While appropriate funding and growth
potential are critical factors for a
successful acquisition or merger, the people who come along as part of the
acquisition could be one of the most important assets. Companies don’t generate profits, people do, and they often hold the key to
strategic customer relationships and possess
institutional knowledge that just can’t be
captured in a computer program.
For CEOs, an important part of the due diligence process lies in assessing the cultural
fit between the two organizations and the
similarity in corporate goals between the
two groups of employees. Without employee
retention, the merger or acquisition may
never live up to the profit potential that was
promised on paper.
“You can’t just look at the assets because,
at the end of the M&A process, the assets
won’t get up and walk out the door, but
sometimes people do,” says Wayne Pinnell,
managing partner with Haskell & White LLP.
“It’s critical for the CEO of the acquiring firm
to spend time communicating with key personnel and be appropriately transparent in
his or her communications throughout the
M&A process in order to minimize turnover.”
Smart Business spoke with Pinnell about
how CEOs can evaluate the intangible
match between companies when considering potential mergers and acquisitions and
how to effectively manage the communication process with employees and other constituents.
How can CEOs evaluate the prospective cultural match between two companies?
First, acquiring CEOs should spend time
with the employees in the firm being
acquired to see how they interact. You want
to observe how the employees communicate with one another and the pace of the
work environment to see if you think those
employees will blend with your company’s
work force. Each company develops its own
culture; people are attracted to jobs where
they feel comfortable and they leave when
they are uncomfortable.
Second, review the prospective company’s
policies and procedures to get a deeper
understanding of the operating philosophy.
For example, if the company allows its
employees a great deal of autonomy in decision-making, it will be reflected in the way
the policies and procedures are written and
the way decisions are made. Conversely,
companies with a great deal of structure will
have lots of rules and binders containing
forms and approval procedures. Employees
who like structure will be lost without it, and
employees who relish autonomy don’t like
being told what to do.
How can CEOs assess which employees must
be retained?
Spend time with employees in one-on-one
meetings and quickly identify any personnel
who hold key customer relationships or
institutional knowledge that must be
retained. Also, assess if the top executives in
the two firms can work together, because
competing egos can get in the way. You can
address some of the ego issues through the
M&A planning process, but you need to take
those challenges into account before proceeding. Last, don’t assume that all the
important people hold top jobs in the organization. The key knowledge holders or customer relationship managers often work
throughout the organization, from customer
service to accounts receivable, so don’t overlook them when you’re deciding who must be retained as part of your assimilation planning process.
What are the communication best practices
for executing successful mergers and acquisitions?
CEOs should communicate frequently, and
be sure to include as many specifics as possible about the pending transaction throughout the entire M&A process. Remember to
communicate internally with employees and
externally with customers and suppliers
because it’s important to communicate with
all constituents. People are always concerned about change and, in the absence of
information, those fears will grow.
Whether you’re talking about executive
egos or valuable employees, proactive out-reach can help the acquiring company cultivate champions for the acquisition among
key managers and executives within the candidate company. Having leaders on board
with the idea will ensure a smooth assimilation because others will naturally follow.
How can my CPA assist with the human side
of mergers and acquisitions?
Your CPA should have experience with
mergers and acquisitions and should be able
to give you advice and transition plan assistance. Having a comprehensive assimilation
plan that covers sales and marketing, operations, finance, R&D, customer relations and
human resources is vital. Within the human
resources portion of the plan, you should
address compensation, benefits, titles, training, retirement plans, bonus structures and
other people-related issues to assure retention through creation of a win-win situation.
Your accountant can assist by suggesting
ideas that have been successful for other
CEOs facing similar challenges and by running financial models comparing comp and
benefit plans. Employees who feel valued
throughout the M&A process are more likely to stay on and contribute to the newly
combined organization, and that’s good
news for the bottom line.
WAYNE PINNELL is the managing partner for Haskell & White
LLP. Reach him at [email protected] or (949) 450-6314.