M&A: Focusing on the Employees

In prior blogs, we have talked about the importance of preparation and planning for any major growth strategy, especially M&A activity. Nowhere is that more important than we consider the people and the culture of the two organizations merging.

People will make or break any strategy. In the case of a merger, you will also have another team involved which brings its own culture, history, processes and beliefs. If you attempt to merge the two together in a hectic, emotionally charged time without the right preparation, then the chances that you will fall short or even fail are high. Planning is important as cultures, organizational structures, and leadership positions are often determined in the due diligence phase and can be pivotal for making the deal work. You can't walk into these meetings unprepared or with a posture of winner takes all or you will surely lose.

Before a merger is ever announced, an organizational change readiness assessment should be conducted. This can be high level and non-intrusive but it's critical to understand your organization's capability to absorb a merger. It's going to be hard enough to assess the team from the other company; you should have your internal assessments completed in advance which detail culture, values, the ways things get done, and the type of communications that resonate internally.

The change driven by a merger creates an emotional cycle for your people. There should be an understanding of this cycle and how to handle each of its phases along with the relevant change management practices needed to manage them. As part of the process, a cultural assessment should be done to help frame communications, plan for change absorption, and help articulate culture to the other company. In one company we adopted a change process and related terminology. We provided basic education to all employees to begin the process and to create familiarity with the terminology. It was a small step but every step you can take in the calm before the storm the better.

In observing the culture during the change manage assessment we performed for one company, we recognized that leadership visibility would be critical to promoting acceptance of the merger. Therefore we developed a town hall agenda and material, draft schedule, and basic travel routes so that key leaders could be prepared and visible immediately after any such announcement. This might be overkill for some companies but was vitally important for this client. We even developed an anonymous email box for concerns and suggestions that could be "opened" upon announcement.

An early deliverable dealing with the people aspect of a merger is to re-establish the chain of command in order to provide leadership and operational integrity. These are often the toughest negotiations and you need to enter these discussions with great clarity on the options and thresholds. Immediately establishing a new operating model and organizational structure is critical to compress the time of uncertainty. In one company we developed three different target operating models that we considered competitive and efficient. This was very useful in due diligence and helped frame expectations early.

After re-establishing the chain of command, the next big focus should be employees. The talent, tenure, and performance of teams must be assessed in order to determine those who should remain with the company, those teams that could be strengthened, and which positions are negotiable. This activity is highly confidential and a marker of good succession planning. This is not an after-the-fact discussion and without speed in making these decisions, your best talent may choose to pursue external opportunities rather than face uncertainty.

In particular, have definite plans for your Sales people as they can struggle with uncertainty and are easily poached. Your roadmap should define product portfolios and sales geographies very quickly. Compensation plans take time but retention bonuses should be financed to offset poaching signing bonuses.

You should have your HR house in order with clear position descriptions, good evaluation processes and documentation, and clear compensation plans. You will accelerate the process, protect your best people and reduce legal friction with the right preparation and documentation.

Speed in making such critical merger decisions regarding employees is not just important in retaining talent and establishing credibility, but also in preventing competitors from spreading misinformation and minimizing the role of politics in the M&A process. Big events like a merger place a microscope over your leaders. If they have a plan, are organized and bring a calm credibility to the situation, the workforce will trust them and follow their plan. A good plan is critical to ensure the financial results can be achieved and cuts through resistance so teams can move forward. Preparation can position you to lead, and for them to want to follow you.