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The dynamic role of HR in

Merger & Acquisitions


The Human Resource department acts as a trusted adviser to the employees
of an organization along with the management who intend to enter to an M&A
deal.

The wave of mergers and acquisitions in India has been enabling businesses to achieve significant
competitive advantage in the market, thus making M&A the fastest tactical preference for global
players as well as start-ups. The highly competitive global environment has made Mergers and
Acquisitions (M&A), a common phenomenon for big and small businesses throughout India. M&A
deals are an effective growth strategy for companies that help in
Multiplying capabilities,
Sharing proficiency, and
Enhancing market share

The Human Resource (HR) department plays a pivotal role in the process of merger and acquisition
between two companies. While mergers and acquisitions are considered an essential part of a
companys growth strategy and carried out for beneficial reasons, a messed up and weak
understanding of HR issues often stands as an obstruction that results in failed mergers. Thus, HR
plays a key role in managing all crises as well as disputes that may crop up in an organization, as and
when the process of merger and acquisition sets off.

The Human Resource department acts as a trusted adviser to the employees of an organization along
with the management who intend to enter to an M&A deal. In fact, the Human Resource team of an
organization plays a dynamic role of leadership during any merger and acquisition. Heres a glimpse
of the critical role played by Human Resource during any merger and acquisition:

Analyzing Organizational Cultures

HR helps figure out if the organizational culture of two companies partnering together are compatible
enough to be meshed as one. When two corporate cultures integrate, it is the responsibility of human
resources to enable a smooth transition by assisting the employees to comprehend and embrace a
new organizational culture. However, this may turn into a daunting task as many M&As fail awfully
owing to cultural disparity, clash in leadership, need of management commitment, absence of common
objectives, or weak change management, which may turn into a matter of grave concern. Human
resource is responsible for analyzing the cultural amalgamation of two companies by taking the
demographics of the partnering organizations into consideration, which covers multiple factors such
as:
Management trend of the two organizations
How the employees of two organizations think?
Growth rate of the merging companies
Cultural differences between the two organizations
How the two organizations view each other?
Selectivity in hiring
Benefits enjoyed by the employees, such as insurance and perks
Rates of employee turnover
Level of estrangement experienced by employees.
Readiness or attitude of employees to embrace new corporate culture

Analysis of the demographics by the Human Resource team goes a long way in helping firms that are
planning an M&A. In case the HR notices any cultural differences during the analysis, such problems
should be tackled without delay. Similarly, if the HR senses any feeling of disdain between the
employees of the merging companies, the issue should be addressed upfront. Thus, it is imperative
for human resources to have a firm understanding of the work culture of the organization wherein they
work, along with the work culture of the other organization.

Changing Roles and Corporate Structure: As soon two companies merge or acquire another, both the
companies undergo certain structural changes. For example, different teams may be combined for
enhancing productivity or the management may decide to get rid of redundant positions. This
procedure of introducing change in work culture of both the companies and implementing the change,
so that the employees can work jointly without any conflict, takes a long time and the HR managers
play a key role here. They work closely with the management to come up with new policies and
communicate the same to the employees so that each person understands his new duties and
responsibilities in the organization.

Boosting the Morale of Anxious Employees

During the process of M&A, some employees may be reluctant to adapt to the new work culture thus,
creating a serious culture clash. It is a common human tendency to resist change and since M&As
bring in an element of apprehensions and change for the employees of both merging companies,
Human Resources in both the organizations should act as a comforting factor and take measures for
sorting out the transition process for employees by
Boosting the confidence of employees
Offering adequate training to managers so that they can acclimatize themselves to the nature of
change and new organizational culture
Brushing away the fears and doubts of employees, so as to retain productivity
Ensuring job security
Explaining news roles to each employee
Expounding the hierarchy structure of the organization post merger
Elucidating how the joint venture will affect each employee in person
Upholding efficiency by identifying leaders from both organizations
Enhancing innovation by placing the right employee at the right position
Complying with labour laws
Supervising personal records
Keeping the communication channel open through constant communication with the employees and
conveying their concerns to the management.
Providing timely input throughout the M&A process
Conducting orientation programs on welfare schemes, compensations, benefits, and company policies

Last but not the least, throughout the process of M&A, the HR should take effectual measures to
assure that issues arising out of cultural differences will not disrupt the M&A deal

Solving Employee Benefits Issues

The objective of due diligence process in M&A is the verification of Sellers financials by the Buyer
Company, along with the confirmation of all deals, customers and other relevant information. This is
done by the buyer to assess if the M&A deal make any financial or strategic sense. HR department
of the buyer company particularly evaluates the benefit structure of the seller company to discover the
likelihood of any imminent problem such as inadequate funds for pension plan or continuation of any
medical insurance plan that may cost an arm and a leg to the organization in the long run.

