Posted on 18 Dec 2009
How companies approach people issues in a merger or acquisition has a far greater impact on aspects of a deal's success than many would expect, according to new research released today from Towers Perrin. In fact, this latest data indicate that companies that address key people issues in a merger or acquisition (M&A), early and comprehensively, position themselves far better for deal success.
The Towers Perrin survey compared integration practices and outcomes of companies that considered recent M&A transactions to be successful in meeting primary goals with those that believed their deal was less successful. This comparison helped pinpoint specific approaches that contribute to overall success. Two notable examples are the relative importance of employee-centric thinking, and early involvement of the HR function in driving this thinking and helping leaders focus appropriately on people issues.
The survey was conducted with over 400 senior HR and business executives globally who provided qualitative assessments of the success of their organizations’ M&A deals.
Perhaps the most surprising finding from this research is that HR's performance in some nontraditional areas (i.e., business areas such as target evaluation and due diligence, not people-related) is more of a driver of success than its traditional work. For example, 42% of companies assessing their deal as successful reported that HR performed very well in influencing and shaping senior leaders' behavior during their transaction. By comparison, just 15% of companies assessing their deal as less successful gave HR a similar rating. Simply put, in more successful transactions, HR was nearly three times as likely to support the deal's priorities by providing senior leadership with strategic insights and recommendations.
"It appears that HR executives are building 'next generation' skills that improve their business acumen and insight into their company's priorities, and that's being reflected in the success — or lack of success — of major business deals," said Mary Cianni, Principal at Towers Perrin and a leader of its global M&A practice. "The research shows that HR in high-performing companies — ones that have met key M&A goals — has built a reputation as a strategic business counselor and has gained the trust of company leaders. In effect, because people issues in these organizations are at the top of the leadership agenda, both the HR function and people management practices and programs demonstrate value in very specific, bottom-line ways."
The study also confirmed that companies judging their deals successful engaged their leaders around people issues early and often in the transaction process. In fact, the Towers Perrin research found that companies judging their deals successful involved HR more often in all phases of the transaction than did those with less successful deals. This was true from the target evaluation phase (57% more often), through due diligence (58% more often), to integration planning (37% more often) and integration implementation (33% more often). By contrast, companies judging their deals less successful seemed to undervalue HR's role, not just in the early phases of a transaction, but also during implementation — when employee communication and buy-in are most critical. Just 61% of those deals rated as less successful involved HR during integration implementation, compared to 81% of successful deals.
"This research reaffirms our position that the success of M&A deals relies heavily on the positive alignment and integration of the combining companies and their people," said Cianni. "It is crystal clear that the factors separating very successful and less successful deals often come down to differences in terms of the respective companies’ approach to people issues. Organizations planning a deal today should consider this analysis a road map for successful dealmaking."
Another issue separating the companies with successful deals from those with less successful deals is their approach to measuring transaction success.
"We know that companies measure what they value during an M&A deal and beyond," said Cianni. "Revenue, profit margin and other financial metrics remain the most critical and most common, of course — but we're encouraged to see that the companies in our study with successful deals also measured key 'people' indicators far more frequently than did their less successful counterparts."
Specifically, 42% and 39% of the successful deal makers, respectively, measured changes in employee engagement and talent acquisition and retention — critical elements in a transaction's success. By contrast, only 28% of companies with less successful deals viewed these as important factors in determining overall success of an M&A deal. As might be expected, greater HR involvement in the transaction had a major impact on these two critical issues, according to more than two-thirds of those polled.
Towers Perrin's most recent survey on the M&A environment assesses HR's role in achieving M&A success and the specific skill sets necessary within HR to most effectively contribute to the M&A process's success. The survey targeted HR and business executives in medium to large organizations that had completed at least one merger or acquisition within the last three years. In total, 404 online surveys were completed by respondents in 25 countries from September 9 through October 9, 2009. The theoretical margin of error associated with a sample of this size is +/- 4.87% at the 95% confidence level.
About Towers Perrin
Towers Perrin is a global professional services firm that helps organizations improve performance through effective people, risk and financial management. The firm provides innovative solutions in the areas of human capital strategy, program design and management, and in the areas of risk and capital management, insurance and reinsurance intermediary services, and actuarial consulting. Towers Perrin has offices and alliance partners in the United States, Canada, Europe, Asia, Latin America, South Africa, Australia, New Zealand and the Middle East. More information about Towers Perrin is available at www.towersperrin.com.