mergers and-acquisitions

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Mergers & Acquisitions

How effective assessment helps drive successful M&A activity

M&A scenarios are, by definition, times of great change….

A merger or acquisition is a key transitional phase for both parties. It can frequently be a

troubled time, but the aim is for the combined organization to move beyond its problems in

order to create growth and to reap benefits derived from synergies such as entry to new

markets and cross-selling, economies of scale, the elimination of redundancies and

organisational redesign.

Yet, much M&A activity ends in

failure. Cultural incompatibility is

often cited as the number one M&A

killer, but this is not the case in

reality. Paying too much of a

premium is what kills most mergers

and acquisitions. If the acquirer pays

the right price, there are strategies,

tools and processes which will drive

successful M&A activity. In terms of culture, organisations should focus on real areas of

cultural concern not the cultural background noise.

The importance of talent

Talent is clearly a key aspect in any M&A situation, if for no other reason than because of

the way people respond to uncertainty: such uncertainty impacts customer perceptions and

attitudes.

Going forward, talent needs to be aligned to an organisation’s structure and processes for

the new entity to be able to move towards maximising long-term sustainable growth.


Moreover, talent turnover is undoubtedly an expensive cost in the context of M&A activity:

typically, companies underestimate turnover costs:

“the real total replacement cost of key people = Annual Salary + Placement/search firm fees

+ Other recruitment/training costs + Cost of time involved in selection process + Cost of time

spent orienting and training a replacement + Cost of lost productivity + Relocation.”

The turnover statistics associated with mergers and

acquisitions are staggering. Based on published data,

when no co-ordinated retention actions are taken, 47% of

all senior managers in an acquired firm leave within the

first year of the acquisition. But the exodus doesn’t stop

there. Within the first three years, 72% end up heading for

the door.

And this is not just a short-term issue. A study1 published in the July/August 2008 edition of

the Journal of Business Strategy suggests that mergers and acquisitions destroy leadership

continuity in target companies’ top management teams for at least a decade following a

deal. The authors found that target companies lose 21% of their executives each year for at

least ten years following an acquisition – more than double the turnover experienced in

non-merged firms.

‘These findings are especially important in light of the correlation between the loss of top

executives and a company’s poor performance,’ said Jeffrey Krug, associate professor of

strategic management in the VCU School of Business and lead author of the study.

‘Companies involved in these deals need to understand the long-term effect on their

executive ranks and they need to find ways to keep key executives on board.’

Thus, retention rate has become a common key metric in the M&A arena. Nevertheless, this

remains a very crude measure. In reality, organisations need to know what talent they’ve

got, and what its strengths and weaknesses are. Suddenly, with the introduction of effective

assessment, a previously fuzzy picture is brought into sharp focus with substantially higher

definition and granularity.

“The turnover statistics associated with mergers and

acquisitions are staggering.”


The importance of sales talent

Sales talent is of particular concern to companies in an M&A context, because the sales

organisation is often the primary interface between the company and its customers.

Uncertainty within the sales organisation soon transfers itself to customers.

What’s more, in any period of uncertainty, it’s always the key sales talent who leave first,

not the ‘dead wood’ – an exodus which can cripple a sales organisation.

In a situation where the acquisition is focused on securing new customers this can negate

the entire raison d’être for the acquisition.

Thus, understanding and then integrating your sales talent and key customer-facing

executives into a merged organisation should be a key consideration in an M&A scenario.

As a result, a reliable and objective assessment tool introduces a whole new level of

opportunity into the M&A equation.

Anecdotal evidence suggests that this opportunity is now being recognised by M&A

professionals: reviewing the sales teams and models of the portfolio businesses is becoming

a new priority as they seek to drive value into these organisations.

Assessment in an M&A context

In terms of talent management, we can view the M&A project lifecycle as dividing into three

distinct phases:

1. Pre-merger - talent due diligence;

2. Immediate post-merger - acquisition of information and implementation of

organisational redesign; and

3. On-going talent management post organisational redesign.

“The turnover statistics associated with mergers and

acquisitions are staggering.”

“It’s always the key sales talent who leave first, not the ‘dead

wood’ – an exodus which can cripple a sales organisation”


Pre-merger

In the context of 1 (above) there has been little practical scope for organisations to assess

the talent within the organisation they are acquiring as part of any pre-merger due diligence

process. That said, there is increasing commitment to linking key talent retention indicators

to the financial terms of an acquisition.

