The Role of HR in Managing Employee Relations During Mergers and Acquisitions

Mergers and acquisitions are two distinct types of business transactions, but they both involve the process of combining one or more businesses.

In the case of the former, the combination can be described as a mutual coming together of two companies, while the latter refers to one company taking control of the other.

Of course it’s more complicated than that, and there are also different types of each process, but overall, mergers and acquisitions involve two companies becoming one, just with different fine print.

What Are Mergers and Acquisitions?

So what is the fine print?

Well, it’s actually more than just a few details. Mergers and acquisitions are very different processes, from the intention behind the process to the actual steps taken and the end result.

Mergers

A merger occurs when two companies decide to come together to form a single, unified entity. Normally, the businesses in question are of a similar size and have similar market presence, so by joining forces, they’re able to combine resources, management structures, operations and more in order to improve both competitive edge and profitability.

Normally, mergers are collaborative, meaning that both parties are fully onboard, coming to agree on terms that provide mutual benefits. The newly formed company tends to retain elements of both previous businesses, with the overall intention of creating a new enterprise that is stronger together than they were separately.

Sort of like LEGO’s early 2000’s Bionicles. Kids could build individual sets to create a whole lot of small figurines, but if the pieces from three were combined, they’d be able to build one super Bionicle that was far cooler than any of the smaller, individual Bionicles.

It’s generally accepted that there are two main types of mergers:

• Horizontal Merger: A horizontal merger takes place when two companies come together from the same industry and offer similar services and products.

• Vertical Merger: A vertical merger is the combination of two companies from the same industry but at different stages in the supply chain.

In the case of the former, the objective of the merger is most likely to pool resources and stop competing against each other unnecessarily, thus gaining more market share overall.

In vertical mergers, however, the idea is to bring two companies from different stages of the supply chain together in order to be able to cover more of the overall market process internally, cutting costs and increasing profits.

Acquisitions

Acquisitions are less mutual in terms of power and control. The acquisition process involves one company taking control of the other, essentially absorbing it.

This either allows the acquired company to operate under its original name or to be absorbed and rebranded under the company that acquired it in the first place.

Now, there are two types of acquisitions, depending on the stance of each company:

• Friendly Acquisition: As the name suggests, a friendly acquisition is one that happens by means of agreement from both parties and the transaction is mutually beneficial.

• Hostile Acquisition: A hostile acquisition, on the other hand, is when one company is purchased by another despite the opposition from management within the company being purchased.

Acquisitions can occur as a result of many different situations, ranging from the leaders of a company being keen and ready to step away from the wheel to another powerful company swooping in and taking control whether the acquired company likes it or not. This may happen when the company being acquired isn’t in a position to make big decisions due to financial issues or something else.

Normally, acquisitions occur as a result of an intention to expand market share, enter new markets, acquire new technology, take on new staff or eliminate the competition.

Human Resources in Mergers and Acquisitions

When it comes to undergoing the actual merger and acquisition processes, there’s a lot involved. From the legal perspective of wanting to get everything right to ensure that customers are still kept happy while everything’s going on, there’s a great deal to manage.

But one of the most important aspects of these processes is employee management, and that’s where the human resources department comes in.

Understandably, both mergers and acquisitions can be tough for employees even under the best of circumstances, with plenty of changes taking place. They may have to move offices, change job titles or even work under different bosses.

That’s why the HR team is around – to evaluate the situation beforehand, ensure compliance, plan what the hybrid workforce will look like, communicate with employees, restructure management, plan cultural integration and eventually, integrate HR departments.

And that’s putting it simply.

HR plays an important role throughout the merger and acquisition processes, from before anything is even implemented until everything is said and done.

Before, During and After the Merger or Acquisition 

As soon as an impending merger or acquisition is announced, there tends to be a great deal of concern and sometimes even fear from employees. They’re worried about losing their jobs, potentially having to relocate and sometimes, change roles. In these cases, it’s HR’s responsibility to communicate with staff as openly and honestly as possible, tempering concerns and preventing panic.

During the actual process, however, things can get chaotic. No matter how well you’ve planned, communication is always tough and there are bound to be some disagreements, both big and small.

Finally, once the merger/acquisition is complete, it’s time for employees to get used to the new normal. However, that doesn’t always mean smooth sailing.

Throughout these three stages – pre, during and post-merger/acquisition – HR is responsible for

• Conducting Diligence: Evaluating things like employment contracts, legal obligations, benefits, labour agreements and more.

• Communication Strategy: Planning out who is going to be told when and how they’re going to be told. The aim is to cause as little panic and rumour-spreading as possible and to avoid any staff feeling ambushed by the news.

• Leadership Alignment: Making sure that management from both companies is on the same page (depending on the particular case).

• Retention Planning: HR staff need to start looking at who their most valuable and least valuable employees are. This means identifying key staff and possibly offering them retention bonuses upfront to ensure that they stick around. From there, it’ll mean sitting down and having a look at all staff before making the tough calls on who stays and who goes, depending on company size, budget and more.

• Integration of Policies and Procedures: Different companies will have their own policies and procedures according to which they’re managed and run, and not only that, but the staff will be used to these things. It’s up to HR to help blend company policies, find a happy compromise, either adopting policies of one or the other or coming up with hybrid policies.

• Training Development: Depending on the decisions you make regarding employee roles, company policies and more, staff are going to require some sort of training to get everyone on the same page. This will be in terms of their specific responsibilities as well as general training on company policy that will need to be run by HR.

• Ongoing Monitoring of Employees: Once the merger/acquisition is technically complete, that doesn’t mean that everybody’s perfectly happy and there won’t be any more problems. It’s HR’s responsibility to make sure that they make it clear to employees that they can still reach out should they have issues. Furthermore, it’s essential that HR continues to keep a close eye on employees in terms of their performance and attitude to ensure that everybody is still happy once the dust settles.

• Legal Considerations: Throughout the entire process, HR will be required, alongside the companies’ general council (or some kind of legal advisor) to help ensure that all legal issues are being taken into consideration. That is, in terms of how the businesses are merged, acquired, disbanded and so on, as well as how employees are treated and more.

• Ethical Issues: HR is also responsible for making sure that everything that’s being done is conducted in an ethical fashion that won’t leave the company, or companies, vulnerable to issues. This mostly has to do with having to let go of staff.

In some ways, managing employees can be the most difficult part of dealing with mergers and acquisitions. From having to plan everybody’s new roles, including who is retained and who is let go, to needing to engage with staff and ensure everyone is happy.

Thus, HR plays an integral part in the process and in many ways, is the reason that mergers ad acquisitions are successful at all.