Mergers & Acquisitions (M&As)

Overview

Mergers and acquisitions (M&As) are tools businesses use to achieve organizational objectives—tools that have profound impacts on the employees of the organizations at every level as two organizations attempt to integrate into one. A merger is generally defined as the joining of two or more different organizations under one common owner and management structure. An acquisition is the process of one corporate entity acquiring control of another corporate entity by purchase, stock swap or some other method.

It has been estimated that nearly two-thirds of all M&As fail to achieve their anticipated strategic and financial objectives. This rate of failure often is attributed to various HR-related factors, such as incompatible cultures, management styles, poor motivation, loss of key talent, lack of communication, diminished trust and uncertainty of long-term goals.

HR Pro is adept at recognizing potential problems, identifying solutions and persuading management to adopt them. HR Pro will assist HR practitioners to prepare for the challenges and practical realities of M&A transactions, including:

• · Creation of new policies to guide the new organization.
• · Retention of key employees.
• · Employee selection and downsizing.
• · Development of compensation strategies
• · Creation of comprehensive employee benefits program.

HR Pro’s Role in M&A Transactions

Both mergers and acquisitions present significant challenges to HR professionals. The M&A process requires management of both organizations to consider all implications of a proposed merger or acquisition before agreeing to one—which necessarily involves consideration of the “people issues” created by a proposed merger or acquisition.

Issues to consider include:

• Assessing the human resources of both organizations to determine whether a possible merger or acquisition is of interest.
• Conducting surveys and otherwise using metrics to gather data relevant to a merger or acquisition’s potential “people issues.”

HR Pro will assist with the number of challenges during M&As, which can include:

• Attempting to maintain an internal status quo, or to effect change—either to facilitate or thwart (in the case of a hostile takeover) a possible merger or acquisition, as instructed by upper management.
• Attempting to provide guidance to upper management from a “people” perspective as to whether organizational goals will be better fulfilled in the form of a merger versus an acquisition, or by making internal changes.
• Assuming that a merger or acquisition has been approved, discerning all aspects of the two separate organizations and the one combined organization that will be affected.
• Communicating with employees at every step in the M&A process with both an appropriate level of disclosure and an appropriate level of secrecy.
• Devising ways to meld the two organizations most effectively, efficiently and humanely for the various stakeholders
• Dealing with the reality that M&As usually result in layoffs of superfluous employees under the combined organization. This reality entails coordinating separation and severance pay issues between the combining organizations, which may implicate the
• Proactively avoiding legal issues for violation of federal and state civil rights acts, and the Worker Adjustment and Retraining Notification Act (WARN) of 1988.
• Participating in the defense of lawsuits that may be brought as a result of a merger or acquisition.
• Aligning the HR function to achieve the organization’s strategic objectives.
• Addressing the ethical dilemmas involved, where an HR professional may be required to eliminate his or her own position, the position of a current co-worker, or the position of an HR counterpart in the combining organization.

HR Pro’s Involvement Before the Transaction (Due Diligence)

During due diligence, HR Pro will provide information about talent and culture—along with typical assessments of employee benefits plans and liabilities, compensation programs, employment contracts and policies, legal exposure, etc.—HR Pro can provide insights into its workforce and can decrease the likelihood of unhappy and expensive surprises once the deal is complete.

HR Pro will provide a thorough review of policies, plans, practices and programs to ensure compliance with applicable employment laws and regulations.

In the HR arena, it is retirement benefits that have the greatest potential for creating issues and for turning into “deal-breaking” issues. The questions surrounding defined benefit plans, defined contribution plans, vesting, valuation of liabilities and overfunding or underfunding of plans are complex issues that can create real challenges. In addition to a review of retirement-related issues, HR Pro will also conduct a full analysis of the target company’s health care benefits and costs, as well as its worker’s compensation liabilities.

Companies inadvertently can assume significant liability if careful due diligence is not conducted before the transaction is finalized. The target company can have pending charges or litigation from the Equal Employment Opportunity Commission or face unfair labor practice claims from the National Labor Relations Board. Each of these potential legal problems needs to be addressed specifically in the acquisition agreement, and the purchasing company, or surviving company, may want to secure an indemnification in the agreement as well. Such an indemnification provision will keep a company from assuming unreasonable risks, especially if litigation currently is pending. Because the two entities will be combining into one, in order to be meaningful, the indemnification provisions are likely to extend to key officers, directors and shareholders—which again raises “people issues” which HR Pro will identify.

HR Pro has the necessary skills to effectively manage the integration (e.g. knowledge in employee relations, communications, change management and legal requirements) to assist your senior management in HR. Competencies in these areas will enable us to handle the complicated process of managing human resources during mergers and acquisitions.