Human Side of Mergers and Acquisitions

In today’s global economy, every company want to grow fast, get maximum profit share, be
efficient and profitable. Mergers and Acquisitions is a quick fix for most of the companies to
grow inorganically. It comes with a bundle of promises of synergies, more efficient
operations, new markets, better consumer practices, improved product innovation, stronger
strategic fit, and greater shareholder returns. All this might look good in annual reports and
financial statements but often it fails to achieve the end objective. According to McKinsey
70% of mergers fail to achieve their financial objectives. Conservative estimates are that 30%
of the reasons that Mergers and Acquisitions fail is because of “human factors.”
Merger refers to combining of two companies as one single entity to achieve economy of
scale. The companies which are merging together can be equals or unequal’s and only one
new company continue to exist. While horizontal mergers is an enable for marker dominance,
the vertical mergers enhance channel control. Hybrid mergers diversify portfolios and spreads
the risk apart from minimising costs. Acquisition refers to taking control of assets by one
company from another company. Thereby the acquirer can expand in terms of assets, revenue
and market share. Acquisition can be of two major types Acquisition by Integration and
Acquisition by Separation.
Mergers and Acquisitions are difficult to do. Even though enough pre-planning and due
diligence can improve the chances of success. Major challenge lies in creating synergies and
bringing together two different cultures and moulding into one. Power and politics play a
crucial role being the driving forces. When the strategies focus on the core competencies and
other hard skills, often the cultural differences go unnoticed. Later it turns out to be soft sides
become hard to manage. People issues are very critical. Unfortunately due to lack of
awareness and consensus human side of Mergers and Acquisitions still remains as a black
spot. Often it turns out to be there is no official spokesperson in the M&A team to handle
this. And the attentive focus is on financials, operations and other strategies.
People issues can occur at different phases and stages. Challenges arises in communications
across levels especially in the lower levels of hierarchy. And the most important of all is the
retention of talent. Ignoring people is a systematic risk.
As soon an M&A occurs, the new pulse can be felt by everyone. At least to some level, there
is a turbulence in the psychological equilibrium of employee. The transitional process is
cumbersome and the quality of relationship between organisations beyond paper should be
symbiotic. Each of the company entering into the deal should analyse the other with respect
to their skill, resources especially labour, roles and responsibilities in the leadership etc.
Change Management can be handled by a Lewin’s Unfreezing model. This tree step can be
instrumentally used by HR to make the new change acceptable. Otherwise the resistance to
change will increase leading to high attrition. Ample briefing should be given to employees
regarding the culture and practices of the other firm which will in turn weed out any wrong
perceptions. Most important of all new compensation and roles should be made transparent.
However, in most cases this is easier said than done. As chances of deal not materializing is
high, sharing of data with employees is not generally advisable. Any conflicts of interest
should be addressed before the employees start becoming nostalgic of the past. According to
Anxiety theory, if unattended it can increase the anxiety and stress levels lowering the
productivity as a whole. Every manager has the responsibility to make his team comfortable
even though they might be occupied with details of the deal. In every M&A there is
possibility that employees face “Loss of Identity” because they have been associating
themselves with their current organisation. This aspect can be easily handled by making the
new organisation more attractable.
Any role ambiguity should be resolved by two way communication that could also include
negotiation. Jobs, if redesigned, should consider job satisfaction of employee apart from
organisational commitment. In order to accustom the employees to their new jobs, there
should be sufficient trainings.
Inter organisational teams and joint committees are good initiatives to bring people together.
Continual interaction can bring in healthy relationship especially when working towards a
common goal as a team. Most decisions will have controversial edge and hence top
management should ensure fairness and justice to get the trust of the employees.
Any problem that arise in an M&A is unique and human side of it is not an exception.
Therefore every company who is planning to enter into a deal should build its own strategic
framework for the Human Resources in addition all other policy decisions.

NIVEDITHA ZACARIA

FT203101