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How to Make a Merger Successful

HR must first realize that talent is often the most important asset in the transaction.

Tens of thousands of mergers and acquisitions take place each year globally, leaving many employees of the acquired entities feeling unsettled and unsure of their place in the new organization. For a merger to be successful, it’s incumbent upon HR professionals to realize that talent often is the most important asset in the transaction. 

Sedgwick Claims Management Services Inc., a Memphis, Tenn.-based provider of risk, benefits and integrated business solutions, has acquired three organizations in five years, and the acquisitions have been “primarily about talent,” says Terri Browne, the company’s executive vice president and chief people officer. “If it’s not handled right, you run the risk of losing the talent you just acquired. That’s the last thing anyone wants to happen."

Since Browne started at Sedgwick 18 years ago, the number of employees at the company has soared to 27,000, spanning 65 countries, from less than 1,000 in the early 2000s. About half of this growth has been organic, and half has come through acquisitions. 

“Each acquisition has been very different,” Browne says. Particularly as Sedgwick has increased its geographic footprint, the HR team has had to contend with different laws, regulations, cultures and norms in the various jurisdictions.

It’s a scenario more HR professionals are likely to encounter as the rapid growth of mergers and acquisitions (M&As) is expected to continue.

In 2019, there were more than 49,000 M&As worldwide, valued at almost $3.7 trillion, according to the Institute of Mergers, Acquisitions and Alliances. That compares to about 40,000 M&As valued at almost $2.2 trillion in 2009.

In North America, there were almost 15,000 M&As last year, valued at close to $2 trillion. A decade earlier, there were around 12,000 M&As valued at almost $1 trillion. 

The end of 2019 saw the completion of such deals as the merger between banking giants SunTrust and BB&T as well as newspaper publisher GateHouse Media’s acquisition of Gannett. 

“With a healthy economy and low unemployment, I don’t think people are going to stop” acquiring companies, says Colin Harvey, managing director of the corporate performance practice for New York City-based consultancy Alvarez & Marsal. Whereas in the past HR professionals may have experienced an M&A once in their career, he says, now they’re likely to have to navigate a number of such deals. 

“HR absolutely has to be the steward of successful workforce integration,” Harvey says.

As a result, it’s critical to “have HR involved from the very beginning as part of due diligence,” says Melanie Tinto, chief human resources officer at WEX Inc., which provides financial technology services for various sectors, including fleets, travel and health care. 

WEX, based in Portland, Maine, has almost 5,000 employees and acquired four companies last year alone. Early on, HR professionals need to assess the similarities and differences of the organizations to see how the cultures align, Tinto says, and also examine talent to see whether it’s “a fit for the future growth of the organization.” 

group pic

Melanie Tinto (front), with WEX team members (from left): Jonathan Schulte, employee relations; Christine Gratton, senior recruiter; Vincent Chusseau, technology recruiter; Laura Shen, strategy manager, Corporate Payments; and Sarah Schweppe, senior human resources business partner, Corporate Payments.

Keep the Lines Open

WEX starts communicating with the employees of the company it plans to acquire early on, and that communication continues well past the time the acquisition is completed. “Communication is critical,” Tinto says. If it’s not handled well, “people make up their own story” as to what’s going on.

WEX wants employees of the acquired company to understand “the history of WEX, why we made the acquisition and the dynamic future together,” she says. 

While the amount of information that can be shared might be limited because of antitrust regulations, it’s important for organizations to be “as upfront as possible” during a merger or acquisition, says Chad V. Sorenson, SHRM-SCP, president of Adaptive HR Solutions in Jacksonville, Fla., and president-elect of the HR Florida State Council, a SHRM affiliate. 

Communication should be coordinated by both organizations during the investigatory stage of the merger or acquisition, rather than trying to keep information under wraps, Sorenson says. Otherwise, “if the word gets out, it will spread like wildfire.”

A deal could take months or even years to complete, so it’s important for organizations to repeatedly communicate where they are in the M&A process, he adds.

Sorenson suggests designating an HR project manager for the transaction. “There are so many moving parts,” he says. “It all needs to be coordinated.”

