HRs Role in Mergers and Acquisitions

2007 Corporate Executive Board. All Rights Reserved.
Corporate Leadership Council
Executive Summary
HRs Role in Mergers
and Acquisitions
Tools and Mandates for the
Chief Human Resources Ofcer
Key Questions Addressed
Increasing deal values and a consistently high volume of transactions have
ensured that maximizing value creation from M&A is a key priority for
organizations. The Councils research builds the business case for HR
involvement across the M&A process, provides an end-to-end M&A
guide, and delivers tools to overcome human capital risks throughout
the M&A process.
This executive summary addresses the following challenges:
What role should HR play in M&A?
What are the critical mandates for the chief human resources
ofcer to improve HRs performance in M&A?
KEY AUDIENCES
Heads of HR
HR Leadership Team
Senior Executive Team
HR M&A Specialists
RESEARCH CONTENT
Identication of the business case,
mandates, and HR staff tools to
improve HRs impact on M&A
value creation
Note to Members
This project was researched and written to fulll the research requests of several members of the Corporate Executive Board and as a result may not satisfy the
information needs of all member companies. The Corporate Executive Board encourages members who have additional questions about this topic to contact
the Board staff for further discussion. Descriptions or viewpoints contained herein regarding organizations proled in this report do not necessarily reect
the policies or viewpoints of those organizations.
Condentiality of Findings
This document has been prepared by the Corporate Executive Board for the exclusive use of its members. It contains valuable proprietary information belonging
to the Corporate Executive Board, and each member should make it available only to those employees who require such access in order to learn from the
material provided herein and who undertake not to disclose it to third parties. In the event that you are unwilling to assume this condentiality obligation,
please return this document and all copies in your possession promptly to the Corporate Executive Board.
Legal Caveat
The Corporate Leadership Council has worked to ensure the accuracy of the information it provides to its members. This report relies upon data obtained from
many sources, however, and the Corporate Leadership Council cannot guarantee the accuracy of the information or its analysis in all cases. Furthermore, the
Corporate Leadership Council is not engaged in rendering legal, accounting, or other professional services. Its reports should not be construed as professional
advice on any particular set of facts or circumstances. Members requiring such services are advised to consult an appropriate professional. Neither the Corporate
Executive Board nor its programs are responsible for any claims or losses that may arise from a) any errors or omissions in their reports, whether caused by
the Corporate Leadership Council or its sources, or b) reliance upon any recommendation made by the Corporate Leadership Council.
www.clc.executiveboard.com
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Project Manager
Christoffer Ellehuus
Consultant
Warren Howlett
Lead Analyst
Sari Levine
Contributing Analysts
Paul Dennis
Katherine Stackhouse
Managing Directors
Nicholas Connolly
Jean Martin-Weinstein
Executive Director
Conrad Schmidt
General Manager
Peter Freire
Creative Solutions Group
Senior Graphic Design Specialist
Christie Drake
Contributing Designers
Dan Gautsch
Chris Helming
Publications Editor
Andrea Cunningham
CLC17LBPEE
Executive Summary 3
HRs Role in Mergers and Acquisitions
Key Conclusions
Source: Corporate Leadership Council research.
What role should HR play in M&A?
HR performance in integration is a key driver of M&A successCouncil research
shows 44% of senior executives report that integration is the greatest source of error in
M&A and that overcoming human capital challenges is more important to integration
success than any other aspect of integration.
HR is underperforming in integrationOnly 15% of chief human resources ofcers
rate their organizations as effective in managing human capital risks throughout
integration.
Early identication of and response to human capital integration risks are critical
to deal successOnly 34% of HR organizations are involved early in the deal process,
inhibiting their ability to identify and overcome human capital integration risks.
Organizations that effectively identify and respond to human capital integration
risks are more successful at M&ACouncil research nds organizations that
effectively manage human capital risks throughout the M&A process experience
60% better talent outcomes (dened by higher workforce engagement, increased
talent retention, and more effective deployment of talent).
What are the critical mandates for the chief human resources ofcer to improve
HRs performance in M&A?
Chief human resources ofcers need to adhere to ve imperatives throughout
the M&A process to ensure successful integration:
1. Opportunity Identication and Deal Preparation: Gain early insights into
the strategic objectives of the deal, ensuring HR has the skills and processes
in place to support those objectives.
2. Due Diligence/Valuation: Assess and identify human capital risks that impact
valuation of the target and integration planning.
3. Integration Planning: Prepare proactive responses to identied human capital
integration risks.
4. Integration Management: Continually monitor key talent metrics related to
performance, retention, and engagement to respond to emerging human capital
risks that impact value capture.
5. Post-Deal Assessment: Assess HRs performance post-integration and capture
lessons learned to ensure improved future performance.
