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Impact of Mergers and Acquisitions on Company & Employees

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

The thought of a looming transaction can be a stressful time for employees at both the buyer and the target company.

If M&A means anything, it means change and that can create a wave of insecurity among employees who worry about a change of culture, new management, losing their position, taking on more workload and more.

Given the value that human capital represents in most modern organizations, there’s a high inherent risk of value destruction here if people aren’t considered in a transaction.

In this article, we at DealRoom, discuss how M&A affects employees and how you can better manage the process so that any negative impacts of a transaction are minimized.

What happens to employees when companies merge

There are very few instances when a merger or acquisition doesn’t cause disruption of some kind to the workforce.

Examples which spring to mind include the acquisition of an asset in a transaction that involves no element of human capital (for example, a land or property purchase), or an acquisition of intellectual property rights.

Excluding these forms of transactions, we’re left with acquisitions where people are involved.

And it’s uncontroversial to say that when one company acquires another in the same industry, there will be a degree of overlap that exists between many of the roles performed by employees at both companies.

Commonly, this overlap is seen in:

  • Admin staff such as secretaries and personal assistants
  • Director level employees
  • Support staff such as IT and catering employees

There is little point in attempting to candy coat the situation that inevitably arises from this duplication: Many of these employees will be surplus to requirements in their current roles and removing them should create synergies for the newly-formed entity.

Most employees will be aware of this existential threat to their positions and may begin looking for work elsewhere.

This duplication doesn’t have to destroy value. On the contrary, high value employees could be retrained for different positions that open as a result of the transaction.

In a previous article on the importance of change management, we discussed how communication of the deal, and how employees stand to benefit from it is crucial. Outlining new roles is part of this.

For those that don’t easily fit into newly created roles, redundancies are inevitable. In this case, it goes without saying that their employee rights should be respected.

Great change management processes will go the extra mile by ensuring these out-of-work individuals are well taken care of, reassuring those staying on (see section: HR questions to ask during an acquisition).

Read also:
An Introduction to Change Management - Practitioners Guide

Impact of mergers and acquisitions on employees

Even after the employees which are surplus to requirement have left, there will be human resource issues with those that remain.

The nature of human relations means that the list of these issues is almost unending, but the following are some of the most common issues that the newly created corporate entity will have to contend with:

  • Culture issues: A neat way to think about how culture affects individuals is by thinking of a homestay in a foreign country: almost everything is different, even when the difference isn’t tangible. Read also The Intersection of Leadership & Culture in Mergers and Acquisitions.
  • Wage disparities: It’s probable that there will be several wage disparities that existed between the two merging companies. Employees will talk about these and even seemingly small disparities have the potential to cause major resentment.
  • General disillusionment: Change itself can be a source of disillusionment among employees. The nature of M&A is that some employees just aren’t going to bet behind it - for a myriad of reasons.

This is only to focus on the negative, of course.

There are also several positive impacts that mergers and acquisitions have on employees and these are the ones that your change manager will be looking to emphasize and indeed, exploit.

These include:

  • New job opportunities: Opportunities will arise in larger companies that just don’t exist in smaller ones. These might allow your employees to spend time working in a foreign subsidiary or move into a parallel or more senior function.
  • New training opportunities: A good filter for who your best employees are is provided by observing the ones that are enthusiastic about being upskilled in the job. M&A often involves training of some form - typically in systems training - giving enthusiastic employees access to a new skill.
  • Better perspectives: Employees gain better perspectives merely by virtue of being employed at a bigger, growing company. The name recognition of the larger company can open doors for people in ways that don't always happen when they work at smaller less well-known companies.
Read also
Guide to Cultural M&A Integration: Strategy, Spirit, Structure

Negative effects of mergers and acquisitions on employees

A word that comes up repeatedly when discussing the negative effects of mergers and acquisitions on employees is anxiety. This is understandable given that most know that mergers inevitably bring layoffs.

Of course, how and where the layoffs hit will depend on the industry: until now, technology mergers have led to far less layoffs than those in manufacturing.

By extension, technology workers likely feel less insecure about how mergers will affect them.

