ROLE OF HUMAN RESOURCES IN MERGERS AND ACQUISITIONS

ROLE OF HUMAN RESOURCES IN MERGERS ANDinvestors usually receive a new stock in
ACQUISITIONStheir portfolios - the acquiring company's expanded
       stock. Sometimes investors will get new stock
Introduction:identifying a new corporate entity that is created by
            A merger is a combination of twothe M&A deal.
companies to form a new company, while anThe Human Side of M&A Activity
acquisition is the purchase of one company by another               Plenty of attention is paid to
with no new company being formed. A merger occursthe legal, financial, and operational elements of mergers
when one firm assumes all the assets and all theand acquisitions. But executives who have been
liabilities of another. The acquiring firm retains its identity,through the merger process now recognize that in
while the acquired firm ceases to exist. A majoritytoday’s economy, the management of the human
vote of shareholders is generally required to approveside of change is the real key to maximizing the value
a merger. A merger is just one type of acquisition. Oneof a deal. The management of the human side of
company can acquire another in several other ways,M&A activity, however, based upon the failure
including purchasing some or all of the company'srates of M&As, appears to be a somewhat
assets or buying up its outstanding shares of stock.neglected focus of the top management’s
The term "acquisition" is typically used when oneattention. People issues occur at several phases or
company takes control of another. This can occurstages of M&A activity. More specifically, people
through a merger or a number of other methods, suchissues in just the integration phase of mergers and
as purchasing the majority of a company's stock or allacquisitions include:
of its assets.(1) Retention of key talent;
Reasons for Mergers and Acquisitions:(2) Communications;
            The management of an acquiring(3) Retention of key managers; and
company may be motivated more by the desire to(4) Integration of corporate cultures.
manage ever-larger companies than by any possibleHR issues in three Stage Models of Mergers and
gains in efficiency. There are a number of reasonsAcquisitions
why a corporation will merge with, acquire, or beThe three stages:  (1) Pre-combination; (2)
acquired by another corporation. Sometimes,Combination and integration of the partners; and (3)
corporations can produce goods or services moreSolidification and advancement.
efficiently if they combine their efforts and facilities.Selected HR Issues in the three Stages of M&A
Collaborating or sharing expertise may achieve gains inStage 1: Pre-Combination
efficiency, or a company might have underutilized- Identifying reasons for the IM & A
assets, the other company can better use. Also, a- Forming IM & A team/leader
change in management may make the company more- Searching for potential partners
profitable. Other reasons for acquisitions have to do- Selecting a partner
more with hubris and power.- Planning for managing the process of the IM and/or
Regulation of Mergers and Acquisitions:A
Mergers and acquisitions are governed by both state- Planning to learn from the process
and federal laws. State law sets the procedures for Stage 2-Combination and Integration
the approval of mergers and establishes judicial- Selecting the integration manager
oversight for the terms of mergers to ensure- Designing/implementing teams
shareholders of the target company, receive fair value.- Creating the new structure/strategies/ leadership
Generally, state law tends to be deferential to- Retaining key employees
defences as long as the target company is not acting- Motivating the employees
primarily to preserve its own positions. Courts tend to- Managing the change process
be sceptical of defences if the management of a- Communicating to and involving stakeholders
target company has already decided to sell the- Deciding on the HR policies and practice
company or to bring about a change of control.Stage 3: Solidification and Assessment
Because of the fear that mergers will negatively- Solidifying leadership and staffing
affect employees or other company stakeholders,- Assessing the new strategies and structures
most states allow directors at target companies to- Assessing the new culture
defend against acquisitions. Because of the number of- Assessing the new HRM policies and practices
state defences now available, the vast majority of- Assessing the concerns of stakeholders
mergers and acquisitions are friendly, negotiated- Revising as needed
transactions.- Learning from the process
Motives behind M&Ai)  The following motives areRole of the HR Department in M&A activity
considered to add shareholder value:1.      Developing key strategies for a
            Economies of scale, increasedcompany’s M&A activities
revenue / increased market share, cross selling,2.      Managing the soft due diligence activity
synergy, taxes, geographical or other diversification3.      Providing input into managing the process
and resource transfer.ii)  The following motives areof change
considered to not add shareholder value:4.      Advising top management on the merged
            Diversification, overextension,company’s new organizational structure
manager's hubris, empire building, manager's5.      Overseeing the communications
compensation, bootstrapping and vertical integration6.      Managing the learning processes
Mergers and Acquisitions: Doing the deal7.      Re-casting the HR department itself
Start with an Offer8.      Identifying and embracing new roles for the
            When the CEO and topHR leader
managers of a company decide that they want to do9.      Identifying and developing new
a merger or acquisition, they start with a tender offer.competencies
The process typically begins with the acquiringThe strategic contribution of HR as consisting of the
company carefully and discreetly buying up shares in“Five P’s”: Philosophy, Policies, Programs,
the target company, or building a position.Practices, and Processes.
The Target's ResponseConclusion
            Once the tender offer has been            Merger and Acquisitions success
made, the target company can do one of severalentirely depends on the people who drive the Business,
things Accept the Terms of the Offer, Attempt totheir ability to Execute, Creativity, and Innovation. It is of
Negotiate, Execute a Poison Pill or Someutmost importance to involve HR Professionals in
Other Hostile Takeover Defence.Mergers and Acquisitions discussions as it has an
Closing the Dealimpact on key people issues. As Mergers and
            Finally, once the target companyAcquisitions activity continues to step up globally,
agrees to the tender offer and regulatoryCompanies involved in these transactions have the
requirements are met, the merger deal will beopportunity to adopt a different approach including the
executed by means of some transaction. In a mergerincreased involvement of HR professionals. By doing
in which one company buys another, the acquiringso they will achieve a much better outcome and
company will pay for the target company's sharesincrease the chance that the overall deal is a total
with cash, stock or both. When the deal is closed,success.