January 12, 2016
Failure to retain key employees can spell doom for a M&A transaction. With deal activity at a record high and showing no signs of slowing, the ability to persuade key existing talent to stay on after a merger or acquisition and bring in new talent is one of the most important factors between deal success and deal failure.
Many organizations today are short on the type of talent that can generate substantial value and disrupt their industry. Finding and tapping into valuable new talent via “acquihires” is increasingly becoming one of the top drivers for M&A transactions. According to our latest integration survey, access to management or technical talent has increased in importance by 27 percent since 2010. Integrating this new talent pool on the other hand, has proven to be a difficult task, with 37 percent of executives reporting organizational structure, people management, and work practices as a top post-close challenge. These factors are the third-most frequently cited challenges after integrating information technology and systems and aligning operating procedures and business processes.
It is not just new talent from the target that can cause a hiccup in the integration process. Acquirers may also face challenges with existing employees including:
- Employee disengagement and productivity declines: Anxious and distracted employees – confused about today’s priorities and tomorrow’s direction – spend inordinate amounts of time speculating at the expense of their work.
- Voluntary attrition: Employees rapidly lose confidence in management if it fails to communicate a clear direction and implement a fair and consistent selection approach early in the process.
- Market share shrinkage: Competitors – capitalizing on external concerns, internal problems, and often, a general sense of neglect – go after both customers and employees.
While the search for new skills and competencies often spurs additional deal activity, it also has a knock-on effect, as acquirers begin shedding surplus/redundant human capital post-deal close. In the last year alone, we have seen several restructurings among industry leaders as a result of M&A – clearly demonstrating that evaluating talent is top of mind for dealmakers and a critical part of M&A strategy.
So, how can an organization ensure they retain and engage the most valuable talent at both their own company and the target company during and after a transaction, ultimately delivering deal value and propelling the new entity ahead in today’s market?
Start early! Getting M&A right from a talent strategy perspective requires a focus on talent retention efforts early in the deal planning phase. A merger or acquisition is an excellent opportunity to set a new course, both operationally and across the various support functions of the newly combined company. During the planning phase it is important to establish strong leadership and especially a well-considered approach to employee retention.
Once the new organization is formed, deal success will largely depend on the acquirer’s ability to support a smooth workforce transition. We recommend companies take the following steps to ensure successful talent integration throughout the entire deal process:
- Assess talent as the target company
- Identify and engage the future leaders
- Identify the future mid-level managers
- Determine non-monetary incentives
- Motivate millennials
- Communicate throughout the M&A process
- Pay particular attention to millennials
Although M&A can be disruptive to employees at both the acquirer and target organizations, it can also be an opportunity to reenergize all employees around a new purpose and growth agenda. If done so thoughtfully, the new company’s talent assets offer a powerful means to unlocking deal value.
For additional information on successfully preparing for talent retention during M&A, download the following PwC reports: