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7 Things You Can Do to Minimize the Effects of M&A on Employees


Kison Patel
CEO and Founder of DealRoom
Kison Patel
CEO and Founder of DealRoom

Mergers and acquisitions can be difficult for all employees involved.

As was noted in Investopedia’s overview of M&A, these deals rarely occur between two equal companies. Rather, when companies merge, a less powerful entity usually needs to cede authority to a larger one it becomes dependent on.

When a company is acquired, meanwhile, the imbalance is even more pronounced, with the buying company holding all power over the entity it has absorbed.

Either case can create a strained power dynamic between the employees of each entity involved.

Moreover, when two companies combine, there is often a resulting overlap between similar roles, which effectively amounts to an employee surplus. This, coupled with wage disparities and general anxiety about change can cause employees to become disillusioned.

For all of these reasons, it’s important for decision-makers to figure out how to minimize the negative effects of M&A on their employees.

We, at DealRoom, help dozens of companies organize their M&A process and below, we'll cover some ways how our customers solve this problem.

How to minimize the effects of M&A on employees


  1. Ensure Constant Communication
  2. Offer Retention Agreements
  3. Create Benefits Program
  4. Offer Upskilling Opportunities
  5. Assess the Appropriate Company Structure
  6. Schedule Team-Building Exercises
  7. Use Technology

1. Ensure Constant Communication

Communication is the core component of corporate culture.

Whether your company is on the buy-side or the sell-side of a transaction, communicating your company’s goals from the transaction with your internal stakeholders is crucial.

This should be as frank as possible, respecting confidentiality agreements and public disclosure rules, where applicable. A ‘warts and all’ outline of how the deal is likely to play out, allowing employees to make plans where necessary.

This process doesn’t have to be doom and gloom, however.

As part of the communications process, it’s also important to outline new opportunities (for example, at a new foreign subsidiary), show how the employees stand to benefit from the new company, and the steps that the company will take to ensure that those leaving will do so on a strong footing.

2. Offer Retention Agreements

As mentioned, the duplicate roles resulting from M&A can create a tight sense of job anxiety. A post on how employees cope with job loss by LHH points out a number of ways in which being let go can affect people.

It leads to shame, embarrassment, feelings of failure, and apprehension about what comes next. When M&A occurs however, employees can also begin to suffer from the anticipation of these feelings.

There is often a looming sense of the shame, difficulty, and embarrassment that may come with being let go. In some cases, employees may even choose to leave on their own terms.

Some job losses are often inevitable in M&A. When possible though it is important for the companies involved to give employees incentives to stay.

A retention bonus, for example, can persuade employees to stick around and ride out the transition period.

You can also offer your employees quality long-term benefits, such as retirement plans. This way, high-performing employees can be sure that you value them, which can reduce any stress related to job anxiety.

3. Create Benefits Program

What better way of ensuring buy-in among employees than by giving them equity in the new business?

Most post-transaction periods involve varying degrees of flux and extra work for employees, so it makes sense that they should be rewarded for this, as well as for their efforts to move the company forward in its new guise.

Stock options that kick in after three years, or when certain targets (such as revenue) are achieved, providing incentives for those that do stay on to deliver enhanced performance.

4. Offer Upskilling Opportunities

Another way you can keep employees engaged is to offer upskilling and reskilling opportunities.

Though duplicate roles may exist after a merger or acquisition, it doesn’t mean your employees’ skill sets will no longer be of value to the company.

You can help convince employees of their enduring value by offering to train them for new roles that might suit them best under new arrangements.

Willingness to invest in development can prove to your employees that the company values them. Employees, in turn, will often pay the company back in loyalty and productivity.

5. Assess the Appropriate Company Structure

Many companies make the mistake of imposing the more powerful entity’s corporate structure during a merger or acquisition.

However, just because one entity may have had the upper hand in a merger does not mean its structure would be the most appropriate for the new, resulting company.

Not only does imposing structure often prove jarring for employees, but it also ignores the potential benefits of establishing a new structure built specifically for the new company.

It’s best then to study how employees work within a certain structure, then determine which aspects of that structure would benefit the new, merged entity.

The reverse also works: The merged entity can use the change as an opportunity to assess which structures were holding the dominant company back.

6. Schedule Team-Building Exercises

One major side effect of mergers and acquisitions is the potential for a culture clash between the two companies involved.

To prevent this, you can encourage employees from each "side" to mingle by scheduling team-building activities.

This way, your employees get to know one another and experience working together in a non-corporate setting.

By strengthening bonds, you can improve any communication issues and trust among members of the newly established company.

7. Use Technology

Companies can also leverage technology to streamline the integration process and create a plan for managing employees under a merged entity.

DealRoom’s M&A management software enables you to put all your workflow projects in one place, reducing the need to switch between different company programs and platforms.

This way, it’s easier to track integration progress, assign responsibilities, and communicate with teams.

The software can also be integrated with familiar platforms such as G-Suite, Slack, and Microsoft Teams, which makes it easier for your employees to adapt.

Conclusion

Mergers and acquisitions can be very difficult for employees.

