Managing Human Side ofMergers & Acquisitions

-Savita Sawant Roll No: 8249

Contents Definition (M & A) Types of Mergers & Acquisitions Reasons for M&A. Issues During M&A. Stages in M&A. Issues to be handled by HRM Re-inforcement of culture Communication A Few Cases.

Acquisition

One company takes over another & cleary establishes itself as the new owner.

Acquisition may be ‘Friendly’ or ‘Hostile’.

Merger

Two Companies come together to form a new entity

A single new Company rather than being separately owned and operated.

Both companies stocks are surrendered and new company stock is issued in its place.

Types of Mergers

Horizontal Merger Vertical Merger Market-extension Merger Product-extension Merger Conglomeration

Reasons of M&A

Increasing Profitability. Gaining Market Share. Cross-Selling. Developing Synergies. Economies of Scale. Acquiring new technology. Improved Market Reach and Industry

visibility. Taxation.

Merger WavesPeriod Name Facet

1889-1904 First Wave Horizontal Mergers

1916-1929 Second Wave

Vertical Mergers

1965-1989 Third Wave Diversified Conglomerate Mergers

1992-1998 Forth Wave Hostile takeovers

2000- Fifth Wave Cross-border Mergers

Sample ToolsDefining the End State

Degree of Change in Acquired Company

high

low

low high

Degree of Change in Acquiring Company

AbsorptionAcquired company

conforms to acquirer

PreservationAcquired company

remains independent

TransformationBoth companies find new

ways to operate

Reverse MergerUnusual case of

acquired firm leadership

Best of BothAdditive from both sides

*Mitchell Marks, Joining Forces

Issues during M&A

Profitability (Finance issues) Resource Optimization (Operational Issues) Market Study (Marketing Issues) Technological Issues (IT Issues)

Human Related Issues ???

Issues That can be handled by HR-Managers. Underestimation of the difficulties of merging two

cultures. Underestimation of the problems of skill transfer. De-motivation of employees of acquired company. Departure of key people in acquired company. Too much energy devoted to ‘doing the deal’, not

enough to post-acquisition planning and integration. Decision-making delayed by unclear responsibilities

and post-acquisition conflicts. Neglecting employee welfares of existing business

due to the amount of attention going into the acquired company.

Impact of M&A on EmployeesStage Characteristic Response

Denial Not Accepting that the merger will take place.

Fear Afraid with regard to future prospect.

Anger Resentment towards those considered responsible.

Sadness Mourning & grieving for what's past.

Acceptance Recognition of futility-a positive approach starts to develop.

Relief Recognition that the situation is actually better than expected.

Interest Increasing feeling of security

Liking Recognition of new opportunities.

Enjoyment Satisfaction that the merger is working out well.

Actions from HRActions from HR Psychological & Cultural Impact on Employees

Communication Raises questions among employees

What is Happening?

Business Strategy Employees Question the rational

Why is it Happening?

Organization Structure Employees Question their Short –term Future

Where will I be in 6 months?

Appointments & Exits Employees Question their Long term prospects

Will I have a job?

Terms and Conditions Doubts raised about financial benefits

Will I loose out?

Managing performance Questions about management expectations from personnel

What is expected of me?

Training & Development Further questioning the future

Do I have a future?

if people issues are so critical, why are they neglected? Possible reasons include: • Executives believe that they are too “soft” and, therefore, too hard

to manage.• Social costs and benefits are regarded as secondary.• There is a lack of awareness or consensus that people issues are

critical.• There is no spokesperson to articulate these issues.• There is no model or framework that can serve as a tool for us

systematically to understand and manage the people issues.• Therefore, the focus of attention in M&A activity is on other

business aspects such as finance, accounting, strategy, and manufacturing.

