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Role of HR in Merger and Acquisition

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Merger and Acquisition


Merger Company A and Company B form together a new company Result: New company Company C Acquisition Company A buys Company B Result: New company Company A
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Reason for M & A


Horizontal mergers for market dominance; economies of scale Vertical merger for channel control Hybrid mergers for risk spreading, cost cutting, synergies, defensive drivers Growth for world-class leadership and global reach Survival Move quickly and inexpensively
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Bigger asset base to leverage borrowing 2/19/12

Reasons for Success


Leadership Well-thought out goals and objectives Due diligence on hard and soft issues Well-managed M&A team Successful learning from previous experience Planning for combination and solidification steps completed early Key talent retained Extensive and timely communications to all stakeholders
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Reasons for Failure


Expectations are unrealistic Hastily constructed strategy, poor planning, unskilled execution Failure/inability to unify behind a single macro message Talent is lost or mismanaged Power and politics are the driving forces, rather than productive objectives Requires a very difficult degree of synergy
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Culture clashes between the two entities go 2/19/12 unchecked

The Human Side of M&A Activity

We know that people issues are so critical but still they are neglected. The possible reasons include: The belief that they are too soft, and, therefore, hard to manage Lack of awareness or consensus that people issues are critical No spokesperson to articulate these issues No model or framework that can serve as a tool to systematically understand and manage the people issues; and therefore 2/19/12

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Stage 1: Pre-Combination
HR Issues Identifying reasons for M&A Forming M&A team Searching for potential partners Selecting a partner Planning for managing the process of M and/or A Planning to learn from the process
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Stage 1: Pre-Combination
HR Implications and Actions Knowledge and understanding need to be disseminated Leadership needs to be in place Composition of team impacts success Systematic and extensive pre-selection and selection are essential Conducting through due diligence of all areas is vital
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Cultural assessment

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Stage 2: Combination Integrating the Companies


HR Issues Selecting the integration manager Designing/implementing teams Creating the new structure/strategies/leadership Retaining key employees Managing the change process Motivating the employees
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Communicating with and involving 2/19/12 stakeholders

Stage 2: Combination Integrating the Companies


HR Implications and Actions Selecting the appropriate candidate Creating team design and selection are critical for transition and combination success Communicating is essential Deciding on who stays and goes Establishing a new culture, structure and HR policies and practices is essential
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Role if Integration Manager


Project Manager Communicator Advisor Advocate Relationship Builder Facilitator Team Leader Ombudsman - An ombudsman is an official, usually but not always appointed by the 2/19/12 government, who is charged with

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Sensitive to cultural differences Open-minded Flexible Able to recognize the relative strengths and weaknesses of both companies Committed to retaining key employees

Successful leaders of the new Good listeners business Visionary


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Able to filter out distractions and focus on integrating key business drivers2/19/12 as R&D such

Stage 3: Solidification and Assessment of the New HR Issues Entity


Solidifying leadership and staffing Assessing the new culture Assessing new HR planning and purpose Assessing concerns of stakeholders revising as needed Learning from the process
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Assessing the new strategies and structures

Stage 3: Solidification and Assessment of the New HR Implications and Actions Entity
Creating and evaluating a new structure Melding two cultures needs assessment revision

Elective leadership and staffing of the new entity are essential

The concerns of all stakeholders need to be addressed and satisfied The new entity must learn
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Competencies needed at HR level


Business competencies Industry knowledge Competitor understanding Global perspective/knowledge Strategic visioning Multiple stakeholder sensitivity Leadership competencies Strategic analysis Managing cultural diversity Creator of learning culture Planning skills Learning facilitator Adaptability

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Contd
Change and knowledge management competencies Consulting and communicating Group process facilitation Designing and working in flexible structure Partnering and parenting Negotiating Network building HR alignment Managing leader transfer

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Kellogg & Quaker Oats Merger Strategies Which Were Followed

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M&A Phases
Pre-combination

Step 1: Pre-Deal

HR is on the M/A Deal Team Each step is a new level of commitment towards the deal and requires more information and analyses
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 intent HRs 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 decision HRs 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 HRs role: secure key talent from target, collect more information where necessary, create

Step 3: Step 4: Step 5: Step 2: Integratio Implementatio Post-Deal Due n n Diligence Planning

M&A Phases
Post-Combination

Step 1: Pre-Deal

Step 3: Step 4: Step 5: Step 2: Integratio Implementatio Post-Deal Due n n Diligence Planning

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

Capture lessons learned from the management of the project Evaluate organization, people, processes, systems (e.g., 24th 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

Sample Tools
Defining the End State
high Absorption
Acquired company conforms to acquirer

Transformation
Both companies find new ways to operate

Degree of Change in Acquired Company

Best of Both
Additive from both sides

Preservation low
Acquired company remains independent

Reverse Merger
Unusual case of acquired firm leadership

low

high

*Mitchell Marks, Joining Forces

Degree of Change in Acquiring Company

Sample Tools
What to Look for in Due Diligence
What to get
Census info Benefits plans (e.g., Defined contribution, Defined benefit, Health & Wellness benefits, Disability) Compensation plans (including exec plans, stock, severance) Employment agreements Union Contracts Org Structure (e.g., org design, headcount, mgmt layers, centralized/decentralized, staff/line ratios) HR Compliance risks Pending employment lawsuits Turnover

What to look for


Open requisitions

HR technology systems HR contracts/vendor obligations HR Policies Leadership/Mgmt practices Values


Assets Liabilities and expenses Potential cost savings Potential synergies Substantiation of financial records Organization fit Cultural norms and values Technology HR capabilities HR fit Depth of management talent Talent Retention Motives and mindset of management team Labor relations issues Integration risk Fit with business case and integration strategy

Examples of how to get it in a friendly deal:


Employee attitude surveys Performance reviews Succession plans HR metrics & systems (e.g., HRIS, Diversity, Staffing) Company communications Policy manuals and employee handbooks Organization Charts

Examples of how to get it in an unfriendly deal:


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*Based on the work of Mitchell Marks, Joining Forces

Published reports and news stories Exes or employees who have left Customers and suppliers Researchers, recruiters, retirees and other 3rd parties

Sample Tools
HR Due Diligence Information Request

Sample Tools
HR Due Diligence Assessment

Sample Tools
HR Due Diligence Summary Report

Thank you.
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