In 2007 deal value world-wide was around £4.1bn, but by 2009 it had dropped to around £1.8 bn. Does this mean HR can relax, safe in the knowledge that deals in 2010 are unlikely to be at the frantic pace of 2007? The answer is, ‘Don’t take your eye off the ball’ – plan and prepare now while you have the time.
The transaction background
Although deal value is an interesting statistic, it is often deal volume (the number of deals) that, as a general statistic, we should perhaps focus on. There is often little correlation in the work required by HR between deals valued in the billions and deals valued in the millions. What is generally more significant is the geographic spread of the target company being acquired, with work being just as intense for 500 people being acquired in 12 different countries as 5,000 in just one country.
As the world’s major economies move from recession to recovery, whatever the pace and recovery looks like in different countries and companies, what will this mean for HR across the different phases of a deal?
- Will companies in a financially strong position seek to strengthen their position in the market by buying weaker competitors?
- Will companies be wary of overpaying? Perhaps having learned some lessons from the past they will put more effort and resources into due diligence and planning.
- Will the need to make more precise valuations of targets lead to greater concentration on HR costs and liabilities?
- Will cost pressures and the need to extract value quickly from a target put further emphasis on the degree and pace of integration?
At the moment our experience with clients points in many directions, but one factor is clear: HR needs to understand the specific objectives and requirements of each deal – because the strategic rationale and risk profile of each will vary.
This is especially important as people issues are commonly the most significant factor in the failure of many deals to add value. Recent research conducted by Mercer, Marsh and Kroll with the Economist Intelligence Unit[1] revealed that the top two most significant issues faced by business leaders in a transaction are organisational cultural differences and human capital integration issues.
What is the role of HR in M&As?
Given these pressures, the role of HR is an expansion from their historical remit in an integration to cover, more broadly:
- pre-deal strategy and planning;
- due diligence;
- communication;
- project managing HR input;
- do by close work; and
- integration.
Working in an M&A involves specific new issues for HR, and these may include:
- new concepts and terminology;
- increased need for co-ordination (often global co-ordination);
- need for M&A-specific HR knowledge;
- increased speed;
- often more ambiguity;
- data limitations; and
- need for more precision.
What can HR do to get ready?
The best way to get ready for a deal is, of course, to plan and ideally to gain some experience of M&As. However you may be in an organisation that either has not done a deal recently or has previously not involved HR to any significant extent. So what can or should you do?
Plan to plan
The first starting point is to consider what you already have within your team. Conduct a workshop with HR colleagues to determine the collective experience you have, and any materials from previous deals, if available. The key question then is, what do you need to do to get ready?
Align HR with the business context and deal rationale
This can play out both in the context of a specific deal but also in the context of the general deal environment. Typically, this involves looking at the business rationale, strategy and actions barriers, and what winning would look like for a particular deal. First, it means describing these elements from a business perspective and then from an HR perspective – including how HR will support the business view. This process helps ensure that HR is aligned with the business perspective of the deal and can clearly articulate how it will support the deal.
Specific deal training
For those less experienced at working in deal teams, M&A training can be very useful – particularly if it is specifically focused on HR professionals, with case study examples and tools and techniques that can be applied in real deal situations. Such training can quickly bring deal teams up to speed and avoid the risks of 'learning on the deal'.
Producing a deal manual
Putting together a reference work for HR, either on paper or on line, can serve as an essential single point of reference for HR staff, and is particularly valuable for cross-border deal teams. These manuals, often referred to as deal scripts or deal playbooks, bring together all the customised tools, templates and resources, organised by deal phase, that the HR team will need for a transaction. They help to provide consistency of approach and reporting, and clear definitions of roles and responsibilities.
For example, they will usually include checklists for use in the initial due diligence phase to ensure that all necessary data is requested as early as possible – giving maximum time for analysis rather than concentrating on ‘what have we forgotten/what do we need to ask’?
By being ready and aligned with their organisation’s deal-making team, HR can help ensure that maximum value is obtained from doing a deal, and that some of the well-publicised failures in other companies can be avoided.
[1] “M&A Beyond Borders: Opportunities & Risks”, conducted by Mercer, Marsh, Kroll with the Economist Intelligence Unit, March 2008.