Mergers & Acquisitions: Sponsor’s comment: Reward teams help seal the deal

By Steve Allan 6th June 2011 12:00 am 3rd November 2015 5:54 pm

HR has an essential role to play in a deal’s success, says Steve Allan, M&A practice leader for EMEA at Towers Watson

As the economic recovery continues, merger and acquisition (M&A) activity is a significant route to growth for many organisations. The Towers Watson Quarterly Performance Deal Monitor, in conjunction with Cass Business School, continues to show that buyers outperform their non-acquiring peers.

However, getting the HR issues right will be critical to any deal’s success. An acquirer must understand the target company’s workforce and the factors that will affect its integration. Care should be taken to uncover differences in how staff are motivated and rewarded, especially when their employer’s strategic priorities change because of the deal. The HR and broader people issues of an M&A deal are commonly cited reasons why deals fail.

Our combined research and consulting experience across hundreds of deals shows that organisations where HR can present itself as a key business partner to the deal team and is involved early in the transaction demonstrate greater deal success.

Employee benefits and rewards are key. These are a central component to consider as part of the deal process, and are, of course, one of the most sensitive subjects for employees. Getting the reward issues right will also send powerful messages about what it means to work for this organisation.

These issues are complex, detailed and often financially significant – indeed, many deals have stumbled over reward. Defined benefit pensions and other long-term liabilities have long represented key challenges, as have matters such as talent retention programmes during the period of transformation.

For many organisations, a deal can offer an ideal opportunity to revisit their underlying reward approach and realign how employees are motivated and rewarded within the organisation’s business strategy. Reward programmes are a key driver of engagement and motivation, so a review and harmonisation exercise enables the employer to send a clear message about how employees are valued within the transaction, as well as reinforcing the desired behaviours and future workplace culture of the new company.

Within the deal process, the focus on employee rewards will flow across the four key stages of the deal cycle. First, M&A readiness preparation includes capability and capacity building as well as understanding the reward programmes and policies the buyer already has in place. This will form a baseline for benchmarking and integration planning.

Deep due diligence on the target company will facilitate deal negotiations as well as informing implementation planning. Important areas of interest include the liabilities and obligations to be acquired in the transaction; any issues triggered on change in control; the expected integration approach; and any anticipated transition costs and risks.

Implementation planning is built on the due diligence findings, to address the business and reward-related issues. In this implementation planning, the acquirer will also identify key metrics to measure and manage progress. At the implementation phase, retention programmes are rolled out, compensation and reward programmes are communicated and harmonised and legacy liabilities in acquired pension plans are addressed, for example.

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HR and reward teams that can navigate these challenges and opportunities are seen as strategic business partners at the highest level during what is inevitably a period of significant business change. Our studies show the deeper and earlier HR is involved in a deal, the greater the chance of achieving the deal’s objectives.

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