The latest figures from the Office of National Statistics (ONS) show the UK M&A market in rude health. Domestic Q1 2018 figures sit at £5.9bn and overseas owners sold eight UK companies in deals worth a record combined £6.9bn Q1 2018.
In recent weeks we’ve seen the proposed merger of Asda and Sainsbury’s, UniCredit looking to merge with SocGen, and CYBG merging with Virgin Money. It’s evident that whether it be in banking, tech, or retail, businesses are seizing the opportunity to supplement organic growth with a merger. As the UK continues to battle with the productivity puzzle, these deals can offer strategic opportunities, provide gateways into new markets, and help deliver much-needed cost synergies,
Making them work relies upon strong leadership, which in turn, requires the right tools and strategies. And HR Directors can be central to this.
An audible advocate
It is important that a board is comprised of a dynamic mix of personalities, backgrounds, and interests. This ensures that ideas do not become stale, habits don’t go unchallenged, and innovation is not dismissed.
A key part of this is having someone on the board who is able to be an audible advocate on behalf of a comprehensive people strategy. For this to be effective, it is imperative that person be commercially minded and not process oriented. This is the HR Directors’ big opportunity: contributing significantly to a merger’s commercial success.
Developing a strong people strategy from the very start of the merger process can mitigate a huge number of issues. For example, often overlooked in the process is the challenge of having to deal with two different leadership teams. While in an acquisition, if a business is merely being added to the wider constellation of the business, the teams can retain their independence. But a merger, often when dealing with two businesses of a similar size, is more complicated.
With different cultures, styles, personalities, and goals, friction between the two teams is hugely disruptive and value destroying. It can also quickly cascade through the new business causing anguish, anxiety, and ill-feeling. This is particularly challenging when one company in the merger is seen as dominant, creating a sense of imbalance and exacerbating the feelings of uncertainty. In these circumstances, it may well be that one team must make way for another.
Using a coherent people strategy, the HR Director can help ensure that potential of the new business is not hindered from the outset through helping develop, clarify, and communicate the long-term goals and values that the organisation wishes to adopt at the beginning of the merger process.
Building the right team
Mergers are primarily driven by the bottom line, and so it is on this that much of the focus rests during the development of the new business strategy. But as the new entity is structured and the combined workforce is streamlined, there is a real risk that there will be a significant and unplanned outflow of talent and expertise. HR Directors are perfectly placed to help ensure that this is not the case.
Building the right team of leaders is critical self-evidently. So too is identifying those employees at all levels who are key to taking the newly merged company forward. Communicating to them early on that they are valued helps ensure that they are retained rather than be allowed to slip through the net. Part of this is thinking longer-term and beginning succession planning for those roles responsible for delivering business growth further down the line. Failure to take these steps will fundamentally undermine the long-term success of the business and stop the organisation fulfilling its potential.
Bringing together businesses with different cultures is often problematic, and in these circumstances, defining a common purpose for the new organisation is essential to driving it forward. Clearly communicating this purpose to employees is equally important. Too often the communication around the strategy driving the merger is clouded by rhetoric and nonspecific language, with a frustrating lack of clarity about the benefits of the businesses coming together.
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To maintain and improve business performance, the leadership team need to communicate regularly and clearly with all employees about the merger, as well as setting out how to measure its success very specifically. This communication often gets lost in transition, and information leaks are the only part people see. HR Directors need to work closely with the management to come up with new policies and communicate the same to the employees so that each person understands their new duties and responsibilities in the organization.
The key to leading through a successful merger is understanding the concerns and ambitions of employees, addressing them, then shaping the internal communication to ensure they feel trusted, heard, and valued. By putting people at the heart of the planning, the leadership team can go a long way to unlocking the true potential of the deal.
Remuneration policies can add an additional stumbling block to company cohesion in a newly merged organisation. It is likely that each business will have had differing remuneration structures in place, and failure to address this can cause issues not just at the leadership level, but throughout the entire business. the new organisation and to reate a high performing executive team to drive the business forward.
Failure to take these factors on board may lead to exec teams becoming dysfunctional and creating barriers to achieving the optimal business outcome, thereby reducing the success of the transaction.
A merger is an exciting time for a business, generating a wealth of opportunities for growth and innovation. But leading people though it can be hugely challenging time. HR Directors become a key part of the leadership team, creating a sense of trust, purpose, and transparency when working in this exciting but challenging environment.
Business mergers are a real test of leadership. They are the HR Director’s big opportunity to show commercial leadership beyond the traditional processing role of merger transactions, and demonstrate that they are core to the success of the business.
About the author
Mike Taylor, managing director at business performance and leadership consultancy Accelerating Experience.