And, with the introduction of reliable and relatively speedy online assessment tools such as

SalesAssessment.com’s Sales Talent Assessment, there is now the scope to focus retention

metrics down to the level of specific highlighted individuals.

Post-merger

Immediately post-merger, the race is on to understand the structure of the sales

organisation being acquired and the capabilities of the key talent: assessment and

communication are both fundamental to this activity as organisations seek to capitalise on

their investment.

There are a number of key considerations in relation to M&A activity in the context of the

sales organisation.

These include:

Communicating with the sales organisations

Communicating with customers

Integrating o assessing what roles you’ve got o assessing what talent you’ve got o assessing what roles you need o assessing which talent you should

retain promote develop redeploy

“with the introduction of reliable and relatively speedy on-line

assessment tools there is now scope to focus retention metrics

down to the level of specific highlighted individuals.”


Speed is of the essence, particularly in a sales context: acquiring organisations cannot

assume that top talent will sit tight long enough to be assessed over time as part of a

familiarization process.

Thus, effective online assessment is a clear winner, given that it:

enables an assessment programme to be implemented and analysed within only a

few days

only takes a matter of hours to complete an assessment

can be carried out remotely

provides an objective view of the talent

benchmarks talent against a world-class High-Performer (not simply the best in

either organisation)

provides a clear organisational overview

provides a development needs analysis for individuals and teams

signposts who to retain, who to redeploy, who to train and who to develop

On-going talent management

Effective assessment of an acquired organisation’s sales talent is only the start of the

beginning of the talent management journey.

A properly conducted assessment programme offers two major advantages for an

organisation that has grown by acquisition:

1. An external benchmark based on a global sales High-Performer profile enables

companies to measure the capability of their talent on a consistent and objective

basis across the organisation, geography by geography, division by division, and team

by team.

2. The external High-Performer benchmark enables organisations to compare their

talent with the best the competition has to offer, not simply the best in the

organisation.

“Effective assessment of an acquired organisation’s sales talent is only

the start of the beginning of the talent management journey.”


Sales Talent Assessment and associated analysis tools like the Sales Performance Dashboard

and Sales Team Dashboard empower organisations to identify and respond to a whole range

of issues that impact revenue performance:

Sales Performance Dashboard offers an

objective, high-level read-out of the main

talent management issues for the CEO and

C-suite colleagues.

It identifies High-Performers and those with

the potential to perform at this level, along

with the relevant development programme

needed to bring individuals up to the High-

Performer level.

It provides an excellent indication of the

likely timescale and cost of developing an

organisation based around High-Performers, enabling executives to formulate an

appropriate sales talent strategy.

Furthermore, it also instantly highlights which individuals are likely to be too costly to

develop or retain.

In short, Sales Performance Dashboard provides an instant snapshot of

o who to retain

o who needs skills training

o who needs coaching

o how long this is likely to take

o an indication of the scale of costs involved

o which individuals are unlikely to repay the investment and, therefore, should

be considered for redeployment

“In short, Sales Performance dashboard provides an instant snapshot of

who to retain; who to let-go; who needs up-skilling; who needs

coaching; how long and how much is this likely to cost.”


The Sales Team Dashboard provides more detailed insight into the capability of the

sales organization at team level, and thus enables managers to implement the C-

suite strategy.

The Sales Talent Assessment offers further granularity by providing the facility to drill

down deeper into the performance capabilities and potential of individual employees

in specific sales roles. It provides a detailed but easy-to-interpret assessment along

with a complete development needs analysis for every individual.

SalesAssessment.com’s Sales Performance Insight Suite enables organisations engaged in

M&A activity, to zero in on new and incumbent sales talent at a strategic level. They can

then drill down to focus precisely on implementation of the sales talent management

strategy at team level and that of the individual sales talent.

Sales talent in an M&A context – key points

Talent ground-rules for organisations to follow in an M&A context:

1. Always operate with the assumption that there will be turnover which directly results from the merger.

2. Plan on taking advantage of the opportunity the merger presents to redeploy marginal employees.

3. Look for opportunities to consolidate and streamline for a more efficient organization.

4. Move rapidly to re-recruit your good employees.

1’The Big Exit: Executive Churn in the Wake of M&As’, Journal of Business Strategy, July/August 2008.


Making sense of sales talent

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