Five HR Pitfalls to Avoid After a Merger or Acquisition
In a previous post, we examined the important topic of The Roles HR Can Play During Merger and Acquisition. When effectively leveraged, HR instills confidence and calm in leaders and employees that all bases are covered in this time of transition. But HR’s role doesn’t stop once an initial integration phase is complete. As the post-acquisition period arrives, leaders must be ready for full-scale execution of the implementation plan to effectively assimilate and synergize their newly blended workforce.
It can be tempting to think that all the right plans and preparations are in place, but smart leaders will be careful to not adopt a false sense of security. Even when a capable HR leader has been tapped to spearhead the efforts and a Transitional Service Agreement (TSA) has been formalized to use the selling company’s HR team for a prescribed period, things can go very wrong very fast. Below, we examine five post-acquisition pitfalls that can set companies back.
Five Post-acquisition HR Pitfalls
1. Your HR leader has a change of heart (or direction).
When the post-acquisition image in an HR leader’s mind doesn’t match the real-world picture they see before them, they may suddenly decide to exit the business. Or, they may decide to scrap previously agreed upon business partners from pre-deal diligence, integration and PMO planning, post-LOI diligence and integration preparation. Naturally, HR leaders want to make their mark, but doing so in an unconstructive manner can alienate trusted business partners that had already been vetted (e.g. insurance broker, payroll provider, HR consultant).
Either scenario will burden an organization with a soon-to-expire TSA that looms as they try to reinvent the wheel on the fly. This occurs when egos and comfort levels get in the way of better judgment and doing what is ultimately right for the organization. Continually assess for alignment to avoid a significant investment of time that yields very little results.
2. The company you acquired files for chapter 11.
In these instances, the interests of the acquiring company move to a low point of priority. A common outcome is for the Human Capital Management (HCM) team to be downsized, making it difficult for your acquired employees to get the services and answers they need. Technology infrastructure can also be adversely affected, creating inefficiencies and reducing employees’ capabilities to get their jobs done as normal. Ensure contingency plans are in place to handle day-to-day technology and HCM-related issues. The sooner an organization can provide services and operate independently from the TSA and start delivering services on your own, the better. Savings will be realized, employees will be happier, and turnover will decline.
3. Your employees start jumping ship.
A contributing factor to failure after a merger or acquisition is an inability by management to get top talent to stay put and to unify and synchronize two previously separate corporate cultures into a newer, stronger entity. Organizational change almost always breeds anxiety and can signal a threat in the minds of employees. Adopt a change management mentality that emphasizes and clearly communicates the values of individuals, your vision for organizational success, and the important roles that each employee will play in achieving that vision. A one and done town hall and a handful of informational emails won’t get it done.
4. The Private Equity team goes rogue.
As with our first example, the PE team that has guided the merger or acquisition may also want to make their mark. Common manifestations of this are hiring “who they know” even when it isn’t necessarily the best path for the new organization. The adage of “better the devil you know then the devil you don’t” is not always true in a merger or acquisition. A former colleague and solid performer from another company does not automatically translate to value and high performance in a new, different organization. The norms and business practices they bring with them may not mesh with those that are expected and applied in the new organization.
5. Gaps are exposed in your “rock-solid” TSA.
A lack of proper diligence in forming and vetting the TSA can leave an organization without important safeguards and important considerations unaddressed. Clear, unambiguous definitions and statements must be established and understood for critical elements such as who is the seller and who are their parties, what is the meaning behind “performance of services,” and what access will each party have to the other’s information, intellectual property, and methodologies.
Setting the Stage for Post-acquisition Success
Even beyond those detailed here, many different challenges can veer an organization off the tracks during a merger or acquisition. To navigate and mitigate these potential pitfalls, having the right HR leader with commonly shared objectives is a must. So too is having a TSA agreement in place, so long as it’s constructed properly and with the right supportive elements alongside it.
With a clearly defined roadmap for HR management and organizational development and the adoption of change management best practices (e.g. quick wins identified, solid communication, proper governance, etc.), the post-merger or acquisition visions of a company can be realized without undue burden. It’s important to remember however that post-acquisition success is more marathon than a sprint. Creating a new organizational climate can happen quickly, but establishing a new, stronger culture takes time and continually focused effort.
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Have more questions about putting the right HR supports in place during or after a merger or acquisition? Request a free consultation from a vcfo HR expert who can help.
Here are a few related blog posts you may find helpful:
- Components of a Successful Sale Transaction
- Key Elements of a Merger & Acquisition Integration Plan
- Revenue Recognition and M&A Transactions