HR Plays a Substantial Role in Merger & Acquisitions

The HR leadership of both companies should be capable of promptly developing a strategy to help out
the companies in accomplishing the synergies they are looking for. Before the merger or acquisition
takes place, the HR managers of both the firms should advise the management to map out a roadmap
in advance so that the merging companies can stick to it as soon as the M&A procedure gets going.
The strategy should stress on the organizational communication structure, layoffs (if any), and
amalgamation of corporate cultures. This initiative by HR leaders helps the management to conform
to a specific set of objectives, thus driving away all misunderstandings and differences that may come
up in future.

The HR of any organization, by extending their intervention, can facilitate a successful M&A. Since
Human Resource entails employees of an organization and deals with significant issues pertaining to
employees, involvement of HR professionals is indispensable for successful mergers and acquisitions.
Thus, during an M&A deal, an HR plays the role of a catalyst as well as a coach to enable employees
of merging companies to work collectively and constructively.
Role of hr in mergers and acquisitions

1. ROLE OF HR INMERGERS ANDACQUISITIONSSyed Qarib Raza Kazmi

2. Mergers and Acquisitions Mergers and acquisitions represent the ultimate in change for a business.
No other event is more difficult, challenging, or chaotic as a merger and acquisition. Hence it is
imperative that everyone involved in the process has a clear understanding of how the process works.

3. Some interesting M&A figures Virtually every major company in the United States today has
experienced a major acquisition at some point in history. And at any given time, thousands of these
companies are adjusting to post-merger reality. For example, so far in the decade of the 1990s (through
June 1997), 96,020 companies have come under new ownership worldwide in deals worth a total of $ 3.9
trillion - and thats just counting acquisitions valued at $ 5 million and over. Add to this the many smaller
companies and nonprofit and governmental entities that experience mergers every year, and the M & A
universe becomes large indeed.The Art of Merger and Acquisition Integration,Alexandra Reed Lajoux

4. Why you need to know this ? You might be asking yourself, why do I need to learn the merger and
acquisition (M & A)process? Well for starters, mergers and acquisitions are now a normal way of life
within the business world. In todays global, competitive environment, mergers are sometimes the only
means for long-term survival. In other cases, such as Cisco Systems, mergers are a strategic component
for generating long-term growth.

5. M&A defined When we use the term "merger", we are referring to the merging of two companies
where one new company will continue to exist. The term "acquisition" refers to the acquisition of assets
by one company from another company.

6. Mergers can be categorized asfollows:Horizontal: Two firms are merged across similar products or
services. Horizontal mergers are often used as a way for a company to increase its market share by
merging with a competing company. For example, the merger between Exxon and Mobil will allow both
companies a larger share of the oil and gas market.

7. Mergers can be categorized asfollows:Vertical: Two firms are merged along the value-chain, such as a
manufacturer merging with a supplier. Vertical mergers are often used as a way to gain a competitive
advantage within the marketplace. For example, Merck, a large manufacturer of pharmaceuticals, merged
with Medco, a large distributor of pharmaceuticals, in order to gain an advantage in distributing its
Products.
8. Mergers can be categorized asfollows:Conglomerate: Two firms in completely different industries
merge, such as a gas pipeline company merging with a high technology company. Conglomerates are
usually used as a way to smooth out wide fluctuations in earnings and provide more consistency in long-
term growth. Typically, companies in mature industries with poor prospects for growth will seek to
diversify their businesses through mergers and acquisitions. For example, General Electric (GE) has
diversified its businesses through mergers and acquisitions, allowing GE to get into new areas like financial
services and television broadcasting.

9. Reasons for M & AEvery merger has its own unique reasons why the combining oftwo companies is a
good business decision. The underlyingPrinciple behind mergers and acquisitions ( M & A ) is simple:
2+2=5Synergy value can take three forms:1. Revenues: By combining the two companies, we will realize
higher revenues then if the two companies operate separately.2. Expenses: By combining the two
companies, we will realize lower expenses then if the two companies operate separately.3. Cost of Capital:
By combining the two companies, we will experience a lower overall cost of capital.

