Mergers and acquisitions are at an all-time high. In the last five years, the total financial value of mergers has increased by 250 percent and there are no signs that things will slow down in the coming year. While this is good news for dealmakers, it puts HR teams in a precarious situation. As an HR leader, you are more likely to deal with an acquisition than ever before. Additionally, you’re also up against the fact that 20 percent of dealmakers cite cultural alignment as the root cause of failed mergers. This means that even though mergers and acquisitions (M&As) are decided largely on financial projections, your department carries a disproportionate amount of responsibility for its ultimate success or failure.
The good news is that a collective 34 percent of dealmakers now consider effective integration and sound due diligence as the most important factors in achieving a successful M&A. But even though study after study shows that success in mergers and acquisitions hinges on people, culture and employee experience too often get lost in the shuffle. As an HR leader, what can you do to make a case for an effective cultural audit and steer your company towards success?
In this piece, we’ll break down why culture has historically been an afterthought in M&As, why that can no longer be the case, and how new HR tech tools, such as social media screening, can help ensure cultural fit with the speed and specificity executives rely on at each stage of a merger or acquisition.
Why does employee experience gets overlooked in M&As?
When it comes to M&As, culture has been overlooked in the due diligence process for two main reasons. First, it’s historically been hard to quantify. Without the right tools and technologies, framing HR data in a way that speaks to executives can be incredibly difficult. Second, it’s time-consuming. As the momentum around a potential deal accelerates and “deal frenzy” takes over, executives often find traditional culture audit or culture change projects too slow and too qualitative for a process driven mostly by numbers and speed. Because culture has had a harder time with numbers and data relative to departments such as IT or finance, it’s not uncommon for executives to slight the issues and focus on other indicators of future success.
However, not assessing culture as seriously as your company evaluates tangible assets doesn’t make its effects less real. As the leaders of AOL Time Warner, Daimler-Chrysler, and Sprint/Nextel realized, looking only at surface-level synergies leads to misalignments that can explode once upon integration and tank the new merger. Richard Parsons, president of Time Warner, recently said in a New York Times interview: “I remember saying at a vital board meeting where we approved [the merger], that life was going to be different going forward because they’re very different cultures, but I have to tell you, I underestimated how different.” Eight years after the merger, Time Warner’s stock had dropped from $71.88 to $15 per share.
So how do you get decision-makers to understand how people and culture can derail your merger and explain the ways in which HR can help solve this problem? The key is to leverage tools that offer the numbers, speed, and specificity with which HR departments have traditionally struggled. That’s where online screening comes in. Online screening and monitoring allow you to efficiently and proactively identify issues in cultural alignment at every stage of a merger.
How social screening improves the M&A process
In the pre-merger phase, online screening offers clarity on who will be a good fit in the new organization and who’s likely to pose a risk when the organizations merge. The first step in this phase is to set a cultural guideline that helps you understand what to look for in each employee. Since no two cultures are the same, the criteria can vary considerably for each merger. While some companies look for people who maintain well-kept online profiles for maximum information security, others will value those who demonstrate altruistic behaviors that promote a diverse and inclusive work environment. In any case, setting custom criteria for cultural compatibility will help you get relevant, actionable data for further evaluation, presentation, or adjudication.
In the integration and stabilization phases, online screening helps HR managers get a pulse on how people are responding to the merger and can alert them to new or previously unforeseen issues that arise. By giving HR real-time insights the on employee experience, online screening allows companies to get ahead of the issues before they cause bigger problems within the organization, rather than try and save a merger once it goes downhill.
Executives and dealmakers deal with a vast amount of fear and excitement in the M&A process. The good news is that by using online screening and other tools to gather and leverage culture data, you can assuage some of their fears, as well as your own.