Presentation on theme: "Managing Human Side of Mergers & Acquisitions"— Presentation transcript:
1Managing Human Side of Mergers & Acquisitions Savita SawantRoll No: 8249
2Contents Definition (M & A) Types of Mergers & Acquisitions Reasons for M&A.Issues During M&A.Stages in M&A.Issues to be handled by HRMRe-inforcement of cultureCommunicationA Few Cases.
3AcquisitionOne company takes over another & cleary establishes itself as the new owner.Acquisition may be ‘Friendly’ or ‘Hostile’.
4Merger Two Companies come together to form a new entity A single new Company rather than being separately owned and operated.Both companies stocks are surrendered and new company stock is issued in its place.
5Types of Mergers Horizontal Merger Vertical Merger Market-extension MergerProduct-extension MergerConglomeration
6Reasons of M&A Increasing Profitability. Gaining Market Share. Cross-Selling.Developing Synergies.Economies of Scale.Acquiring new technology.Improved Market Reach and Industry visibility.Taxation.
7Merger Waves Period Name Facet 1889-1904 First Wave Horizontal Mergers Second WaveVertical MergersThird WaveDiversified Conglomerate MergersForth WaveHostile takeovers2000-Fifth WaveCross-border Mergers
8Sample Tools Defining the End State highAbsorptionAcquired company conforms to acquirerTransformationBoth companies find new ways to operateDegree of Change in Acquired CompanyBest of BothAdditive from both sidesUse in pre-combination to get both sides on the same page. Go function by function – the entire deal doesn’t need to (and usually doesn’t) end up in the same place. This is particularly important for the buyer to understand what they really want before the deal. Once decisions are made, can better identify people and organizational risks, issues, costs, savings, etc.PreservationAcquired company remains independentReverse MergerUnusual case of acquired firm leadershiplowlowhighDegree of Change in Acquiring Company*Mitchell Marks, Joining Forces
9Issues during M&A Profitability (Finance issues) Resource Optimization (Operational Issues)Market Study (Marketing Issues)Technological Issues (IT Issues)Human Related Issues ???
10Issues That can be handled by HR-Managers. Underestimation of the difficulties of merging two cultures.Underestimation of the problems of skill transfer.De-motivation of employees of acquired company.Departure of key people in acquired company.Too much energy devoted to ‘doing the deal’, not enough to post-acquisition planning and integration.Decision-making delayed by unclear responsibilities and post-acquisition conflicts.Neglecting employee welfares of existing business due to the amount of attention going into the acquired company.
11Impact of M&A on Employees StageCharacteristic ResponseDenialNot Accepting that the merger will take place.FearAfraid with regard to future prospect.AngerResentment towards those considered responsible.SadnessMourning & grieving for what's past.AcceptanceRecognition of futility-a positive approach starts to develop.ReliefRecognition that the situation is actually better than expected.InterestIncreasing feeling of securityLikingRecognition of new opportunities.EnjoymentSatisfaction that the merger is working out well.
12Actions from HR Actions from HR Psychological & Cultural Impact on EmployeesCommunicationRaises questions among employeesWhat is Happening?Business StrategyEmployees Question the rationalWhy is it Happening?Organization StructureEmployees Question their Short –term FutureWhere will I be in 6 months?Appointments & ExitsEmployees Question their Long term prospectsWill I have a job?Terms and ConditionsDoubts raised about financial benefitsWill I loose out?Managing performanceQuestions about management expectations from personnelWhat is expected of me?Training & DevelopmentFurther questioning the futureDo I have a future?
13if people issues are so critical, why are they neglected if people issues are so critical, why are they neglected? Possible reasons include:• Executives believe that they are too “soft” and, therefore, too hard to manage.• Social costs and benefits are regarded as secondary.• There is a lack of awareness or consensus that people issues are critical.• There is no spokesperson to articulate these issues.• There is no model or framework that can serve as a tool for us systematically to understand and manage the people issues.• Therefore, the focus of attention in M&A activity is on other business aspects such as finance, accounting, strategy, and manufacturing.
