m&a for hr summary

mAgneto consulting spc ©

mergers & acquisitions

the hr perspective by karl icelli


PresentationContent

Key focus areas

• Understanding the critical success factors for successful integration of cultures and employees

• Analyzing important impact areas and roles for HR especially at the early stages

• Using best practices to select and rapidly assimilate combined company leadership

• Selecting and inducting integration leaders

• Preparing employees to deal with the realities of a major M&A change

Desirable platform

• Workshop environment or a project team meeting prior to m&a activity

• Cross table discussions with CXOs and human resource executives

• Use of a case study to apply best fit concepts and best practices; to stimulate group discussion and learning

• Application of learning in an ongoing dialog with presenters and peers, led by facilitators


M&A process overviewDevil is in the detail!

ContractSigned

ConfidentialityAgreement

Letter ofIntent Closing

Business & LegalDue Diligence(Pre-Signing)

ConfirmingDD/Audit

(Pre-Closing)

Deal Hand-Off(Post-Closing)

PreliminaryDue Diligence

(Pre-LOI)

DD INTENSITY

DD INTENSITY

LEVELLEVEL

Deal Valuation

Due Diligence helps ensure:

Right Decision Right Price Right Structure

Integration


M&A Key facts

• M&As are emotional events which affect everybody.

• M&As create an expectancy of change and increase territorial concerns.

• Merger or acquiring management is invariably over-confident in their estimation of the speed of integration.

• M&As result in unplanned personnel losses.

• M&As are stressful.

• Managing M&As is as much about managing people as it is managing results.

So where do we start?


Why do a Merger or an Acquisition?Human capital factor is critical

* Adapted from Mercer Delta

Acquisition of criticaltechnical talent

Retention of key individuals

Access to new customersfor existing offerings

Maintenance of positive customerrelationships during combination

Access to newmarkets & products


Access to new products,technology, or processes


Economies of scale fromcombined operations

Effective combination of operationsand removal of redundant resources

Rationale Critical Success Factor


Defining the end state is a mustWhat is the anticipated degree of change?

BEST

OF

ALL

Absorption

Reverse

Merger

Preservation

Transformation

ACQUIRER

AC

QU

IRE

D

(Q) Technical Strategy X (A) Cultural Acceptance = (E) Effectiveness

Change Effectiveness

Formula

1. (A) is equally

critical as Q

2. Get (Q) right!

Cultural Acceptance

is tough

with a poor

Technical Strategy

CHANGE


Operational reality during M&A Building the plane in the air

Mergers & the operations

• Grow the business • generating the anticipated cost savingswhile

• Execute successful consolidation of operations while • providing uninterrupted, superior level of customer service

• winning the hearts and minds of customers and associateswhile• Accelerate the change

• Ensure retention of our best customers and associates while • introducing a succession of changes in products, processes and responsibilities

• Quickly institutionalize the culture and get all leaders on the same page

while • honoring the past of the merged companies

• lowering delivery costswhile• Improve quality and service

Deliver day-to-day

• Maintaining sharp business line focus while • becoming more integrated across businesses• Increasing flexibility / responsiveness while • doing more with less• Reducing cycle time while • improving accuracy and lowering costs

• Building efficiencies through scale while • focusing on individual customers

Evolve the business model• Building organizational capability to deliver the future • making tough business and people decisions

• Acquiring new customers through an aggressive sales focus

• expanding and deepening current customer relationships through an aggressive service focus

while

while

• Building integrated sales and service processes across the company

while • maximizing processes within mono-line business units

• Reducing complexity for customers while • increasing product and channel options

• Expanding every leader’s global / national perspective while • losing their understanding of regional / local needs


HR’s role in today’s economyA true business partnership model

Transformation emphasizes strategic partnering on revenue generating and customer–facing priorities..

TRANSACTIONS

INFLUENCE/COMMUNICATE

DESIGN SUPPORT

PARTNERING

STRATEGICSTRATEGIC

PARTNERING

DESIGN SUPPORT

INFLUENCE/COMMUNICATE

TRANSACTIONS

FROMFROM TOTO


HR’s role in M&AsThe people dimension

Deal Synergy

Due Diligence

Sale & Purchase Agreement

Staffing

Integration Planning (100 days & beyond)

Corporate HR Review

To develop a comprehensive integration plan that optimizes business financial and HR

objectives

HR manages the people impacts on deals, and

the deal impact on people..


