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Mergers and Acquisitions - Time to take people more seriously? It's a 'no brainer'

Mergers and Acquisitions
Time to take people more seriously? It's a 'no brainer'

Due diligence can be a fraught process – so much data to collect, decisions to make and delicate relationships to manage. 

Many professions are round the table giving their valued opinion on the deal - and the list of things to consider continues to increase; such as cyber security and human rights.

But what about the people and culture? 

It seems bizarre that when it comes to acquiring a business there is little or no assessment of leadership, people and culture. This, despite a widespread understanding of how critical these are for ongoing business success.

A few of our clients have noticed this gap and have been asking for our thoughts and advice on what to do - either with prospective acquisition targets, or to prepare themselves for a new round of funding/change of investor.  This has led to some really interesting conversations - and this blog is a summary of some of our musings and conclusions.

It’s an interesting challenge, with the process led (on the whole) by legal and finance teams, where is the place for proper consideration of the people elements?

Let’s think first about acquisitions.  It seems that the leadership and culture elements are missed for a number of reasons.

  1. People like to rely on gut instinct about others – so they ‘know this person is going to be a great leader’, meaning there’s no need for anything more formal. 
  2. The options for what could be done are often ill-conceived – involving a bunch of psychologists could easily scare the acquisition off in the delicate early days of courtship!
  3. The business case for including these things isn’t straightforward to demonstrate, so there’s little appetite for increasing the cost of the acquisition process with an uncertain return. 

And there are bound to be many other reasons too… But with an estimated 50% of mergers and acquisitions failing and 83% not delivering intended goals 1.– surely we need to do something different?!

Something different?

So, if we believe there is a clear business case (which we do), how can we tackle the people challenge?  We’ve developed a simple and flexible risk identification approach that works in-step with the rest of the acquisition process.  It enables the leadership and culture due diligence to be scaled up or scaled down - based on the extent to which identified concerns could de-rail the acquisition.  It starts with a top level assessment of the risks, a simple but structured review to get ‘under the skin’ of the new organisation and gather more information than you can get through the set piece business plan presentations. 

Key questions explored are:

  • how strong are individual leaders and the overall leadership team?
  • which leaders and team members are critical to business performance and need to be retained?
  • how aligned is the current culture to the one we want to develop?
  • how can we integrate for future benefits whilst safeguarding current performance? 

Depending on the likelihood and impact of the risk, further assessment is conducted, if the perceived risk is high it could involve a full leadership and culture assessment.  This information is then used to inform the integration plan – a plan that includes the key people and leadership aspects to facilitate a smooth transition which can deliver the value identified in the business case.  When discussing this approach with one client they summed it up neatly – ‘it’s a no brainer’!

So, how can things work if you’re on the other side of the table? If you want to sell your business how can you use leadership and culture as levers to maximise the value?

Our research into this has identified a number of things you can do:

  • Make life easy by having access to quality data and metrics about your people and your culture
  • Identify which people processes and policies are core to the running of the business and ensure they are working well
  • Ensure you have a credible leadership team – including successors

Paying attention to these issues can help you to more clearly demonstrate the value of your human capital and as a result help the sale to go more smoothly – it must be worth the effort!

As you’d expect, we feel strongly about the importance of a more visible role for the people aspects of mergers and acquisitions from all parties.  We believe there are some really simple, practical steps that can be taken.  They may not be perfect, but they will surely improve on the 50% success rate.  What do you think?

1. Clifford Chance ‘our insights into M and a trends 2015 – global dynamics’

Comments on this Post

Terry Priestley on 2nd November 2015

Well said Apter! It's so very important for all organisations involved in the transaction to understand the true value and impact of those invaluable assets who also happen to be sentient beings. As some-one once said "I am NOT a human resource, I am a human being". Taking due notice of this phrase will be fundamental to the likely success of the transaction; do you want acolytes or terrorists, champions or nay-sayers, friends or foes? Look after the people, people!

Darren Wilson on 30th October 2015

Oh so true. It is no coincidence that The word Merger starts with "Me", so as always, get the people decisions right and ensure "Me" is engaged, and the rest has a fighting chance! No brainer for sure - good thought provoking blog as always, thanks to the Apter team for your useful "nudging"!

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