Done Deal: Your Guide to Merger and Acquisition Integration
to learn more about Done
Deal and to purchase.
What Matters Most -
Communication with Employees Is Key to a Successful M&A
By: M. Beth Page
A merger and
acquisition is complete when the integration of the two companies is
complete, not when the deal is announced to the marketplace or
consummated according to a legal or financial transaction. Mergers
and acquisitions (M&As) are a significant activity for many
organizations. Yet most mergers are not successful, primarily
because the "merger of two organizations is actually a merger of
individuals and groups," according to Buono and Bowditch, authors of
The Human Side of Mergers and Acquisitions: Managing Collisions
Between People, Cultures, and Organizations.
A merger means that two previously separate organizations are
combined into a third, new entity. An acquisition involves the
purchase of one organization for incorporation into the new parent
Too many companies enter into M&A activity without recognizing the
impact on the organization and the overall affect on the human
element within the two merging companies. M&A activities that do not
meet corporate objectives can result in lost revenue, customer
dissatisfaction, and employee attrition issues.
M&A researchers, consultants, and internal practitioners agree that
using transition teams, an integration manager, and a comprehensive
employee communications strategy rank among the best practices.
Supporting best practices include; implementing strong communication
skills, having an unwavering commitment to the integration, being
open with employees, and making visible movements towards
integration milestones and 100-day goals to help increase the
success of merger and acquisition activity.
M&A integration examines all the tasks and plans required to
successfully bring the two companies together. When an intended M&A
transaction is announced, employees of both companies expect change.
The early days following the deal's close are a critical time for
the company to initiate integration of the organization, processes,
people, and systems.
Focusing on M&A's Human Dimension
One of the most important resources a target organization has is its
talent pool, yet the human dimension receives woefully inadequate
attention during M&As. Fail to pay attention to the human dimensions
and human dynamics of M&A activity, and you'll lose key talent.
Organizations typically focus on a target's intellectual property
and capital, while failing to recognize the capabilities and
strengths of their employees, even though the latter enhance their
competitive edge. As researchers Pfeffer and Tromley put it, "See
the workforce as a source of strategic advantage, not just as a cost
to be minimized or avoided."
Layoffs and turnover can and do happen at all levels of an
organization. Approximately 25% of executives in acquired companies
leave within the first year - a rate three times higher than
companies not acquired. That's according to M&A researcher Jeffrey
Krug, who reviewed business literature going back two decades to
calculate that statistic. Another study shows that nearly one-half
of senior managers in an acquired firm leave within one year, and
72% are gone within the first three years if retention efforts have
not been made. (Tetenbaum, 1999).
To minimize departure rates, consider using alternative practices.
When Wells Fargo made a particular acquisition, the firm undertook
no reductions after an analysis of annual attrition rates suggested
that recruitment would be required within six months of completing
How can you help prepare an organization for change? Two options
include polling and surveying the employee population, and
developing information and communication strategies aimed at
introducing opportunities for employees to participate in the change
M&A practitioners who respond to questions and concerns about
structural, cultural, and role-related issues, and revise
expectations, will achieve a degree of organizational stability.
The goal of integration is to achieve key actions as quickly as
possible-with "prudent" not reckless speed. One high-tech company
took sixty executives off-line for five months within two weeks of
the deal announcement, in order to integrate and develop the vision
for the combined company. Eventually, 2,000 employees were involved,
demonstrating a successful balance between the need for
confidentiality and the need for communication.
The M&A experts also favor appointing an integration manager with
primary responsibility and accountability for managing the
integration process and acting as a bridge-builder between
companies. Look for visible, internal candidates who are respected,
available for this full-time role, and report to the business
M&A experts recommend assembling teams of employees from both
parties to participate in integration planning. Transition teams
(internal practitioners prefer the term "integration teams") that
involve employees from both the target and the acquiring company
ensure a successful deal completion. Consider the transition team a
lever to share cultural intelligence between the two companies. My
research indicates that the integration team should stay in place
until 80% of the value capture intended for the acquisition is in
place. Value capture opportunities include reduced expenses from
operating efficiencies achieved as a result of the M&A.
Both internal and external M&A experts recommend that the new
leadership team be named on Day One. If possible, appoint and
announce other layers of the management structure at the same time.
One expert commented that not announcing the leader on Day One is a
"de-accelerator," but here's a caveat to that approach: Don't
announce a new management structure in situations where the
management team is going to be replaced.
Develop a Strategic Employee Communication Strategy
Both external and internal experts agree on the importance of
developing and executing effective employee communications,
particularly conveying how the transaction will impact
organizational members. Also, get supervisors to talk to people
one-on-one about their future after the change in ownership.
Supervisors need to be aware of, and address, morale and personal
issues individuals will face. Everyone in both organizations needs
to understand the reasons for the combination.
Make communications open, honest, frequent, early, repeated, and
strategic. Identify constituents, messages, mode, and frequency.
Take all communication opportunities to drive the implementation of
the strategy. Management and others should avoid using "killer
phrases" such as "a merger of equals" (this does not exist) or "We
will only tell employees something when there is something to tell."
Information can always be shared-even if it is simply the progress
of the deal or integration. (Buono & Bowditch, 1989).
Communication is vital throughout the M&A process. The employee
communication strategy is a clear opportunity to provide employees
with information to reduce uncertainty. Internal practitioners in
particular emphasize the need for meetings with all employees, and
the need for a communication plan for customers, partners,
investors, and the analyst community as well.
Communication recognizes that the respect for confidentiality of the
process and communication updates can be balanced in M&A activity,
might lead to less uncertainty and insecurity for employees.
According to Buono and Bowditch, "organizational members are more
likely to react positively when they are well informed-exposed to
unfavorable as well as favorable possibilities-than when they are
forced to rely on hearsay and speculation." One high tech company
communicates directly with employees immediately following deal
closure. The company recognizes that personal issues such as job
security are uppermost in employees' minds in the initial days
following an M&A announcement. This practice ensures that employee
concerns about job security and their role in the organization are
dealt with first.
As Buono and Bowditch state, "Attention to the details involved in a
merger or acquisition requires a concern for both obvious and less
apparent matters. Indeed, many of the 'little things' in an
organizational combination signal the intention and concern of the
Communication figures heavily throughout the entire M&A process as a
best practice. It provides employees with valuable information and
addresses the uncertainty that exists during this period of
M&A practitioners have rich opportunities to humanize what is often
treated by companies as merely a business and financial transaction.
Focusing on the human dimension of M&A will significantly impact the
bottom-line success, result in less organizational turmoil, and
ultimately determine the overall success of M&A transactions.
to learn more about Done
Deal and to purchase.