Due to the economic downturn in 2021, amidst the COVID-19 pandemic, businesses were ripe for acquisition. It was understandable that big and small mergers and acquisitions were happening every day. Now it’s 2022, and the current business market is still manifesting those patterns of M&As. Investors and buyers have learned valuable lessons over the past two years, primarily that there is a need to leverage and invest in certain elements to make transitions successful. At Simpplr, we are excited to hear that three of those elements are close to our mission.
The Three Elements of Successful M&A
The international accounting, assurance, and advisory network of firms, PwC, has been studying M&As for some time. Their 2021 Global CEO Survey found that CEOs are still looking for the best deals. However, PwC stated in their article “The impact of culture, purpose and digital acumen in M&A” that companies, whether buyers or sellers, must “consider factors beyond the typical due diligence, valuation formulas and integration metrics” to be successful. To maximize value for stakeholders [including employees] through M&A, companies needed “a better understanding of three often overlooked elements: culture, purpose and digital acumen.” As we examine each of these elements, you will find that the common theme is people.
Culture
Company culture is a hot topic right now. Perhaps it is partly because disparate and remote workforces have shown the adverse effects of the lack of positive company culture. People are isolated, disconnected and, consequently, their work reflects it with burnout and resignations raging.
In an Ohio University Masters of Business Administration blog, company or business culture is defined as “what makes each company unique. It reflects an organization’s ‘personality’ and can drive engagement, attract top talent, and affect organizational performance. Factors such as leadership style, workplace policies and practices, compensation and benefits, transparency and accountability, and work/life balance contribute to work culture.”
The role of culture in mergers and acquisitions is critical. Just as potential candidates consider their cultural add or fit to a new employer, so should PE and VC firms or acquiring companies consider the cultural add or fit of the merging business. Each organization has a culture uniquely theirs, and it should be highly assessed as part of the M&A process. Are they compatible? Are their values genuine? If they are not, the company may not be a good fit or add. Ultimately, one part of the organization could feel ostracized, leaving employees.
The Forbes magazine article “Mergers & Acquisitions (M&A) Execution: It’s All About The People” warned of this exact situation. It stated, “it is important to remember that no matter the objective, executing a successful merger or acquisition is about more than ‘strictly business.’ It’s about empowering the people and the brand you are acquiring. That means you should do everything in your power to maintain retention during the transition while promoting a workplace culture of inclusiveness for those joining the team.”
Purpose
Purpose is the values found within the company culture. PwC states that there is “power in Purpose.” Just customers and consumers purchase from companies that align with their beliefs, so are M&As transpiring between companies and investors with similar values. PwC terms these values as environment, social, and governance (ESG) efforts, and they can demonstrate connections between buyers and sellers as a proxy for a cultural fit. According to a PwC survey, 86% of employees “prefer to support or work for companies that care about the same issues they do.” If two companies join and do not share Purpose in their values and missions, it can create disastrous results.
Deloitte, the worldwide management consulting service, suggests that ESGs and culture misalignment contributes to employee loss during or after an acquisition or merger. Naturally, there is always employee loss and turnover on these occasions. According to Deloitte, the most common reasons are uncertainty about the new company direction, loss of their company culture, fear of job loss or uncertainty, confusion due to a lack of communication during the transition, and loss of leadership credibility. However, these losses can be mitigated through careful integrations, especially culture and Purpose.
There are many examples of M&As that failed because leadership could not agree on processes, clarity in communication, or decisions around finance. Have there been failures due to culture and values misalignment? Absolutely! One of the largest was in June of 2017, and Amazon acquired Whole Foods in an all-cash transaction valued at $13.7 billion. What was not configured into that acquisition was the clash of the two cultures.
When one large company acquires a smaller one, cultures are normalized. Sometimes, the bigger business wins out the complete domination of culture. However, that was not the case for Amazon and Whole Foods. In an INC article that ran at the time of the acquisition, the author, Geoffrey James, believed that the position of both company cultures was not compatible. He also thought that Amazon had “damaged Whole Foods’ hard-won reputation.” In another Toolbox.com blog by Simran Oberoi called “6 Examples of Merger Failures Owing to Cultural Incompatibility,” the author believed, “The core incompatibility of the cultures of Amazon and Whole Foods led to the suboptimal results from the merged organization. Amazon’s culture is rooted in efficiency, technology, and not be highly personalized, and Whole Foods is more driven by a more idealistic set of values and approaches. Stories of Whole Foods’ processes being made more “efficient” and affecting employee morale.”
The results in situations such as these are the merger or acquisitions’ failures, which led to the loss of employees. The culture and values do not apply to the workplace, and, consequently, people will find a more fulfilling work environment that reflects their Purpose.