4 HRs Role in Mergers and Acquisitions
Percentage of
Respondents
Citing Reason
as Number
One Source
of Failure
0%
25%
50%
0%
25%
50%
44%
28% 28%
Integration
Value was
available, but
errors were made
in executing deal
objectives.
Strategy
In hindsight,
the strategy
was wrong.
Valuation
Greater value
assumed than
was actually
available and too
much was paid.
Integration: Key Driver of M&A Failure
Senior executives report integration is the greatest source of failure in M&A
Sources of Deal Failure
Corporate Strategy Board Integration Performance Survey, 2006
and rate human capital aspects most critical to successful integration
Sources of Deal Success*
0%
20%
40%
C
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32% 32%
30%
24%
20%
18%
12%
8%
6%
4%
2%
Percentage of
Respondents
Citing
Element as
Most Critical
to Success
Human Capital Elements
Mean = 30%
Corporate Strategy and Business
Development Elements
Mean = 11%
n = 420.
Senior executives report that overcoming human
capitalrelated challenges is more important to M&A
integration success than any other aspect of integration.
HR Performance in Integration Is a Key Driver of M&A SuccessCouncil research shows 44% of senior
executives report that integration is the greatest source of error in M&A and that overcoming human capital
challenges is more important to integration success than any other aspect of integration.
* Data taken from Accenture/Economist
Intelligence Unit; Global M&A Study, 2006.
Source: Accenture/Economist Intelligence Unit, Global
M&A Study, 2006; Corporate Strategy Board,
Increasing the Certainty of M&A Value Capture,
2006; Corporate Leadership Council research.
Executive Summary 5
HR Is Underperforming in IntegrationOnly 15% of chief human resources ofcers rate their organizations
as effective in managing human capital risks throughout integration.
HR Underperformance in Integration
Fewer than one in seven chief human resources ofcers report
effective management of human capital risks during integration
Organizations Reporting Effectiveness in Managing Human Capital Risks During M&As
Corporate Leadership Council M&A Survey, 2006
15%
85%
Not Effective
Effective
Only 15% of
organizations rate
themselves as effective
in managing key human
capital risks throughout
integration.
n = 53.
Source: Corporate Leadership Council Member Survey on Mergers and
Acquisitions, 2006; Corporate Leadership Council research.
HR M&A Underperformance
HRs failure to overcome critical human capital risks during integration
leads to M&A underperformance and costs organizations millions of
dollars in M&A consulting fees.
Tom Brown
Senior Vice President, HR
Brambles Limited
Early Identication of and Response to Human Capital Integration Risks Is Critical to Deal SuccessOnly
34% of HR organizations are involved early in the deal process, inhibiting their ability to identify and overcome
human capital integration risks.
Ensure Early Involvement to
Manage Human Capital Integration Risks
CHROs must ensure early understanding of and
responses to human capital integration risks throughout M&A
The Five Stages of the M&A Process
because organizations involved early in the M&A process are
signicantly more effective at managing human capital risks during integration
Organizations Reporting Effectiveness in Managing Human Capital Risks During M&As*
HR Not Involved
in Early Stages
HR Involved
in Early Stages
0.00
0.60
1.20
= 18%
Effectiveness
in Managing
Human
Capital Risks
Overcoming HRs Integration Challenges
CLCs M&A survey shows that only 34% of HR functions are involved early in the deal process,
inhibiting their ability to identify and plan proactive responses to human capital integration risks.
Organizations
involved early in the
M&A process are
about 20% more
effective at managing
human capital risks.
Problem #2
No proactive plan and response
to human capital integration risks.
Post-Deal
Assessment
Integration
Management
Integration
Planning
Due Diligence/
Valuation
Opportunity
Identication and
Deal Preparation
Problem #1
No early identication of human capital
integration risks.
n = 53.
* Based on data from its M&A survey, the Council conducted a difference of means test to determine
whether the effectiveness in managing human capital risk (dened by talent engagement, retention, and
deployment) is statistically different between organizations that involve HR in the rst stage of the M&A
process, Opportunity Identication and Deal Preparation, and those that do not involve HR at this time.
Executive Summary 7
Organizations That Effectively Identify and Respond to Human Capital Integration Risks Are More
Successful at M&ACouncil research nds organizations that effectively manage human capital risks
throughout the M&A process experience 60% better talent outcomes (dened by higher workforce engagement,
increased talent retention, and more effective deployment of talent).
Reaping Rewards from
Successful HR M&A Performance
Organizations that effectively manage key human capital
risks experience signicantly better talent outcomes
Maximum Impact of Effective HR Management
of Human Capital Risks on Key Talent Outcomes*
* Based on data from its M&A survey, the Council used linear regression to determine how increasing
effectiveness in the human capital risks predicts an increase in the average of engagement, retention,
and talent deployment responses, as rated by survey respondents.
