all comparable in this regard.
Managers need to review various performance reviews and spend time planning their workforce to determine where these redundancies are located and who should be let go. A variety of factors need to be considered, including knowledge of employees and their job performance. Layoffs, retirements, and other tools can be used to offboard staff members once the evaluation is completed.?Don't ruin your corporate brand by not providing the right severance packages and outplacement services to your employees during these difficult times.?In an ideal merger or acquisition, the HR team and management would have assessed the skills, capabilities, potential, and motivations of key employees involved.
While the commotion is happening, retaining key talent becomes challenging.
During a merger or acquisition, there will definitely be a lot of people let go. However, there must also be major players retained as well, many of whom may look to leave following the event.
In order to achieve this, you should initiate dialogue with them from early on, explaining that their jobs are secure and they are valued by the organization.
Compensation, Benefits, and More
As with the newly added policies, HR will also have to work with managers and the board to develop new compensation and benefits plans.
Under the new structure, employees will be wondering how their raises and time off will be affected as well as their healthcare and other benefits. The HR department should take care of all these concerns before people begin leaving the company.
Proper communication is crucial to the success of this process. It is imperative to stay open to all of these changes, and that your employees can obtain information on all of them through your company intranet, or by facilitating training sessions for their employees.
Culture Fit
It is cultural fit that will last for years and decades.
HR probably plays the biggest role in the whole process by ensuring that both organizations can work together instead of clashing.
Through mergers and acquisitions, companies have many opportunities to increase their growth. From removing competitors to gaining access to new markets, these strategies promise a plethora of benefits. Likewise, many organizations are pursuing growth strategies through mergers and acquisitions, to varying degrees of success.
Several leaders cite misalignment between the two organizations' cultures as the primary cause of these mixed results. M&A strategies forecast performance gains from the combination of different groups, but friction between groups can derail this process.
The process of integrating cultures and fostering friendly growth is discussed in a variety of strategies. Most importantly, Leaders should always assess the cultures of the companies involved in a merger or acquisition in advance. It is possible to identify potential problems ahead of time when you conduct due diligence, which allows for them to be addressed appropriately.
Sometimes, M&As deals can be derailed by cultural mismatches, Or, at least, they should, actually is the largest deterrent to M&As.
People's anxieties can be expressed more effectively when they are able to look each other in the eye, ask questions, and discuss the realities of integration with a purposeful conversation.
Major faults HRM do while Mamp;As Happen:
·???????? The failure to get involved early enough.
·???????? The failure to understand the concerns and needs of employees.
·???????? Failure to understand and empower leadership teams.
·???????? Inability to work with receiving business unit.
Failure to understand of the time and work involved in an acquisition and integration.