Merger and acquisition (M&A) activity has been robust, with global corporate combination volumes up over 40% and U.S. deal volume up by 10%. Given those volumes and the complexities and risks of combining organizations with distinct missions, value propositions, operating models, customer bases, and cultures, the challenges are enormous. Designing and executing a successful merger or acquisition leverages the natural strengths and capabilities of human resources teams and, as a result, presents unique requirements for fulfilling HR M&A roles and responsibilities.

The nature and challenges associated with mergers and acquisitions

M&A’s are the process of consolidating companies' assets and liabilities, through a number of possible actions between two companies, which Investopedia categorizes as:

• Purchasing and absorbing another company
• Merging two companies to create a new company
• Acquiring some or all of the major assets of another company
• Making a tender offer for a majority or all of the stock of another 
• Staging a hostile or unfriendly takeover attempt of another company

While mergers and acquisitions differ on a number of factors, HR M&A activities are commonly focused on making them a success, which is a proven, and unfortunately, all-too-common challenge. For example, HBR reports failure rates of 70-90%, citing their inability to meet their value proposition (e.g., increases in market share, revenue growth, and integration-based savings). Similarly, SHRM and Deloitte report similar failure and post-M&A underperformance rates, with the notable finding that cultural incompatibilities and clashes account for 30% of M&A integration failures.

The reasons and expected benefits of M&A

Mergers and acquisitions are a long-standing way to enhance an organization's size, scope, reach, capabilities, and market value. They were popularized in the late 1800s-early 1900s in the U.S. primarily as a means of rapid growth, cost control, and market dominance. Over the years, their purpose has expanded to include strategic objectives such as product and service expansion and integration, protection against market fluctuations, globalization, and new revenue streams. The most common purposes today include:

Expanding market presence and leadership

This is achieved through mergers and acquisitions, which enable rapid entry into new geographic markets, expand product and service offerings for existing customers, strengthen market position against competitors, and reduce direct competition by acquiring or merging with current or future competitors.

Enhancing growth and profitability

M&As can increase a customer base, provide immediate inroads into new geographic and niche markets with growth and cross-selling potential, expand access to needed resources, add complementary internal capabilities and expertise, and streamline product development, manufacturing, sales, customer processing, distribution, and delivery methods.

Increasing efficiencies

Adding or combining organizations can generate economies of scale by leveraging shared resources across larger design, manufacturing, and distribution channels. They can be used to reduce and consolidate staff, more easily afford and access advanced capabilities, technologies, and processes to optimize resource utilization and drive cost-effectiveness, innovation, and efficiency.

Diversifying and reducing risk

Mergers and acquisitions can be used to gain access to new markets, broaden product or service lines, and expand into new industries and geographic markets to defend against the effects of periodic market or sector downturns. When operating in multiple geographic markets, a downturn in one can be balanced by upswings in others.

Accessing talent and expertise

Talent gaps can be filled through mergers or acquisitions of organizations whose missions and employees possess unique or specialized skill sets and experience that another firm (or both) needs to execute strategic plans or meet growth objectives. This is especially important in times of critical talent shortages, rapid technological change, or the need to expand in any of the preceding areas of benefit.

Other values that can be derived from M&A include reduced tax liabilities, financial downsizing (by selling assets or businesses), and market-exit strategies.

Critical differences between a merger and an acquisition

HR leaders and their teams should be well aware of how mergers and acquisitions differ and how they overlap to prepare for their roles in each. The fundamentals will differ based not only on whether there is a merger “of equals” versus an acquisition by one party, but also on whether the HR M&A team’s organization is acquiring or being acquired. When the HR team supports its organization in a merger or acquisition, many priorities are the same, and the solutions that drive success often share similar attributes, if not specific responsibilities.

The essential questions to ask relate to how much changes, and for whom?