Maximum
Impact on
Key Talent
Outcomes
0.00
0.90
1.80
0.00
0.90
1.80
1.00
1.58
Ineffective HR Management of
Human Capital Risks to Integration
Effective HR Management of
Human Capital Risks to Integration
= 58%
Organizations that effectively manage human capital risks
throughout integration experience about 60% better
talent outcomes, dened by better talent deployment,
higher engagement levels, and higher retention levels.
n = 53.
Five Imperatives Should Guide HRs Involvement Throughout M&AThe Council has identied 5
imperatives and 11 related mandates for the chief human resources ofcer to ensure successful integration
and maximize HRs impact on deal outcomes.
M&A Imperatives
Five imperatives and eleven mandates throughout M&A are critical
1. Establish an HR M&A
Infrastructure.
Establish an M&A infrastructure
(framework, tools, and roles) within
HR and identify needed skill sets to
enable effective deal assessment and
integration management.
2. Gain Early Insights into Deal
Objectives.
Ensure HR is involved early in the
M&A deal evaluation so HR fully
understands the strategic objectives
of each deal and aligns HR M&A
activities accordingly.
3. Identify Human Capital
Risks That Impact Target
Prioritization.
Screen targets to identify significant
human capital risks:
Potential liabilities
Cultural misalignment
Talent and leadership capabilities
4. Identify Financial and
Compliance Risks.
Identify major human capitalrelated
financial and compliance risks that
impact valuation of target and
integration success:
Pensions and insurance
Compensation plans
Union and employment contracts
5. Identify Cultural and Talent
Risks.
Identify major cultural- and talent-
related human capital risks that impact
valuation of target and integration
success:
Cultural alignment
Leadership transition
Talent identication and retention
Imperative
Gain early insights into the strategic
objectives of the deal, ensuring HR
has the skills and processes in place to
support those objectives.
Imperative
Assess and identify human capital risks
that impact valuation of the target and
integration planning.
Mandates Mandates
Stage I.
Opportunity Identication
and Deal Preparation
Stage II.
Due Diligence/
Valuation
Executive Summary 9
6. Plan Responses to Human
Capital Risks.
Plan responses to human capital risks
identified in due diligence that affect
value creation during integration:
Talent retention
Employee engagement
Organizational integration
Executive deployment
HR policies and programs
7. Build Workforce
Communication Plan.
Build a workforce communication
plan that proactively responds to
talent- and workforce-wide retention
and engagement risks.
8. Monitor and Respond to Human
Capital Integration Risks.
Monitor and proactively respond
to changing human capital risks that
continually arise and affect value
creation.
9. Execute on Value-Creation
Opportunities.
Monitor execution of the integration
plan to ensure that synergies and
opportunities for value creation
are captured.
10. Track Human Capital M&A
Metrics.
Assess and document the extent
to which key human capital
objectives were realized and the
impact on overall deal objectives.
11. Assess HR Performance and
Document Lessons Learned.
Solicit feedback from key
stakeholders to assess HRs
performance throughout the deal
process and capture best practices
and lessons learned to improve
HRs future performance.
for HR
to maximizing HRs impact on deal outcomes
Imperative
Prepare proactive responses to identied
human capital integration risks.
Mandates
Imperative
Continually monitor key talent metrics
related to performance, retention, and
engagement to respond to emerging
human capital risks that impact value
capture.
Imperative
Assess HRs performance post-
integration and capture lessons
learned to ensure improved future
performance.
Mandates Mandates
Stage IV.
Integration Management
Stage V.
Post-Deal Assessment
Stage III.
Integration Planning
M&A Tools for
M&A Tools Available at
CHRO Mandates
Establish an HR M&A Infrastructure.
Gain Early Insights into Deal Objectives.
Identify Human Capital Risks
That Impact Target Prioritization.
Identify Financial and Compliance Risks.
Identify Cultural and Talent Risks.
Tools and Tactics Proles
HR M&A Rapid Response Team
Intel creates a exible HR M&A stafng plan
consisting of a core team of 7 HR staff as well
as 15 to 20 HR functional employees trained
in M&A skills to ensure HR always has the
necessary resources to provide support for any
deal volume, size, or complexity.
Early Human Capital Risk Analysis
Cadbury Schweppes uses an assessment tool
to identify and assess the organizational and
cultural dimensions that matter most for target
integration, valuation, and risk assessment.
Risk-Driven M&A Team
Philips builds an HR M&A team with the key skills
to manage critical human capital risks specic
to each transaction and fast tracks the teams
development on how to support the critical
elements of a transaction.
