Human Side of Mergers & Acquisitions

-Presented By: Alisha Mahajan Nidhi Mishra

Merger
Two Companies come together to form a new entity A single new Company rather than being separately owned and operated.

Acquisition

One company takes over another & cleary establishes itself as the new owner. Acquisition may be Friendly or Hostile.

Issues during M&A

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

HUMAN ISSUES??????

HUMAN SIDE OF MERGER AND ACQUISITION!!!!!

Role of HR Department
Formulation Strategy. Creating Teams. Creating Organization Structure. Developing a Communication Plan. Creating a Transition system.

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 Employees

Stage Denial Characteristic Response Not Accepting that the merger will take place.

Fear
Anger Sadness Acceptance

Afraid with regard to future prospect.

Resentment towards those considered responsible. Mourning & grieving for what's past. Recognition of futility-a positive approach starts to develop.

Relief
Interest Liking Enjoyment

Recognition that the situation is actually better than expected.

Increasing feeling of security Recognition of new opportunities. Satisfaction that the merger is working out well.

Actions from HR
Actions from HR Communication Psychological & Cultural Impact on Employees Raises questions among employees What is Happening?

Business Strategy
Organization Structure Appointments & Exits Terms and Conditions Managing performance

Employees Question the rational Why is it Happening?

Employees Question their Short term Future Where will I be in 6 months? Employees Question their Long term prospects Will I have a job? Doubts raised about financial benefits Will I loose out? Questions about management expectations from personnel What is expected of me? Further questioning the future Do I have a future?

Training & Development

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
Pre-combination

Step 1: Pre-Deal

Step 2: Due Diligence

Step 3: Step 4: Integration Implementation Planning

Step 5: Post-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 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 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 integration team for HR, create HR integration plans (e.g., culture, organization, people, HR processes, HR systems and policies)

M&A Phases
Combination

Step 1: Pre-Deal

Step 2: Due Diligence

Step 3: Step 4: Integration Implementation Planning

Step 5: Post-Deal

HR has its own implementation team(s) HRs 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

M&A Phases
Step 1: Pre-Deal Step 2: Due Diligence

Post-Combination

Step 3: Step 4: Integration Implementation Planning

Step 5: Post-Deal

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

Practices to be followed during Merger & Acquisitions:

 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 Advocate family assistance programs to make the employee that he/she is cared for

Train managers on the nature of change Stress reduction program Orientation programs Explaining new roles Post merger team building Keeping all employees informed (Frequent broadcasts from CEO, HR Director) of all crucial decisions.

CISCO
Cisco devised a three step process of acquisition. This involved, analyzing the benefits of acquiring, understanding how the two organizations will fit together how the employees from the organization can match with Cisco culture and then the integration process. In the evaluation process, Cisco looked whether there is compatibility in terms of long term goals of the organization, work culture, geographical proximity etc.

 The company insists on no layoffs and job security is guaranteed to all the employees of the acquired company. The acquisition team of Cisco evaluates the working style of the management of the target company, the caliber of the employees, the technology systems and the relationship style with the employees. Once the acquisition team is convinced, an integration strategy is rolled out. A top level integration team visits the target company and gives clear cut information regarding Cisco and the future roles of the employees of the acquired firm. After the acquisition, employees of the acquired firm are given 30 days orientation training to fit into the new organizational environment. This has resulted in high rate of success in acquisitions for Cisco.

ROVER - BMW
The merger of BMW and Rover failed Because of cultural differences, poor leadership and poor due diligence;

ARCELOR- MITTAL
MITTAL STEEL Was one of the world's largest steel producers by volume, and turnover. ARCELOR Was the world's largest steel producer in terms of turnover Second largest in terms of steel output. Created by a merger of the former companies Aceralia (Spain), Usinor (France) and Arbed (Luxembourg) in 2002.

RESULT
The merger resulted in the creation of the worlds largest steel company. 2007 revenue - $105 billion Steel production - 10 percent of global output Presence in 60 countries A global leader in all of its target markets.

TOP MANAGEMENT
Arcelor Mittals top management set three driving objectives before undertaking the post-merger integration effort. - Achieve rapid integration - Manage effectively daily operations - Accelerate revenue and profit growth.

STRATEGIES FOR MANAGING HUMAN RESOURCE IN M&A

Communication Common culture Training and Development Individual counseling

Daimler-Chrysler (DCX) Merger A Failure.

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 Chrysler CEO 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.

REFERENCES
European Management Journal Vol. 19, No. 3, pp. 239253, 2001 Anon (2000b). Employee Communication during Mergers. The Conference Board, New York. Excel Journal of Engineering Technology and Management Science Vol. I No.1 December-January 2012 ISSN 2249-9032 http://www.bizsum.com/summaries/human-side-mergers-and-acquisitions http://www.questia.com/library/1G1-20872995/the-human-side-of-mergers-andacquisitions-understanding http://jab.sagepub.com/content/41/4/422.abstract http://www.123eng.com/forum/f12/impact-mergers-acquisitions-humanresources-116448/ http://www.businessgyan.com/node/5787 http://www.tlnt.com/2011/07/28/hr-mistakes-in-mergers-and-acquisitions/

THANK YOU !!