Managing Human Side of Mergers & Acquisitions

1. Managing Human Side ofMergers & Acquisitions Savita Sawant Roll No: 8249

2. Contents • Definition (M & A) • Types of Mergers & Acquisitions • Reasons for M&A. • Issues During M&A. • Stages in M&A. • Issues to be handled by HRM • Re-inforcement of culture • Communication • A Few Cases.

3. Acquisition • One company takes over another & cleary establishes itself as the new owner. • Acquisition may be ‘Friendly’ or ‘Hostile’.

4. Merger • Two Companies come together to form a new entity • A single new Company rather than being separately owned and operated. • Both companies stocks are surrendered and new company stock is issued in its place.

5. Types of Mergers • Horizontal Merger • Vertical Merger • Market-extension Merger • Product-extension Merger • Conglomeration

6. Reasons of M&A • Increasing Profitability. • Gaining Market Share. • Cross-Selling. • Developing Synergies. • Economies of Scale. • Acquiring new technology. • Improved Market Reach and Industry visibility. • Taxation.

7. Merger Waves

8. Sample ToolsDefining the End State high Absorption Acquired company conforms to acquirer Transformation Both companies find new ways to operate Degree of Change in Acquired Company Best of Both Additive from both sides Preservation Acquired company remains independent Reverse Merger Unusual case of acquired firm leadership low low high Degree of Change in Acquiring Company *Mitchell Marks, Joining Forces

9. Issues during M&A • Profitability (Finance issues) • Resource Optimization (Operational Issues) • Market Study (Marketing Issues) • Technological Issues (IT Issues) Human Related Issues ???

10. Issues That can be handled by HR-Managers. • Underestimation of the difficulties of merging two cultures. • Underestimation of the problems of skill transfer. • De-motivation of employees of acquired company. • Departure of key people in acquired company. • Too much energy devoted to ‘doing the deal’, not enough to post-acquisition planning and integration. • Decision-making delayed by unclear responsibilities and post-acquisition conflicts. • Neglecting employee welfares of existing business due to the amount of attention going into the acquired company.

11. Impact of M&A on Employees

12. Actions from HR

13. if people issues are so critical, why are they neglected? Possible reasons include: • Executives believe that they are too “soft” and, therefore, too hard to manage. • Social costs and benefits are regarded as secondary. • There is a lack of awareness or consensus that people issues are critical. • There is no spokesperson to articulate these issues. • There is no model or framework that can serve as a tool for us systematically to understand and manage the people issues. • Therefore, the focus of attention in M&A activity is on other business aspects such as finance, accounting, strategy, and manufacturing.

14. M&A Phases Pre-combination Step 3: Integration Planning Step 4: Implementation Step 5: Post-Deal Step 1: Pre-Deal Step 2: Due Diligence • HR is on the M/A Deal Team • Each step is a new level of commitment towards the deal and requires more information and analysis • Pre-Deal: Identify the strategy driving the M/A, locate and select targets, determine potential business opportunity, define critical success factors, and notify target of intent • HR’s role: educate team on HR implications, conduct high-level analysis of people, org, & culture fit based on available information, identify people-related issues, plan for due diligence • Due Diligence: collect and analyze information from the target, assess leadership team, summarize findings, issues, and risks, and make go/no go decision • HR’s role: collect and analyze HR related information, identify issues, risks, costs, savings • Integration Planning: set deal terms, use information previously collected to create plans to combine companies with minimal business interruptions, close the deal • HR’s role: secure key talent from target, collect more information where necessary, create integration team for HR, create HR integration plans (e.g., culture, organization, people, HR processes, HR systems and policies)

15. M&A Phases Combination Step 3: Integration Planning Step 4: Implementation Step 5: Post-Deal Step 1: Pre-Deal Step 2: Due Diligence • HR has it’s own implementation team(s) • HR’s role • Announce deal and start ongoing communication to both companies • Execute HR Integration Plans & adapt as necessary • Provide ongoing change management for both companies (e.g., management ability to deal with people issues, training, motivation, systems integration, job security/career concerns, realistic merger preview, Ethics & Compliance standards) • Monitor people-related integration activities

16. M&A Phases Post-Combination Step 3: Integration Planning Step 4: Implementation Step 5: Post-Deal Step 1: Pre-Deal Step 2: Due Diligence • HR is a member of the Deal Evaluation Team • Deal Team evaluates the successful capture of synergies and achievement of original strategy • HR’s role • Capture lessons learned from the management of the project • Evaluate organization, people, processes, systems (e.g., 24th month audit) • Suggest process improvements • Align with Business Strategy of the Future • Learn from this deal to be ready for the next deal • Ongoing involvement in integration of culture

17. Data to be collected from seller • Human Audit – numbers, levels, locations, pay levels & Union Affiliations. • Human Cost –obstacles to rationalization such as merger and employment law. • People quality – Key Players, corporate culture, age profile, skills inventory. • Personnel Policies – pensions, employment contracts, medical provisions etc • Employee Relations. • Organization Structure.

18. Key Participants

19. Issues to be handled by HRM • Preparation of Due Diligence Report.- recruitment, training, performance appraisal, compensation, labour relations & legal compliance. • Creation of Manpower Plan- delineate roles & reporting relationships. • Communication • Retention Strategy- Retention Bonus Plans. • HR Integration –HR Systems, Policies &Practices • Cultural Integration.

