M&As Make a Move

After an M&A deal, HR has little time and few enticements to persuade key talent to transfer to the new companys headquarters.

By Robert J. Grossman Feb 1, 2006
HR Magazine, February 2006

Kathleen Ford was on assignment in Europe in 2004 when news came of the $59 billion merger between her company, JPMorgan Chase, and Bank One. With three major mergers under her belt, the senior vice president for international compensation, benefits and relocation knew what her main mission would be: overseeing the relocation of top Bank One executives from Chicago to New York.

She also knew she had to get started immediately. Ford went into action almost overnight, quickly designing and implementing policies to inform key players of their newly formed company, their new jobs and their new city.

“These executives were critical to the success of the merger,” she says, “and the housing market in New York was a major obstacle.” So she created attractive packages aimed at convincing these talented individuals to uproot their lives and the lives of their families. “Most had relocated before, and that made things a little easier,” she recalls.

Easier, perhaps, but not easy. The hurdles to overcome are both unique and challenging, and are complicated by the fact that the stakes are enormous: The success of mergers and acquisitions (M&As) often hinges on the value of an acquiree’s human capital and on quickly transitioning those critical people from one location to another.

These are complex challenges that HR professionals at companies large and small are facing in record numbers. In the first six months of 2005, Mergers and Acquisitions Review reported worldwide merger volume was at its highest since 2000, with U.S. companies accounting for almost 47 percent of all M&A transactions. Though mega-acquisitions like JPMorgan Chase and Bank One earned most of the publicity, the volume among smaller companies—often privately held—was and continues to be substantial.

For HR executives at an acquiring company, it is vital to move swiftly and overcome unique challenges to identify who you want to move, what relocation packages you will offer and how to make the transition as seamless as possible.

The Ultimate Challenge

Relocating employees as part of a merger or acquisition presents significant challenges not seen in other types of moves.

Unlike other relocations, M&As often present tight time frames in which employees must make life-altering decisions for themselves and their families. Usually there’s a decision window of 30 to 90 days from the time employees learn of the move until the “commitment date.” That’s because only a few key people will know of the acquisition before it’s announced. For publicly traded companies, Securities and Exchange Commission (SEC) insider trading rules require secrecy until the deal is announced. If you disclose in advance, you run the risk that people will use the information for personal gain in the stock market.

Even if your company is not subject to SEC oversight, confidentiality makes good business sense. “Employees may jump ship, reducing the human capital value of the company,” says Jamie L. Johnson, partner with the Labor and Employment Group at Bryan Cave LLP in Los Angeles, who has helped companies with the legal issues involved with relocating after an acquisition.

In addition, in M&A relocations employers often can’t provide the incentives that are most effective at getting employees to pick up and move. Those incentives include increased compensation, professional development and an advanced job title, according to a recent Worldwide Employee Relocation Council/Prudential Relocation Services survey.

But acquiring companies usually aren’t in a position to dangle promotions, salary increases or professional development as enticements. “For most people, it’s not a happy prospect,” says Elizabeth Portalla, vice president of client development at Mobility Services International in Newburyport, Mass. “It can be a very tough sell.”

Given the choice between looking for opportunities in their own backyard and taking a lateral move, talented managers are more likely to do the former. “In an acquisition, you’re asking people to relocate to a similar position where they’re not likely to make more money,” says Frank Giampietro, principal and mergers and acquisitions leader for North America at Towers Perrin in Philadelphia. “What’s their motivation to do this if they can find comparable work at home?” What’s more, culture plays a big part in whether employees accept a relocation offer—and culture can be a sticking point in M&As. Often the merging companies were competitors, and now employees are being asked to jump into bed with a former adversary.

“It can be unnerving,” says Dennis Taylor, senior consultant at Runzheimer International in Rochester, Wis., who has handled 20 acquisitions in his 30 years as a consultant. “You can’t underestimate the psychological impact of moving to a company you don’t know—or think you know but really don’t.”

Little wonder, then, that employees are less likely to accept relocations as part of a merger or acquisition than they are in other situations. Overall, the estimated percentage of employees who turn down relocation offers averages 60 percent, according to Carmelita Brown, a consultant who specializes in relocation at Prudential Relocation in Danbury, Conn. But after an acquisition, the percentage of workers who opt to move to a different place and a different employer is much lower—closer to 25 percent.

HR executives, knowing that a main driver of an acquisition is securing talent, must come up with effective enticements. “Somehow, you’ve got to entice them, make the opportunity worth their while,” says Johnson. Money talks, but if it’s not in your vocabulary, explore other benefits you can put on the table to close the deal, such as a better title, more interesting work, a chance for advancement or a great community, he says.

