Mergers and Acquisitions (M&A): Everything HR Needs to Know

In today’s world, companies are bought and sold at a rapid rate. Businesses often merge or acquire other organizations in order to expand into new markets, acquire new technology, or reduce competition to become more efficient, profitable, and powerful. We see smaller tech companies being bought by larger ones, huge conglomerates merge together under one banner, and a combination of other integrations that fall under the larger mergers and acquisitions (M&A) header. 

 Given this trend, it’s increasingly important to understand how to successfully conduct a merger or acquisition from start to finish. With all of the legal and financial issues to deal with, the employees are sometimes ignored, causing decreased morale and productivity, key talent exodus, and a greater chance of an M&A failure.

That’s why HR’s role is so crucial throughout the entire M&A process. After all, HR will be the department that helps this integration go smoothly. They are tasked with making sure that the two companies and cultures coming together during a merger or acquisition can do so in a way that keeps the businesses running.

In this article, we will provide a comprehensive guide for HR professionals who are about to go through a merger or acquisition, so that everyone is prepared for the immense amount of change that is about to take place.

While mergers and acquisitions (commonly referred to as M&A) are generally talked about together, they are quite different from one another and can create different results and problems for the businesses involved. So it’s important for HR professionals in an organization involved in a merger or acquisition to understand the difference between mergers and acquisitions and their potential implications.

 Mergers and acquisitions are tools businesses use to achieve organizational objectives by attempting to integrate two organizations into one, which can have profound impact on the employees of the organizations at every level.

 A merger is generally defined as the joining of two or more different organizations under one common owner and management structure. An acquisition, on the other hand, is the process of one corporate entity acquiring control of another corporate entity by purchase, stock swap, or some other method.

 Let’s break down these different types of mergers and acquisitions (M&A) to understand their distinctions from one another.

A merger is when two or more entities combine their resources and come together under one management style. As the name suggests, one company literally merges with another to create a new, larger company that may retain one of the previous company names or join them both together.  

There are four common types of mergers depending on the situation. These include horizontal mergers between companies with similar products, vertical mergers that consolidate the supply chain of a product, concentric mergers between companies with similar audiences but different products, and conglomerate mergers between companies who offer diverse products/services that don’t compete at all. 

On the other hand, an acquisition is when one company buys another company and absorbs them under the first company’s management style. These types of deals are covered in the news a lot, such as when larger tech companies want to absorb the technology created by a smaller team and bring those top-performing employees into their workforce rather than compete with them.

Among acquisitions, there are two general types: horizontal and vertical acquisitions. Horizontal acquisitions occur between two companies offering the same products or services and operating at the same production level. The acquired company here is usually a direct competitor of the acquiring company. On the other hand, vertical acquisitions involve one business acquiring another within the same industry, but at a different stage of production or with different products or services along the same value chain.

According to SHRM, 70 to 90 percent of all mergers and acquisitions (M&A) fail financially. This is often due to difficulties from incompatible cultures and management styles, poor communication and motivation, loss of key talent and trust, and uncertainty about the process. In other words, HR-related issues are often a driving force for the failure rate of mergers and acquisitions.

 Mergers and acquisitions are also a very stressful time for those involved. Employees are worried about things like fitting into the new culture, what their benefits will become, how their retirement will change, or if they’ll like their new managers.

 This is why HR and similar staff at each organization are so instrumental in making the merger or acquisition work. Their role is involved at every stage of the M&A process, including assisting the M&A deal team, doing due diligence, preparing paperwork, drafting and sending out communications, and guiding the post-M&A integration to create a new, cohesive organization.

 HR needs to be there to ensure that any employee issues or concerns are ironed out. Both organization’s HR teams need to work closely together on this. With two expert teams—each knowing their respective organizations—these issues can be addressed quickly and professionally to ensure a good fit. Together, they can advise management on mapping out a roadmap for the M&A process in advance, focusing on the organizational communication structure, layoffs (if any), and amalgamation of corporate cultures.

