There are many benefits of mergers and acquisitions: Bringing together two businesses can leverage the strengths of both organizations, and build a more effective, sustainable, and innovative company as a result. But just because mergers and acquisitions can ultimately lead to a stronger organization doesn’t mean they’re not without their challenges, particularly when it comes to Human Resources.
In order to keep your employees happy, engaged, and productive during a merger or acquisition, it’s important to understand the HR challenges you may confront during the process. Otherwise, you put your team — and the organization as a whole — at risk.
“When businesses don’t take these challenges seriously, the results are predictable: an exodus of key talent, an erosion of morale, and, eventually, the loss of customers and clients,” cautioned Don Scales, Global CEO of digital communications firm Investis Digital and author of The M&A Solution: A Values-Based Approach to Integrate Companies.
Below, we’ll take a look at the top HR challenges you can expect to face during mergers and acquisitions — and how to handle them.
4 Top HR Challenges During Mergers and Acquisitions
1. Maintaining Company Culture
Company culture is the foundation of any successful organization. “Company culture is defined as the unique set of values, goals, attitudes, and practices that characterize a particular organization, often created by the organization’s founders and/or executive team,” explained Michelle Seiler Tucker, founder and CEO of Seiler Tucker Incorporated, a company that has sold over 1,000 businesses. “Culture is one of the unique selling points that may attract employees and pique their interest in pursuing employment at the company.”
But because company culture is unique to each organization, maintaining culture is one of the biggest Human Resources challenges during mergers and acquisitions.
“A merger/acquisition can make or break company culture,” Scales said. “When acquisitions overlook values and people, they destroy corporate culture and, ultimately, the company.”
That being said, a merger or acquisition doesn’t have to erode company culture or negatively impact staff. HR can navigate this challenge by identifying the strongest parts of both company cultures and looking for ways to bring them together to build a stronger, more cohesive company culture that suits the newly formed organization.
For example, say your company thrives on in-person collaboration, while the company you’re acquiring is used to working remotely. In this scenario, you might consider moving to a hybrid work model, which allows your team to continue to work in the office, with the added flexibility of spending some of their time working off-site.
A merger and acquisition can put your company culture at risk, but if you look for ways to integrate the strongest cultural elements of both organizations, you can effectively navigate the transition — and build a stronger company culture in the process.
“When acquisitions are based on compatible corporate values with people at the center,” said Scales, “a merger can strengthen culture.”
2. Mismatched or Competing Values
Corporate values are an element of company culture that dictate what is important to the employees and the organization. And while they should be a major part of deciding whether a merger or acquisition is the best move for an organization, often, they’re not even included in the discussion.
“Many businesses talk about the importance of their values, but they don’t incorporate compatible values as a measurable metric to plan an acquisition or merger,” noted Scales. “Values too often are not even discussed at all.”
When values aren’t a part of the initial mergers and acquisitions discussion, it can lead to mismatched or competing values, which will ultimately cause HR challenges.
“Even if it seems as though there are similarities between two firms’ cultures in an M&A transaction, the combination of two different sets of beliefs and assumptions shared by an organization can often lead to a misalignment,” cautioned Seiler Tucker.
For instance, say your organization is acquiring a company that, on paper, looks like an excellent match. But while one of your organization’s core values is efficiency, the company you’re acquiring takes a more laid-back approach to work.
That kind of misalignment can lead to employees from both organizations feeling resentful and less engaged with their jobs — employees from your organization because they feel like new employees aren’t organized and on top of their work, and employees from the newly acquired company because they feel micromanaged in a more systems-based and process-driven environment.
The key to avoiding this issue is to make sure that there is an alignment in values from the get-go, and if you spot any potential issues, develop a transition plan to ensure those misaligned values don’t cause HR issues during the mergers and acquisitions process.
“It’s essential that companies align their values as they plan a merger,” stressed Scales. “They need to compare their values just as they compare their finances and operations. Incompatible values are a red flag that the merger will fail.”
