Navigating Acquisitions: Keeping Your Employees Onboard

Record-Breaking M&A Activity in 2021

Predictions of increased merger and acquisition (M&A) activity following the initial stages of the pandemic in 2021 have proven accurate, with the current surge reaching unprecedented levels.

The total value of M&A deals in the first half of the year exceeded $2.4 trillion. This represents a substantial increase of over 150% compared to the M&A volume observed during the same period last year.

Factors Driving the Increase

A significant contributor to this trend is a widespread worker shortage, stemming from a variety of interconnected factors.

This scarcity of labor has intensified competition amongst companies seeking to attract and retain skilled professionals.

Furthermore, the phenomenon known as the “Great Resignation” is playing a key role, with a remarkable 4 million individuals voluntarily leaving their positions in April alone.

The Importance of Talent Retention

Business executives are now acutely aware of the critical role their workforce plays as a key competitive advantage.

Consequently, for organizations considering a merger or acquisition, prioritizing talent retention and employee satisfaction throughout the process is paramount.

Maintaining a skilled and engaged workforce is not merely desirable; it is fundamentally essential for success.

The Intensified Competition for Skilled Professionals

Prior to the onset of the pandemic, companies, particularly startups seeking highly qualified personnel, were already engaged in a fierce competition for talent. The COVID-19 crisis served to exacerbate this situation. Employers who believed they held an advantage during periods of widespread layoffs and furloughs have since realized this is no longer the case.

A recent report highlighted a significant trend: over 50% of North American workers indicated their intention to seek new employment once the pandemic subsides. Financial compensation alone is insufficient to retain employees who are driven by a sense of purpose.

Those employees who are genuinely committed to a company contribute their full dedication, a quality that is exceptionally valuable. However, organizations must proactively work to maintain this loyalty, and mergers & acquisitions (M&A) events can disrupt established norms.

Effective Communication is Paramount: When navigating an acquisition, whether leading a startup or an established technology firm, prioritizing the clear articulation of the future vision for the combined entity is crucial. Today’s workforce possesses a more entrepreneurial spirit than previous generations.

They are motivated by purpose and require a demonstrable stake in the business’s success. In scenarios characterized by uncertainty and anxiety – often prompting employees to explore alternative opportunities – comprehensive communication is essential, while a lack of it can prove detrimental.

However, while leadership is responsible for formulating and conveying this vision, it’s vital that communication regarding the company’s trajectory occurs at every organizational level. Following an acquisition at the close of the previous year, my company held a company-wide meeting where I detailed the forthcoming process and shared as much information as possible.

Subsequently, we conducted focus groups with management to address their questions and gather their insights. This also empowered them with the knowledge to respond to inquiries from their respective teams. The process proved invaluable, as not all individuals will voice their concerns in a large group setting, allowing us to gauge employee sentiment with greater accuracy.

Following this, our HR department compiled a frequently asked questions (FAQ) document to address common concerns across the organization. A post-acquisition survey was also distributed several months later to solicit further feedback.

We also provided employees with access to an organizational design tool, offering a visual representation of the new company structure, available positions, and the composition of each functional group. This transparency regarding potential risks and opportunities led to increased utilization of the tool during the M&A process.

Defining the New Organizational Structure

Determining the new company structure as quickly as possible is of vital importance. While complete clarity may not be immediately achievable, it’s essential to leverage available data to make informed decisions and define the new structure, communicating this information with maximum transparency.

Failure to define and communicate the new organizational structure will inevitably result in talent attrition. According to a Gallup workplace report, the likelihood of retaining key employees during and after an M&A transaction is surprisingly low: nearly half depart within the first year, and 75% within three years.

Therefore, establishing a clear organizational structure is paramount. Even without complete details, sharing a comprehensive overview of the post-merger company and each employee’s role within it can provide a compelling reason to remain.

Honest Assessment of the Future

Acknowledging the potential toll of uncertainty, it’s important to keep employees informed about their standing whenever feasible. For instance, if John, a VP of Sales, is concerned about his position within the new organization, providing clarity – demonstrating that his role is not redundant or at risk – will empower him to make an informed decision.

Utilizing an organizational design tool that allows employees to visualize the structure and their respective roles can further enhance transparency. It’s prudent to be candid with employees regarding both the opportunities and potential challenges. Announcing expansions and the creation of new positions can inspire valuable team members to stay committed.

Conversely, if the new structure necessitates redundancies and potential layoffs, providing advance notice is only fair. Specifically identifying potentially affected departments, while confirming the stability of others, can help mitigate widespread fear. While tools and tactics exist to prevent talent loss during a transaction, strong leadership and thorough preparation remain the most critical factors.

People Due Diligence in Mergers & Acquisitions

While financial due diligence is universally acknowledged as crucial during a potential M&A transaction, equivalent scrutiny of the human capital aspect is equally vital.

Mergers and acquisitions hold the potential for significant growth, yet they inherently create a period of considerable stress for all personnel. Effective leadership necessitates recognizing employees as the most valuable resource.

Providing a clear vision, consistent communication, and complete transparency is paramount to navigating these transitions successfully.

Failing to prioritize these elements can lead to employee dissatisfaction and hinder the integration process.

Key Considerations for People Due Diligence

• Assess Cultural Compatibility: Evaluate the alignment of organizational cultures to anticipate potential clashes.
• Identify Key Talent: Determine which individuals are critical to the success of the combined entity.
• Evaluate Leadership Structures: Analyze existing leadership teams and plan for integration or restructuring.
• Communication Planning: Develop a comprehensive communication strategy to address employee concerns.

A proactive approach to people due diligence minimizes disruption and maximizes the chances of a smooth and productive integration.

Successfully navigating an acquisition requires a focus on retaining and motivating employees throughout the process.

Ultimately, prioritizing the human element is essential for realizing the full benefits of the M&A activity.