human resource in merger and acquisitions

The Human Resource (HR) department plays a pivotal role in the process of merger and acquisition between two companies. ... Thus, HR plays a key role in managing all crises as well as disputes that may crop up in an organization, as and when the process of merger and acquisition sets off.

1. Role of HR in Mergers & Acquisitions Dhruv Seth Gaurav Agarwal Kushal shah Saurav Pandey Urvi shah

2. Merger & Acquisition Merger & acquisition represent the ultimate change for a business. No other event is more difficult, challenging, or chaotic as a M & A. Hence it is imperative that everyone involved in the process has a clear understanding of how the process works.

3. Some interesting M&A figures Virtually every major company in the United States today has experienced a major acquisition at some point in history. And at any given time, thousands of this companies are adjusting to post merger reality. For example, so far in this decade of the 1990 ’s (through June 1997), 96020 companies have come under new ownership world wide in deals worth a total of $3.9 trillion & that’s just a counting acquisitions valued at $ 5 million & over. Add to this the many smaller companies & non profit & government entities that experience mergers every year, & the M&A universe becomes large indeed.

4. Why you need to know this? Well for starters, M&A are now a normal way of life within the business world. In today’s global, competitive environment mergers are sometimes the only means for long term survival . In other cases, such as Cisco systems mergers are a strategic component for generating long term growth.

5. M&A defined When we use the term “Merger” , we are referring to the merging of two companies where one new company will continue to exist. The term “Acquisition” refers to the acquisition of assets by one company from another company.

6. Objectives Objective of merger is to achieve economy of scale & to carry on business more economically & efficiently. Objective of an acquisition is self- evidently growth & expansion of the acquires assets, sales & market share.

7. Mergers can be categorized as follows:

8. Reasons for M&A Every merger has its own unique reasons why the combining of two companies is a good business decision. The underlying principle behind mergers & acquisitions is simple: 2+2=5 synergy value can take three forms: Revenues : By combining the two companies, we will realize higher revenues then if the two companies operate separately. Expenses : By combining the two companies, we will realize lower expenses then if the two companies operate separately. Cost of capital : By combining the two companies, we will experience a lower overall cost of capital.

9. Strategic Reasons However, the best mergers seem to have strategic reasons for the business combination, they are; Positioning : Taking advantage of future opportunities that can be exploited when the two companies are combined. Gap filling : One company may have major weakness (such as poor distribution) where as the other company has some significant strength. Organizational competencies : Acquiring human resources & intellectual capital can help improve innovative thinking & development within the company. Broder market access : Acquiring a foreign company can give a company quick access to emerging global market.

10. Basic Business Reasons Bargain purchase : It may be cheaper to acquire another company than to invest internally. Diversification : It may be necessary to smooth out earnings & achieve more consistent long-term growth & profitability. Short term growth : Management may be under pressure to turnaround sluggish growth & profitability. Undervalued target : The target company may be undervalued & thus, it represents a good investment.

11. The M&A Process

12. Typical M&A process

13. HR ROLE Why the role of HR is important in M&A

14. HR department in M&A Activity Developing key strategies for a company’s M&A activities Managing the soft due diligence activity Providing input into managing the process of change Creating transition teams, especially those that will Overseeing the communications Managing the learning process

15. The human side of M&A The belief that they are too soft 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 systematically understand Attentive focus M&A activity is on finance, accounting & manufacturing People issues occur at several phases or stages Retention of key talent, communications

16. Successful leaders description Sensitive to cultural differences Open- minded flexible Able to recognize the relative strengths & weakness of both companies Committed to retaining key employees Good listeners visionary

17. HR issues A substantial number are human resource related e.g. acquisition of key talent Creation of a dedicated senior executive M&A failure is the lack of a capable leader The selection discussion of which one to chose A well-thought plan for managing the rest of the M&A Diminish the possible success of the combination Planning to learn from the M&A process

18. Role of HR in M&A A company's human resource department as well as the human resource workers in the other company play a vital role in the process. Role of HR in M&A process are: Company culture Benefits problems Employee concerns Changing roles & structure

19. Company culture HR must have a firm grasp on the culture of the company for which they work & must study the culture of the other organization to make such a determination Culture differences may include How organizations define & measure success How problems are handled Management styles Overall attitude of employee & managers

20. Benefits problems: Human resource from the purchasing company assess the benefits structure of the other company to uncover any potential problems.

21. Employee concerns: Human resources can detect & address any rumours about layoffs, office relocation or other changes employees fear, giving feedback to management about employee concerns.

22. Changing roles & structures: When one company merges with or acquires another, some changes to both organizations may occur. Human resources communicates to employees changes in who they report to within the company, what team or work group employees are assigned to as well as any changes to different positions roles in the organization.

23. Why are companies acquiring? Improved market access by far the number one driver of M&A activity:

24. A reality check why M&A fail Poor strategic fit - the two companies have strategies & objectives that are too different & they conflict with one another. Cultural & social differences - it has been said that most problems can be traced to “people problems”. If the two companies have wide differences in cultures, then synergy values can be very elusive. Incomplete & inadequate due diligence - due diligence is the “watchdog” within the M&A process. If you fail to let the watchdog do his job, you are in for some serious problems within the M&A process.

25. Poorly managed integration - The integration of two companies requires very high level of quality management. Integration is often poorly managed with little planning & design. As a result, implementations fails. Paying too much – In today’s merger frenzy world, it is not unusual for the acquiring company to pay a premium for the target company. Premiums are paid based on expectations of synergies. However, if synergies are not realized, then the premium paid to acquire the target is never recouped. Overly optimistic- if the acquiring company is too optimistic in its projections about the target company, then bad decisions will be made within the M&A process. An overly optimistic forecast or conclusion about a critical issue can lead to a failed merger.

26. Reason for success Leadership, key talent retained Well-thought out goals & objectives Due diligence on hard & soft issues Well-managed M&A team Successful learning from previous experience Planning for combination & solidification steps completed early Extensive & timely communications to all stake holders.

27. At the company level It is important that business & integration strategies be clear. Financial expectation must be made clear For M&A in new markets, it is essential to understand market dynamics & customers Avoid ambiguity in decision making guidance

28. At the HR level Best people in charge of implementing M&A deals Early planning of the integration process Difficult decisions should be dealt with quickly Completion, integration of a deal should not be underestimate It is important to be sensitive to cultural differences

29. Question & Answer

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