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Published August 2008

Mergers and Acquisitions 2008: Don't Leave Employees Behind

 

  John Koob

The media reports almost daily on some new merger or acquisition. Whether an organization is on the cusp or is fully embroiled in one, talent leaders are in a perfect position to provide valuable, people-centric information that can help float an organizational transition.

Results from recent Towers Perrin/Cass Business School research tracking values created during the past three global merger and acquisition M&A cycles shows that, contrary to conventional wisdom, 2008 may be the best time to complete a deal.

Why 2008 Appears so Promising

The Towers Perrin/Cass Business School study examined the two prior merger waves (1988-1990 and 1998-2000) and looked at the performance of companies before and after peak years of the cycles. It shows, on average, deals done in the year following the peak create more shareholder value than those completed during the upswing or peak years of the wave.

This was true of all deals, though research focused on those between $400 million and $1.5 billion in size (adjusted for inflation). It appears 2007 was the peak year of the current wave of M&A activity, suggesting 2008 remains a good time to proceed with a deal.

Timing is important, but it isn't the only consideration. The success of any merger, acquisition or restructuring, large or small, is as much about people and organizational culture as it is about timing and financials. More M&A deals fail because of irresolvable cultural issues than because of deal fundamentals. Business growth and returns are driven largely by an organization's people, their skills, innovative ideas and ability to stay engaged during a difficult transition period.

To enhance chances for success, companies need to focus on people-related issues often overshadowed in the scramble to manage M&A deals. And HR plays a pivotal role. Experience shows the earlier the HR function gets involved in the deal, the better the prospects are for successful integration throughout the new organization.

The Value of an Engaged Workforce

Most companies underestimate the elevated levels of employee disengagement that occur during any organizational transition. Uncertainty, emotional strain and loss of motivation frequently accompany M&As and can take an enormous toll on employees' performance.

With mounting evidence that employee engagement is the engine that fuels business performance, savvy companies lavish attention on employee engagement levels, especially during periods of organization transition.

The more highly engaged employees are, the more likely they are to put customers and quality at the heart of what they do and the less likely they are to leave the company. Simply put, employee behavior directly influences customer behavior, and customer behavior directly affects revenue growth and profitability. Whether an M&A or restructuring is focused on growing revenue, or trimming cost or both, engaged employees measurably contribute to stronger business performance.