M&A

HR Function Critical to Successful M&A, Survey Finds

Human resource execs are advised to play greater and earlier role in deal process.
CFO.com StaffJune 27, 2001

There is a strong direct correlation between human resource involvement and “success” in M&A, according to a new survey by HR consultant Towers Perrin and the Society for Human Resource Management Foundation.

For instance, one of the survey’s key findings shows the substantial involvement of HR executives during the due diligence stage of an M&A in 72 percent of the successful deals and only 39 percent of those that failed. Nearly 450 senior HR execs participated in the survey.

Companies which achieved their synergies that were promised in completing the merger or acquisition were defined to be successful deals; companies which did not completely or substantially achieve those synergies were classified as unsuccessful.

“The second method that we used to measure success was more indirect,” says Jeffrey Schmidt, managing director for innovation and research at Towers Perrin. “We looked at overcoming the obstacles to implementation success. If a company completely or substantially overcame these obstacles, they were determined to be successful.”

HR executives planning activities have typically included developing an employee communication strategy, designing programs to retain key talent, and developing a strategy for the new entity.

But Schmidt says involvement should be earlier in the deciison making process. “Successful firms were significantly more likely than firms deemed unsuccessful to have greater levels of HR involvement in specific pre-deal activities,” he said in a statement at an SHRM conference held from June 24 – June 27 in San Francisco.

According to the newswire report from which he was quoted, Schmidt also identified in his speech five major roadblocks to M&A success, the last three of which are HR issues:

  • Inability to sustain financial performance (64 percent)
  • Loss of productivity (62 percent)
  • Incompatible cultures (56 percent)
  • Loss of key talent (53 percent)
  • Clash of management styles (53 percent)

Interestingly, while some 65 percent of survey respondents indicated that their ideal role in an M&A was to be a strategic partner with senior management, only 8 percent ranked their ideal M&A role as HR functional expert and implementor, where HR involvement is indeed heaviest.

Moreover, only half of the respondents believe their HR organizations possess the capabilities needed to play a strategic M&A role. So Schmidt concludes that HR execs need to beef up their competencies to raise, for instance, the 39 percent of those who say their involvement has been in identifying issues/planning due diligence. He advises among other things:

  • Gaining M&A and general business literacy
  • Developing an ability to contribute to the valuation of another company
  • Planning and leading complex integration projects