How HR can be critical in successful cross-border M&A deals

Iain Jones, FFA, Director, International Consulting Group, Towers Watson

The days of rushing into mergers and acquisitions are over. Companies today are doing more due diligence up front, and making a bigger effort to integrate acquired companies, says Iain Jones, FFA, director, International Consulting Group, Towers Watson.

“Business leaders are recognizing that they must allow people more time to do due diligence, and that there shouldn’t be a rush to get due diligence done too quickly,” says Jones. “In the heady deal-saturated times, there was significant competition for targets, but people are realizing that there are consequences to ignoring potential obligations, so they need appropriate due diligence.”

Smart Business spoke with Jones about M&A trends and how HR can play a critical role in the process.

What are the current trends in mergers and acquisitions?

First, not all transactions are closing. There’s more willingness for companies to walk away from deals as they are no longer brushing off risks and saying they’ll deal with them later. Second, smaller deals are dominating. There aren’t as many as multibillion-dollar deals as we used to see. Third, there are quite a few spinoffs, companies shrinking to grow as they take flak in earnings because they’re too diversified. Fourth, there is a growing importance of emerging markets and, finally, global perspective does matter. Companies in the U.S. are acquiring what they thought was a U.S. company, then realizing that, because of the way we’ve globalized, those companies have operations around the world.

What are the challenges of international acquisitions, and how can companies overcome them?

The biggest challenge is that you get into a multitude of cultures, regulations, time zones and languages to deal with, all of which can be exacerbated if you haven’t had operations in those countries before. You have to figure out all the legal pieces and do your due diligence. Get outside support with the skills and global resources to support such deals.

Another reason for bringing in external advisers is that, as you move into multiple countries, one person running the deal simply cannot handle the volume coming at them.

Businesses also need to balance global consistency on certain items with country specificity. That’s where you need advice, someone who can say, ‘Yes, you can apply that across the world,’ or ‘No, there are EU regulations that say you can’t do that.’ It’s important to identify those advisers before you need them, because, once the need arises, you’ll be too busy blocking and tackling the issues that come up to give enough attention to adviser selection.

What role can a company’s HR staff play in an acquisition?

People are the fabric of the deal and HR glues it all together. Deals succeed with long-term integration and people buying into the long-term vision and strategy. Engagement drops in periods of uncertainty during a deal. There’s a clear link between engagement, productivity and business results; to the extent that you can minimize that uncertainty, you can minimize the drop in productivity. That is a key role for HR.

How can business leaders prepare their HR department to take a lead role in a merger or acquisition?

First, HR needs to prepare themselves for deals. Business leaders should train them on the role of M&A in the business and how they can contribute to the deal success from talent, culture and HR functional perspectives. This role needs to be earned though, which is why experienced acquirers invest so much in training HR.

When a deal hits, get them involved from the beginning. Let them in on the change management aspects of the deal. Get them to lay out the long-term vision up front and communicate it to employees. Tell them what’s coming. Changes may not happen immediately but it reassures them that those key issues are being looked at.

Another vital element for the HR side is to work on culture, which is so key in a deal. There are different ways to go with culture but, if HR is allowed to do that assessment, they can advise business leaders on how to approach and integrate the target company in a more effective way, including identifying and focusing on the things that matter most to employees.

How important is it to integrate acquired companies, and how do you begin?

It depends on the business strategy. If you’re looking at a standalone company, you may just take it on as it is. It may be simply a different ownership structure with work as usual.

With a full integration, however, you really need to engage people, welcoming them to the company and explaining what it means to them.

Too often, when a large company acquires a smaller one, there’s insufficient communication and employees of the acquired company are just expected to adapt. That doesn’t just happen — the acquired company has a certain culture and a successful way they are working that you want to capture. Take the time to understand what is working so well at this company.

On day one, let people know your long-term vision and likely timing of the various aspects (e.g. job structures/grading alignment). This communication is vital to minimize that crippling uncertainty. If you leave a gap in knowledge open, people fill in the gaps with potentially false information.

Successful integration may also involve not touching things on the operations side until you have a clearer picture of how they work. There is normally something very powerful in that company and it is the reason you’re buying it. You have to be careful you aren’t killing the goose that’s laying the golden egg.

Iain Jones, FFA, is director of the International Consulting Group at Towers Watson. Reach him at [email protected] or (949) 253-5249.