Presented to: Prof. Tarek Abdeen Presented By : Ahmed Badawi Metwally Mohamed Yasser El Mattrawi

Mergers & Acquisitions Understanding the Role of HRM Article Idea HRM plays a critical role in the success or failure of mergers and acquisitions. Involving HR from the very earliest of planning stages can make all the difference in both the financial and the human outcomes.

Mergers & Acquisitions Understanding the Role of HRM Objectives To identify Major Human Resources Management Issues in Mergers & Acquisitions To explore ways to overcome employee resistance to change The Importance of HR in the M&A Process To provide best practice for overcoming major HR issues in M&A

Main Points What Are Mergers & Acquisitions? The first thing we need to examine is the difference between a merger and an acquisition. A merger is when two companies, more or less on equal footing, decide to join forces. There are many reasons why companies merge. The basic attribute of a merger, however, is that it is considered to be an equal transaction, with both parties accepting risk and sharing in the potential rewards. Acquisitions are different in the sense that one company is, in fact, taking over another company. Of course, some companies want to be taken over and some do not.

Acquisition One of the most challenging acquisition situations an HR professional (or any other professional in the organization) can face is the hostile takeover. A hostile takeover is simply when a larger, more powerful, and richer organization takes over another organization.

Main points Research shows that consistently 65% of mergers and acquisitions that fail do so because of people issues,cultural issues, communication issues, and so forth. Problems typically occur when the larger or stronger of two organizations tries to significantly influence the integration. Often, executives are so focused on the financial and procedural aspects of the takeover that they ignore so-called "intangible assets," such as business culture, human capital, company structure and corporate governance. In essence, they are so obsessed with numbers that they forget about people

Main points Between 40% and 80% of M&A deals fail, due to purely human resistance to change — a problem known as "people issues.” The problem lies in the fact that resistance is assumed to be a logical challenge with a logical solution. But resistance also has an emotional aspect which is often much stronger than human logic Clear and constant communication from senior management provides decisive answers to "people issues" and dispel uncertainty among employees — an essential ingredient for a successful deal

Major HRM Issues in Mergers & Acquisitions Lack of Communication The reason why they resist at a personal level is because they have not been told why things must change or how they are going to change Lack of Training In a merger situation, you end up with 50% of the people do not know the new software, policies, processes, and procedures. Loss of Key People Good people – key people – tend to leave organizations at this particular point in time. Corporate Culture Clash & Power Politics If one company with one style takes over a company with another style, that is indeed a difference – and it is a huge difference All of these issues either stem from or lead to one thing… Employee resistance.

Employee Resistance If leadership cannot stand up in front of the company and say the following, resistance will worsen: “We’re doing this because we must.” “We’re doing this because we are failing and if we don’t, we all stand to lose our jobs.” “We’re doing this because it is going to help us. It is going to allow us to grow. We’re all going to be better off during and after this transitional period.”

Overcoming Resistance to Change To overcome this resistance, leaders need to try to focus the people on the benefits that are going to occur. They need to involve the people in the change process. become committed to the new organization. This is largely done by two-way communication. leaders must do it early, and must do it quickly. To prevent rumors to start. If rumors start to fly, managers need to keep their ear to the ground. They must, in fact, be corrected so that company do not lose people or have that kind of backlash going on. And, leader must increase trust and acceptance by keeping the people constantly informed and constantly asking them for their input

The Importance of HR in the M&A Process The following chart shows the number of companies that engage human resource professionals and hold them at a high level of involvement across the various stages of a merger and acquisition are surprisingly low. Human Resources Involvement in the Merger Process18

HRM Best Practices for Mergers & Acquisitions Successful M&A deals are mostly attributed to: *leadership, *well-planned communication and *early management of "people issues."

Best Practices Check List Leadership 1. Identify the leaders in both companies. 2. Identify who will have leadership roles in the combined organization. Transition Team 1. Identify who from various departments within the combined organization is going to be a part of the transition team. Structure 1. Finalize the organization structure for the merged entity in context of operation size, products, etc. 2. Incorporate different structures and approaches. 3. Focus first on the broad top line structure, with detailed structures evolving subsequently followed by detailing of roles and responsibilities.

Best Practices Check List Policies & Processes 1. Compare and study HR policies of both entities and identify areas of commonality and differences. 2. To the extent possible ensure no or minimum loss to employees on account of changes in policies. 3. Consider all costs. Workforce Rationalization 1. Handle redundancies with sensitivity in a phased manner unless the issue is a large one. 2. Balance timing with maintaining employee morale Job Assignment 1. Perform a competency assessment. 2. Involve top team and key functional head in assessing suitability of individuals for roles 3. HR or an External Consultant plays the role of challenging and facilitation in a neutral way

Best Practices Check List Job Grading / banding 1. Pay attention to organizational culture, willingness of leadership to implement, and HR ability to drive the process 2. Ensure proper communication all through the exercise. 3. Alleviate anxiety and apprehension among employees. Compensation 1. Compensation comparisons by employees in both entities are inevitable. 2. Company should be clear in its approach and philosophy. 3. It is usual to align compensation structures. 4. Ensure no loss to employees because of compensation changes. 5. Compensation announcement timing is important. Retention 1. Create a retention plan that encompasses all of the above best practices

Where to start? Pick Your Strong Leaders Pick Them Quickly Keep Communication Going at All Levels. The entire process and all of the steps involved must ABSOLUTELY be considered fair If people don’t perceive the process to be fair, it’s doomed for failure.

Our Comments The role of HR in the M&A Process was not explored in depth, the different steps ( planning, investigation, negotiation and integration) in the process need different strategy. We believe that organizational culture assessment can be of help in the early beginning

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