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ABSTRACT Numerous studies confirm the need for firms to systematically address a variety of human resource issues and

activities in their merger and acquisition activities. This article proposes a three-stage model of mergers and acquisitions that systematically identifies several human resource issues and activities. Numerous examples are offered to illustrate the issues and activities in each of the three stages. The article concludes with a description of the role and importance of the HR department in M&A. In implementing an M&A, most managers focus on the financials. But success often hinges on how you deal with people issues and cultural integration. But getting employees from different organizations to work on a common platform is one of the greatest challenges with M&As. Thus, despite the highest degree of strategy and huge investments, the majority of M&As fail miserably. Research also recommends that up to 65% of failed M&As are due to `people issues'. Considering all these, this article discusses about M&A as a growth strategy, reasons for its failure, and suggests some of the critical people issues to be addressed.

LITERATURE REVIEW (Selden and Colvin, 2003) stated that 70 - 80% of acquisitions fail, meaning that they create no wealth for the share owners of the acquiring company. Successfully integrating the target and the acquirers businesses after the transaction closes is critical to achieving the goal of the combination, which is, making the new entity worth more than the sum of its parts. One of the ways to accomplish this is to effectively implement the required changes and address the related dynamics occurring in the new entity. Most mergers and acquisitions deals fail to accomplish many of the strategic objectives so optimistically projected in the initial announcements. Schmidt (2003) has identified five major roadblocks to merger and acquisition (M& A) success, the last three of which are HR issues: (1) Inability to sustain financial performance; (2) loss of productivity; (3) incompatible cultures; (4) loss of key talent and (5) clash of management styles. According to Marks (1997), human resource professionals should take an active role in educating senior executives about HR issues that can interfere with the success of the merger and with meeting key business objectives. For merging firms to integrate successfully, they need to align their HRM strategy to their M&A strategy. Thus, it is important to have a clear understanding of M&A strategies to be able to

specify the role that HRM should play. Moreover, in order to consider the fit between M&A and HRM strategies, and to help make sense of HRM challenges in the different types of M&As, we rely on three conceptual tools: resources, processes and values (Bower, 2001). Resources are defined as tangible assets, such as money and people, and intangible assets, such as brands and relationships. In the context of HRM in M&As, decisions about resources involve staffing and retention issues, with termination decisions being particularly important. Processes refer to activities that firms use to convert the resources into valuable goods and services. For example, in our case, these would be training and development programmes as well as appraisal and rewards systems. Finally, values are the way in which employees think about what they do and why they do it. Values shape employees priorities and decision making. Witness this pronouncement from a study published in 1994: "There is increasing evidence that cultural incompatibility is the single largest cause of shortfalls in projected performance, departure of key executives, and time-consuming conflicts in the consolidation of businesses." (Ernst and Young, 1994). Experts continue to find this to be true today, citing alarming statistics: "Up to 85% of M&A failures are attributable to problems in the integration of employees and the management of cultural issues in the merger or acquisition." (Corporate Leadership Council, 2003). We must accept the fact, therefore, that cultural match and the integration of employees are not "soft" issues, but in fact have a direct effect on employee retention and productivity, customer relations, and return on investment.


Organizational change takes place when a company makes a transition from its current position to some desired future status. Management of organizational change is essentially a process of planning and implementing changes in such a manner as to minimize cost and employee resistance, while at the same time maximizing the effectiveness of the change endeavor. Today's business environment requires companies to undertake changes almost continuously in order to remain competitive. Factors such as globalization of markets and quickly evolving technology compel businesses to respond in order to subsist. M&A is one of the major causes of organizational change. A merger is a mixture of two or more companies to form a new company, whereas an acquisition is the procurement of one company by another with no new company being formed. And the key to successful integration and change management is

carrying the people alongboth in the acquired and acquiring company. Success of an M&A depends on the people driving the business and surely, all managers have a part to play in that. When it comes to maximizing the potential of a merger and acquisition, HR needs to be up there, working in conjunction with senior management. There are many reasons to merge with or to acquire another company: greater market share, diversification into a related group of products or services, expansion up or down the supply chain, gaining cutting edge expertise for new product development. But consider this: roughly seven out of ten mergers and acquisitions fail to deliver on the financial expectations of the investor or corporate buyer. HRM is central to what an organization does but unfortunately, HRM has not always been included when it comes to strategy development and M&As which results in the prime focus on financial, economic and commercial aspects of the deal, and often only as an afterthought, on people, though they are the greatest assets of an organization. It has been found in a survey (Schmidt, 2003) that there is a strong direct correlation between human resource involvement and success in mergers and acquisitions. Since changing an organization ultimately comes down to changing the practices, attitudes, and behaviors of the people who compose it, human resources departments are an essential component of change management. This research paper aims to study the human capital development role of human resource (HR) during mergers and acquisitions. Various management thinkers now refer to the human capital of organizations. They argue that although intangible, this element of an organization is as important as more traditional assets shown on the balance sheet, such as working capital, machinery, stocks, property etc. Neglecting the cultural and employee-related aspects of M&A can put at risk the most thoroughly planned and well-researched transactions. Costs directly related to the impact of a merger or acquisition on people and organizations can eat away at factors fundamental to value preservation, such as customer loyalty and market share.


The scope of this paper is to provide critical insight into the perceived and actual role of Human Resources in M&A transactions, and the impact of Human Resources of merger motives and merger types, and

transaction climate on the role of HR and transaction outcomes. The paper also aims to identify the issues associated with understanding and measuring the impact of HR in M&A transactions.