HR for M&A The 4 key stages..

Due Diligence

Do By Close

Integration Plan

•100 days

•ExtendedStrategy & Planning

Work with the Business & Corporate Development to :

•Identify business/ talent needs and appropriate targets

•Create understanding and recognition of people issues

Identify:

•Deal breakers

•Cost implications

•Integration obstacles

Talent

Culture

•Implement retention strategy (employment agreements, retention plans)

•Develop HR Integration Strategy

•Execute Communication Plan

•For Asset Deals, Onboard employees (offer letters, background checks, screenings)

•HRIS

•Payroll

•Benefits

•Policy Alignment

•Compensation Alignment

•Qualified & Non-qualified plans

•Talent Integration

•Cultural Integration

•Communication Integration


Pre acquisition dialogueIt’s the questions!

The key: The role of HR is to force the dialogue no one wants to have! If you spend extra time early in the process determining the right questions, the answers later in the process are much easier to answer.

Some questions to ask:

1. Why do we want to do this? What is our primary strategic intent?

2. What type of acquisition is this?

3. What is our integration strategy?

4. How will we begin to work together . . . take swimming lessons or jump in?

5. What are the real power dynamics, i.e., who is in control?

6. What is our governance model for the transaction?

7. To what extent is this an intellectual capital acquisition?

8. How will we run the transition?

9. How will we select leaders?

10. How will we institutionalize the desired business model & culture?


Deal negotiationKey recommendations for HR items..

From the HR Playbook … Understand deal synergies up-front and identify potential integration options early …

first step in framing an HR negotiations strategy

Don’t accept seller’s proposed HR terms at face value

Present proposals with supporting rationale – anticipate the seller’s issues and reactions … argue through the seller’s perspective

Explore alternatives and related people & financial implications

Escalate “big financial issues” to deal leader for resolution in the context of broader business valuation

Where feasible, leave retirement & other liabilities with seller

Use an “HR terms” sheet to summarize negotiations – then transition to contract language

Early involvement of HR is critical to making an impact


Integration strategyTo what degree do we integrate?

* Source Mercer Delta

Integration Strategy

IdentifyCritical

SuccessFactors

Context

Contextand

History

Dynamicsof the Deal

DefineBusinessCase for

Combination

FullyIntegrated

OperationallyIntegrated

Coupled

LooselyCoupled

SeparateHolding

Integration Process

AchieveValue-Added

Integration

Design &ImplementIntegration•Strategy• Work Process• Org’n. Design• Operating Env.• People• Leadership• Governance• Change Mgmt.

DetermineDegree &Scope of

Integration

Business strategy dictates the decision..


Transition challengesSignificant change comes with acquisition

Future State

New Company• Strategy• Customers• Products• Work Processes• People• Formal Organization• Informal Organization

INPU

TS

OU

TPU

TS

Transition State

Think of merging twofootball teams…an NFLteam & an Australian team

– NFL vs. Australian rules– Different rules– Different playbook– Different positions– Different fans– Different coaches etc.

Current State

Acquiring Company• Strategy• Customers• Products• Work Processes• People• Formal Organization• Informal Organization

INPU

TS

OU

TPU

TS

• Strategy• Customers• Products• Work Processes• People• Formal Organization• Informal Organization

INPU

TS

OU

TPU

TS

Acquired CompanyHR

Organizational Restructuring

HRIS TechnologyBackbone

Business Processes

Reengineering


Transition infrastructureIt’s a balancing act

Under Planned Change• Lack of goals, milestones, and measures.• Lack of fact-based decision processes.• Little integration or synergy among planned initiatives.• Lack of application of change management fundamentals.

Overly Rigid Change• Creation of overly complex plans which cannot be executed.• Rigid adherence to plan targets and goals as ends in and of themselves.

Too Much Direction• Over-definition of how to accomplish the goals.• Failure to involve affected parties and key stakeholders in the process.• Autocratic approach.• Premature elimination of dissent.

Too Little Direction

• No unifying strategic theme or direction.• Focus on events and activities, not the customer or results.• Unclear or conflicting priorities.• Weak or non-existent sponsorship.

Too Hardware Focused

• Changes overemphasize “hardware” (structure, formal systems) and neglect “software” (relationships, informal processes, culture, etc.).• New programs are introduced without the proper context and don’t achieve desired behavior change.• Assuming structural change equates with behavior change.

