HUMAN RESOURCE ASPECT OF

MERGERS AND ACQUISITION

Presenter :

Karim ViraniAamir Firdous AliErum Naz Nazish Hussain

INTRODUCTION

• Companies today need to be fast growing, Efficient, profitable, flexible, adaptable, and future-ready

• They want a dominant market position

• Its virtually impossible to compete today’s global economy

INTRODUCTION … Cont...

• They work with smaller firms that have developed or are developing new products

• Some firms focus on their own internal growth, Leadership and development

• Growing or expanding through deals that result in mergers or acquisitions

MERGERS & ACQUISITION 

MERGERS AND ACQUISITION

DEFINED IN GENERAL

• When we use the term "merger", we are referring to the merging of two companies where one new company will continue to exist.

• The term "acquisition" refers to the acquisition of assets by one company from another company.

OBJECTIVE

Objective of merger is to achieve economy of scale and to carry on business more economically and efficiently.

Objective of an acquisition is self-evidently growth and expansion of the acquirer's assets, sales and market share

MERGERS - TYPES

• In General, There are mergers of equals and Unequal's

• Mergers of Equals Like the merger between Ciba and Sandoz forming Novartis Where equals often compels Two companies to share in the staffing implications.

• Mergers of unequal like Chase and J.P. Morgan creating JPMorgan-Chase where the staffing implications being shared unequally

ACQUISITION - TYPES

There are Two major types of acquisition involving

1. Acquisition & Integration Like Cisco Systems, it has a greater staffing implication

2. Acquisition & Separation Like Unilever and Best Foods, not greater staffing implication as of the above one

REASONS FOR MERGER

• Horizontal mergers for market dominance; economies of scale

• Vertical mergers for channel control

• Hybrid mergers for risk spreading, Cost Cutting

• Growth for world-class leadership and global reach

• Survival

REASONS FOR ACQUIRE

• Acquisition of cash, taxes, and excess debt capacity

• Gaining a core competence to do more combination

• Financial gain and personal Power

• Bigger asset base to leverage borrowing

IN ADDITION TO THESE REASONS

Companies that are successful and inventive in combining, not only create a value, but develop a

core competence in combination management itself

This in turn, can give the company an edge over others who haven't been successful or have nor

learned from their past.

ASSUMPTIONS

• M&A’s are the fastest and easiest ways to grow• M&A’s are likely to fall short of their initial goals• M&A’s are difficult to do• Creating synergies is a major challenge• Molding cultures is a major challenge• Difference due diligence are necessary but not

sufficient conditions• Pre-planning can help increase chances for

success

TRACK RECORD

• With the importance of and need for mergers and acquisitions growing, and the base of experience expanding, it may seem reasonable also to assume that success is more likely to occur than failure in these types of combinations In fact large combinations.

REASONS FOR FAILURE

• Expectations are unrealistic ,Hastily constructed strategy

• Failure/inability to unify behind a single macro message

• Power and politics are the driving forces, rather than productive objectives

• Requires an impossible degree of synergy• Culture clashes between the two entities

go unchecked• Transition management fail, underestimation of

transition costs• Financial drain defensive motivation

REASONS FOR SUCCESS

• Leadership, Key talent retained• Well-thought out goals and objectives• Due diligence on hard and soft issues• Well-managed M&A team• Successful learning from previous experience• Planning for combination and solidification steps

completed early• Extensive and timely communications to all

stake-holders

THE HUMAN SIDE OF M&A

• The belief that they are too soft therefore, hard to manage

• Lack of awareness or consensus that people issues are critical

• No spokesperson to articulate these issues• No model or framework that can systematically

understand • Attentive focus in M & A activity is on finance,

accounting, and manufacturing• People issues occur at several phases or stages• Retention of key talent ,Communications;

PHASE 1- Pre acquisition review

• The first step is to assess your own situation and determine if a merger and acquisition strategy should be implemented.

• If a company expects difficulty in the future when it comes to maintaining core competencies, market share, return on capital, or other key performance drivers, then a merger and acquisition (M & A) program may be necessary.

PHASE 2- Search & Screen Targets

• The second phase within the M & A Process is to search for possible takeover candidates. Target companies must fulfill a set of criteria through which compatibility and strategic fit should be assessed.

PHASE 3 – Investigate & Value the Target

• The third phase of M & A is to perform a more detail analysis of the target company. This detail review is called “due diligence.”

• It requires a more thorough review of operations, strategies, financials, and other aspects of the Target Company.

PHASE 4 – Acquire through Negotiation

• Negotiation plan is based on several key questions: How much resistance will we encounter from the Target

Company? What are the benefits of the M & A foe the Target

company? What will be our bidding strategy?

PHASE 5 – Post Merger Integration

• The deal is finalized in a formal merger and acquisition agreement which lead us to the fifth and final phase within the M &A Process, the integration of the two companies.

• The integration process can take place at three levels.1. Full2. Moderate3. Minimal

HR ISSUES

• A substantial number are human resource related, e.g., acquisition of key talent.

• Creation of a dedicated senior executive• M&A failure is the lack of a capable leader • The selection discussion of which one to choose• A well-thought plan for managing the rest of the M&A• Diminish the possible success of the combination• Planning to learn from the M&A process.’

SUCCESSFUL LEADERS DESCRIPTION

• Sensitive to cultural differences• Open-minded Flexible• Able to recognize the relative strengths and

weaknesses of both companies• Committed to retaining key employees• Good listeners• Visionary

ROLE OF HR DEPARTMENT IN M&A ACTIVITY

• Developing key strategies for a company’s M&A activities

• Managing the soft due diligence activity. • Providing input into managing the process of change• Creating transition teams, especially those that will• Overseeing the communications• Managing the learning processes

ROLE OF HR IN MERGER AND ACQUISITION

• A company’s human resource department as well as the human resource workers in the other company play a vital role in the process.

• The role of HR in M&A process are:

Company culture Benefits problems Employee concerns Changing roles and structure

COMPANY CULTURE• Human resource must have a firm grasp on the culture

of the company for which they work and must study the culture of the other organization to make such a determination.

• Culture differences may include How organizations define and measure success How problems are handled management styles Overall attitude of employee and managers.

BENEFITS PROBLEMS• Human resources from the purchasing company

assess the benefits structure of the other company to uncover any potential problems.

EMPLOYEE CONCERNS • Human resources can detect and address any

rumors about layoffs, office relocation or other changes employees fear, giving feedback to management about employee concerns.

CHANGING ROLES & STRUCTURES

• When one company merges with or acquires another, some changes to both organizations may occur.

• Human resources communicates to employees changes in who they report to within the company, what team or work group employees are assigned to as well as any changes to different positions’ roles in the organization.

CONCLUSION

AT THE COMPANY LEVEL

• It is important that business and integration strategies be clear

• Financial expectations must be made clear• For acquisitions or mergers in new markets, it is

essential to understand market dynamics and customers

• Avoid ambiguity in decision making guidance

AT THE HR LEVEL

• Best people in charge of implementing M&A deals• Early planning of the integration process• Difficult decisions should be dealt with quickly• Completion, integration of a deal should not be

underestimated• It is important to be sensitive to cultural

differences

REFERENCES• European Management Journal, Vol. 19, No. 3, pp.

239–253, 2001, 2001 Elsevier Science Ltd. All rights reserved.

• http://www.washingtonandco.com/pdf/hr_issues_activities_mergers_acquisitions.pdf

• For Images : www.Google.com

THANK YOU