10. Strategic Reasons However, the best mergers seem to have strategic reasons for the business
combination. These strategic reasons include: Positioning - Taking advantage of future opportunities
that can be exploited when the two companies are combined. Gap Filling - One company may have a
major weakness (such as poor distribution)whereas the other company has some significant strength.
Organizational Competencies - Acquiring human resources and intellectual capital can help improve
innovative thinking and development within the company. Broader Market Access - Acquiring a foreign
company can give a company quick access to emerging global markets.

11. Basic business reasons Bargain Purchase - It may be cheaper to acquire another company then to
invest internally. Diversification - It may be necessary to smooth- out earnings and achieve more
consistent long- term growth and profitability. Short Term Growth - Management may be under pressure
to turnaround sluggish growth and profitability. Undervalued Target - The Target Company may be
undervalued and thus, it represents a good investment.

12. The M&A Process Phase 1 - Pre Acquisition Review Phase 2 - Search & Screen Targets Phase 3 -
Investigate & Value the Target Phase 4 - Acquire through Negotiation Phase 5 - Post Merger Integration

13. Phase 3-Investigate & Value the TargetThe third phase of M & A is to perform a more detail analysis
ofthe target company. You want to confirm that the TargetCompany is truly a good fit with the acquiring
company. Thiswill require a more thorough review ofoperations, strategies, financials, and other aspects
of theTarget Company. This detail review is called "due diligence.The main objective is to identify various
synergy values thatcan be realized through an M & A of the Target Company.Investment Bankers now
enter into the M & A process to assistwith this evaluation.

14. Phase 3-Investigate & Value theTarget A key part of due diligence is the valuation of the target
company. In the preliminary phases of M & A, we will calculate a total value for the combined company.
We have already calculated a value for our company (acquiring company). We now want to calculate a
value for the target as well as all other costs associated with the M & A. The calculation can be summarized
as follows:

15. Due Diligence Check list (HR) Plan Due diligence for Integration planning organization Recommend
HR policies and To develop acquisition programs guidelines Development of a C&B Understanding the
strategy for the combined employment law companies issues, critical people issues Retention of key
people and such as leadership, employee separation of redundant staff communications, talent retention
and cultural communications strategy alignment development and implementation Assessment of
critical people and deployment of Integration of payroll, benefits appropriate resources in the and HR-
IS ( SAP) new company Development of organizational chart and reporting line

16. Phase 5-Post MergerIntegration If all goes well, the two companies will announce a agreement to
merge the two companies. The deal is finalized in a formal merger and acquisition agreement. Every
company is different - differences in culture, differences in information systems, differences in strategies,
etc. As a result, the Post Merger Integration Phase is the most difficult phase within the M & A Process.

17. Typical M&A ProcessTimeline of M&A Events Implementation ofStrategic Confidential Price and Terms
Preliminary Integration PlansPlanning Courting Negotiations Announcement Program Design Closing and
Programs DAY 1 Candidate Formal Program Design Candidate Formal Initial HR Strategy Identify
ImplementationDetailedHR Strategy Initial ImplementationDetailed Program Design Scouting Scouting
Due Diligence HR Strategy Diligence Leaders and Team Leaders and Team HR Strategy Decisions
DecisionsHR ProcessStrategic HRDue Integration IntegrationDiligence Preparation HR-Liability Program
Create Create Execute Execute Monitor Strategy Deal & Synergy Office 100 Day Optimization Day 100
... Optimization Synergy Assessment Input Gap Assess. Setup Plans Plans Plan Plans Realization

18. HR RoleWhy the role of HR is important in M&A

19. Background of Study Participation: Operations Location Web-based survey Taiwan, 1% Indonesia, 1%
conducted in 2006 India, 1% New Zealand, 3% Thailand, 6% Conducted in 11 Australia, 6% U.S, 7% China
(PRC), 36% markets: Australia, China, Hong Kong, India, Singapore, 7% Hong Kong (SAR), 7% South Korea,
15% Malaysia, 10% Indonesia, Japan, Malaysia, New Zealand, Participation: Global Headquarter Location
Thailand, 1% Singapore, South Korea, Japan, 1% India, 1% and Thailand. Other, 3% Canada, 3%
Conducted in four United Kingdom, 5% South Korea, 5% U.S., 26% languages: Chinese, Australia, 5%
Japanese, Korean, and China (PRC), 7% English Singapore, 10% Malaysia, 10% Europe, 22% 73 companies
participated