HR Due Diligence Risk Assessment
Seagate requests nancial, compliance, and talent
information from the target during due diligence
and creates a due diligence dashboard to provide
an overview of major human capital risk areas,
which informs deal valuation as well as
integration planning.
Cultural Assessment
Sterling Financial evaluates culture indicators
during due diligence by reviewing standard due
diligence documents and searching for cultural
insights to assess the level of t between
the target and acquirer for each attribute to
determine whether to walk away from the deal
or begin planning culture conict mitigation
efforts.
Talent Identication and Retention Audit
Nortel identies critical talent early in the deal
process so that targeted retention and transition
support can be put in place.
Tools and Templates for Executing Against HR MandatesThe Councils research provides members with
best-in-class tools and templates from leading HR organizations that support execution of the HR mandates
across the M&A deal stages.
Stage I.
Opportunity Identication
and Deal Preparation
Stage II.
Due Diligence/
Valuation
Executive Summary 11
the HR Deal Team
Plan Responses to Human Capital Risks.
Build Workforce Communication Plan.
Monitor and Respond to Human
Capital Integration Risks.
Execute on Value-Creation
Opportunities.
Track Human Capital M&A Metrics.
Assess HR Performance and Document
Lessons Learned.
M&A Integration Playbook
Brambles uses a comprehensive integration
playbook on all aspects of integration, including
HR key responsibilities such as cultural alignment,
organization design, stafng, talent retention,
rewards and redundancy, and communication
planning.
Workforce Communication Plan
Kraft recognizes that employee uncertainty and
anxiety is a signicant driver of attrition and
employee through an M&A transaction and builds a
communication plan around the key communication
risk moments.
Employee Pulse Dashboard
FPL Group tracks human capital metrics
throughout integration to develop an ongoing
understanding of employee morale and
turnover that enables the creation of targeted
responses to overcome root causes.
Integration Risk Survey
Danske Bank uses an integration risk survey
to increase visibility into changes in employee
commitment during integration, respond to
escalations in employee commitment risks, and
continually monitor progress.
HR Integration Execution Dashboard
ABN AMRO uses a dashboard to monitor
execution of integration activities and tracks
progress against task milestones, highlighting
tasks that are likely to be completed late.
HR M&A Performance Assessment
Deutsche Banks HR integration leader
conducts in-the-moment performance analysis
based on feedback from team members and
third-party M&A stakeholders to measure HR
M&A team performance and target skill building
on 10 imperatives previously identied as
critical to the M&A process.
HR M&A 360-Degree
Performance Assessment
Intels HR M&A team collects performance
feedback from all key stakeholders impacted by
HRs activities throughout key deal phases to
assess performance and improve effectiveness
of the HR M&A team.
Tools and Tactics Proles
Stage III.
Integration Planning
Stage IV.
Integration Management
Stage V.
Post-Deal Assessment
CHRO Mandates
Executive Summary 13
Additional M&A Support
CLCs M&A Diagnostic ToolAssess the HR functions effectiveness in supporting M&A
activities and identify the content, tools, and templates in areas of perceived weakness.
Best Practice M&A Templates and ToolsGain access to a repository of best practice M&A
templates and tools.
M&A UpskillingHave a research director from the Council visit your organization to lead
a targeted session with your HR professionals supporting M&A to discuss the implications
of this research.
For more information about the CLC M&A Resource Center, please contact
your dedicated CLC relationship manager or send an e-mail to clcweb@executiveboard.com.
Supporting M&A Value Creation
CLC offers tools, templates, and strategies
that are available online to support members M&A activities
Determine Your
Effectiveness in Supporting M&A
Identify Research, Tools, and
Templates in Areas of Perceived Weakness
2 1
#,#-!$IAGNOSTIC
3ECTION) /PPORTUNITY)DENTIFICATIONAND$EAL0REPARATION
Larly involvement in M&A transactions, screening potential targets to identify significant
human capital risks that impact prioritization, establishing an M&A infrastructure within
HP to support M&A, identifying skillsets needed to support M&A
#,#-!3500/24
#%.4%2
The CLC M&A Support Center offers Council members access to a repository of best
practice M&A templates and tools that continues to expand, on an ongoing basis, with
the addition of additional member best practices in this space
M&A Tool Member Challenge:
Scalability Matrix
Pisk to Skill Mapping
and Upskilling Pramework
Due Diligence
Dashboard
|ntegration
Pisk Survey
|nsufficient HP infrastructure to support
the M&A process
|nsufficient skills in the HP function to
support the M&A process
|nadequate understanding of critical
human capital risks to value creation
No timely identification and response
to escalating human capital risks or
workforce integration issues
The CLC M&A Resource Center is available at www.clc.executiveboard.com.
15
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