Digital Acumen
In 2020, many tech mergers and acquisitions were not merely about taking advantage of a company’s financial crisis. Unlike in previous years, buyers were not just looking for a bargain deal. They are looking to create value, and many are turning to technology to accomplish this motion. While many would look to cloud computing and AI, it is safe to say that other technologies, such as internal comms, are among the necessary tools to accomplish your digital transformation in a successful M&A. But it was not only about the techs stack, the platforms or devices owned by the businesses acquired. It was about the digital acumen of the employees and how they used the technology for the company’s overall success.
In the PwC’s 2020 Integration Survey, nearly nine out of ten companies use digital tools to aid integration. At, Simpplr, we understand why. Whether through technology or skills, a digital divide can be difficult to cross. While the software and tools can help “improve efficiency and enable employees,” it is in the retention of talent that companies should recognize as “essential.” PwC summarised that “It’s not just the technology you. It’s the intersection of that technology and your human capital. Make sure you have the people necessary to operate successfully.”
Why a successful transition is important.
With all the cautionary tales, it is evident that in the M&A process, businesses need to use every lever to accomplish the goal of a smooth transition for both companies. The primary element must be people—the employees. Deloitte points out that keeping acquired employees is essential to maintaining continuity before, during, and after the M&A. Also, losing employees is expensive.
According to research by FinancesOnline, the cost to replace an employee leaving a company is approximately one-third of their salary. These costs cover recruiting, hiring temp workers, and the costs incurred from training and education. So if an employee makes $75,000 a year, the approximate cost to replace them is $24,750.
A study called “Startup Acquisitions as a Hiring Strategy: Worker Choice and Turnover” by J. Daniel Kim finds that over one-third of acquired workers will leave in the first year. This rate is higher than turnover from hiring new employees. So if your company is working on a merger or acquisition, get involved and start working on a good communications plan. The cost of losing employees is enormous, but it can be alleviated if acquired employees are brought into the culture.
Let’s do a quick calculation.
Let’s say your current company is acquiring a small tech company with 127 employees, and the average salary is $75,000. Given the information above, this means you would expect that 42 acquired tech employees will leave within the first year of M&A. This will cost your company approximately $1,039,500 in the first year.
Read that again.
You would expect 42 acquired employees will leave within the first year of acquisition. This human capital loss will cost your company approximately $1,039,500 in the first year.
Please take a minute to put yourself in their shoes. What questions would you have if your company got acquired by a competitor?
- Is my job secure?
- Will my job title be the same?
- Will my day-to-day work and responsibilities change?
- Who will I report to after the transition?
- Will my 401K employer match be the same amount?
- Will my health insurance premiums increase?
- When will I get paid?
- Will I need to resubmit my direct deposit information?
- Will I receive the same amount of PTO?
- Will you get a new email address?
- What will happen to my drive with all of my files?
- Will I be able to work from home?
- Will I need to relocate?
- When should I update my email signature?
You can probably think of a hundred more. There are many questions that employees will ask as they transition from one company to another. You likely won’t know all of them by day one, but you can put yourself in their shoes to start getting answers. Remember, employees might not find out about the acquisition until the day they are legally acquired. One thing is certain.
Communications need to address what this M&A means for the employee.
By the past examples that we have listed, companies, PE, and VC firms are wiser, taking into account the elements mentioned above and realizing the employee’s role. In this time of the “Great Resignation,” employees and now businesses prioritize valued workers’ needs and demands beyond compensation. As recent history shows, if an M&A cannot produce the work environment that employees want, they will move on. The economic impact of a workforce turnover can be devastating to the value of the newly created entity.
Role of IC in an M&A
As an employee, you would want answers that day, right? If they don’t get answers, this creates uncertainty and stress, leading them to leave. The only way to diminish uncertainty is to build trust in the workplace and ease tension through communication.
Internal communications must understand the timeline to be successful. They have to identify key stakeholders and audiences. A timeline of key milestones and events should be plotted out, with an accompanying development plan and core message. Lastly, channels should be established to create a feedback loop, keeping leaders informed while executing the plan.
Where do you start?
Grab a Seat at the Table
First, internal communications need a seat at the table early in this process. There is a vital need to gather components and build an internal communications plan. You will likely have to sign a non-disclosure agreement (NDA) to participate in the planning process. Signing an NDA means you will keep all information confidential and won’t discuss any information with anyone outside of the M&A group.
If you haven’t already, come to the table with ideas to establish trust with leaders. Advocate for the acquired employee voice and consult leaders regarding the best actions to bring new employees into the company.
This motion is an excellent opportunity to partner with your HR, and IT friends working on this M&A. Many of the questions you will get from new employees will be related to HR and IT, so ask them questions.