Fortunately, if you show your employees you care by offering retention bonuses, providing upskilling opportunities, scheduling team-building events, and using technology to smooth out workflow, you can minimize struggles and keep employees happy during and following a major transition.

dealroom

Mergers and acquisitions can be difficult for all employees involved.

As was noted in Investopedia’s overview of M&A, these deals rarely occur between two equal companies. Rather, when companies merge, a less powerful entity usually needs to cede authority to a larger one it becomes dependent on.

When a company is acquired, meanwhile, the imbalance is even more pronounced, with the buying company holding all power over the entity it has absorbed.

Either case can create a strained power dynamic between the employees of each entity involved.

Moreover, when two companies combine, there is often a resulting overlap between similar roles, which effectively amounts to an employee surplus. This, coupled with wage disparities and general anxiety about change can cause employees to become disillusioned.

For all of these reasons, it’s important for decision-makers to figure out how to minimize the negative effects of M&A on their employees.

We, at DealRoom, help dozens of companies organize their M&A process and below, we'll cover some ways how our customers solve this problem.

How to minimize the effects of M&A on employees


  1. Ensure Constant Communication
  2. Offer Retention Agreements
  3. Create Benefits Program
  4. Offer Upskilling Opportunities
  5. Assess the Appropriate Company Structure
  6. Schedule Team-Building Exercises
  7. Use Technology

1. Ensure Constant Communication

Communication is the core component of corporate culture.

Whether your company is on the buy-side or the sell-side of a transaction, communicating your company’s goals from the transaction with your internal stakeholders is crucial.

This should be as frank as possible, respecting confidentiality agreements and public disclosure rules, where applicable. A ‘warts and all’ outline of how the deal is likely to play out, allowing employees to make plans where necessary.

This process doesn’t have to be doom and gloom, however.

As part of the communications process, it’s also important to outline new opportunities (for example, at a new foreign subsidiary), show how the employees stand to benefit from the new company, and the steps that the company will take to ensure that those leaving will do so on a strong footing.

2. Offer Retention Agreements

As mentioned, the duplicate roles resulting from M&A can create a tight sense of job anxiety. A post on how employees cope with job loss by LHH points out a number of ways in which being let go can affect people.

It leads to shame, embarrassment, feelings of failure, and apprehension about what comes next. When M&A occurs however, employees can also begin to suffer from the anticipation of these feelings.

There is often a looming sense of the shame, difficulty, and embarrassment that may come with being let go. In some cases, employees may even choose to leave on their own terms.

Some job losses are often inevitable in M&A. When possible though it is important for the companies involved to give employees incentives to stay.

A retention bonus, for example, can persuade employees to stick around and ride out the transition period.

You can also offer your employees quality long-term benefits, such as retirement plans. This way, high-performing employees can be sure that you value them, which can reduce any stress related to job anxiety.

3. Create Benefits Program

What better way of ensuring buy-in among employees than by giving them equity in the new business?

Most post-transaction periods involve varying degrees of flux and extra work for employees, so it makes sense that they should be rewarded for this, as well as for their efforts to move the company forward in its new guise.

Stock options that kick in after three years, or when certain targets (such as revenue) are achieved, providing incentives for those that do stay on to deliver enhanced performance.

4. Offer Upskilling Opportunities

Another way you can keep employees engaged is to offer upskilling and reskilling opportunities.

Though duplicate roles may exist after a merger or acquisition, it doesn’t mean your employees’ skill sets will no longer be of value to the company.

You can help convince employees of their enduring value by offering to train them for new roles that might suit them best under new arrangements.

Willingness to invest in development can prove to your employees that the company values them. Employees, in turn, will often pay the company back in loyalty and productivity.

5. Assess the Appropriate Company Structure

Many companies make the mistake of imposing the more powerful entity’s corporate structure during a merger or acquisition.

However, just because one entity may have had the upper hand in a merger does not mean its structure would be the most appropriate for the new, resulting company.

Not only does imposing structure often prove jarring for employees, but it also ignores the potential benefits of establishing a new structure built specifically for the new company.

It’s best then to study how employees work within a certain structure, then determine which aspects of that structure would benefit the new, merged entity.

The reverse also works: The merged entity can use the change as an opportunity to assess which structures were holding the dominant company back.

6. Schedule Team-Building Exercises

One major side effect of mergers and acquisitions is the potential for a culture clash between the two companies involved.

To prevent this, you can encourage employees from each "side" to mingle by scheduling team-building activities.

This way, your employees get to know one another and experience working together in a non-corporate setting.

By strengthening bonds, you can improve any communication issues and trust among members of the newly established company.

7. Use Technology

Companies can also leverage technology to streamline the integration process and create a plan for managing employees under a merged entity.

DealRoom’s M&A management software enables you to put all your workflow projects in one place, reducing the need to switch between different company programs and platforms.

This way, it’s easier to track integration progress, assign responsibilities, and communicate with teams.

The software can also be integrated with familiar platforms such as G-Suite, Slack, and Microsoft Teams, which makes it easier for your employees to adapt.

Conclusion

Mergers and acquisitions can be very difficult for employees.

Fortunately, if you show your employees you care by offering retention bonuses, providing upskilling opportunities, scheduling team-building events, and using technology to smooth out workflow, you can minimize struggles and keep employees happy during and following a major transition.

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