M&A Phases

Step 3: Integration Planning

Step 4: Implementation

Step 5: Post-Deal

Step 1: Pre-Deal

Step 2: Due

Diligence

Pre-combination

• HR is on the M/A Deal Team• Each step is a new level of commitment towards the deal and requires more information and analysis

Pre-Deal: Identify the strategy driving the M/A, locate and select targets, determine potential business opportunity, define critical success factors, and notify target of intentHR’s role: educate team on HR implications, conduct high-level analysis of people, org, & culture fit based on available information, identify people-related issues, plan for due diligence

Due Diligence: collect and analyze information from the target, assess leadership team, summarize findings, issues, and risks, and make go/no go decisionHR’s role: collect and analyze HR related information, identify issues, risks, costs, savings

Integration Planning: set deal terms, use information previously collected to create plans to combine companies with minimal business interruptions, close the deal HR’s role: secure key talent from target, collect more information where necessary, create integration team for HR, create HR integration plans (e.g., culture, organization, people, HR processes, HR systems and policies)

M&A PhasesCombination

• HR has it’s own implementation team(s)• HR’s role

• Announce deal and start ongoing communication to both companies

• Execute HR Integration Plans & adapt as necessary

• Provide ongoing change management for both companies (e.g., management ability to deal with people issues, training, motivation, systems integration, job security/career concerns, realistic merger preview, Ethics & Compliance standards)

• Monitor people-related integration activities

Step 3: Integration Planning

Step 4: Implementation

Step 5: Post-Deal

Step 1: Pre-Deal

Step 2: Due

Diligence

M&A PhasesPost-Combination

• HR is a member of the Deal Evaluation Team• Deal Team evaluates the successful capture of synergies and achievement of original strategy

• HR’s role

• Capture lessons learned from the management of the project

• Evaluate organization, people, processes, systems (e.g., 24 th month audit)

• Suggest process improvements

• Align with Business Strategy of the Future

• Learn from this deal to be ready for the next deal

• Ongoing involvement in integration of culture

Step 3: Integration Planning

Step 4: Implementation

Step 5: Post-Deal

Step 1: Pre-Deal

Step 2: Due

Diligence

Data to be collected from seller Human Audit – numbers, levels, locations, pay

levels & Union Affiliations. Human Cost –obstacles to rationalization such as

merger and employment law. People quality – Key Players, corporate culture, age

profile, skills inventory. Personnel Policies – pensions, employment

contracts, medical provisions etc Employee Relations. Organization Structure.

Key Participants

Issues to be handled by HRM

Preparation of Due Diligence Report.- recruitment, training, performance appraisal, compensation, labour relations & legal compliance.

Creation of Manpower Plan- delineate roles & reporting relationships. Communication Retention Strategy- Retention Bonus Plans. HR Integration –HR Systems, Policies &Practices Cultural Integration.

Role of HR Department

Formulation Strategy. Creating Teams. Creating Organization Structure. Developing a Communication Plan. Creating a Transition system.

Facilitate to guide Transition Teams Help Managing Stress Team Building. Training Deal With Problems Prepare HR Strategy Avoiding Job cuts

Reinforcement of New Culture Find out through surveys what cultural values are

valued and which of them should be preserved Enlist all of them and request feedback from each

management level Provide the management with development tools

and ideas to implement the result of the surveys and feedbacks

Finally, it can conduct a survey of all levels of management about 3 months after the deal is through in order to assess the progress towards the new culture.

Communication Keeping all employees informed (Frequent

broadcasts from CEO, HR Director) of all crucial decisions.

Instilling a sense of security among all employees, so that the issue of dovetailing employees can be dealt with.