A number of differences relevant to HR M&A efforts include (and are adapted from investment banking’s Tobin & Company), and should be considered as generalized statements that are subject to variability based upon the terms, conditions, and nuances of an M&A agreement between two organizations: 

• Mergers prioritize cultural blending, versus acquisitions focus on operational alignment 
• Mergers focus on optimizing the strengths of each and reducing inefficiencies, where acquisitions target process, people, and asset integration
• Leadership is shared in a merger versus an acquiring company, where leaders assume responsibility for governance and oversight
• In a merger, products and services are maintained unless redundancies exist, while Acquisitions involve integrating, modifying, or discontinuing those
• Cultures are integrated in Mergers where an acquired company’s culture is absorbed into that of the acquiring company.
  
  

The role and responsibilities involved in HR M&A activities

The HR M&A team drives the success of mergers and acquisitions by managing the "people side" of the deal, with the goal of ensuring a smooth, effective transition that aligns with financial and business targets, retains key talent, and integrates both organizations’ cultures and operations. The key responsibilities can be divided into three distinct phases: pre-deal, integration, and post-deal activities, each requiring careful, comprehensive planning, coordination, and visible support across all levels of the organization. These include:

Pre-deal

This phase focuses on building a clear, risk-informed understanding of the target organization’s people, practices, and obligations before any commitments are finalized. HR’s work here shapes deal feasibility, informs valuation assumptions, and surfaces people-related risks that could materially impact outcomes

1. Due diligence

Once the intent to merge or purchase is agreed upon and signed, the process begins immediately with the creation of a team of experts (primarily legal, financial, operational, and HR) assigned roles and responsibilities for the (mostly private, protected, and confidential) sharing, analysis, and evaluation of information, data, reports, and documentation. The due diligence process is a fact-finding mission in which companies share (or, in the case of an acquisition, provide) open access to their financial and tax records, corporate structure, contracts and supplier agreements, legal issues, facilities, inventory, and other commercial documentation. 

For the HR M&A assessment, the process involves collecting and analyzing data and reports on the target company's workforce, demographics, compensation structures, welfare and retirement benefit plans, contracts, and all employment commitments. Further analyses should be conducted to support a review of worker demographics by job family or role, and to examine relevant hiring, turnover, and mobility histories.

2. Legal compliance and risk assessment

The list of these can be extensive, and should always be created, if not conducted with employment law experts. These include reviews and evaluations of policies, processes and workflows, standards and criteria, automated systems, and historical reports related to worker classification, wage and hour, union agreements, non-competes, executive contracts, severance, and the WARN Act. It requires a review of all existing legal liabilities to assess potential risks, including open/filed lawsuits and regulatory claims, as well as contractual and policy obligations related to executive compensation and employee benefits. 

Liability assessments should specifically review all open court actions and lawsuits, and include projected loss estimates with win/lose percentages. Similarly, all open regulatory agency complaints and ongoing or unresolved investigations should be evaluated. Existing policies for staff reductions, which often occur in corporate combinations due to role redundancies and executive layoffs, should be modeled to assess their cost implications.

As employment laws and regulations vary by country, merger or acquisition targets with operations across multiple geographic regions must have their risk and cost profiles assessed by legal and employment experts knowledgeable about each location.

3. Cultural assessment

The time and data available for cultural assessments can be limited during due diligence, but the HR M&A team should strive to obtain as many objective indicators and proxy measures of the target's existing corporate culture as possible. The reason? The failure rates of M&As and the overwhelming evidence that cultural mismatches are a major cause of those failures. As such, assessing company cultures and conducting comparative analyses are essential to reducing post-merger or acquisition resistance, ensuring long-term integration and collaboration, and ultimately delivering the intended improvements in business and financial outcomes.

Relevant data can be drawn from employee surveys, social media ratings, employment brand reviews, exit interview summaries, and in-process observations of leadership and cross-functional collaborations during due diligence meetings and working sessions. In addition, insights into international operations and locations should be proactively pulled from employment and industry experts, management consultants, and former employees familiar with cross-country cultural, political, and economic differences.

Integration

This stage involves combinatorial actions, during which the detailed evaluation and integration of the new company(ies) begin. The HR M&A team initiates these after due diligence, and the deal agreements are signed and executed. They begin the crucial planning process for implementing the organizational blending on the official start date of the corporate combination. 

1. Talent retention and staffing

Given the disruption that mergers and acquisitions create for employees, affecting their views of employment stability and career progression prospects, as well as their confidence in their ability to navigate company and leadership cultures, it is essential to calm nerves and offer reassurances to the most valuable workers. This involves identifying key employees at all levels and developing targeted retention and engagement strategies. 