The unique factors associated with M&A relocations mean that creating smooth, effective relocation experiences for workers is vital. Part of your job is not just moving workers, but convincing them they want to make the trip. For potential transferees, first impressions can be lasting; theirs will come from the relocation experience—not only what you do, but how you go about it.

Pre-Announcement Phase

Because of the intense time constraints after an acquisition is announced, much of HR’s work needs to be done behind the scenes in the pre-announcement stage.

Since secrecy is paramount, all participants in the negotiation and due diligence should sign non-disclosure agreements prohibiting them from revealing information that’s discussed. Initially, the actual dealmakers and their staffs sign them.

Usually knowledge of a pending sale is restricted to only a few insiders, which can be frustrating for HR. “When you want to get at key talent, you can’t get at them,” says Matthew Metivier, human resources business partner at Beverly, Mass.-based Axcelis Technologies Inc., a semiconductor equipment manufacturer.

However, that shouldn’t stop you from planning. Case in point: Last year, Metivier helped relocate an acquired California company, Matrix Integrated Solutions, to Beverly. Weeks before the merger announcement was made, Metivier identified which 20 people he wanted to recruit and planned ahead. Right after the announcement, he and the line managers met with those workers.

In addition to worker assessments, HR is also involved in other forms of M&A planning as well. When the deal looks promising, the acquirer will convene a task force that is headed by the CEO or CFO and includes HR, to conduct due diligence. HR’s responsibilities include not only assessing staff, but also reviewing compensation and benefits, and estimating relocation expenditures and other transition costs. (For information on HR’s increasing role in early M&A planning, see the cover story in the June 2005 issue of HR Magazine.) Often, consultants and relocation vendors who specialize in moving and housing join the team in the pre-announcement phase.

The process yields a comprehensive relocation plan, usually grouping employees within three or four tiers—executives, managers, exempt and nonexempt—and customizing packages for each group or deciding which groups will get packages and which won’t.

Costs increase or decrease depending on the acquirer’s objectives. Key factors include the number of employees being moved, whether payroll for these employees will change and the features offered in the relocation package.

Number of employees. The acquiring company won’t be offering deals to everyone. Some staff will be made redundant; others will lack the competencies the company requires. “You may have 2,000 employees and only 300 slots,” Brown says.

HR will need to know “how many people they want to move—50 percent, 80 percent, 100 percent?” Taylor says. “We ask our clients ‘Who? Why? And how bad?’ Then we tell them if the relocation package will cut it or not.”

Payroll decisions. At times, says Brown, “you’ll want people to move but keep their salaries at predetermined levels.” In other situations, companies may believe that paying more is a sound strategy. “Some businesses can’t afford to lose an account and want no interruption of services,” says Brown. “They might have to pay more because they don’t want any hiccups.”

Features. The typical relocation package contains policies that vary by tier for moving, home sales and repurchases, job search assistance for a spouse, and help with school placement. They may help renters with down payments on a house or homeowners with mortgage or loan assistance—outlays that will be forgivable if the person stays with the company.

For example, when JPMorgan Chase acquired Bank One, Ford faced the challenge of moving Bank One’s headquarters from a less expensive to a more expensive location. Ford opted to give forgivable mortgage loans to top-tier executives. “We always have them sign a promissory note that says if they leave us within a year, you owe us 100 percent back and 50 percent back if you leave between the second and third year,” she says.

Return-move provisions—which guarantee transferees an all-expense return move if the job doesn’t work out—may also be a feature in relocation packages for upper-tier employees. “We’ll move you back to your old location or one of your choice that’s cost-neutral if we terminate you for any cause that’s not your fault, in the first year,” Ford says. ›

Whatever your policy, you had better think it through. “You have one chance at establishing a policy and strategy and doing it right,” Brown says. “Once things go wrong, they go downhill from there.” Brown cites a client that botched the timeline for a move, closing the old site and terminating redundant workers before the new facility was ready.

Who will do what, when and where must be agreed on, scheduled in advance and coordinated by HR. And everyone has a role to play. Managers must convince people they’re really wanted and have a future. Senior executives must embody the corporate culture and be open and accessible; HR must explain the policies and procedures, and offer counseling and other resources. And everything should be ready to go when the merger is formally announced.

Hit the Ground Running

Once the merger is announced, communicate as soon as you can. “We recommend launching your communication plan on day one,” Portalla says.