Implementing good change management, which we discussed in a previous article (see link), is one of the most effective ways of avoiding the negative effects of mergers and acquisitions on employees.

It allows the acquiring company to communicate to employees what’s happening, how their roles and responsibilities will evolve in the new company, and the process for voluntary and involuntary redundancies. 

Effect of mergers and acquisitions on employee performance

A consequence of increased levels of anxiety can be decreased performance levels, company unrest, and even voluntary layoffs.

If an employee - who would otherwise make a valuable contribution to the merged entity - feels that their job is under threat, they may decide that it’s safer to accept a position in a company that can guarantee their job for the foreseeable future than one that can’t. 

After the transaction has closed, and the post merger integration phase has begun, at least one of the companies will undergo a cultural change.

This may lead to frustration among certain employees who feel that they have to work harder or that new processes are “not the way that things are done around here.”

This unhappiness, or the backlash attached to it, is likely to lead to a diminishment of performance in the short-term at the least. 

Benefits of mergers for employees

On the positive side for employees whose companies are undergoing mergers, those that manage to stay the course stand to experience an uptick in their career prospects.

Mergers create larger companies and, on balance, larger companies create more opportunities. Mergers are also a sign of a company’s growing ambitions, and by sticking around, employees have the opportunity to piggyback on those ambitions. 

Just as is the case with negative effects of mergers for employees, the benefits are best communicated by a change management team.

Benefits are likely to include better salary and benefits, enhanced share options, new roles opening with the company, new opportunities to train and upskill, and even an enhanced image of the company (an asset when looking for new work outside the company). 

Employee questions to ask during an acquisition

Poor communication during a merger, including overly vague and one-way communication, can wreak havoc on employee morale and productivity.

More specifically, and more detrimental to the deal, key employees who drive value can feel the need to flee if they do not feel protected and respected during this change. It is only natural for employees to ask the following types of questions during a merger -  and the way in which these questions are answered can directly correlate to how productive these employees will be and how likely they will be to want to stay in the newly formed company:

  • How will the salary, benefits, paid time-off and severance plans/packages change? 
  • Are there any plans for functional job relocations?
  • Will there be job opportunities in other/new locations?
  • Will my job description and responsibilities change?
  • What will the new reporting structure look like?
  • Will our work processes, systems and procedures change? If so, what kind of training will be provided?
  • How should we handle inquiries from customers and/or the media?
  • What is the timeline for formal announcements?

Employee rights during an acquisition 

Lay-offs are often a natural part of acquisitions and, usually, not much can be done to protect yourself against being laid off; however, being familiar with your current contract is critical as it most likely addresses severance pay and additional key information (such as non compete agreements).

In some cases you are entitled to a certain number of days notice - this can depend upon both your location and contract. On the other hand, if you are retained by the acquirer you will want to carefully review all documents before signing.

HR questions to ask during an acquisition

A competent change manager will deal with many of the HR issues that need to be dealt with as part of the acquisition process.

An acquisition complicates matters for HRM practitioners in that they’re now potentially dealing with two employee handbooks; but because everyone is now operating under the same roof, they’ll expect equal treatment.

A good rule of thumb for HR managers is to opt for the condition which grants the optimum condition for employees.

But it’s not just benefits: The acquisition is also likely to create a range of training requirements across the organization.

Questions could include:

  • How should benefits packages change as a result of the acquisition?
  • Where is training required most urgently? (Having consulted different departments)
  • What role does HR play in shaping the organization’s culture? I.e. Do workshops have to take place after the acquisition?
Read also
HR Integration: What to Do with Employees during M&A Deal

Summary

It isn’t the same since the merger” is a common refrain heard from employees after a merger has taken place. Unfortunately, it is all too common that the refrain is justified.

In their quest to gain market share, footprint in a new geography, or a new product line, companies overlook the impact that an acquisition will have on their people.

This is an oversight which can have grave consequences. As one of, if not the biggest, value generator in most companies, managing people through an acquisition is essential. That’s as much the case for the people leaving the company as those remaining.