2. Staffing levels and organization structure

HR M&A teams play a critical role in supporting line leaders in determining appropriate leadership structures, roles, spans of control, skills, deployment, and new organizational structures that support the new or updated operating model. This includes supporting staffing-optimization analyses to identify labor costs, rightsizing opportunities, and role redundancies, and ultimately aligning existing staff with those opportunities and reductions.

3. Compensation & benefit plans and programs

The challenge of integrating or harmonizing pay structures, incentive programs, and benefits plans and their administration (outsourcing and processing) is highly complex and can involve decisions to maintain certain plans, with subsequent sunsetting and integration, or replacement. As welfare and retirement plans are subject to significant legal and governmental regulation, coordination with appropriate legal counsel is required, and never optional. Rewards and recognition plans should be reviewed in the context of culture and identity, as removing them could negatively impact employee acceptance and retention.

4. Policy review and harmonization

The most common integration effort involves reviewing and deciding how to manage employment policies. A thoughtful review of policies should consider legal and regulatory requirements, best-practice maintenance or adoption, and alignment with business, corporate, and cultural values. These also represent a significant opportunity for the HR M&A team to lead discussions on alignment and how they support the desired employee experience (EX) and operational streamlining.

5. Systems Integration

The integration of historical employee data into HR Information Systems (HRIS) and automated processes has a well-defined path, but remains a challenge for many. It requires understanding the underlying data and its structure in the to-be-acquired or to-be-merged organization’s systems and data repositories; how individual data elements or fields are defined and structured; and how calculated fields (e.g., current tenure, time-in-role) are created. Additional decisions need to be made regarding the systems of record that will house both companies’ data, including compatibility and integrations, security, data access, protection, storage, and backup capabilities and limits. Maintaining parallel systems for a period of time should be considered to ensure redundancy during integration and to avoid disruptions to report generation and distribution cadences and schedules.

Post-deal

This phase centers on sustaining momentum and ensuring the long-term success of the combined organization after formal integration activities begin. The emphasis shifts from execution to stabilization, alignment, and continuous adjustment to realize the deal’s intended strategic and talent outcomes.

1. Change management and communication

For many experts, strategic change management is the essential driver of successful communication during the transition, as it is designed specifically minimize the inevitable uncertainty that accompanies many M&As. The key is to create comprehensive communication plans, provide timelines for critical decisions that will impact employees and how they will be made, and provide updates to keep affected employees at all levels informed. The plan should include how the action will affect the newly combined company’s mission, vision, and value proposition for customers, stakeholders, and employees. 

2. Integration management and status

The integration of businesses under a single roof does not end on the start date; it continues after a new name and logo, and an expanded brand and market presence, are announced. It must be viewed as a continuous process with ongoing efforts in operational integration, new or updated workflows, and the cultural integration and assimilation of hundreds or thousands of new employees under the corporation's newly expanded umbrella.

Project plans and shared governance structures and processes should be established to manage progress on new or updated foundational elements (e.g., developing a new compensation structure, changes to the operating model, and leadership responsibilities). A multi-year perspective should be adopted, and operational KPIs should be used to track and maximize alignment between the capital investment and the deal's strategic intent.

Strategies to enhance HR M&A impact and accelerate its success

Within the HR M&A process, there are many opportunities to leverage HR’s crucial role: to ease the transition for all employees, maintain fairness and equity during assimilation of new contributors, and enable effective additions to business, financial, operational, and talent capabilities. Given those parameters, several best practices should be considered when planning and executing a merger or acquisition.

1. Engage top leadership

Move executive team members beyond day one to recognize that creating a successful transaction is a multi-year effort. Bring them together to clarify the company's mission and redefine its vision, values, strategic objectives, operating model, and organization design. Understanding that roles and people will likely have changed calls for an executive team-building and alignment effort that will reverberate downward through the management structure. In this way, a reset of expectations, priorities, competencies, and the leadership/management culture can be created and flow throughout the organization.