14Step 3: Integration Planning M&A PhasesPre-combinationStep 1: Pre-DealStep 2: Due DiligenceStep 3: Integration PlanningStep 4: ImplementationStep 5: Post-DealHR is on the M/A Deal TeamEach step is a new level of commitment towards the deal and requires more information and analysisPre-Deal: Identify the strategy driving the M/A, locate and select targets, determine potential business opportunity, define critical success factors, and notify target of intentHR’s role: educate team on HR implications, conduct high-level analysis of people, org, & culture fit based on available information, identify people-related issues, plan for due diligenceDue Diligence: collect and analyze information from the target, assess leadership team, summarize findings, issues, and risks, and make go/no go decisionHR’s role: collect and analyze HR related information, identify issues, risks, costs, savingsIntegration Planning: set deal terms, use information previously collected to create plans to combine companies with minimal business interruptions, close the dealHR’s role: secure key talent from target, collect more information where necessary, create integration team for HR, create HR integration plans (e.g., culture, organization, people, HR processes, HR systems and policies)Notes:Steps 1, 2 and 3 are intertwined and can happen simultaneously. Degree of intertwining depends on the nature of the deal (size, speed). The steps are not linearDifferent people are often involved in the pre-deal and due diligence phases so it is better to keep them separate.
15Step 3: Integration Planning M&A PhasesCombinationStep 1: Pre-DealStep 2: Due DiligenceStep 3: Integration PlanningStep 4: ImplementationStep 5: Post-DealHR has it’s own implementation team(s)HR’s roleAnnounce deal and start ongoing communication to both companiesExecute HR Integration Plans & adapt as necessaryProvide ongoing change management for both companies (e.g., management ability to deal with people issues, training, motivation, systems integration, job security/career concerns, realistic merger preview, Ethics & Compliance standards)Monitor people-related integration activities
16Step 3: Integration Planning M&A PhasesPost-CombinationStep 1: Pre-DealStep 2: Due DiligenceStep 3: Integration PlanningStep 4: ImplementationStep 5: Post-DealHR is a member of the Deal Evaluation TeamDeal Team evaluates the successful capture of synergies and achievement of original strategyHR’s roleCapture lessons learned from the management of the projectEvaluate organization, people, processes, systems (e.g., 24th month audit)Suggest process improvementsAlign with Business Strategy of the FutureLearn from this deal to be ready for the next dealOngoing involvement in integration of culture
17Data to be collected from seller Human Audit – numbers, levels, locations, pay levels & Union Affiliations.Human Cost –obstacles to rationalization such as merger and employment law.People quality – Key Players, corporate culture, age profile, skills inventory.Personnel Policies – pensions, employment contracts, medical provisions etcEmployee Relations.Organization Structure.
19Issues to be handled by HRM Preparation of Due Diligence Report.- recruitment, training, performance appraisal, compensation, labour relations & legal compliance.Creation of Manpower Plan-delineate roles & reporting relationships.CommunicationRetention Strategy- Retention Bonus Plans.HR Integration –HR Systems, Policies &PracticesCultural Integration.
20Role of HR Department Formulation Strategy. Creating Teams. Creating Organization Structure.Developing a Communication Plan.Creating a Transition system.
21Facilitate to guide Transition Teams Help Managing StressTeam Building. TrainingDeal With ProblemsPrepare HR StrategyAvoiding Job cuts
22Reinforcement of New Culture Find out through surveys what cultural values are valued and which of them should be preservedEnlist all of them and request feedback from each management levelProvide the management with development tools and ideas to implement the result of the surveys and feedbacksFinally, it can conduct a survey of all levels of management about 3 months after the deal is through in order to assess the progress towards the new culture.