Too Software Focused

• Change effort focused on training and slogans, with little change in the way work is done.• Behavior/skills training or intervention with no follow-up.• Focus is excessively long-term, with little focus on short- term or practical issues.

Transition Management Balance

Time and urgency is our friend!


Change management dimensionParadigm shift

5. Obtain the support of key power groups.6. Use leader behavior to generate energy in support of change.7. Use symbols and language.8. Build cohesion through consistency.

ControlNeed to Managethe Transition

PROBLEM IMPLICATION

Anxiety&

Resistance

Need toMotivate Change

9. Develop and communicate a clear image of the future.10. Build out the Transition Infrastructure.11. Build in feedback mechanisms.

ACTION STEPS

1. Surface dissatisfaction with the current state.2. Promote participation in change.3. Build in rewards for desired behavior.4. Minimize ambiguity…especially around who is in charge.

PowerNeed to Shape thePolitical Dynamics

Of Change

“Communication”

“Struggle”

The “what & how”


Leadership issues; “C” players are costlyDetermining the right leadership early on is key

Fewer “A” playersattracted to join thecustomer group orcompany

Wrong Cs incritical jobs

Development/advancementopportunitiesblocked

Subordinatesnot developed

Productivityand morale ofgroup is low

Performance injob is low

Highperformersleave thecompany

• At least 10% of your company contains “C” players

• In 2008, “C” players will cost our company $XXmio (10% of overall personnel expense)

• McKinsey’s “War for Talent” research indicates “A” players outperform “C” players by 3X

• “C” players create a vicious cycle


A strong team is needed to manage Transition Leadership and accountability is everything

CEO

Transition Exec

BU1Transition

Exec

BU2Transition

Exec

BU etcTransition

Exec

Function ATransition

Exec

Function BTransition

Exec

etc.

TRANSITION TEAM

• Overstaff with Stars

• Full time Jobs

Direction

Clarity

Culture

Accountability

Momentum

If transition derails;

Fail now, avoid rush later!


Integration leaderEssential profile..

10 Most Important Qualities of an Integration Leader

* 1999 GE survey of BD leaders, business leaders, and integration managers

19

17

15

9

9

7

6

3

16

11

Number of Survey Responses out of 20*

Enormous Leadership

Deep Grounding in Business

Relentless Communication

Aggressive Project Management

High-Level Manager

Early Involvement in the Deal

Broad Functional Experience

Strong Values

Business Intelligence

Sufficient Tenure

Quality


Integration leaderCore competencies..

People &Leadership

Process & Change Mastery

Functional & Technical

Strategy & Business

Values & Personal Attributes

•Global/Strategic Mindset•Develop & Share Vision•Champion Values•Bridge to Company•Customer & Market Centric

•Integrity•Open-Mindedness•Accountability & Commitment

•Cultural Sensitivity•Clear Communicator•Facilitator & Coach•Influencing W/O Authority•Rapid Assessment of Talent

•Self Awareness and Learning•Assertive Not Arrogant•Focused Integration Driver

•Team Builder & Player•Change Advocate•Process Oriented•Results Oriented•Innovator

•Analytical Thinking•Project Management•Cross-Functional

Coordination


Critical success factorsLeadership and transition management

1. Select the best leaders

2. Staff the transition team with stars

3. Create the rules of engagement & articulate the Transition office role

4. Decide the business model & organization structure

5. Staff the top few levels of the organization prior to legal day 1

6. Manage the transition; 100 days and beyond (6 – 12 months..)

Clarity, Focus, Speed, Discipline

quickly

quickly

thoughtfully &quickly


How to ensure the right Leadership?Key principles

Purpose

Implement a simple process that assists Senior Executives in quickly defining their organization structure and selecting the right people to fill business critical roles in the “new” company

Objectives1. Finalize the target environment organization structure

2. Select the right people for the right jobs;• Factor in history, cultural, local and legal dimensions• Avoid dealing with emotional issues inherited from the acquired company/management

3. Keep the best as long as you can, and the rest as long as you need!

• Transparent processTransparent process

• Level the playing field Level the playing field

• Ensure the best people get placed in key positionsEnsure the best people get placed in key positions


Leadership assessmentBest practice

• Performance rules…high performance (results and leadership behaviors/values) .