Also, be sure to use multiple communication channels. And provide as much personalized attention as possible.

Memphis, Tenn.-based FedEx, for example, uses a mix of approaches—written announcements, e-mail postings, online explanations and group meetings. The company communicates its relocation policies and options in writing and online quickly after the public announcement.

More personalized attention comes via line managers, who conduct one-on-one recruitment discussions, then refer candidates to two full-time HR staff, who handle an average of 800 moves a year. “These folks go into detail about all the specific benefits,” says Steve Hanks, HR managing director. “They do one-day turnaround with requests or inquiries responding personally.”

Telecommunications giant Verizon, which recently acquired competitor MCI, features personalized descriptions of relocation policies that potential transferees can access confidentially online. A counselor, provided by an outsourcer steeped in Verizon’s culture, guides employees and their families through the transition.

Like FedEx, Verizon involves managers in the process as well. “We all work together to get them [employees] to buy in—HR, the hiring manager and our outside company,” says Karen Stetz, executive director of HR services.

Personalized attention also is a priority in the blockbuster merger between Sprint and Nextel. The partners are setting up two headquarters, one for marketing and one for administration, shifting executives between Overland Park, Kan., (marketing) and Reston, Va., (administration). Pat Sparks, manager of domestic and international relocation at Sprint in Kansas, believes personal communication helps ease transferees’ stress and uncertainty.

“We want programs that will help employees move quickly and worry less about the relocation,” she says. “That’s why our internal relocation team is available around the clock—we even give out our home phone numbers. It’s reassuring for people to deal directly with a person from the organization they’re moving to.” So far, Sparks and her HR team have handled 100 relocations.

In addition to communication, employees usually need a physical location to go to for information. Experts suggest that the acquiring company open a satellite office at the acquiree’s location. Similar to a country’s foreign embassy, the room should put a face on your company and its environment, and serve as a clearinghouse for information and services.

Taylor cites a company that moved 300 workers from the East Coast to the West Coast, many of them middle managers who had never moved before. Immediately after the announcement, says Taylor, the acquirer set up a room “on the site of the acquiree, with a video that talked about the company, its stock, the history and the management. They sent their own representative to staff it, and also provided real estate and spouse employment sources.”

Such on-site interaction provides a great opportunity for the acquiring company to show off what it has to offer. But be careful not to oversell the company. “Be up front and clear about your organization—its culture, values and strategy,” says Giampietro, who before joining Towers Perrin handled many acquisitions as an HR executive at AstraZeneca.

When meeting with employees about relocation, be sure your managers are involved—and have guidance on what they can offer and what they can’t.

“You don’t want one manager to be saying something different than the others,” Metivier says. “In our process, the manager makes the offer, but only after consulting with HR. We’re involved in the salary and bonus negotiations as well as the determination of title. If you’re not all on the same page, it will send out a red flag that people can’t necessarily trust you.”

“You can’t have a renegade manager making exceptions,” agrees Johnson. › “Nothing will upset the trust you’re trying to build faster. Once you decide on the business plan, you need controls to make sure everyone sticks to it.”

Relocation bonuses are one area where inconsistency can cause problems. Either offer them across the board within a particular tier of your plan or find another way. Some organizations prefer to separate bonuses from relocation policies, awarding them instead as part of the compensation package.

Sealing the Deal

To determine what will motivate an individual worker to relocate, “speak with people personally and figure out what really drives them,” says Giampietro.

For some employees, leadership can be a powerful motivator to relocate. In the JPMorgan Chase/Bank One merger, learning that Bank One CEO Jamie Dimon had signed on and was moving from Chicago to New York was the clincher, says Ford. “There was a trickle-down effect; Dimon was able to persuade most of the 150 people to make the move to New York to join him.”

In contrast, some people are more attracted to the job and culture than to personalities. Axcelis’ ace in the hole is the ability to work on cutting-edge projects. “It’s a huge selling point that goes hand in glove with our high-performing culture that rewards employees and tries to craft a compromise between work and family life,” Metivier says. In the end, the company served up individualized relocation packages to 20 workers and gave them up to 90 days to decide. Eight accepted the offer.

Finally, it bears remembering that even though HR can help grease the skids, making a move palatable for transferees and their families, ultimately it’s up to senior managers to close the deal. “HR can support, but the leaders have to do it,” Giampietro says. “The message that you’re important is more meaningful coming from line executives than HR.”

Robert J. Grossman, a contributing editor of HR Magazine, is a lawyer and a professor of management studies at Marist College in Poughkeepsie, N.Y.

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