23CommunicationKeeping all employees informed (Frequent broadcasts from CEO, HR Director) of all crucial decisions.Instilling a sense of security among all employees, so that the issue of dovetailing employees can be dealt with.Especially, in the case of acquisitions, the HR needs to ensure an equitable and fair treatment of employeesIn case of lay-offs, offer outplacement services and just severance packagesHave a definitive plan with specific dates for individual communication
24Encourage open houses or forums where employees can come together and discuss the deal and allay their fears and insecurities surrounding itAcknowledge the problems as and when they ariseEnhance effective communication by involving line managersEstablish an helpline for employeesAdvocate family assistance programs to make the employee that he/she is cared for
25Competencies of HR Managers Understanding overall business strategy as well as people and organization issues associated with that strategyGaining knowledge about business in general and M&As in particularBeing able to contribute to another company’s valuePlanning and leading complex M&A strategiesUnderstanding and spending more time with operating managers to help support them in M&As
27Satyam Acquisition by Tech Mahindra Tech Mahindra-23,000 employees.Satyam – 45,000 employees.HR-Department faced challenge to retain the Employees & their Clients.-Sales Reboot Campaign.-Special Induction Programmes.-Recognition & Reward Schemes.-Communication Channel.
28Cross border M&A’sNationality (home) of the aquirer makes a significant difference to style & culture of new organisation.National (host) diffrences in pattern of HRM and Industrial Relations.Language BarriersLegal IssuesPolitical IssuesGeographical Issues.
29Daimler-Chrysler (DCX) Merger –Clash of Cultures. Daimler BenzGermanyPlanned & methodical wayStuck to their plans & frowned on failure.Hierarchical ,Top-Down structureBureaucraticSpoke only GermanFormal Dress CodeLower CompensationChrysler CorporationU.S.Carefree Attitude, individual instincts & ideasExperimentation ,Trial & error ApproachFlat StructureHighly DecentralizedHardly knew GermanCasual Dress CodeHigher Compensation
30After the Merger…… Compensation system was restructured. Salaries were revised and made more equitable.Chrysler employees did not like the lower salaries after merger.Daimler started exerting pressure on Chrysler employees to adopt most of its policies & Procedures.Result – 2 Chrysler CEOs left the Company within 19 months-Chrysler was slowly overshadowed by Daimler in almost all areas.-Daimler employees were in key positions & took most of the key decisions-DCX went through major crisis.
31Daimler Benz- Chrysler Dieter Zetsche ,CEO Chrysler Group, March 27, 2002“Like many other executives who have lived through a merger, DaimlerChrysler executives now understand that it is not enough to manage the legal, financial, and operational elements of mergers and acquisitions. Maximizing the value of a deal requires that the human side of organizational change must also be managed well “.
32BIG Animation Shifted from Bangalore to Pune -2007 250 Employees shifted - Only 6 refused.Choice for Housing , location , school, children , Domestic Connections, Licenses, bank loans for vehicles.Two Special task force teams -8 to 10 members (one each in Pune and Bangalore)Identifying good properties in each location (coordination with around 75 estate agents )distributed forms to every team member wherein they were asked to specify their budgets, what features they were looking for in a location, whether they preferred to stay alone or as a group and other such details.Every Friday, the company arranged to fly a batch of 20 artists from Bangalore to Pune. Each batch had the mandate of choosing and finalizing their accommodation in Pune in five days time post which they would return to Bangalore and continue with the production work.
33arranged for vehicles that would be with the artists right from the time they landed till they took off, and also arranged for well endowed Service Apartments for their five day stayArtist (employees) would then tour the locations, first two days would be spent in zeroing in on the choice of location, the third and fourth day on freezing on apartment of choice and day five in finalizing the deal with the agentsTeam had also arranged for Sample L&L Agreements, on-board Lawyer, Printers and Computers at the Service Apartments, to facilitate the deals in a quick and secure manner
34the entire process of each artist finalizing residence took about 3 months and one additional month for the actual relocation to happen wherein the company hired an official Mover & Packer agency that took care of the shifting logistics for each artist.Schools, Ration Cards, Driving Licenses, Gas Connections, Bank Accounts, Vehicle Loans, and Mobile Connections, all had been taken care of .In more than 6-7 cases, the company actually took the bio-data of the spouses of their artists and went about securing jobs for them in Pune