Successful mergers and acquisitions (M&A) are one of the most difficult, complicated, and common challenges for businesses. Nearly every major company in the United States has experienced a major acquisition or merger at some point in their history. And it rarely goes smoothly.
To help navigate this chaotic process and pull off a successful business integration, we highly recommend partnering with an outside HR professional early on. A Certified Professional Employer Organization (CPEO) like Resourcing Edge can help you develop a successful merger and acquisition strategy to avoid common pitfalls and HR-related risks.
Merger vs. Acquisition
Merger – The joining of two companies, usually of similar size and stature, where one new company is formed.
Acquisition – The purchase of one company by another one, where both companies may continue to exist. The acquired (aka “target”) company gets integrated into the parent company.
Usually, companies will decide to acquire or merge with another company in order to expand into new markets, absorb a competitor, or gain valuable intellectual property. Many times, it’s a combination of all three.
The obvious challenge is combining two different companies into a single, coherent profit-making organization.
The first obstacles that companies face when a merger or acquisition is on the horizon are legal, financial, and technological. Luckily, a PEO can help you with every step of the process, mitigating risk, managing HR-related risks, and much more.
1. Dot your i’s and cross your t’s
Before you even think about acquiring or merging with another business, you should schedule a professional HR audit to analyze your own human resources from an expert and objective standpoint. This will make sure all your payroll, benefits, and other HR-related priorities are in place and compliant with all laws and regulations.
Human resources is often considered a boring and burdensome element of business. But it’s also absolutely essential. When you partner with a PEO, you enter a co-employment relationship where the PEO is responsible for many employer-related responsibilities, such as payroll, benefits, and government filings.
You still remain in complete control of your business, but you can relax knowing that a team of HR and legal experts are handling the administrative, legal, and compliance aspects associated with human resources.
What Makes a Good HR Audit?
- Highly trained auditors
- Clear reporting template
- Auditors should sign confidentiality agreement
- Auditors should agree beforehand on the communication and reporting strategy
- Adopt new HR practices
- Learn new skills and attitudes
- Unlearn bad habits and attitudes
Attracting and Retaining Intellectual Capital
- Attract top talent
- Retain them
- Utilize them effectively
PEOs can help you with your company culture, codifying core values and mission statements, as well as advising you on your existing and future business strategy. This formal report will help you streamline and optimize your HR infrastructure and strategy, setting you up for M&A success.
When you know your own house is in order and everything is in its proper place, you’ll be confident entering any M&A negotiations.
2. Analyze potential mergers and acquisitions
If you are considering a potential acquisition, a PEO is a great way to identify and vet leadership teams, company cultures, compliance issues, and benefits programs. These HR-related priorities often fall by the wayside, but they play a major role in valuing a company.
A Certified PEO like Resourcing Edge has the industry expertise and experience to evaluate a potential merger or acquisition, identifying red flags and analyzing both soft and hard HR metrics, including:
- Paid time off policies
- Compensation, benefits, and retirement plans
- Employment contracts and agreements
- Payroll administration
- Employee onboarding and offboarding
- Legal and compliance-related risks
- Company culture and core values
- Leadership and human capital issues
- Training, reskilling, and upskilling programs
- Job titles and reporting hierarchy
- Performance evaluations and incentive systems
Mergers and acquisitions normally fail because too much responsibility falls on the managers leading the effort. Mastering mergers and acquisitions requires a wide range of skills and disciplines, all integrated into a functional strategy. Seek help early and often.
3. Change management plan
Poor communication and culture clashes can dash any hopes for a smooth transition. It’s important to work with an HR professional to develop a change management plan as a roadmap for leadership.
The change management plan evaluates and outlines a strategy to deal with common issues surrounding:
Recruiting – targets, selection process, turnover rate, recruiting tactics, etc.
Benefits – health care, retirement, profit-sharing, stock options, etc.
Compensation – salary structures, performance-based incentives, equity, commission plan, etc.
Payroll – pay cycles, employee classification, technology systems, etc.
Human Resources – current practices and procedures, what remains and what doesn’t, employee communication, scenario planning, etc.
Performance and Training – employee skills and abilities, upskilling, reskilling, etc.
Organizational Design – current structure, job titles, job descriptions, leadership roles, etc.
Technology – technology system integration, process for technical transition, etc.
4. Regulations and other challenges
It must also be made sure that labor is not exploited under the new administration, which can be done by paying a fair wage, providing safe working condition and health insurance.
Pre-merger due diligence is essential for any company. Before you start communicating changes to employees, customers, vendors, and media, speak with the team of HR experts at Resourcing Edge for help developing a timeline, communication and transition plan. Many states and local governments have laws that go above and beyond federal laws. A PEO will make sure you are complying with all local and federal labor laws, such as safe working conditions and health insurance.
Additionally, if employees are not happy with the acquisition or merger or if there is an “us vs. them” mentality, most companies will fall short of their objectives.
In fact, Harvard Business Review estimates that 70-90% of all mergers and acquisitions fail, largely due to human resource issue, such as:
- Culture clashes
- Management styles
- Unhappy, frustrated employees
- Layoffs, resignations, and loss of top talent
- Poor communication
- Lack of trust
- Uncertainty and a make-it-up-as-you-go approach
To drive innovation and growth, focus on the process, the plan, and the people. This is where HR professionals come to the rescue. PEOs are in the perfect position to analyze whether there is culture and policy alignment between the two companies, something you cannot ignore if you want harmonious team alignment.
Taking the time to evaluate your HR departments and review the culture and philosophy of each company assures employees that you aware and responsive to their needs but also mitigates risk, retains key employees, and keeps everyone on a specific tracks.
Resourcing Edge can help make mergers and acquisitions a success
There are so many distinct strategies for differing challenges that it can be difficult to offer general M&A advice. Consulting experienced HR experts like Resourcing Edge can make the difference between success and failure as you combine two organizations.
While your focus may be on the financial and legal details of the merger or acquisition, don’t forget the human side of things, such as payroll, benefits, risk management, and communication strategy. Spend equal amounts of time making sure employees are happy and policies, procedures, and technology are efficiently integrated.
A reputable and experienced PEO can help with all of the following:
- New policies and procedures
- Top talent recruiting and retention
- Employee onboarding and offboarding
- Benefits, compensation, etc.
- Company culture and core values
- Redundancy management
- Ongoing communications and HR updates
- HR, risk management, and legal assistance
If you want to simplify your human resources merger and provide a seamless integration of the other company’s benefits, payroll, and compensation systems, a PEO offers custom turnkey solutions. Throughout the merger or acquisition process, Resourcing Edge will identify inconsistencies, assist with communication strategies, and review and update policies and procedures, such as employee handbooks, performance reviews, and benefits.
Good planning and insightful integration is essential. Outsource your HR responsibilities to a PEO like Resourcing Edge and enjoy the freedom to focus on other crucial facets of your business.