HR performance in integration is a key driver of M&A success - research by Gartner shows that 44% of senior executives report that integration is the greatest source of error in M&A and that overcoming human capital challenges is more important to integration success than any other aspect of integration. Even with this acknowledgment - many HR teams are woefully underperforming in the integration arena; in an HR survey conducted by Deloitte, only 15% of chief human resources officers (CHROs) rate their organizations as being effective in managing human capital risks throughout the integration process - not exactly a vote of confidence!
Early identification of and response to human capital integration risks is critical to deal success—Only 34% of HR organizations are involved early in the deal process, inhibiting their ability to identify and overcome human capital integration risks.
As seasoned HR leaders and strategic M&A contributors, a lot is expected of CHROs to effectively navigate the often opaque intricacies of a deal - while still being held accountable for the day-to-day operational effectiveness of their function. To help CHROs should seek to address these 11 questions before each deal phase to identify and proactively respond to all-too-common pitfalls.
Phase I: Opportunity Identification & Deal Prep
- Have we sufficiently established an M&A infrastructure and skill set within HR to enable us to effectively execute a deal?
- Are we involved in early evaluation of targets to identify, assess, and plan for management of potential human capital risks?
- Do we thoroughly understand the deal’s strategic objectives, so our activities are aligned with the CEO’s and deal team’s agenda and goals?
Phase II: Due Diligence
- Have we adequately assessed workforce-related financial and compliance risks that impact target valuation and integration planning?
- Have we adequately assessed culture and talent risks that could impact target valuation and integration planning?
Phase III: Pre-Close Planning
- Have we adequately planned responses to human capital risks identified during due diligence?
- Have we effectively engaged and trained key constituents (e.g., line managers, HR business partners) to manage human capital risks throughout integration?
Phase IV: Post-Merger Integration
- Are we effectively monitoring and responding to changing human capital risks that may affect value creation during integration?
- Do we understand anticipated synergies and opportunities to realize value to prevent stalled or lost opportunities (e.g., failure to decrease headcount, integrate compensation and benefits plans, or establish the executive team at the appropriate time)?
Phase V: Post-Deal Assessment
- Do we assess HR’s performance during the M&A process to capture best practices and lessons learned and improve HR’s future M&A performance?
- Do we measure human capital outcomes to assess achievement of human capital objectives that align with the deal’s strategic intent?