Future Focus

Post-Recession Merger Challenges

By Jennifer Schramm Feb 1, 2010

February CoverAs the global economy slowly emerges from the worst recession since the Great Depression, economists and venture capitalists are forecasting an increase in mergers and acquisitions (M&As). In turn, HR professionals could encounter additional challenges as they attempt to combine two recession-stressed workforces laden with employees worried about job security.

Historically, M&A markets have rebounded quickly after a downturn, as companies with cash spot rare buying opportunities. Venture capitalists will be looking for businesses with established revenue and customer bases, strong management teams, unique or unusually strong market positions, or proprietary technology.

Although measures of M&A activity last November were down substantially from their peak levels of 2007, global M&A activity began to climb and rapidly build momentum in the final months of 2009. By the fourth quarter, $2.1 trillion in global M&A deals had been announced for the year, according to Dealogic, an international financial analytics research firm. The trend was strongest in North America, where more than $766 billion worth of deals had been announced.

Along with the new growth in M&A activity, however, will likely come old problems that make mergers difficult to execute successfully and that challenge organizations and their HR professionals.

Cultural and people issues are among the most common reasons mergers and acquisitions fail to provide expected results. Cultural hurdles include reconciling dissimilar management styles and decision-making processes, bridging gaps between different ways of communicating with employees, adapting to new organizational learning imperatives and changes in job functions, and, in some instances, absorbing the impact of a business’ change of location.

These factors create stress for employees at the same time there is a need for high employee performance levels. Moreover, the recent long period of economic uncertainty has added its own stressors. Employees feel overwhelmed because staff sizes have been reduced and employers have attempted to boost productivity with fewer workers. There may also be a higher number of disengaged employees who, if the economy were stronger, would have moved on or moved up within the organization to a level that motivated them to re-engage.

Added together, the pressures from economic uncertainty and the people management challenges resulting from a merger could create a combustible mix.

This will make it even more important for HR professionals to take an active role in the merger process by identifying the functional areas and individual jobs most critical for the merger to succeed and by measuring performance in these areas.

HR professionals will also need to address any underlying problems in employee engagement or motivation.

These will not be easy issues to resolve. The good news is there is growing awareness of the importance of HR in determining how successfully organizations merge. This makes it more likely that HR professionals will get the support they need from their organizations’ other leaders as they combine two entities to build strong and effective new businesses.

The author is manager of the Workplace Trends and Forecasting program at SHRM.

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