For business leaders impatient with the often-slow pace of organic growth, mergers and acquisitions can seem the ideal way to quickly boost revenues, achieve operational synergy, grab market share and enhance shareholder value.
But research shows that such ambitions frequently fall short. Many transactions generate disappointing results, and some fail altogether.
In a recent Society for Human Resource Management survey of senior HR executives, only 43 percent reported success in achieving the synergies expected from a merger or acquisition. The survey also noted that four of the top five problems plaguing failed acquisitions involved people: loss of productivity, culture incompatibility, loss of key talent and clash of management styles.
Emphasizing the people component
Perhaps it’s no coincidence that, when described in the business press, high-profile M&A targets seem to be viewed as commodities – inanimate objects to be bought and sold quickly, assets broken up or spun off – with minimal attention paid to the pain that human beings typically experience when they’re being bartered.
Poor planning around HR issues and excessive focus on financial and operational details derail many transactions, says Ronald Castor, a partner with JC Jones & Associates LLC, which offers business integration and M&A services. Most companies would do well, he says, to conduct due diligence that involves not just the balance sheet but also core values.
For Mike Osborn, managing director of Catalyst Direct Inc., a Rochester Top 100 company, attention to HR issues in an acquisition should not be an afterthought. Rather, he says, strategic acquisitions are all about people.
“In the strategic acquisitions that we’ve undertaken, it’s been critical to acquire the right staff and get them aligned to our vision,” Osborn says.
In two recent transactions involving some 35 employees, 18-year-old Catalyst aimed to strategically enhance its ability to seize new opportunities in direct marketing. That has meant putting less emphasis on acquiring revenue or clients in favor of acquiring the skills of the targeted companies’ staffs.
In May 2006, Catalyst acquired the Equient marketing data and analytical services business from General Dynamics Advanced Information Systems. Last November, Catalyst acquired Auragen Communications Inc. Both transactions, Osborn says, have achieved expectations.
“Our largest clients have embraced our post-acquisition capabilities,” he says. “That has brought us additional revenue and has allowed us to act as a strategic partner.”
Achieving those successes, Osborn says, required extensive planning. Months before closing the deals, Catalyst Direct was already drafting detailed integration plans.
“Once the acquisitions were complete,” he says, “we were ready to communicate messages to both Catalyst’s staff and the new group of employees, including why we’re acquiring them, what the new organization charts will look like, and how each individual will be impacted in terms of benefits, job location and who his or her boss will be.”
Catalyst also planned several off-site get-togethers that would help new and old staffs begin sharing knowledge and collaborating.
Getting to know the acquisition targets
Catalyst improved the odds of achieving successful unions by getting to know the target companies well in advance.
“Equient had been a subcontractor for five years,” Osborn says, “and we knew for nearly a year that we’d acquire them. We consciously positioned them more as a partner, internally and with clients, so that we could see how our two staffs worked together and how they performed under fire.” That launched a dialogue about how a combined firm would look.
As for Auragen, Catalyst had to make more effort to get to know the company well. Though Catalyst had previously developed its own website, it hired Auragen for a redesign and relaunch that would allow Catalyst to see the acquisition target in action. “We wanted to mesh their people with ours before we started on an acquisition,” Osborn says.
Osborn admits that the “ugly part of acquisitions” involves making sure the target firm is right-sized before the deal closes.
JC Jones’ Castor points out that, if right-sizing doesn’t occur before the buyout, managers of the expanded firm face the task of letting some people go. When those managers procrastinate, they only aggravate a tense situation and send mixed messages to the staff.
Conversely, however, employees of the target company may be just the right fit for key positions in the expanded company. Catalyst delayed filling some of its own positions in order to fit soon-to-be-acquired staff into those slots.
Compensation and benefits
Human beings instinctively resist change, and employees being acquired are especially wary of what the future may hold. With that in mind, Catalyst set out to ensure that the acquisition would mean good news for all employees.
Catalyst hired a human resource consulting group to compare its compensation and benefits packages and assist with the workforce integration plan. Where Catalyst’s offering was weaker – its dental plan, for example – company leaders upgraded the benefit for all employees of the combined firm.
And where Catalyst chose not to revamp its existing policy – the unlimited carryover of paid time off, for example – it made a temporary adjustment. Equient employees hired by Catalyst were given two years to work off their accrued paid time off.
Another challenge to successful mergers, Castor says, is managers’ ability to effectively communicate to employees the combined company’s vision.
Understanding that risk, Catalyst from the beginning sought to spell out the changes and ease employees’ anxiety. “We told employees: ‘Here’s how this merger creates more opportunity, more diversity in the client base, more security, more learning opportunities,’ ” Osborn says. “ ‘We’re acquiring you because you’re integral to our strategic plan. We know your skills, and here’s how you figure into the new, larger Catalyst.’ ”
Other culture issues
Catalyst also identified and addressed other culture and work-style issues. Where one target firm tended to celebrate individual heroism over teamwork, Catalyst’s culture steadfastly insisted on just the opposite.
In other areas, however, Catalyst deferred to the preferences of its new workforce. While Osborn favors business attire, Catalyst agreed to adopt Auragen’s very casual dress code. Similarly, Auragen’s practice of allowing employees to bring dogs to work is now a given at Catalyst.
In an age where some employees have endured numerous buyouts and mergers, it’s no wonder that many are cynical and anxious about the prospect of being dealt yet again.
While one cannot change the history of the firms one might like to acquire, the time is always right to move HR issues to the forefront, even as company leaders strive to achieve the hoped-for financial and operational synergies that motivate most M&A activity.
“Change is tough,” Osborn says, “and company leaders can sabotage an acquisition by making things even harder for employees. It’s better to make people feel positive about their new employer.”
© HR Works, Inc.