20. Why are Companies Acquiring?Improved market access by far the number one driver of M&A activity:
Improved market access Combined business creation Coordinated strategies Consolidation of functions
Shared know-how Vertical integration Shared tangible resources Other 0% 20% 40% 60% 80% Percentage
of Respondents Rank 1 Rank 2 Rank 3

21. Synergy Objectives Growth ReturnImproved Coordinated Consolidation of TaxMarket Access


Strategies Functions Benefits(bigger is better) (together we conquer) (serve more with less)Combined
Shared Shared Tangible FinancialBusiness Creation Know How Resources Engineering(new is better)
(know more) (use same for more) Vertical Negotiating Integration Power (process we own) Synergies with
significant People integration Issues

22. Due Diligence Top ObjectivesImmediate and short-term objectives dominate. Long-term issues are
oflesser concern: To determine that the deal can be successf ul in the immediate/near-term To def ine
the right price To evaluate the identif ied synergies To identif y w hat needs to be done during integration
To examine the impact of a potential deal on competitors and industry Other objectives of the due
diligence process: 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Percentage of Respondents Rank 1 Rank
2 Rank 3

23. Most Important HR Issues During Due DiligenceRetention of key staff and compliance with applicable
laws are mostimportant. Much fewer companies focus on long-term issues such ascultural fit: Retention
of key employees Compliance with applicable laws HR Issues Alignment of comp. & ben. plans Cultural fit
Employee communications 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Percentage of Responses Rank
1 Rank 2 Rank 3

24. HR Issues in Due Diligence HR issues rank slightly different when comparing importance vs. complexity:
Percent of Companies (Ranking 1, 2, or 3) According to Importance According to Complexity Retention of
key employees 41% 27% Compliance with applicable laws 36 31 Quantification of severance/benefit
obligations 32 35 Alignment of compensation and benefit plans 26 35 Leadership assessment 26 34
Cultural fit 25 49 Employee communications 24 23 Leadership retention 18 13 Corporate governance 16
13 Labor relations 14 25 Sales force effectiveness 10 17 Organizational structure 9 15Orange shade: over
30% of companies rank this high

25. Top HR Integration Issues According to Importance and ComplexityCulture fit clearly dominates top
HR concerns for importance and complexityduring integration: Cultural fit Harmonization of
compensation and benefit plans Areas Leadership assessment and selection Decision-making Employee
communications 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Percentage of Responses Rank 1 Rank 2
Rank 3

26. A Reality Check Why M&A fail Poor strategic fit - The two companies have strategies and objectives
that are too different and they conflict with one another. Cultural and Social Differences - It has been
said that most problems can be traced to "people problems." If the two companies have wide differences
in cultures, then synergy values can be very elusive. Incomplete and Inadequate Due Diligence - Due
diligence is the "watchdog" within the M & A Process. If you fail to let the watchdog do his job, you are in
for some serious problems within the M & A Process.

27. A Reality Check Why M&A fail Poorly Managed Integration - The integration of two companies
requires a very high level of quality management. Integration is often poorly managed with little planning
and design. As a result, implementation fails. Paying too Much - In todays merger frenzy world, it is not
unusual for the acquiring company to pay a premium for the Target Company. Premiums are paid based
on expectations of synergies. However, if synergies are not realized, then the premium paid to acquire
the target is never recouped. Overly Optimistic - If the acquiring company is too optimistic in its
projections about the target Company, then bad decisions will be made within the M & A Process. An
overly optimistic forecast or conclusion about a critical issue can lead to a failed merger.

28. A success Story Trivor Systems Pakistan was acquired by Bentley Systems Incorporated in may 2007.
Bentley is the global leader dedicated to providing architects, engineers, constructors, and owner-
operators with comprehensive architecture and engineering software solutions for sustaining
infrastructure. Founded in 1984, Bentley has nearly 3,000 colleagues in more than 45 countries, $500
million in annual revenues, and, since 2001, has invested more than $1 billion in research, development,
and acquisitions.
29. Key Aspects of the Acquisition Retention of employees with the domain and product expertise. 1st
year plan, 2nd year plan Alignment of Job titles. Management structure remained largely intact.
Improved Hardware policies. Proper Translation of Trivor compensation with Bentley compensation
structure. All hands Meeting Before formal acquisition process Formal signing of new contracts.
Introduction of new benefits Enhancement of health cover Quarterly Team building events
Continuation of old polices

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