Role of HR in Mergers and Acquisitions

Section D, Group 3:PGP/18/178 AKSHEY BHOGRAPGP/18/180 AMRITANSHU ROYPGP/18/194

KANDIRAJU KRISHNA SINDHU

PGP/18/195 KARIDI SIDDHARTHAPGP/18/217 SAURABH AUDICHYAPGP/18/227 VED PRAKASH JNANESWARPGP/18/229 YATIN SHARMA

MERGERS AND ACQUISITIONS

MergersTwo companies mutually agree to merge when they feel they can do something together that they could not achieve on their own.

AcquisitionAn acquisition is the purchase of one business or company by another company or other business entity. Such purchase may be of 100%, or nearly 100%, of the assets or ownership equity of the acquired entity.

Types• Horizontal• Vertical• Conglomerate

STRATEGIC MANAGEMENT

CORPORATE FINANCE

HR MANAGEMENT

A B

A+B+AB

WHY M&A? REASONS FOR M&A

FUTURE GOALS

MUTUAL BENEFITS

EXPANSION OF

BUSINESS

DIVERSIFICATION OF

RISK

ECONOMIES OF SCALE

INCREASE MARKET SHARE

People Cost Aspects Usual focus on financial liabilities and neglect of people cost liabilities

Underestimated obligations which are not immediately apparent People

Costs

Pension and

benefits

Rewards liability

Health care costs

Termination

indemnities

Unused Vacations

Jubilee Payments

Contracts liability

Structural Aspects Absence of good organizational design – ambiguous goals, lack of role clarity, inefficient decision making

Alignment of structure, process, governance, metrics, people to fulfil the methodology of newly integrated company

Work structure, information flow, KPA re-definition, right-sizing

Company A took over company B

• Gain entry into newly related market

• A might retain the organizational structure of B

• Structural changes at top management level

Company A merged with Company B

• New organizational mission objectives and strategies

• Orientation programmes, training people for new roles

• Introducing suitable horizontal and vertical linkages

TALENT RISKS CULTURE RISKS

Key Talent Retention

Harmonizing Talent Processes

Leadership Style

Decision Making Process

Change Receptiveness

Working Style

Personal Interactions

Beliefs Around Personal Success

Regulatory Aspect

Engagement Aspect

• Laws affecting human capital might vary from place to place

• Labor laws and HR contracts with unions are a major area of concern

• This is a sensitive issue can make/break a deal especially in manufacturing and other such labor heavy industries

• Job losses, restructuring, imposition of a new corporate culture and top leadership changes may lead to reduced engagement levels

• Disengaged and “on the fence” employees back hold on extra effort

REGULATORY ASPECTS

HUMAN RESOURCE BEST PRACTICES – M&A • Involving HR in early Merger

discussions: HR staff should conduct cultural audits to ensure that the organizations are compatible.

• If there are discrepancies in management styles, corporate values, or organizational structures, HR practitioners can provide recommendations as to how the companies can overcome their differences and establish a common culture

• Human Resources evaluation prior to integration: Conducting quick assessments to identify who are the “keepers” and determine the actions necessary to retain the talented individuals

• Identify gaps in talent and nurture and coach employees so as to avoid impeding of management succession

• Increasing Communication: Organizations should inform all employees concurrently or in advance of any press release or radio announcement of merger plans

• This will avoid the negative effects of rumours and gossip which tend to distort or misrepresent reality

• Open and honest communication tends to explain the employees the reasons for the mergers and their own position after the merger

• Stress reduction through employee assistance programs: Employee assistance programs help employees to manage post merger stress

• Counselling to employees helps them assess career opportunities and preview future alternatives• Policies and processes: Compare and study HR practices of both the companies and identify sources of differences between them

• Ensure minimum loss to employees on account of change in policies

• Informing employees about Downsizing and Staffing in advance: Information about downsizing and staffing should be openly and honestly communicated to the employees as soon as possible

• Employees experience more stress and anxiety when they are uncertain about their future

• Resulting decrease in morale and productivity and an increase in turnover and absenteeism

• Facilitating in development of new organizational structure: HR personnel should ensure that a new organizational structure is developed

• Clear well-defined reporting relationships are established as soon as possible.

• Compensation: Determination of compensation comparisons between the companies must be done

• Compensation should be based on criticality of function and skills and knowledge

• Post merger some job may not be as critical as they were previously

• Develop and deliver clear compensation guidelines through one on one interactions with functional managers

• Identifying Leadership: Clearly specifying the leadership roles in the merged entity and removing any ambiguity

• This helps to make transition smoother

• Job Grading/ Banding: Perform a

competency assessment• Pay attention to organizational

culture and willingness of the leadership to implement

• Differences in number of job grades must be properly accounted for keeping in mind the sensitivity of this issue

EXAMPLES OF M & A

Successful UnsuccessfulDisney and Pixar Daimler Benz and

ChryslerExxon and Mobil Sears and KMartTata Motors and JLR AOL and Time WarnerArcelor Mittal Quaker and SnappleHindalco and Novelis HP and Compaq

Source: http://www.cnbc.com/id/34467713

EXAMPLES OF M & ASuccessful Unsuccessful

• Disney acquired Pixar in $7.4 Bn in 2006• The addition of Pixar significantly enhances

Disney animation, which is a critical creative engine for driving growth

• Disney’s animated films were failing at the box office

• Pixar had a creative engine while Disney had the distribution channel and scale

• The deal proved to be a success with Disney establishing the market leadership

• The Daimler-Benz merger with Chrysler in 1998 is probably the most famous of all international mergers then ended in failure

• How much money was paid by Daimler for Chrysler in 1998? $38 billion

• How much money paid by Cerberus Capital for Chrysler in 2007? $7.4 billion

Examples of M & A: Analysis from HRM PerspectiveSuccessful Unsuccessful

KEY TAKEAWAYS

Commun-ication

• As people look inwards to try to find their place in the merged company and attempt to see their future in it - or outside it - productivity drops. The grapevine can become a major source of headaches. Constant, consistent, and honest communication from leaders and HR is essential

Power

and Conflict

• It is essential to bring conflict out to the surface and deal with power issues honestly. If one group is obviously in charge, that should be admitted early on so people don’t waste time with second-guessing. Often, people get wrapped up in turf wars which are destructive to both sides, rather than trying to figure out roles for both sides and have a win-win situation.

Culture

• Organizational culture is an organization’s shared values, beliefs, and preferred ways to behave - is a key to success, and though many talk about it, few seem to have the skills to grapple with culture and work with both organizations to assure a good fit. Many organizations use a brief cultural fit survey to assist them during mergers

Operations

• Ideally, processes can be examined to see where true synergies lie. In many mergers and takeovers, power relationships determine operational changes, rather than actual efficiencies or quality concerns. By making changes with facilitated cross-platform teams, HR can help to ensure that the best of the two organizations are preserved

CONCLUSION

It is important to avoid quick changes since they cannot be based on a popular understanding of the acquired organization

Companies should be wary of undertaking radical integrative actions early on

Any workforce reductions that are undertaken should be based on objective, fair, and consistent criteria clearly communicated to all employees. The automatic elimination of redundant positions should be avoided.

HR manager has to quickly develop a strategy for helping the company to achieve the synergies it needs — and develop HR’s game plan for leading the process

It helps to have achievable goals, with stretch targets, and concrete milestones supported by good valid measures for implementation

THANK YOU