In the current environment of economic growth, executives are increasingly looking toward M&A transactions as an efficient and effective means of expanding into new markets with growing revenue streams, accelerating digital transformation and expanding overall capabilities. Yet as seen in many high-profile transactions, even when the stakes are highest, acquisitions can also lead to major disruptions in operations and productivity, due to lack of effective change management and the loss of critical talent.
According to Mercer’s recent M&A survey of over 750 executives, nearly half of all deals are subject to increasing chance of failure when companies do not adequately account for “people risks.” Further, 40% of survey respondents indicated that critical talent is lost 18-24 months post-transaction, muting value creation. Findings show that misaligned leadership teams are often responsible for not meeting deal-related financial targets. The risks and costs are substantial. Focusing on critical talent throughout the deal mitigates the fallout before it is too late.
Regardless of the type of deal, industry or geography, we counsel executives to give equal attention to both operations and personnel. While each situation requires a bespoke approach, we have found that the most successful deals follow these principles:
Align both companies on the definition and role of critical talent.
Determining the ideal state of the organization post-close through an agreed-upon definition of “critical talent” is an essential element of a successful deal. Each company may have different perspectives on the roles and responsibilities considered “critical” within the two organizations and may define similar roles in a different manner. As the organization evolves and the landscape changes, it is also important to note that the definition of “critical talent” may look different in the short- and long-term. Aligning the definition of “critical talent” will mitigate disruption and costs associated with unwanted turnover.
Identify and retain “critical talent” in both organizations and at all stages of the deal.
A common mistake we see business leaders make is viewing people only in terms of cost synergy and headcount instead of their role in delivering revenue growth and business strategy. A comprehensive change management roadmap should articulate skills and talent needed along the journey. Ideally, companies will identify “critical talent” needed in both the near and long-term to ensure a successful deal and decreased disruption. Conducting such analysis typically creates friction for both sides, so be as transparent as possible about the need for certain jobs or skills throughout the deal and share the plan for those people and skills.
Leading with empathy and treating all parties with the utmost gratitude and respect is crucial – both for those who will and those who will not retain their jobs. If the process is fraught with uncertainty, those who remain may seize control of their destiny, if given the chance, by leaving the organization and finding a new job. A bad acquisition and integration process may lead people to seek a fresh start, especially as talent is in demand.
Workforce analytics, career architecture and HR transformation are all services which can help identify the needed skills and people to aid in the success of the deal, short- and long-term. Manager training and tools to aid in retention help empower grass-roots efforts to retain key talent. However, if you do not treat people well, no amount of analytics, retention bonuses, or payouts are going to matter.
Articulate the shared vision and value proposition.
Having a shared vision and value proposition does not magically happen when a deal is closed. Creating a compelling experience requires a change in the way you think, collaborate, invest in people and tell the story.
Clear communication with the workforce plays a crucial role in the success of deals, with 39% of our respondents indicating that the communication approach (or lack thereof) has been a key derailer in their deals. “Who we are as a new organization” must come early and often from the top leaders and strategically cascade from all levels of leadership. Employees tend to put more weight on what their direct leader tells them versus a leader six levels above them. When that story matches ‒ even better. People must understand the key elements of the deal and the role they need to play in delivering those components to achieve the shared vision and delivering the promised value.
Empower “critical talent” to seize the opportunities presented by a successful M&A deal.
Ultimately, in the most successful acquisitions, the combined organization retains the capabilities centered in each organization’s “critical talent,” opening channels for the organization to transition smoothly and effectively. While the new organization is forging a unique identity, transparent communication regarding the future empowers critical talent to thrive. Ensuring certainty for critical talent by revealing the challenges, risks and future ahead will be the make-or-break element in determining the success of the newly combined organization.