If you’re preparing for a merger or acquisition and are unsure how to get started, you can click here to download our complete mergers and acquisitions (M&A) guide for HR professionals and learn how to successfully navigate the M&A process from start to finish.

Now let’s take a look at what the merger and acquisition (M&A) process is like, and go into more detail on HR’s role in each phase, to better understand how to manage all of these tasks before they get out of hand.

Like any business deal, there are specific steps that need to happen in order for a merger or acquisition to take place. HR plays a pivotal role throughout every step of the whole deal. Let’s break down the M&A process and the role of HR professionals in the following phases.

As with any deal, the first step is for the two (or more) parties involved to identify themselves and start discussing the possible merger or acquisition. This initial phase requires a good deal of discretion, especially if either company is large, publicly traded, or otherwise prominent in the public eye. It’s common for both companies to sign various M&A non-disclosure agreements (NDAs) to ensure that nothing is leaked before the appropriate time.

 Each company will then assemble its M&A deal team with management, HR, accounting, and legal counsel to begin exploratory talks and assess the potential for the M&A deal. These talks are often highly confidential because nothing is final yet and there is no need to cause alarm. Even if a merger or acquisition doesn’t have terribly high stakes, you still do not want anything leaking out until the deal is finalized.

 For HR, this means helping to form the M&A deal team, including choosing and coaching an M&A leader, and working closely with them to start preparing for the event even though it’s still far out. The team leader needs to be solely focused on the M&A, rather than on running the business, in order to lead a smooth change process, address any concerns or conflicts, navigate cultural differences, and retain and motivate key employees. 

 Given the long list of tasks involved in an M&A deal, it’s going to be a bumpy road for those who do not plan ahead. So it’s smart to conduct a thorough EOTB analysis (which stands for ‘eyes of the buyer’) in the planning of this phase to get a sense for what to expect in the valuation process.

Since both companies are trying to get the best deal, it’s important to bring in mediators who can ensure that the M&A deal and all related documents are on the up and up. This phase involves bringing in third-party professionals to oversee the legal, accounting, regulatory, and technical aspects of completing the M&A transaction. 

These third parties will review antitrust and other laws that regulate how this merger or acquisition can happen and compile the necessary paperwork to negotiate the M&A deal terms, including NDAs, director’s notes, government filings, options plans, benefits packages, and other financial documentation, in order to oversee the structure and content of the final legal agreement. When all is said and done, the parties will sign an M&A letter of intent to signal that they are in agreement with the terms and conditions of the merger or acquisition deal.

 HR’s role during this phase includes negotiating agreements with these third-parties and assisting with the necessary paperwork preparation to ensure that everyone is represented in a legal way that maintains confidentiality while the deal is still being hashed out. These documents will be crucial in the next phase for conducting due diligence and holding the formal board vote on the merger or acquisition.

 This is also a good time for HR to start assessing what management changes will need to take place when this deal closes. This includes looking into any cultural differences, redundancy issues, and what key employees need retained.

Now it’s time for both parties to do their due diligence, carefully combing through everything to ensure that nothing will mess up the delicate M&A deal. The last thing either company wants at this point is a surprise that could derail everything.

 HR is often tasked with this due diligence process, which involves analyzing the demographics and temperature of the merger or acquisition on a talent level to identify possible pitfalls. During the initial evaluation of a potential M&A deal, HR helps determine whether the existing culture is compatible with that of the new or resulting company. This requires having a firm understanding of the work culture at the organization where they work, as well as the work culture of the other organization.

 Then, throughout the transition process, the HR specialist is often the point-person in transitioning employees between cultures and other critical elements like corporate policies and benefits plans, which can each present unique challenges. If you have two organizations that have cultural conflicts or dramatic changes to policies and benefits, they need to be addressed early to ensure everything will go smoothly. 

 This is where HR from both organizations will need to work together to see which benefits and programs from each company should be kept or removed. They also need to be aware of any policy issues that could lead to lawsuits, and make sure these are addressed before the merger or acquisition begins. These transitions can be incredibly challenging and need to be thoroughly examined. The last thing you want is for a hole in these plans and policies to negatively impact the M&A process.