• Inclusive meritocracy will be criteria to ensure the best person is placed in each role.

• Full transparency in how selection decisions are made.

• Balance the speed of completion with the quality of the leadership assessment.

• Consistency of the process and tools for reviewing and talking about talent.

• HR facilitates and help prepare senior executives for discussing talent….. senior line of business executive is accountable for all final decisions.

• Diversity of customers and communities served must be factored into decisions.

The going in bias will be to structure most businesses with the XYZ (i.e. the acquiring company) business model when that makes sense.

People Decisions

Target Organization Structure


Assessment strategySolidity of 1st floor HR is critical

Target’s Performance Evaluations

• Individual Resumes

• Due Diligence Impressions

• Target’s CEO & HRM Talent Overview

• Functional Leader Assessments

• Executive Assessments

• Leadership Meet & Greet

Evaluation Interview Process

• Integrity

• Values/Fit

• Leadership

• Technical Skills

• Key Talent?

• Key Job?

• Retention Risk?

• Mobile?

Leadership Determination:

• Who stays/Who goes

• Retention Risk & Plan

• Compensation

• Recognition/Promotion

Broader Based Retention Plan:

• Who’s in/Who’s out

• $/Dollars allotted

• Stock Options

Talent Infusion:

• What talent moved in?

• Who can move to another opco/job?

INPUT PROCESS OUTPUT

Cross pollinate as soon as possible


Alignment of leaders will be required Institutionalizing culture is a pre-requisite

• Extensive new leader on-boarding process

• Leadership model & 360

• Performance management objectives & feedback

• Talent management process

• Executive leadership programs

• Reward and recognition practices

• Employee engagement programs…”Spirit”

CU

LT

UR

AL

INT

EG

RA

TIO

N T

OO

LS


The cultural dimensionWhy we need to focus on it?

• More autocratic behavior• Over-dependency on rules• Looking for quick fix; focus on short

term• Return to old and proven ways; risk-

avoidance• More “turfism”• Communication becomes constricted;

rumors are rampant• Periods of uncertainty and ambiguity• Questions of trust• Everyone is expected to do more• Self-preservation becomes critical

focus• Less teaming• Power struggles more visible• Productivity suffers

Typical Organizational Response to Change during the M&A process

TIMES of

STRESS


Post M&AEmotional states

Their Situation: Have been promoted or retained the job they want. See greater opportunity to produce and advance.

What to Hope for: Energy and excitement.

Charged up.

What to Watch for: Overly aggressive.

Acting superior.

THE READY


Post M&AEmotional states..

THE WANTING

Their Situation: Did not receive the job they wanted or were demoted.

Miss former mentors, projects, and status.

What to Hope for: Working through loss.

Adjusting to new realities.

What to Watch for: Depression.

Anger and vindictiveness.


Post M&AEmotional states…

THE WRUNG OUT

Their Situation: Have the same job, but things have changed…

…more distant from leadership

…more competition for advancement

…feel jerked around by the process

What to Hope for: Working through frustration.

Regaining footing.

What to Watch for: De-motivation.

Lack of direction and purpose.


Objective and subjective realitiesMust be balanced

• Mechanics of integration

• Financial targets and cost synergies

• Planned reductions in force

• Implementation of new IT systems

• New compensation plans

• Feelings of power, anxiety, and control

• Personal aspirations

• Hidden agendas

• Clashing egos

• Shooting the messenger

• Presence of mixed messages

• Undiscussables ignored


Cultural integrationLots of choices…what fits your strategy?

What does the business case require or dictate?

How socially integrated do you want or need to be?

Have the similarities and differences been identified?

“Blend” the best of both

organization cultures and

best practices

Partnership

Leave each organization

culture relatively alone and separate

Independence

Less Integrated

ReverseIntegration

Adapt your culture to their best practices

and culture

More Integrated

Frontier

Jointly create a new

organization and culture

The New

Absorb “them” into your culture with some slight

absorption to your culture

based on their culture and best

practices

Absorption


Cultural changeKey steps

Senior management must:

• Understand gap between where they really are, and where they want to be

• Take actions that have real effect and symbolic significance

– Make conscious decisions about where, and where not to integrate

• Move quickly on the highest-value actions

• Identify areas of commonality that can serve as “common ground” fromwhich to build the new culture

• Prioritize, provide constants…not just the changes

• Minimize actions, decisions, and programs inconsistent with the vision

• Performance plans and reward systems must be aligned

– Communicate consistently and often to sustain focus and achieve results

– Be clear about where they are going, and why

– Know thyself


Cultural assessment toolsExamples..