By appointing a change manager at the outset, you sent a message to your employees that they’re a valued part of the acquisition process.

emerson

The thought of a looming transaction can be a stressful time for employees at both the buyer and the target company.

If M&A means anything, it means change and that can create a wave of insecurity among employees who worry about a change of culture, new management, losing their position, taking on more workload and more.

Given the value that human capital represents in most modern organizations, there’s a high inherent risk of value destruction here if people aren’t considered in a transaction.

In this article, we at DealRoom, discuss how M&A affects employees and how you can better manage the process so that any negative impacts of a transaction are minimized.

What happens to employees when companies merge

There are very few instances when a merger or acquisition doesn’t cause disruption of some kind to the workforce.

Examples which spring to mind include the acquisition of an asset in a transaction that involves no element of human capital (for example, a land or property purchase), or an acquisition of intellectual property rights.

Excluding these forms of transactions, we’re left with acquisitions where people are involved.

And it’s uncontroversial to say that when one company acquires another in the same industry, there will be a degree of overlap that exists between many of the roles performed by employees at both companies.

Commonly, this overlap is seen in:

  • Admin staff such as secretaries and personal assistants
  • Director level employees
  • Support staff such as IT and catering employees

There is little point in attempting to candy coat the situation that inevitably arises from this duplication: Many of these employees will be surplus to requirements in their current roles and removing them should create synergies for the newly-formed entity.

Most employees will be aware of this existential threat to their positions and may begin looking for work elsewhere.

This duplication doesn’t have to destroy value. On the contrary, high value employees could be retrained for different positions that open as a result of the transaction.

In a previous article on the importance of change management, we discussed how communication of the deal, and how employees stand to benefit from it is crucial. Outlining new roles is part of this.

For those that don’t easily fit into newly created roles, redundancies are inevitable. In this case, it goes without saying that their employee rights should be respected.

Great change management processes will go the extra mile by ensuring these out-of-work individuals are well taken care of, reassuring those staying on (see section: HR questions to ask during an acquisition).

Read also:
An Introduction to Change Management - Practitioners Guide

Impact of mergers and acquisitions on employees

Even after the employees which are surplus to requirement have left, there will be human resource issues with those that remain.

The nature of human relations means that the list of these issues is almost unending, but the following are some of the most common issues that the newly created corporate entity will have to contend with:

  • Culture issues: A neat way to think about how culture affects individuals is by thinking of a homestay in a foreign country: almost everything is different, even when the difference isn’t tangible. Read also The Intersection of Leadership & Culture in Mergers and Acquisitions.
  • Wage disparities: It’s probable that there will be several wage disparities that existed between the two merging companies. Employees will talk about these and even seemingly small disparities have the potential to cause major resentment.
  • General disillusionment: Change itself can be a source of disillusionment among employees. The nature of M&A is that some employees just aren’t going to bet behind it - for a myriad of reasons.

This is only to focus on the negative, of course.

There are also several positive impacts that mergers and acquisitions have on employees and these are the ones that your change manager will be looking to emphasize and indeed, exploit.

These include:

  • New job opportunities: Opportunities will arise in larger companies that just don’t exist in smaller ones. These might allow your employees to spend time working in a foreign subsidiary or move into a parallel or more senior function.
  • New training opportunities: A good filter for who your best employees are is provided by observing the ones that are enthusiastic about being upskilled in the job. M&A often involves training of some form - typically in systems training - giving enthusiastic employees access to a new skill.
  • Better perspectives: Employees gain better perspectives merely by virtue of being employed at a bigger, growing company. The name recognition of the larger company can open doors for people in ways that don't always happen when they work at smaller less well-known companies.
Read also
Guide to Cultural M&A Integration: Strategy, Spirit, Structure

Negative effects of mergers and acquisitions on employees

A word that comes up repeatedly when discussing the negative effects of mergers and acquisitions on employees is anxiety. This is understandable given that most know that mergers inevitably bring layoffs.

Of course, how and where the layoffs hit will depend on the industry: until now, technology mergers have led to far less layoffs than those in manufacturing.

By extension, technology workers likely feel less insecure about how mergers will affect them.

