Retaining and engaging talented employees is a major challenge for any company in the normal course of business. But for those engaged in M&A, it is even harder.
During a merger or acquisition, much time is devoted by leaders to the rigorous and fundamental management aspects of the transaction, including due diligence, risk assessments and market testing. However, these steps alone cannot guarantee a successful deal, as combining two organizations is always more than a business transaction.
Research shows that between 70% and 90% of M&A deals fail to achieve their anticipated deal value. While many factors may contribute to failure, overlooking or underestimating people challenges is one of the most frequent mistakes companies make when undertaking a merger or acquisition.
Companies tend to lose up to 25% of their people when going through a merger or acquisition. A target of an acquisition is especially vulnerable as:
Cultural issues consistently rate as a critical source of deal failure.
In contrast, our research shows successful transactions share one common element: an early and intense focus on people issues (see Figure 1). At the end of the day, all business endeavors are human endeavors. Many organizations forget this, at significant cost.
To succeed, management needs to pay close attention to the softer, human side of M&A. After all, it is not the organization, but the people that change and who will ultimately determine the success of a merger or acquisition.
The consolidation of companies represents an enormous operational and cultural change for employees, creating an environment of uncertainty, complexity and ambiguity. One of the greatest challenges for merging companies is to shift the day-to-day behavior and mindsets of their employees – the ones being asked to perform new roles, operate in new areas of the business or operate new systems – and crucially make these changes sustainable.
Project management is often confused with change management, but there is a huge difference.
Change management is also more than simply communicating business changes. It is about creating a framework that enables leaders and functions to engage with employees, preparing and supporting individuals to move from their current state to a desirable future state.
When two companies combine, integration moves at varying speeds. Leadership may progress through the change first, but they also need to understand that everyone else might be moving at a different pace.
A well-structured and detailed integration plan, setting out how functions and teams will come together at the other end of this change curve, is essential. A clear definition of this strategy sets the tone. Language matters. For this reason, change management and communications during a merger or acquisition need to be considered from the beginning, because everything in M&A impacts people – right from due diligence to post-close integration.
A clear vision and strategy that can be clearly communicated across the organization is critical. Yet, the rationale and success strategy for change is often missed. Without a “big picture” message to share, business leaders will struggle to connect with employees and help them understand how the changes will impact them and their future roles.
Effective communication should not only reflect what leaders and managers need to say, but also what employees want to know (see Figure 2). Business leaders need to listen to and understand their employees’ thoughts and concerns and provide opportunities for regular feedback. Frequent, consistent, honest and transparent communications will help foster trust between the new employer and employees.
Widespread organizational change is difficult, and resistance is to be expected. The uncertainty resulting from a merger or acquisition can create a wave of insecurity among employees, making them feel like the ground is shifting beneath their feet.
Instead of providing clarity about the future direction of the business, poor communication during a merger risks further stoking fears of job losses among employees. It can hurt employee morale and productivity, and, at worst, create a negative working environment that hinders business performance and leaves an organization vulnerable to losing key talent.
While it may seem obvious in hindsight, good communication strategies are rarely considered critical to the deal's success. The reality, however, is that effective communication with employees will foster teamwork, role model the right behaviors, and help retain key employees after the deal closes, which is a top priority in today’s tight labor market.
Mergers and acquisitions are key growth strategies for many organizations entering new marketplaces, acquiring new technologies, or leveraging scale and size. They are also complex and challenging. When executed well, communication and change management are the glue that holds transactions together, creating a shared vision and smooth transition that deliver greater value and a lasting impact for the business.