Surveys;Energy Culture Survey

Structured Interviews

Archival Information

Checklist

Culture Observation

Inventory/Anecdotal Canvassing

Change Orientation Quality

Competitive Emphasis Systems

Leadership People Focus

Focus Groups & Workshops


CommunicationCritical success factor for cultural change

Emotional state of people needs to be managed carefully!

• Minimize the feeling of uncertainty and facilitate cultural & behavioral integration … focus on three issues:

– Rewards

– Performance

– Restructuring

• Be open and honest … telling employees that nothing will change (to reduce worries and anxieties) will:

– Have opposite effects and foster distrust

– May cause them to loose site of the fact that a strategic goal of the acquisition is to create value

“It is not the Strongest of the Species that Survive,

Nor the Most Intelligent, But the One Most

Responsive to Change.”

- Darwin.


Global success rate of M&AsConsultant’s benchmark

Mercer

Coopers

BCG

Bain

Mitchell Madison

CFO Survey

McKinsey

KPMG

37%

34%

33%

33%

30%

25%

23%

17%

Avg. ~ 30%


Why do M&As failScenarios..

Phases: Deal Consideration Letter of Intent Announcement Deal Closure Value Proposition Achieved

Before the Deal During the Deal After the Deal

Str

ate

gy

Org

aniz

ati

on

alA

rch

itec

ture

Lea

der

ship

Ch

ang

eM

ana

gem

en

t

• Operational hubris

• Avoidance of “deal breaker” issues or emerging conflicts

• Leader behavior that undercuts integration efforts

• Clash of egos

• Unclear succession planning

• Wrong people making integration decisions

• Over or under management of acquisition

• Unresolved turf issues

• Mismanagement of succession plan

• Poor judgment fueled by “deal fever”

• Low priority for organizational issues

• Superficial due diligence on organizational gaps

• Winner/loser syndrome

• Unstated psychological and political bias

• Sporadic and incomplete communication

• Misallocation of integration resources

• Excessive reliance on external advisors

• Mismanagement of resources to sustain integration efforts

• Playing exclusively “to the Street”

• Overlooking acquiree’s resistance to change

• Declaring victory too soon

• Fuzzy strategic assumptions

• Confusing the deal rationale with the strategy

• Poorly defined sources of leverage

• Disconnect between strategy and integration plans

• Inadequate performance metrics

• Inability to convert strategic plan into operational plan

• Unclear organizational roles

• Premature design decisions

• Personal promises that limit design options

• Ineffective transition and governance structures

• No criteria for determining best practices

• Unaddressed cultural gaps

• Fumbling the “handoff” between transition and operational team

• Ineffective information sharing

• Lack of hiring/retention plan for key talent


Lessons learnedSome do’s and don’ts..

1. Speed is our friend.

2. Leaders must demonstrate courage…and create clarity & focus, which will add and maintain momentum.

3. The H.R. team must be superb & have real power/influence.

4. Required tools to quantify and solve HR issues are already in place.

5. The change management basics are not new…execution is key. The devil is in the detail.

6. Let financial objectives and strategic imperatives of the “deal” drive

decision making. Transition process must be business focused.


Lessons learnedContinued..

7. Changing the culture is tough– selection is key…address this first & start at the top– you can’t create what you can’t define…clarity is key– change occurs at the emotional level…not the intellectual level– burn the boats…culture change requires critical mass to overwhelm the “old way”– it’s not an event…multiple processes & programs over a 24 month time horizon– leverage “poster people” at all levels

8. Invest heavily in leader on-boarding processes

9. Move key talent…quickly!

10. Watch the “HR Foo-Foo”…executives should expect HR to:– create simple & relevant processes– execute flawlessly– be catalysts for change


Wrap upIts all about acquisition..

Is there a difference between a merger, a merger of equals and an acquisition?

Myths;

• Merger of equals and Mergers

Lessons Learned;

• Tell the truth

• Early and fast

Acquisition integration stuff may be common sense, but it isn’t common!

Its all about speed of

decision making, will

and execution…


thank you..

m&a for hr summary

Documents

business talent

hr integration strategy

business model

business financial

tough business

new customers

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