Navigating the M&A minefield

by 30 Oct 2007

Two things never change about M&A deals. First, a large number will fail to deliver what the architects of the deal promised and second, that many people will lose their jobs when companies combine. Scott Moeller looks at the realities of M&As and examines some options for HR

It’s an unfortunate fact that many employees that survive a merger are not the best qualified or most experienced of the two internal candidates from the pre-merged companies – politics and luck have a role in who survives. An outsider may be brought in, or one employee may be demoted to a more junior role.

The secret of survival is not to leave it to chance. Our research at CassBusinessSchool has uncovered some ‘tricks of the trade’ to being a survivor if your company is acquired. Even if both you and your counterpart remain, how do you make sure you’re the one on top?

There are no guarantees, of course, but there are several things you can do to improve your chances of keeping your office – or even getting a bigger one.

Get involved early

You must start early, and it’s best if you hear about it before the deal is announced (not always automatically the case when you’re in HR). Get on to the merger planning committee and ultimately the integration committee. This will give you the inside information before anyone else. You’ll know how the company will be organised, and since it is common to announce the top several layers of post-deal management right after the deal has been made public, anything done after that is actually too late.

Network

Once you’re on those committees, you’ll begin to network with the other decision-makers, including those from the ‘other’ company who will soon be your colleagues. This makes you more valuable to the new organisation – and less likely to be made redundant – as there won’t be many who have networked well in both companies.

One caveat: don’t be so critically important to the post-merger integration team that you cannot be taken off that team to accept one of the new key management positions.

Be visible

You should also stay around the office – particularly the headquarters – as much as possible. Become as visible as you can and avoid the common tendency to keep your head down during this period. This didn’t save people from dying in the trenches in the First World War, and it doesn’t work on the battlefield of business either.

Focus on building your network, both internally and externally. You want as much intelligence about the company as possible. Remember that sometimes those external to the company – such as head hunters, consultants and suppliers – may be better placed to know what’s actually going on because they can see the wood, not just the trees.

Let everyone know what you are doing. This is not the time to be falsely modest. Encourage your external relationships to say that they work with your company because of you. If there are others in the company who can say this as well (and you’ll say it about them, too, of course), tell them to do so.

Be flexible

You will need to be willing to move or change jobs because the headquarters may change or the new organisation will need skills of a different nature (of course, when the merger integration committee writes one of the new senior management job descriptions, you’re the one person who can fit the bill perfectly).

You may want to take key members of your team with you, so keep them happy during the merger process. This has other benefits too: with all the consultants running around the company during a merger, it’s likely that your team will be asked about you.

Your team will also be a good source of information – the rumour mill is always strongest at the lowest rungs of the organisational ladder, and there’s usually some truth to every rumour.

Explore your options

But whereas you should rely on your team, don’t rely on your boss. He or she is probably looking out for number one and not you, despite what you might be told. And where’s the guarantee that your boss will be one of the survivors?

However, despite the best planning, you may still get the short end of the stick, so be sure to polish up your CV. Call the head hunters who know you. Check the appointments section of this newspaper. Know what you would want if you are made redundant, as there is often some negotiation possible on termination packages.

And hope for a little bit of luck.

The power of employment contracts and retention payments

In the late 1990s, Deutsche Bank acquired Bankers Trust, the eighth-largest bank in the US. At the time of the acquisition, Deutsche Bank set aside almost $420 million over three years to retain 200 key staff, many of whom had already negotiated their retention payments with Bankers Trust when it was rumoured that it would be acquired.

What’s even more interesting is that some of those staff were ‘double dipping’. In the year prior to the Deutsche Bank acquisition, Bankers Trust had acquired Alex Brown, the oldest investment bank in the US. At that time, Bankers Trust had reserved nearly $300 million over three years for incentive compensation for a group of several hundred Alex Brown employees –some of whom were likely to be the same individuals getting special payments from Deutsche Bank.

Not a bad deal if you can get it, while at the same time keeping your job.

Dont let a merger damage morale

New research by Kenexa among 10,000 US workers reaffirms the negative impact of mergers and acquisitions on employee morale.

The findings suggest that when a company is merged or acquired, employees lose confidence in its future which prompts them to consider leaving.

Comparing the data from the 1980s and 2000s, Kenexa found that job satisfaction has improved, but people are now more likely to feel insecure and consider leaving during a merger. Feelings of insecurity are exacerbated when redundancies occur, creating a profound impact on an employee’s sense of job security.

“Merger and acquisition activity creates vulnerability to talent loss,” says Jack Wiley, executive director of Kenexa Research Institute.

“To begin the healing process and ensure employees remain engaged, management must clearly state a tangible vision and plan of action. This should include accurate and timely information about the merger and its impact on the workforce,” he adds.

Tips on being a survivor

• Think about your personal strategy early. Pay attention to any rumours you may hear – they often contain some truth.

• Get appointed to one of the post-merger planning committees. Encourage colleagues you trust to do the same.

• Be visible. If you don’t work in the headquarters, find excuses to visit there.

• Make sure that people know how valuable you are. If your clients can mention your value, even better. Now’s the time to bring in new business that has been percolating for a while.

• Rely on your team, but not your boss.

• Network, network, network – internally and externally.

• Don’t forget to stay in touch with all the head hunters who have been calling you for the past several years. You may need them now, despite the best personal planning.

Professor Scott Moeller is the CEO and director of Executive Education at CassBusinessSchool in London, and was an investment banker for 18 years before leaving banking for academia in 2001.

Best practice M&A: A BASF case study

Tony Dee, business excellence manager at BASF, explains how creating a comprehensive process for mergers and acquisitions can unlock company culture and help avoid unwelcome surprises

BASF in the UK is part of an international chemical group, with offices and plants worldwide. The company has always been involved in mergers and acquisitions and at any one time, changes to the BASF portfolio will be taking place. With M&A such an important business developer at BASF, it is a process the company takes very seriously.

Traditionally, the M&A process at BASF has been largely intuitive, relying on the skills of a small team of specialists. This has worked in the past, but there was always the possibility that someone from the team might not be available to share their knowledge and thereby disrupt procedures. As a result, BASF was keen to transform the intuitive approach into something more structured and robust that could be shared by others and help the company learn from its experience.

How we implemented the change

What was needed was a defined and structured process to capture the expertise of team members and create a system others could benefit from. The ideal situation would be that if one member of the team left the company, or changed their job, the rest of the team would know immediately where that departing team member was up to and what still needed to be done.

It was also important that the project sponsor had a mechanism where they were able to focus on the key issues affecting the project.

The starting point was the creation of checklists that would form the input to a key issues document during investigation. This straightforward approach takes into account every component of the process within each of the disciplines - legal, finance, tax, personnel, IT, commercial and pensions.

The M&A process is complex and detailed - and not just on the legal and financial side. Within the HR section for example, the fields include organisation, management and employees, terms and conditions, status of workers, salaries, benefits, trade unions, employee records, personnel forms, recruitment material and labour relations. Each one of these factors may have a crucial bearing on the success of the activity. One of the key factors that has emerged from creating a procedure for M&A is the growing realisation that resolving the 'hard areas' of concern, such as finance, legal or tax, does not guarantee success. The whole picture must be observed, and people are a top priority.

It is for this reason BASF creates two other documents as well as looking at key issues. The first is 'synergies', which looks at areas where there are resources the new organisation of BASF could benefit from. This part of the process deals with the positive aspects of how the two companies can join seamlessly together.

The second is the culture assessment. Each team member contributes to this document by logging their feelings and instincts from their dealings with the new company. Some of these are very anecdotal by their nature and difficult to quantify, but they are viewed as essential in creating as full a picture as possible.

The team might pick up that an organisation is autocratic, or empowered, or has a militaristic style, or seems to be run like a family firm. These aspects of company life - although not the hard facts of the financial or legal side - are vital to assess if the merger is to be a success.

Positive outcomes for the business

Once complete, the three documents work together to give a rounded view of company life, so BASF can make an educated assessment about the company it is focusing on. The collected facts help BASF to minimise problems, benefit from the synergies and understand the culture.

If the team has raised a cultural issue, practical methods are to try and harmonise the new organisation post integration. This might be in the form of workshops or activities to identify the cultural clashes and try and bring them together, or consciously allow them to co-exist.

Once the contract is signed, the three documents are handed over to the integration team and a review is carried out to assess the success of the process and capture the learning for next time. The integration team is presented with five or six months' worth of research to help with their side of the process, putting them firmly ahead of the game.

At BASF, the definition of M&A success is having no problems. If the merger enables growth, if personnel stay and are happy, if the company can still produce the goods, then that is a success. Of course, there are always surprises, but the fewer there are, the better the company must be getting at it.

Courtesy of Personnel Today magazine. www.personneltoday.com

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