Merging companies is a complex process in which many factors need to be taken into account. One of the most important aspects is human resource management. However, HR issues are often not given sufficient consideration during purchase negotiations.

The experienced people & culture consultant Michaela Gottwald provides valuable insights into why human resources should be focussed on at an early stage and what challenges HR management faces in post-merger integration.

Integration of human resources managements

In practice, HR issues are often not included early enough in purchase negotiations. The initial focus is often only on the "hard" financial facts of a deal. HRM should already be involved in the due diligence phase in order to contribute its expertise to the analysis of  HR and cultural issues of the target company.

Possible risks, influencing factors, cost drivers and potential pitfalls are thus identified at an early stage with a view to subsequent integration. HR management can also assess the cultural fit of the companies better than investment bankers. Considering non-financial aspects such as HR and cultural issues at an early stage significantly increases the chances of a successful merger.

To ensure a smooth takeover process, it is therefore essential to involve Human Resources at the latest when drawing up the purchase agreement / transitional service agreement in order to define the HR-relevant issues that must be contractually regulated.

Analysing hard factors avoids surprises later on

A distinction is made between hard and soft factors in merger takeover negotiations. Hard factors such as personnel costs, the number of employees and the personnel structure are relatively easy to record numerically. However, issues such as collective bargaining agreements, company pension schemes or works agreements – depending on the history of the company and the duration and constellation of the employees‘ employment relationships – give rise to potential costs. These may have a significant impact on the purchase price and the integration costs after the contract has been signed.

Company agreements in particular often regulate financial entitlements for employees, such as company pension schemes, anniversary payments or other bonus payments or benefits.

Apparent synergy effects may therefore not lead to planned potential cost savings, as a business case would suggest in advance.

It is essential that experts analyse and critically scrutinise what at first glance appear to be "irrelevant" HR issues as early as the purchase negotiations and due diligence phase.
Only if the buyer and seller fully examine all factors can cost traps and nasty surprises be avoided in post-merger integration.

Soft factors determine the corporate culture of tomorrow

In addition to the hard factors, there are also various soft factors such as corporate culture and employee skills. These are naturally more difficult to measure, but are at least as important for shaping the future organisation and cooperation of the workforce and leveraging synergies. Soft factors are difficult to express in figures. For this reason, they are often neglected.

However, the corporate culture and the interaction between employees are crucial to the success or failure of a merger. For this reason, HR experts should ideally keep an explicit eye on the soft factors as early as the due diligence phase and analyse the extent to which the workforces harmonise and which processes need to be implemented at an early stage to ensure a smooth post-merger integration or merger.

It is also important to identify knowledge carriers and key individuals, as they can have a major influence on the retention of expertise and the future organisation of the company. The chemistry between the managers of the merged companies is also a critical success factor that is easily overlooked.

A harmonious combination of corporate cultures can only succeed if the soft factors are also considered at an early stage.

Securing the takeover process with contractual clauses

Personnel-related issues must be contractually regulated in the PMI, ideally in a transitional service agreement. After the closing of the merger, when the purchase has been formally completed, there is usually very limited time to smoothly implement elementary processes such as responsibilities, accountability, payroll accounting, time management, validity of company agreements, etc.

In particular, the following key issues / topics arise

  • Who is responsible for HR on the buyer’s and seller’s side?
  • How can a reliable employee movement report of the partners be created and made available?
  • Transfer of HR-relevant data and regulations
  • Definition of the time transfer of the processes [payroll accounting from … / time recording …]
  • Are there any transitional arrangements?
  • Analysing the existing HR IT landscape, systems and interfaces.
  • Estimating the cost of harmonisation, restructuring, elimination of systems?

The clearer and more detailed these agreements are before the cut-off date, the smoother the integration or merger of the workforces can be organised. Clear contractual regulations create security on both sides and facilitate the practical implementation of the staff transfer in PMI.

Getting employees on board after the closing

Once the acquisition has been finalised, the post-merger phase is all about turning two individual companies into a joint company. Here, it is particularly important to proactively get the management and employees on board. Confident and forward-looking project planning and transparent communication create trust on both sides. It is important to listen to all employees and management and to take any fears seriously.

Experience shows that many employees feel disorientated in a merger situation. Here, it is important not only to convey transparency and appreciation through clear contact persons and responsibilities, active listening and information, but also to put them into practice.

Only if the employees are involved can the goal of a new, strong identity for your company be achieved.

Conclusion: Professional HRM as a guarantee of success

Human resources management should be closely involved in the purchase negotiations and due diligence from the outset. Valuable expertise is utilised and it is pointed out at an early stage which personnel-related issues need to be contractually regulated. After the closing, it is then crucial to take the employees with you and pull out all the stops to ensure a smooth PMI process and a positive integration. Professional and prudent human resources management is therefore one of the most important success factors when it comes to forming a powerful joint entity from two companies. 

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Critical success factors for HR work in M&A

Über die noventum consulting GmbH

noventum consulting GmbH is an international IT management consultancy.

Founded in 1996 in Münster, today noventum is represented in Münster and Düsseldorf with more than 100 employees. An independent noventum partner company works in Luxembourg.

The managing partner is Uwe Rotermund.

noventum consulting supports its customers in their IT challenges and in their efforts for a modern corporate culture.

Customers are DAX companies as well as medium-sized companies and organizations with a large IT infrastructure.

Firmenkontakt und Herausgeber der Meldung:

noventum consulting GmbH
Münsterstraße 111
48155 Münster
Telefon: +49 (2506) 9302-0
Telefax: +49 (2506) 9302-23
http://www.noventum.de

Ansprechpartner:
Dr. Matthias Rensing
Redaktion/Presse
Telefon: +49 (2506) 9302-0
E-Mail: matthias.rensing@noventum.de
Michaela Gottwald
Senior Consultant
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