Create a Communications Plan
The communications plan is a step-by-step guide on how the entire communications process will play out over weeks or months. This plan outlines every possible step to ensure employees are brought methodically and thoughtfully into a company. Think of it as a detailed blueprint that includes the timeline, key stakeholders and audiences, milestones and events, and core message and channels.
The timeline should include all communications and events needed before, during, and after acquisition day. Here are messages, meetings, and announcements that might be useful for building your communications plan:
- Celebration announcing the M&A
- Initial welcome and what to expect over the next few weeks
- Information for people leaders, next steps, and what to expect
- HR and Total Rewards (401K, medical, and other benefits) meetings
- Training and learning opportunities
- Pay schedules, how to submit PTO and timesheets
- Temperature check (collect feedback)
- ERGs and social responsibility programs
- Regular Updates/News
All communications are opportunities to bring newly acquired employees into the company culture and directly impact their trust in leaders and whether or not they stay.
As noted in the into, this is a crucial driver of success. Communication is not a one-time thing, and you should plan multiple communications across channels (discussed below) each week. Frequent and proactive communications will increase retention if done correctly.
Remember, you need to bring two employee groups together to a shared and unified vision. Keep your current employees in the loop. This action seems obvious, but it can get lost in the shuffle. Build communications to your current employees into the communications plan. Your current employees should not be the last to know about the acquisition. Celebrate this acquisition with them and keep them updated regularly on how the acquisition is progressing. When will you bring both employee groups together to align on what’s ahead and create one cohesive company?
Evolve the communications plan based on feedback, analytics, and especially communication channels
Communication Channels
All forms of communication help create a smooth, cohesive transition in the M&A process. Here is a list of necessary things to enhance corporate communications between leaders and employees across the enterprise.
- Meetings-Meetings bring people together to learn about the company and employment. They are an excellent way for new employees to meet leaders, creating a better introduction to the company and a smoother transition. Do not underestimate how important face-to-face meetings are in a situation where employees have numerous questions and may have feelings of uncertainty. Work with HR to schedule deep dives and lunch and learn to help employees understand their new company and benefits. And get executives to speak at town hall sessions to answer questions. It is beneficial if all of these are scheduled before the M&A day so new employees can get a sense of what’s ahead.
- Single Source of Truth-There is always a need for a single source of truth within every company, whether going through the M&A process or not. Current and leader-approved information should be kept centralized to help new employees find resources, get trained, ask questions, and learn more about their new company. Use tech to help get your messages out to newly acquired employees starting on day one. An intranet page is a perfect place to house content and events outlined in your communications plan. Drive traffic through QR codes and link to every email and message page. Create a feedback mechanism included in emails or on an intranet page. The good news is that you might be able to reuse all of it if you are in a situation like this again.
- Temporary Communication Channels-Set up a temporary channel in Slack or on MS Teams and invite all new employees. Post reminders and drive traffic to your intranet page where they can find information. New employees can ask questions and get real-time information. You can also use email to send information and request feedback. Email messages should drive traffic to the intranet site where all additional data is housed.
Get Leaders Involved
I can’t stress this enough: get leaders involved. You will need their buy-in and support to make the communications successful, and you need them to model the new cultural values. The CEO and executive team are steering this ship, so having them lead the communication efforts will help ease some stress the acquired employees might be feeling. Based on feedback, they need to address what employees care about in a tone that is thoughtful, caring, and responsive to the mood and situation.
Your leaders need to demonstrate transparency, care, and understanding. I like to have them on-location to welcome new employees to the company, answer questions, provide reassurance, build relationships and trust, and set the stage for what’s happening over the next few weeks. They need to listen to employee feedback. Show an aligned and united front with all leaders.
Their involvement doesn’t end after day one. That’s just the beginning. The executive team and company leaders are ambassadors. They should be checking in with employees periodically on-location, virtually, and in video and email messages.
You will need to make sure all messages are aligned and consistent. Show that executives are aligned and engaged through clearly defined roles and processes. You may need to coach them. And you may need to provide talking points and presentations.
How will you know if you are successful?
Every merger or acquisition will have different desired outcomes and goals, with metrics to measure accordingly. However, there are standard tools and success measures to show the value of your efforts. Your endeavor may not be fully realized for a year. But there are symptoms to look for:
Did ⅓ of the employees leave?
What feedback did you measure along the way that you can use?
How will you improve next time? Remember to save your documents and resources to update for the next time.
No matter what transpires, you have a good start with the right processes in place, care for the companies’ cultures, recognition of their missions and Purpose, and value off the proper tech foundation to build off. However, it is the care given to the most precious resource, the employee workforce, that will make your M&A a success.