 This step requires working closely with your legal team, as well as the other organization’s legal team and maybe third-party counsel, to ensure that you and the newly formed entity are complying with all local, state, and federal laws. A strong legal team that can examine and correct any potential oversight is a crucial part of the due diligence process. 

Remember, we are not lawyers and this blog is meant to be a high-level overview of what needs to be done during a merger or acquisition. Always consult your own legal counsel before implementing any type of M&A event.

After all of that, it’s time to compile all of the paperwork, planning, and analysis together to determine the final terms of the M&A deal and come to an agreement. At this point, most of the necessary paperwork should be completed and in the hands of both boards of directors so they can finalize price negotiations.

 This involves using strategic merger and acquisition (M&A) modeling to determine a fair deal value that’s agreeable for both parties. This is essentially how mergers and acquisitions are valued. It helps companies understand what they are worth and how the valuation of each company factors into the M&A deal terms to ensure it will meet their business goals. The boards of both parties will come to an agreement on what acquisition price or merger terms to go with and legal documents will be drawn up.

This is also where some initial filings are required, such as with the secretary of state, tax documents, and other government bodies who will need to be notified of the impending M&A event. For example, you may have premerger notification requirements under the Hart-Scott-Rodino Act. Once everything is filed, the two entities are now one, legally speaking.

Remember, you can download our free guide to mergers and acquisitions (M&A) for help navigating this whole M&A deal process.

The next phase is a crucial and widely varying part of the mergers and acquisitions (M&A) process. This is where you need to draft and disseminate all key communications to anyone impacted by the merger or acquisition. A complex merger or acquisition can take anywhere from several months to years to be completed successfully, so your organization’s M&A communication plan will be different from any other company. 

It’s also essential for ensuring everyone is on the same page and avoiding the common M&A pitfalls around culture, morale, and productivity that we mentioned earlier. Communication is the glue that will keep all the parts of an M&A together and functioning properly for a successful transaction. It lets your employees, partners, and customers know what is happening, which creates a transparency that instills trust. This trust creates buy-in for the event which, in turn, will help push it over the finish line to success.

The public may also have already started learning of the deal as both parties go back and forth on finalizing the deal and the government gets more involved. So timing and transparency for this part is of the utmost importance. 

The first key piece of an M&A communication plan is the initial announcement. This will be sent out to both investors and internal employees to announce that you are currently working on closing a merger or acquisition. This should include details about the companies, reasons for the merger or acquisition, the goals and impact of the transaction, any new logistical information it will create, boilerplate legal information, and contact information for a press representative at your organization. Timeliness of this first announcement is key, alerting your employees earlier rather than later to minimize any negative reactions to the news. 

This should be followed shortly by a second announcement, on the day of closing, which will provide more detailed information for your employees and investors. Once again, it’s important to communicate effectively and openly with everyone throughout the transition. Specifically, you should communicate about the necessity for the change, explain how the change will benefit them, and manage the stresses that can accompany change. 

It’s also good to have a public-facing version of this detailed second announcement for releasing to the press. You’ll want to include information very similar to that of the initial announcement. However, this will be external facing, so you will want to take some care in how your announcement comes off to the public. While it is important to let the public know about your merger or acquisition, you will also want to be strategic about what specific information you release.

Then there are other crucial external communications you’ll need to send out, namely M&A announcement letters to all impacted stakeholders that aren’t your investors, employees, or the press. This could be your clients, customers, partners, or suppliers. You will want to notify them of such a big company change and how, if at all, this will impact your business relationship with them.

After the deal is signed and the M&A integration process begins, you’ll want to send out another welcome letter from the CEO to all new employees, whether that be employees of the newly acquired company or all employees in the brand new “merged” organization. Employee retention is one of the most difficult issues faced in mergers and acquisitions (M&A). Having a welcome letter is a great way to start an open dialogue of honesty and transparency with new employees, as well as create an inviting culture that could help curtail any retention issues.