Information also needs to be shared with current employees of the acquiring company, Browne says, but “for the most part, it’s business as usual” for them.

Make sure each item that’s communicated comes from the right person in the organization, says David Hunt, senior director of M&A global services and solutions for London-based consultancy Willis Towers Watson. Not every piece of information should come from the CHRO or COO, says Hunt, who joined Willis after spending two decades at GE, including as executive integration leader for GE Digital’s mergers and acquisitions. “If every notice is from them, when the important pieces come out, it won’t have the right impact,” he explains.

Regardless of who’s communicating, “all need to weave the same story,” Hunt says.

HR professionals should also be open with employees about what they know and don’t know. “Don’t be afraid to say, ‘I don’t know’ or ‘I’ll tell you more later when I can,’ ” Hunt says. “Don’t overly sugarcoat bad news. Be as open and candid as you can. It buys you a lot more credibility with the workforce.” 

A Moment for Middle Managers

The most burning question for a lot of employees whose companies are involved in a merger or acquisition is “Will I still have a job?” says Dawn Conrad, executive vice president and leader of the strategic advisory practice for the consultancy Aon. Their second question is: “How will it impact my compensation and benefits?” 

“Employees want information from their leaders and managers,” she says.

A 2019 study by The Conference Board found that companies that were more successful when merging were more likely to engage with middle managers. More than three-quarters of companies that successfully acquired other organizations embraced that approach, compared with about half of less-successful companies. 

Those middle managers are more likely to “keep employees motivated so they stay through the transition,” says Amy Lui Abel, The Conference Board’s vice president of human capital.

If employees aren’t involved and engaged, they’re more likely to leave the company, Abel says. They think, “The world is becoming chaotic. We don’t know what’s going on.”

In addition, employees look to middle managers for reassurance. “I don’t think people realize how important [middle managers] are,” Abel says. “Everybody always focuses on top of house.” 

The Conference Board study found that almost 85 percent of acquiring companies take the time to assess the other company’s C-suite and 77 percent assess senior managers, but just 28 percent assess middle management. That may be because there are often just 10 or 15 people in the C-suite but hundreds or even thousands of middle managers.

A merger may take months or years to complete, and organizations still have both internal and external clients to take care of in the interim. “By keeping people informed, they’re more likely to focus on the task at hand,” Sorenson says. 

‘If it’s not handled right, you run the risk of losing the talent you just acquired. That’s the last thing anyone wants to happen.’

Terri Browne

He recommends creating a document with frequently asked questions and establishing a process that allows employees and managers to seek updates. “Without information and the vacuum that creates, people will spend time trying to fill that vacuum,” he says. “Oftentimes it’s filled with misinformation.”

To keep employees on board, organizations may offer retention bonuses for those who stay until the transaction is completed or provide bonuses for those who meet specific performance metrics during that time, Sorenson says. 

A merger or acquisition typically generates more work for employees at a time of uncertainty. “They’re asked to do multiple things at the same time that they’re not historically asked to do,” says Dave Kompare, a partner in Aon’s strategic advisory practice.

Because of that, companies may consider assigning some employees to focus on the work that needs to be completed on a daily basis and asking others to focus on the integration. Or a company might consider outsourcing some of the workload, Kompare says.

After the Acquisition

Within two or three weeks of a deal’s completion, Sedgwick executives travel to the key offices of the newly acquired company to hold town hall meetings. There, they share information about Sedgwick and its vision for the future, Browne says, and meet the new employees to put names together with faces. 

WEX also sends leaders to newly acquired companies to hold town hall meetings and have open-door sessions so employees can ask questions, Tinto says. Company leaders may offer virtual meetings with new employees as well.

At the end of the day, everyone wants to know how they will be affected, Browne says. Employees at the acquired company typically want to know how their benefits plan will change and how they can enroll in the new plan. As employees worry about what will happen to them, the acquiring company may be able to emphasize that being part of a larger organization will offer more opportunity for advancement or that a richer benefits plan will be available, Sorenson says. 

