Leading through transition Perspectives on the people side ...
Making the deal work
Leading through transition Perspectives on the people side of M&A
Contents
3
Introduction
4
Section 1: Due Diligence
5
......Top 10 Myths of Human Capital Due Diligence
10
......Anatomy of Acquisitions: A guide to Human Resources Management contributions
in the early phase of a buy-side transaction
13
......Where is HR?: Positioning Human Resources as a strategic due diligence partner
16
Section 2: Integration Management
17
......Taking the lead during a merger: How leaders choose to communicate during a merger
is key to realizing the value of the deal
19
......Stacking the deck
23
......Thriving in a pressure cooker: Leading your merger integration team through the toughest
project of their careers
27
......Getting past the hostility: Five key strategies designed to help integrate reluctant
employees following a hostile takeover
30
Section 3: Integration
31
......Human Resources Management handbook for acquisitions
39
......Effective leadership transition
41
......Cultural issues in mergers and acquisitions
46
......Beyond HR integration: Is a merger the right time to launch a transformation?
52
......The art and science of executive selection: Selecting leaders to capture the value
of the deal
56
......The leadership journey: Preparing your leadership team to navigate the transition
to a new organization
60
Section 4: Post-Merger integration
61
......Merger Aftershocks: Surviving the people challenges of a postmerger integration
64
......Merger Aftershocks II: Shaping the newly combined company
68
......Retention after a merger: Keeping your employees from "jumping ship" and your
intellectual capital and client relationships "on board"
71
Section 5: Divestiture
72
......The transition from big to smaller: A change of ownership
73
Contacts
2
Introduction
Mergers and acquisitions (M&A) present both opportunities and challenges for the executive team charged with leading the organization through these transactions. M&A activities drive significant change within your organization and can create complex situations, especially when it comes to managing employee transition. After all, getting it right with your organizations' greatest asset -- your people -- is critical to Day One success and beyond.
This compendium is intended to provide company leaders with a deep dive into the human capital complexities you are likely to face during an M&A transaction. The articles explore many of the common people-related integration challenges and offer recommendations for how to approach these situations to meet your organization's specific needs.
We have divided the articles into five chapters that span the M&A lifecycle: Due Diligence, Integration Management, Integration, Post-Merger Integration and Divestiture. The articles can be read beginning to end, or individually by going directly to the chapter that pertains to your current interest or situation.
We hope you find this compendium and its breadth of topics a helpful resource. To discuss any of the ideas presented here, please contact:
Eileen Fernandes Principal National Leader, Human Capital M&A Consultative Services Deloitte Consulting LLP
John Fiore Principal National Leader, Human Capital M&A Consultative Services Deloitte Consulting LLP
Kevin Knowles Principal Operations Leader, Human Capital M&A Consultative Services Deloitte Consulting LLP
Leading through transition Perspectives on the people side of M&A 3
Section 1: Due Diligence
Learn as much as you can as quickly as you can in order to make the appropriate decisions.
4
The Top 10 Myths of Human Capital Due Diligence
By David Carney, Eileen Fernandes, John Fiore and Glen Lipkin
Due diligence is the thorough investigation an acquirer performs prior to purchasing a target company. Insightful and material due diligence prior to consummating the deal greatly increases the likelihood that the acquirer will achieve the expected strategic goals and synergies. It is important to learn as much as you can as quickly as you can, so the due diligence team can make the appropriate decision.
Human capital due diligence is an important piece of the overall due diligence process, yet for some reason it is too often underestimated or undervalued. Thorough human capital due diligence is much more than just benefits and compensation analysis. It is a critical component of an effective merger and acquisition (M&A). The fact is, personnel-related expenses are typically the largest selling, general, and administrative (SG&A) expense items on the income statement of most companies -- correctly identifying significant cost increases and hidden liabilities could account for millions of dollars in a transaction.
In a number of ways, the due diligence process is similar to buying a car. It is very tempting to look at a nice, bright, shiny car and say: "I will take that!" But remember -- you do not want it just to look good. You will be spending a lot of time with the car, and it needs to run well. And for most individuals, a car is a significant investment. So before you buy, you need to check under the hood, pump the brakes, and kick the tires or you might end up still on foot! Let's take a look at 10 of the biggest M&A -- and carbuying -- myths.
It may look like an imported sports car, but it runs like a lawnmower.
Myth #1: Human capital, tax, finance, accounting, legal -- we all speak the same lingo
I can drive it, surely I can fix it Human Resources (HR) due diligence is tightly linked to the due diligence efforts of tax, finance, and accounting. Just because everyone on the team is skilled at due diligence does not mean that they necessarily will understand each other's findings. Each functional due diligence team needs to understand all the valuation assumptions, how its work will influence the Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) pricing model, and how its work integrates into the larger puzzle. Traditional and extended human capital due diligence teams often find it easier to report their findings in their "native human capital tongue," which may be a different language than what the rest of the team expects and understands. Mechanics who fix domestic vehicles are not always the most appropriate choice to fix imports! Because all due diligence findings are eventually quantitative and represented in certain broader financial metrics, the human capital due diligence teams need to be sure that various items, such as pension expense, errors and omissions (E&O), directors and officers liability insurance (D&O), incurred but not reported losses (IBNR), and per employee, per year cost (PEPY), are converted to financial metrics, such as EBITDA and pro forma statements. The often technical human capital due diligence also needs to be represented in the universally understood financial language.
Keys to achieving results: ? Understand on what basis the company is being valued. ? Work closely and communicate effectively with
everyone on the team.
Leading through transition Perspectives on the people side of M&A 5
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