Regardless of industry, country or the sums involved, the outcome often falls far short of the targets worked out by various finance, marketing and efficiency experts. Investors are left to wonder why a prospect that looked so good on paper didn't work out in practice to give the expected cost savings, market share or economies of scale.
In many cases, the answer can be traced to one thing: human capital management. Put bluntly, the parties putting together M&A deals habitually overlook or undervalue the "human factor." They neglect the crucial part that human resources (HR) managers and individuals will always play in making any business venture work.
"It is easy to combine balance sheets, but not so easy to combine workforces, leadership teams and different organisational cultures," says Mark Arian, executive vice president for M&A solutions with consultancy firm Aon Hewitt. "HR [managers] ought to be at the table very early, but they are often not brought in until after the fact and can't complete a human capital due diligence process."
Arian has seen the same basic mistake being made time and again over the past 25 years. Countless studies also confirm that when transactions don't yield forecast returns, the prime cause is badly thought-out HR strategies. Generally, the problems stem from the "deal makers" seeing HR as a so-called soft issue and not translating it into hard-cost terms. An M&A is obviously a big event in the life cycle of a business, but the integration of teams, selection of leaders, and division of future responsibilities are wrongly assumed to be straightforward.
These tasks fall to already busy staff on what amounts to a part-time basis. Instead, Arian notes, there should be a dedicated project team. It has to give as much time and attention to planning communications, culture, leadership and inter-dependencies as it does to finance, IT and real estate.
In all this, there is also a responsibility for HR specialists to be assertive and show their worth. "They must ensure they understand the investment thesis, growth and synergies the business model is seeking to attain," Arian says. "Talent assessment, retention, corporate culture and organisational design are all intrinsically tied to that."
On announcing a merger, companies commonly talk about taking the "best of both" and come out with a string of optimistic projections. In practice, though, success hinges on each party understanding its "major" - innovation, production efficiency, customer service - and addressing the cultural issues that inevitably arise in a new structure. These concern rewards, punishments, attitudes to work, and ingrained aspects of both national and corporate identity.
"HR people must understand the [new] business model and its characteristics and filter their choices and culture through that lens," Arian says. "When organisations pick leaders based on horse trading or try for a merger of equals, it typically doesn't work.
"Engagement in M&As is driven by trust in leaders," he adds, "but HR does not always equip people to lead change."
- A key starting point in any M&A negotiation is to know your own culture
- Bringing the human resources team in early has a marked impact on later return on investment
- Employees generally construe ambiguity and management silence as the worst-case scenario