After the transaction is complete, Browne recommends that an organization conduct pulse surveys with employees of both the legacy company and the acquired company to determine how people feel. Are they getting the right kind of communication? Do they feel included and welcome? If not, HR professionals should adjust their plans in response.

Across Countries

The transition can be even more complicated when an organization is acquiring a company that’s located in another country. 

Legal and regulatory requirements for M&As differ greatly outside the U.S., Kompare says, and organizations may be required to work with unions or works councils of the companies they’re acquiring. 

Organizations also need to be aware of communication differences. For example, e-mail may be preferred in one country but not in another. “What’s effective in some countries may not be in others,” Kompare says. 

At Sedgwick, leaders of the companies being acquired are involved in developing communications to make sure they use the right approach for that particular country and culture, Browne says.

Blending Cultures

Organizations must be sensitive to the culture of the company they’re acquiring. 

“We try to walk in the shoes of the other organization,” Tinto says. “We don’t walk in assuming we know better. We walk in assuming this is a partnership. Sometimes we adopt the other culture’s best practices.”

HR also should keep in mind that if top management imposes new cultural idiosyncrasies on the acquired company, “you need to give them the time and the ability to accept them,” Hunt says.

Organizations also are impacted by the culture of the country in which they operate. Leaders at acquiring companies need to ask themselves whether they have to change the culture or if they can live with a collection of cultures.

If the aim is to merge the cultures, leaders need to remember that cultural change doesn’t happen overnight. “Culture change is not a one-time event; it’s a process,” Conrad says. “You won’t see it in six months. You’re lucky if you see it in two years.”

Transactions Come with Risks

Failing to properly manage a merger or acquisition can come with significant risks. 

If employees are distracted or unhappy, the company may lose both its employees and its customers, who become dissatisfied with the service they receive.

“Competitors could take an aggressive stance against you and poach your employees and poach your business,” Tinto says. 

The end result may be that a company has “paid a lot of money for nothing,” Hunt says. “A lot of what you’re acquiring is the talent itself. If you don’t address human resources well, you’ll lose the intellectual capital you’ve acquired.”  

Putting It into Practice

When it comes to mergers and acquisitions, software company Flexera learns by doing.

The Itasca, Ill.-based organization has acquired five businesses in the past two years, and with each acquisition “we learn a little bit more,” says Elizabeth Lages, senior vice president of people and culture. 

“We meet weekly to talk about integration, what works and what doesn’t,” says Lages, who has been with the company for 16 years. 

Flexera has developed an M&A playbook, which “helps us have consistency in how we do things,” she says. “As we learn things, we update the playbook.”

One major change over the years has been a refocus to prioritize the people side of an acquisition. The first day the acquisition is completed, Flexera sends leaders to the acquired company to hand out swag, such as backpacks and water bottles. It’s important that new employees “feel like they’re joining the company and don’t feel like they’re outside trying to figure out where they fit,” she says.

“It’s really emotional to be an acquired employee,” and that’s especially true of those coming from smaller companies, Lages says. “We’re not coming to throw things upside down. We respect what’s important in their culture.”

Flexera has successfully used a buddy system for its nearly 1,300 worldwide employees, pairing existing staff with those from newly acquired companies to help show the new employees the ropes. “That has helped tremendously,” she says.

In June, Flexera acquired RISC Networks, an information technology company based in Asheville, N.C. RISC’s 25 employees were invited to visit Flexera’s headquarters within a few weeks of the acquisition’s closing so they could get a better sense of the company and its culture. A Flexera representative also visited the acquired company weekly for the first few months after the acquisition. 

Lages says one challenge is that many small companies cover all benefits costs for their employees, whereas Flexera employees contribute to those costs. As a result, Flexera lets new employees keep their benefits through the end of the contract period. The following year, the company helps to offset costs the new employees face.

“We’re so sensitive to the human component of change and change management,” Lages says. —S.L.

Susan Ladika is a freelance writer based in Tampa, Fla.

Illustration by James Fryer. 
Photograph by Jason Paige Smith.