Merger Mania

Pick up any newspaper or business journal today and you’ll find an article about another corporate marriage, notwithstanding pest control operations. "Merger mania" has caught hold. Many owners find themselves lured by the idea of a capitalized retirement plan, more time to enjoy the fruits of their labor and, of course, less stress. For others, it’s the logical end of a lifelong commitment to their business; it’s their exit plan. Whatever the reason, for many employees and business owners, it’s not a matter of "if" any more. It’s just a matter of "when."

Whether it’s a joint venture, merger of equals or acquisition, the statistics are eye-opening:

• Business Week found that half to two-thirds of mergers and acquisitions fail.

• According to Right Management Consultants, less than one-third of 179 merged companies say they have successfully combined cultures.

• Coopers & Lybrand estimates that 70 percent of all alliances fall short of expectations.

Management consulting firms nationwide are beginning to zero in on the primary reasons for the high failure rate of these costly deals. Time and again, poor cultural fit and flawed human resource integration management emerge as the top reasons.

While an inordinate amount of time is usually spent on the financial details of the deal, very little time is spent on critical human resource issues including aligning cultures, communicating with employees during the transition, harmonizing compensation and benefits, developing a new corporate mission and philosophy, designing the proper organizational structure, staffing and others.

Before saying "I do," companies would do well to find out if they can truly become "soul mates." Contrary to popular belief, a healthy balance sheet and common products or services are not enough to ensure a successful union.

MAKING IT LAST. To avoid the risk of future dissolution of the marriage — early in the courtship phase when acquiring a business — PCOs should appoint a talented human resources (HR) lead to the acquisition team who will:

• Conduct a cultural assessment of the target (the company to be acquired). Determine how people inside the target company actually behave. Interview key management members, if possible. Talk with executives who are apprised of the situation. Learn who intends to stay, the ego size and personality of key players, how decisions are made and what politics exist internally. Identify potential differences in values, traditions, communication style, reputation, performance measures, organizational structures and others.

• Communicate, communicate, communicate with employees early and often. Help employees understand the spirit and intent of the combination. Consider a special transition newsletter and a toll-free hot line that current and new employees can call to confidentially report concerns or ask questions. Communicate until you are accused of going overboard with feedback! Remember, when there’s a void in communication, people tend to fill it with a negative. (Hint: Never say "nothing is changing." The very fact that a merger or acquisition is occurring will bring about change!)

KEEPING IMPORTANT PEOPLE. Be prepared to re-recruit key employees. Mergers are headhunters’ favorite time to come calling. Develop a matrix of incentives, both financial and non-financial, to retain key employees based on their value to the company.

Prepare for important decisions about management structure, layoffs, compensation changes and other career-related decisions early and announce them quickly after the deal is effective. Treat those negatively affected with respect and support. The normal stress, uncertainty and skepticism surrounding all mergers and acquisitions will cripple the organization if left unattended.

• Use a human resources due dilience checklist. Scrutinize all aspects of the target’s employee relations, compensation, benefits, compliance issues, morale concerns and others. Quantify potential financial liabilities.

• Ensure all "people" decisions support the strategic intent of the deal.

• Once the deal is consummated, very quickly address those concerns directly related to employees such as compensation, benefits and supervision. Also, be prepared to provide them with details and information about how to communicate with customers. Train them quickly and demonstrate care and concern right away.

The message to PCOs is clear — don’t overlook the importance of the human side of the deal. A strong human resource presence can affect the purchase price and long-term financial return of the merger or acquisition. After all, if you end up having to replace key talent, there’s no telling what it can cost. The tangible and intangible effects of turnover are enormous.

Remember, you can solve almost all merger and acquisition assimilation problems, except three:

• The wrong strategic fit between the two organizations;

• A major misalignment of cultures and people; and,

• Fundamentally bad economics.

So, before you tie the knot, remember, not all marriages are made in heaven. And, these types of marriages require hard work, time and a fair share of soul searching before the honeymoon.

After all, nobody said dating was easy.