Then, as the M&T integration process wraps up, there will be additional HR updates you’ll want to communicate to all employees of the new organization to let them know how this merger or acquisition will impact their specific employment, including information regarding changes to their benefits, compensation, vacation policies, organizational structure, etc.

There is no set timeline for this, so your organization may need to send out these HR updates multiple times as decisions are made about your people strategy, to align your employees with any new strategies or objectives and to share about the success of the deal. Since most mergers and acquisitions fail, this ongoing communication to keep your newly integrated workforce aligned and working towards shared goals will greatly improve your chances of success.

In this next phase, the two organizations are combined into one. The roles of other key stakeholders in the M&A process have wrapped up, while HR remains active to ensure a smooth integration. Now the real, on the ground work begins as HR and management need to bring the two workforces together.  

HR is now tasked with making sure everything continues marching forward after the merger or acquisition to successfully integrate both companies and ensure that the deal can succeed in the way that both parties want. This includes revising or creating new organizational policies and procedures for the combined organization, implementing new integrated teams and work groups, and otherwise coordinating the creation of a new, unified corporate culture.  

This integration process may vary depending on whether you’re in a merger or acquisition. A post-merger integration can be more complicated since you are trying to bring two completely different workforces together to form one cohesive new organization that runs smoothly and productively. This is no easy task. Make sure you’ve put together a comprehensive post-merger integration checklist beforehand so you are prepared with a solid plan.

A post-acquisition integration will differ slightly, but come with its own challenges and considerations to keep in mind. Folding one acquired company’s workforce, clientele, and stakeholder structure into another with different power dynamics can make the integration process very complicated. Even if one corporation is being acquired and entirely merged into another, they may not necessarily become one unified unit. Sometimes departments continue working under their specific brand instead of being fully integrated.

 For example, when eBay acquired PayPal in 2002, eBay didn’t extinguish PayPal and roll it under the eBay brand. Instead, PayPal became a subsidiary under eBay, making it technically the same overall business while still maintaining its own corporate culture and personnel. Even in this situation, however, there will be many complications and redundancies that will require careful navigation. Once again, this can be managed with a thorough post-acquisition integration checklist, so make sure to prepare this ahead of time.

Mergers and acquisitions provide enormous potential for growth. However, success rates aren’t always very high, which can make them an expensive and risky way to grow a business. Their chances of success are greatly increased if you can pay close attention to the personnel aspects of the process. That’s why HR can make or break the success of a merger or acquisition.

There are a great many things HR needs to focus on when it comes to mergers and acquisitions (M&A). This includes forming and guiding the M&A deal team, facilitating paperwork and due diligence, and sending out crucial communications to everyone involved, including employees, investors, customers, press, and any other stakeholders. 

Then HR is also tasked with leading the post-M&A integration to combine both organization’s workforces and create unified policies, goals, and company culture. This includes identifying which employees to terminate, redeploy, or retain. This also means addressing any employee concerns about the merger or acquisition, such as how the integration will impact their job security, compensation, and benefits, in order to ensure key employee retention, motivation, and cultural fit over time.

It’s important to work closely with the board and management during the entire process to ensure that everything will run smoothly. Pay close attention to due diligence and start planning well ahead of the M&A event. If done correctly, mergers and acquisitions (M&A) should boost a business, not hurt it. HR’s role in all of this is vital to that success.

 At Careerminds, we believe that you can never be too prepared for your next merger or acquisition, especially any that might result in workforce reductions. Our arsenal of resources, templates, guides, and industry-leading outplacement services can help you navigate the delicate integration or reduction process. Click below to speak with one of our experts and see if we are the right partner for your organization.

Rebecca Ahn

Rebecca is a writer, editor, and business consultant with over 10 years of experience launching, managing, and coaching small to midsize companies on their business, marketing, and HR operations. She is a passionate people advocate who believes in building strong people, teams, and companies with empowering culture, content, and communication that facilitates meaningful results at every level and touchpoint. In her spare time, Rebecca is an avid traveler and nomad who also enjoys writing about travel safety and savvy. Learn more on her LinkedIn page.