20. Role of HR Department • Formulation Strategy. • Creating Teams. • Creating Organization Structure. • Developing a Communication Plan. • Creating a Transition system.

21. Facilitate to guide Transition Teams • Help Managing Stress • Team Building. Training • Deal With Problems • Prepare HR Strategy • Avoiding Job cuts

22. Reinforcement of New Culture • Find out through surveys what cultural values are valued and which of them should be preserved • Enlist all of them and request feedback from each management level • Provide the management with development tools and ideas to implement the result of the surveys and feedbacks • Finally, it can conduct a survey of all levels of management about 3 months after the deal is through in order to assess the progress towards the new culture.

23. Communication • Keeping all employees informed (Frequent broadcasts from CEO, HR Director) of all crucial decisions. • Instilling a sense of security among all employees, so that the issue of dovetailing employees can be dealt with. • Especially, in the case of acquisitions, the HR needs to ensure an equitable and fair treatment of employees • In case of lay-offs, offer outplacement services and just severance packages • Have a definitive plan with specific dates for individual communication

24. Encourage open houses or forums where employees can come together and discuss the deal and allay their fears and insecurities surrounding it • Acknowledge the problems as and when they arise • Enhance effective communication by involving line managers • Establish an helpline for employees • Advocate family assistance programs to make the employee that he/she is cared for

25. Competencies of HR Managers • Understanding overall business strategy as well as people and organization issues associated with that strategy • Gaining knowledge about business in general and M&As in particular • Being able to contribute to another company’s value • Planning and leading complex M&A strategies • Understanding and spending more time with operating managers to help support them in M&As

26. TCS- Tata InfoTech Merger • Consideration of prior experience. • Designation, fitment & pay scales. • Joining dates. • Legal issues , promotions & policies. • Induction & Project Allocation.

27. Satyam Acquisition by Tech Mahindra • Tech Mahindra-23,000 employees. • Satyam – 45,000 employees. • HR-Department faced challenge to retain the Employees & their Clients. -Sales Reboot Campaign. -Special Induction Programmes. -Recognition & Reward Schemes. -Communication Channel.

28. Cross border M&A’s • Nationality (home) of the aquirer makes a significant difference to style & culture of new organisation. • National (host) diffrences in pattern of HRM and Industrial Relations. • Language Barriers • Legal Issues • Political Issues • Geographical Issues.

29. Daimler Benz Germany Planned & methodical way Stuck to their plans & frowned on failure. Hierarchical ,Top-Down structure Bureaucratic Spoke only German Formal Dress Code Lower Compensation Chrysler Corporation U.S. Carefree Attitude, individual instincts & ideas Experimentation ,Trial & error Approach Flat Structure Highly Decentralized Hardly knew German Casual Dress Code Higher Compensation Daimler-Chrysler (DCX) Merger –Clash of Cultures.

30. After the Merger…… • Compensation system was restructured. • Salaries were revised and made more equitable. • Chrysler employees did not like the lower salaries after merger. • Daimler started exerting pressure on Chrysler employees to adopt most of its policies & Procedures. • Result – 2 Chrysler CEOs left the Company within 19 months -Chrysler was slowly overshadowed by Daimler in almost all areas. -Daimler employees were in key positions & took most of the key decisions -DCX went through major crisis.

31. Daimler Benz- Chrysler • Dieter Zetsche ,CEO Chrysler Group, March 27, 2002 “Like many other executives who have lived through a merger, DaimlerChrysler executives now understand that it is not enough to manage the legal, financial, and operational elements of mergers and acquisitions. Maximizing the value of a deal requires that the human side of organizational change must also be managed well “.

32. BIG Animation • Shifted from Bangalore to Pune -2007 • 250 Employees shifted - Only 6 refused. • Choice for Housing , location , school, children , Domestic Connections, Licenses, bank loans for vehicles. • Two Special task force teams -8 to 10 members (one each in Pune and Bangalore) • Identifying good properties in each location (coordination with around 75 estate agents ) • distributed forms to every team member wherein they were asked to specify their budgets, what features they were looking for in a location, whether they preferred to stay alone or as a group and other such details. • Every Friday, the company arranged to fly a batch of 20 artists from Bangalore to Pune. Each batch had the mandate of choosing and finalizing their accommodation in Pune in five days time post which they would return to Bangalore and continue with the production work.

33. arranged for vehicles that would be with the artists right from the time they landed till they took off, and also arranged for well endowed Service Apartments for their five day stay • Artist (employees) would then tour the locations, first two days would be spent in zeroing in on the choice of location, the third and fourth day on freezing on apartment of choice and day five in finalizing the deal with the agents • Team had also arranged for Sample L&L Agreements, on-board Lawyer, Printers and Computers at the Service Apartments, to facilitate the deals in a quick and secure manner

34. the entire process of each artist finalizing residence took about 3 months and one additional month for the actual relocation to happen wherein the company hired an official Mover & Packer agency that took care of the shifting logistics for each artist. • Schools, Ration Cards, Driving Licenses, Gas Connections, Bank Accounts, Vehicle Loans, and Mobile Connections, all had been taken care of . • In more than 6-7 cases, the company actually took the bio-data of the spouses of their artists and went about securing jobs for them in Pune

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