Causes include short time frames, less diligence information, stretched resources
With global M&A activity up 32%1, both corporate and private equity buyers and sellers are facing a host of risks in ensuring successful M&A transaction outcomes. According to the inaugural People Risks in M&A Transactions report from Mercer, people risks remain top of mind for both buyers and sellers, including such pain points as employee retention, cultural integration, leadership assessment, compensation and benefit levels and overall talent management.
These people-related challenges exist in a highly competitive deal environment featuring truncated timelines, less access to information and increasingly activist shareholders. In fact, 41% of buyers report less time to complete due diligence compared to three years ago, while 33% claim sellers are providing less information about assets for sale. Meanwhile more than one-third of sellers (34%) are finding more and more of their divestment resources are required to address HR issues.
Mercer’s view is that these risks are even greater when dealmakers look beyond their own markets, which they are increasingly likely to do; 50% of respondents reported recently conducting cross-border deals, and 24% are more likely to consider multi-country transactions than they were in January of 2014. Legislative and regulatory issues, cultural and operational mismatches, and differing leadership skills and expertise are all risk factors that increase substantially when attempting transactions outside of a home market.
“Both buyers and sellers tell us they need rich data, unique insights and practical guidance to maximize transaction value and reduce people-related risks,” said Jeff Cox, Mercer’s Global M&A Transaction Services Leader. “The goal of our research is to enable business leaders, inside and outside of the HR function, to make more informed people decisions in the current challenging global deal environment.”
Mercer’s research shows that by managing the investment in people with the same discipline and rigor they manage balance sheet risk and other capital investments, organizations can successfully drive value from several key people-related areas.
1Thomson Reuters. Mergers & Acquisitions Review (First Nine Months 2015).
Assess leadership team and key employee capabilities – use skills inventories and competency assessments to gauge selection, ability to execute on strategy, effectively govern, lead people, drive culture change and deliver business results.
Develop effective retention strategies – segment key stakeholder groups beyond the executive team to determine appropriate severance programs, stay and retention bonuses, roles and decision making authority during and after the transaction.
Have a clear culture, communications and change management plan – Determine the right pace and amount of disruption, and communicate frequently and transparently.
Evaluate HR service, delivery and design needs – Ensure basics are in place to deliver pay and benefits, while positioning the HR function to enhance business results.
Adopt an enterprise or global view to effectively manage benefits – Avoid unnecessary costs and compliance risk by adopting a comprehensive governance strategy for global benefits.
Understand the market competitiveness of rewards and leverage existing total reward programs to attract and retain the right talent – this includes base pay and total cash to market, internal equity, incentive metrics/targets, and non-cash rewards.
Identify critical employee groups and consider a retention program – target employee groups that influence key customer relationships or important operating initiatives.
Leverage experienced sell-side advisors and separation specialists – a rigorous approach to sell side diligence can help improve the purchase price and expedite the sales process.
Consider providing a sensible, appropriately priced Transition Services Agreement – these arrangements can mitigate reputational risk, cover costs, and create an orderly exit.
Document a clear talent management/staffing plan – establish and communicate the infrastructure of the entity being sold, determine which employees will stay and which will join the new organization.
The need to adopt this framework is highlighted by the fact that more than 50% of businesses surveyed experienced delayed closing for global deals – an outcome that does not bode well for rapid integration and value creation.
“The people risks highlighted in our report are clearly part of our conversations with the deal community here in Canada,” said Douglas M. Johnson, Partner, M&A Transaction Services, Mercer Canada. “The good news is that both buyers and sellers are fully realizing the urgent need to address them in a thorough and thoughtful manner.”
To download a free copy (English only) of the Mercer People Risks in M&A report, please visit www.mercer.ca/en/our-thinking/survey-people-risk.html
About the People Risks in M&A Transactions Report
As a leading global M&A advisor on people issues to buyers and sellers in corporate and private equity transactions, Mercer based its findings on 851 data points, including survey responses from 323 M&A professionals, 78 interviews and analysis of nearly 450 transactions (of which almost 60% were cross-border deals) by Mercer’s M&A Transaction Services Business during 2015. Forty-four percent of firms surveyed had more than 10,000 employees and 38% had revenue exceeding $5 billion. In addition to HR executives, 57% of respondents were from private equity deal and operations teams, corporate development, finance and operational leadership positions, bringing a diverse range of perspectives to the research.
Mercer is a global consulting leader in health, wealth and careers. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer’s more than 20,000 employees are based in more than 40 countries and the firm operates in over 130 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. With 57,000 employees worldwide and annual revenue exceeding $13 billion, Marsh & McLennan Companies is also the parent company of Marsh, a leader in insurance broking and risk management; Guy Carpenter, a leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a leader in management consulting. For more information, visit www.mercer.ca. Follow Mercer on Twitter @MercerCanada.