3. Employees Struggling to Adapt
No matter how well-aligned two companies are, when you bring them together, there will inevitably be changes. And during that process, there may be employees that struggle to deal with those changes.
The more open and transparent you are about the changes your employees can expect, the easier it will be for them to make the transition, and the less likely it will be that those changes will present lasting HR issues.
“Change is a major cause of stress for many people,” said Seiler Tucker. “Clear and consistent communication can give these employees a sense of control, minimizing both their fears and any negative impact the transaction could have on their performance.”
For instance, if you’re adopting a new employee benefits package as a result of the merger or acquisition, there are several actions you can take to communicate this to your staff and ameliorate their concerns. Schedule a meeting before the new plan takes effect to explain why you’re changing your benefits (e.g. perhaps the merger has allowed you to offer a more comprehensive package with lower premiums), walk your employees through the new plan, and answer any questions they may have.
As another example, if you’re going to be changing job titles to better fit with the acquired company’s organizational structure, schedule departmental meetings and one-on-ones to discuss the changes. During these meetings, outline if and how the new titles will impact individual job responsibilities, and, again, make yourself available for questions.
Changes are par for the course during mergers and acquisitions, but the more you keep your employees informed along the way and are open and transparent about the changes, the easier it will be for them to adapt.
“Keeping employees in the loop will ensure a smooth transition and allow for leadership to anticipate and answer questions,” Scales said.
4. Employee Retention Issues
When you bring together two companies — and, in the process, two sets of employees — there may be some overlap in job titles and responsibilities. But “too many businesses focus on how many jobs they need to cut to make an acquisition or merger succeed,” said Scales. This leads to another HR challenge common in mergers and acquisitions: employee retention issues.
While some reduction in workforce might be unavoidable, more wide-scale layoffs can cause morale to plummet — and remaining employees to look for other opportunities.
If you don’t want to find yourself facing a major employee retention problem during a merger and acquisition, “coming up with a long-term integration plan that details specific steps for retaining talent [is crucial],” said Scales.
As you’re going through the mergers and acquisitions process, look for situations where employee retention might take a hit, and develop a clear plan to deal with those situations. For example, if you have to let a number of managers go during the merger, you’ll need to develop a plan to support their teams during the transition — and ensure that they don’t follow suit.
During mergers and acquisitions, there’s a high risk for turnover, so make sure you have a plan in place to minimize employee retention issues and keep top performers at the company.
Tips for Navigating HR Challenges During Mergers and Acquisitions
Now that you know the major challenges you can expect to face during mergers and acquisitions, here are some extra tips to help you navigate the process as smoothly as possible.
- Put your people first. The golden rule of successfully navigating HR challenges during mergers and acquisitions is to put your people first. “Your people are the heart and soul of your company: You have no culture, no customers, and no future without them,” stressed Scales. “Treat them as your most precious asset by keeping your merger grounded in values that they will rally around.”
- Anticipate culture problems — and proactively develop solutions. As mentioned, combining cultures during mergers and acquisitions can be a major pain point. But taking a proactive approach from the get-go by anticipating potential problems and developing solutions can put you in a position to better navigate bringing the two company cultures together. “Develop an understanding of the differing cultures — and some of the issues that could present themselves as a result — up front,” Seiler Tucker advised.
- Think long term. The initial merger and acquisition can be a stressful time. But in order to keep serious issues that may arise at bay, you need to think beyond the initial merger and develop a plan to successfully bridge the two companies over the long term. “Businesses need to create a transition plan for building employee buy-in and communicating the value of the merger,” Scales said. “They need to create long-term plans for how employees will collaborate to create long-term value in areas such as the development of shared capabilities. Companies seldom have these details sorted out right away, but as [the two companies’ employees] get to know each other, they need to roll up their sleeves and get to work.”
Mergers and acquisitions can ultimately make organizations stronger, but the challenges they present are very real, and could snowball into serious and lasting HR issues if left unchecked. But luckily, with the right approach and execution — and these helpful tips — you can minimize the downsides, keep HR issues to a minimum, and emerge on the other side as a better, stronger, and more cohesive company.