HR departments play vital role in Mergers and Acquisitions
January, 18th 2011
Acquiring a company is never easy. Thats because it is never fully possible to buy out the core of the firm: Its people. In these days of high attrition and a vibrant job market, companies involved in mergers and acquisitions have to tread lightly when it comes to employees. They have to be reassuring about jobs, and allay all fears and concerns. Given this situation, HR departments are beginning to play a more significant role than ever before, in integrating people during M&A.
The Igate acquisition of Patni last week is an example. It required the integration of 25,000 people (16,000 from Patni and 9,000 from iGate). Though it was not easy telling Patni staff their company had been bought out, HR officials ensured they were informed about this well ahead even before the external stakeholders. Within minutes of the announcement, employees received mails from the CEO, Powerpoint presentations explaining the benefits of the deal, and timelines for various activities. Discussion forums, Town Hall meetings and teleconferences were set up.
These will continue so that employees in all geographical locations can get their doubts cleared, says Sunil Chitale, chief strategy and marketing officer at Patni. Even queries posted online anonymously , will be answered. The two companies will continue with their independent HR policies till they can figure out integration. In fact, Phaneesh Murthy, CEO of iGate, assured that retention packages would be rolled out to select employees soon.
The success and failure [of an M&A ] hinges on HR activities, says A Sudhakar, executive director (HR) for Dabur. People integration is a complex issue. For most HR personnel, work begins before the actual M&A , when a company is scouting for a prospective. A cultural fit is key; if not addressed , this could lead to high attrition later . Working out compensation structures and roles, and the swapping of best practices , follows. Sensitising employees on both sides, the HR departments must make it clear there is no loser. If the merger is cross-cultural , employees need to be briefed on the cultural norms of the partner.
Post-acquisition , surveys need to be conducted in the acquired company, and training provided to staff, for them to get a feel of their new environment. Role changes are crucial; the sudden removal of top management in an acquired firm leads to instability.
For Tata Sons, which acquired Tetley, Daewoo Motors, Natsteel and Corus, among others, it is more about getting a sense of the acquired company. Satish Pradhan, chief, Group Human Resources, says acquisitions have evolved from the initial stage of looking at financial strategy , to looking at employees and answering the question, what will we look like and do we have the right mix of people?
A September 2010 study by Mercer, entitled Asia on the Byside , of 155 senior executives from Asia-based MNCs involved in cross-border acquisitions, showed that 35% of respondents identified human capital integration as the most significant issue during an M&A . Only 23% identified financial reporting integration as significant, while 16% said lack of employee engagement and leadership/management retention issues were uppermost for them. Len Gray, Asia Pacific business leader of the M&A business at Mercer, says: This has meant that the HR function has an increasingly important role to play, even during the due diligence stage of an M&A , to be able to assess the cultural fit of the transaction , particularly where the objective is complete integration of the acquired or merged entity.
Wipro Technologies has made 21 acquisitions till date starting with Spectramind in 2002 and Nerve Wire in 2003 and the role of HR in M&A has greatly evolved. We have learnt from our earlier mistakes, says Bhandari. Like the fact that employee retention is key during an acquisition. In 2005, Wipro formed a global workforce team to ensure a smooth transition during acquisitions, where HR specialists looked into the target (or acquired ) companys best practices.
Bhandari says during later projects, they ensured an HR manager remained with the target firm for 3-6 months after the acquisition, to ensure a smooth integration of policies. In earlier acquisitions, we made the mistake of trying to do everything at once, but now we proceed step by step, adds Bhandari. First looking at the cultural fit, then compensation details and, finally, implementation of processes. At Wipro, employees of the acquired company have to go through assessment tests every few months, to ensure they understand the parent company and its culture better.
When FMCG major Dabur acquired Balsara in 2005, Sudhakar says he stopped recruitment at Dabur a few months before the acquisition so that the 575 Balsara employees could be accommodated . Daburs acquisition of Fem brought a different set of learnings. The company had a sales team which needed to be incorporated into Dabur without being integrated, since that would lead to a loss of jobs. We had learnt this from the Balsara acquisition, says Sudhakar. While Dabur faced 20% attrition post the Balsara deal, the attrition rate after Fem was 0.
Cultural integration is a concern even with smaller companies. When telecom manufacturing company Tejas Networks acquired Israel-based Ethos Networks, we got the Israeli side to travel to India, and explained to both sides the importance of the acquisition, says Arnob Roy, president (engineering) at Tejas. Joint projects and technology became binding factors for employees, who were encouraged to speak to each other over phone, rather then email.