Implementing good change management, which we discussed in a previous article (see link), is one of the most effective ways of avoiding the negative effects of mergers and acquisitions on employees.

It allows the acquiring company to communicate to employees what’s happening, how their roles and responsibilities will evolve in the new company, and the process for voluntary and involuntary redundancies. 

Effect of mergers and acquisitions on employee performance

A consequence of increased levels of anxiety can be decreased performance levels, company unrest, and even voluntary layoffs.

If an employee - who would otherwise make a valuable contribution to the merged entity - feels that their job is under threat, they may decide that it’s safer to accept a position in a company that can guarantee their job for the foreseeable future than one that can’t. 

After the transaction has closed, and the post merger integration phase has begun, at least one of the companies will undergo a cultural change.

This may lead to frustration among certain employees who feel that they have to work harder or that new processes are “not the way that things are done around here.”

This unhappiness, or the backlash attached to it, is likely to lead to a diminishment of performance in the short-term at the least. 

Benefits of mergers for employees

On the positive side for employees whose companies are undergoing mergers, those that manage to stay the course stand to experience an uptick in their career prospects.

Mergers create larger companies and, on balance, larger companies create more opportunities. Mergers are also a sign of a company’s growing ambitions, and by sticking around, employees have the opportunity to piggyback on those ambitions. 

Just as is the case with negative effects of mergers for employees, the benefits are best communicated by a change management team.

Benefits are likely to include better salary and benefits, enhanced share options, new roles opening with the company, new opportunities to train and upskill, and even an enhanced image of the company (an asset when looking for new work outside the company). 

Employee questions to ask during an acquisition

Poor communication during a merger, including overly vague and one-way communication, can wreak havoc on employee morale and productivity.

More specifically, and more detrimental to the deal, key employees who drive value can feel the need to flee if they do not feel protected and respected during this change. It is only natural for employees to ask the following types of questions during a merger -  and the way in which these questions are answered can directly correlate to how productive these employees will be and how likely they will be to want to stay in the newly formed company:

  • How will the salary, benefits, paid time-off and severance plans/packages change? 
  • Are there any plans for functional job relocations?
  • Will there be job opportunities in other/new locations?
  • Will my job description and responsibilities change?
  • What will the new reporting structure look like?
  • Will our work processes, systems and procedures change? If so, what kind of training will be provided?
  • How should we handle inquiries from customers and/or the media?
  • What is the timeline for formal announcements?

Employee rights during an acquisition 

Lay-offs are often a natural part of acquisitions and, usually, not much can be done to protect yourself against being laid off; however, being familiar with your current contract is critical as it most likely addresses severance pay and additional key information (such as non compete agreements).

In some cases you are entitled to a certain number of days notice - this can depend upon both your location and contract. On the other hand, if you are retained by the acquirer you will want to carefully review all documents before signing.

HR questions to ask during an acquisition

A competent change manager will deal with many of the HR issues that need to be dealt with as part of the acquisition process.

An acquisition complicates matters for HRM practitioners in that they’re now potentially dealing with two employee handbooks; but because everyone is now operating under the same roof, they’ll expect equal treatment.

A good rule of thumb for HR managers is to opt for the condition which grants the optimum condition for employees.

But it’s not just benefits: The acquisition is also likely to create a range of training requirements across the organization.

Questions could include:

  • How should benefits packages change as a result of the acquisition?
  • Where is training required most urgently? (Having consulted different departments)
  • What role does HR play in shaping the organization’s culture? I.e. Do workshops have to take place after the acquisition?
Read also
HR Integration: What to Do with Employees during M&A Deal

Summary

It isn’t the same since the merger” is a common refrain heard from employees after a merger has taken place. Unfortunately, it is all too common that the refrain is justified.

In their quest to gain market share, footprint in a new geography, or a new product line, companies overlook the impact that an acquisition will have on their people.

This is an oversight which can have grave consequences. As one of, if not the biggest, value generator in most companies, managing people through an acquisition is essential. That’s as much the case for the people leaving the company as those remaining.

By appointing a change manager at the outset, you sent a message to your employees that they’re a valued part of the acquisition process.

emerson

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