Especially, in the case of acquisitions, the HR needs to ensure an equitable and fair treatment of employees

In case of lay-offs, offer outplacement services and just severance packages

Have a definitive plan with specific dates for individual communication

Encourage open houses or forums where employees can come together and discuss the deal and allay their fears and insecurities surrounding it

Acknowledge the problems as and when they arise

Enhance effective communication by involving line managers

Establish an helpline for employees Advocate family assistance programs to

make the employee that he/she is cared for

Competencies of HR Managers Understanding overall business strategy as well as

people and organization issues associated with that strategy

Gaining knowledge about business in general and M&As in particular

Being able to contribute to another company’s value Planning and leading complex M&A strategies Understanding and spending more time with

operating managers to help support them in M&As

TCS- Tata InfoTech Merger

Consideration of prior experience. Designation, fitment & pay scales. Joining dates. Legal issues , promotions & policies. Induction & Project Allocation.

Satyam Acquisition by Tech Mahindra Tech Mahindra-23,000 employees. Satyam – 45,000 employees. HR-Department faced challenge to retain the

Employees & their Clients.

-Sales Reboot Campaign. -Special Induction Programmes. -Recognition & Reward Schemes. -Communication Channel.

Cross border M&A’s

Nationality (home) of the aquirer makes a significant difference to style & culture of new organisation.

National (host) diffrences in pattern of HRM and Industrial Relations.

Language Barriers Legal Issues Political Issues Geographical Issues.

Daimler-Chrysler (DCX) Merger –Clash of Cultures. Daimler Benz Germany Planned & methodical way

Stuck to their plans & frowned on failure.

Hierarchical ,Top-Down structure

Bureaucratic Spoke only German Formal Dress Code Lower Compensation

Chrysler Corporation U.S. Carefree Attitude, individual

instincts & ideas Experimentation ,Trial &

error Approach Flat Structure

Highly Decentralized Hardly knew German Casual Dress Code Higher Compensation

After the Merger…… Compensation system was restructured. Salaries were revised and made more equitable. Chrysler employees did not like the lower salaries after

merger. Daimler started exerting pressure on Chrysler

employees to adopt most of its policies & Procedures. Result – 2 Chrysler CEOs left the Company within 19

months -Chrysler was slowly overshadowed by Daimler in almost

all areas. -Daimler employees were in key positions & took most of

the key decisions -DCX went through major crisis.

Daimler Benz- Chrysler

Dieter Zetsche ,CEO Chrysler Group, March 27, 2002

“Like many other executives who have lived through a merger, DaimlerChrysler executives now understand that it is not enough to manage the legal, financial, and operational elements of mergers and acquisitions. Maximizing the value of a deal requires that the human side of organizational change must also be managed well “.

BIG Animation Shifted from Bangalore to Pune -2007 250 Employees shifted - Only 6 refused. Choice for Housing , location , school, children , Domestic

Connections, Licenses, bank loans for vehicles. Two Special task force teams -8 to 10 members (one each in

Pune and Bangalore) Identifying good properties in each location (coordination with

around 75 estate agents ) distributed forms to every team member wherein they were

asked to specify their budgets, what features they were looking for in a location, whether they preferred to stay alone or as a group and other such details.

Every Friday, the company arranged to fly a batch of 20 artists from Bangalore to Pune. Each batch had the mandate of choosing and finalizing their accommodation in Pune in five days time post which they would return to Bangalore and continue with the production work.

arranged for vehicles that would be with the artists right from the time they landed till they took off, and also arranged for well endowed Service Apartments for their five day stay

Artist (employees) would then tour the locations, first two days would be spent in zeroing in on the choice of location, the third and fourth day on freezing on apartment of choice and day five in finalizing the deal with the agents

Team had also arranged for Sample L&L Agreements, on-board Lawyer, Printers and Computers at the Service Apartments, to facilitate the deals in a quick and secure manner

the entire process of each artist finalizing residence took about 3 months and one additional month for the actual relocation to happen wherein the company hired an official Mover & Packer agency that took care of the shifting logistics for each artist.

Schools, Ration Cards, Driving Licenses, Gas Connections, Bank Accounts, Vehicle Loans, and Mobile Connections, all had been taken care of .

In more than 6-7 cases, the company actually took the bio-data of the spouses of their artists and went about securing jobs for them in Pune

THANK YOU !!