2. Manage change

HR M&A activity always targets the inevitable cultural disruption and resetting that it requires. The team should create a comprehensive plan outlining how the business and operations will change, including strategy, design, production, distribution, delivery, customer support workflows, staffing, responsibilities, and metrics. The opportunity created by the disruption should be leveraged to build new or improved work environments, relationships, and cultural touchpoints. 

Use employee listening to assess the cultural experiences, expectations, and hopes of all employees, and measure the impact of change, targeted communications, awareness campaign activities, and ongoing engagement, sentiment, and, most importantly, performance and productivity. Use structured engagement activities to bring workers at all levels into workflow and job redesign, customer feedback responses, and the cascading of corporate or business-unit goals into their daily work and goals.

3. Understand how the work gets done

A critical role for HR M&A teams is to design and facilitate reviews of management practices and working norms, and to assess how they have contributed to or hindered customer value creation, productivity, and performance. When integrating operations, compare and contrast the processes and responsibilities deployed in both organizations to determine how to blend operations, start/stop/adapt, achieve efficiencies, and decide where and how to overlay best practices. Leveraging process reviews with Lean or other formal improvement methodologies can drive engagement and non-emotional decision-making through shared redesign activities.

4. Secure critical talent

HR M&A experts understand that these changes affect employees on both sides, disrupting career plans, employee aspirations, financial rewards, and the cultural expectations of top contributors. In fact, attrition rates as high as 34% in the first year post-acquisition.

Key tactics to avoid this start with identifying the roles and people that produce a disproportionate amount of value-chain contributions, using approaches such as:

• Review succession plans and identify successors and HiPos
• Conduct Critical Workforce Segmentation (CWS) and critical role holders
• (RE-)assess and validate each company’s high performer and high potential (HiPo) lists 
• Perform Organizational Network Analysis (ONA) to identify employees who are collaboration “hubs”, key influencers, culture champions, and brand ambassadors

To focus on engaging and retaining those identified as critical “contributors”, conduct “stay interviews” to discuss their importance and future value, consider stay bonuses, identify mobility or advancement opportunities that match their aspirations and capabilities, and develop formal transition plans and agreements for redundant but key role holders.

5. Reset talent management processes

Any organizational change is an opportunity, but HR M&A experts understand that the unique circumstances of such change can catalyze upgrades, streamlining, or redesigns of existing talent processes. Consider processes that create headaches and dissatisfaction (e.g., performance evaluations) or can help align the talent across the organization. Align and integrate policies, practices, and reporting with applicable government regulations and agency requirements in new geographic markets.

6. Integrate HR systems and data

As mergers and acquisitions activity requires review, planning, and selection of which HR systems to retain, and how to leverage and integrate data and other platforms, inevitable issues will arise related to system incompatibilities, data inconsistencies, and concerns about data integrity and security that require attention. The opportunity to formalize and structure a data governance process is immediate and critical. HR M&A teams should develop plans for HRIS, IT, and Security teams to coordinate the standardization and structuring of data, repositories, and systems integrations and access.

7. Reengage employees and regain productivity losses

Helping employees move beyond the shock an M&A action can create is an essential objective for HR M&A teams. Consider wellbeing activities such as grief and change processing through an EAP or group coaching; train managers to identify signs of anxiety, low morale, or engagement; and offer online support resources, and design group activities to help people overcome these predictable feelings.

Consider the “reboarding” of all employees (especially critical role workers) by engaging them in formal and small-group sessions focused on understanding the mission, the market value proposition, and how their roles contribute to the greater good. Engage employees in work and cultural integration teams and activities. Engage them in process redesign, employee listening events, upward feedback, and envisioning a new culture that improves their EX and motivates their loyalty, performance, productivity, and contributions.

Relevant Practices & Tools

Core Organizational Design Practices To Align The Organization With Business Strategy. >

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Assessing the Change Impact on Specified Stakeholder Groups for Prioritizing Activities. >

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Applying Organization Development Principles to Uncover Opportunities for Improving Organizational Performance and Health. >

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Applying Lean Analysis to Assess Levels of “Flow” and “Waste” in Current HR Processes. >

A core element of Lean focuses on transforming HR into a data-informed, continuously improving system. “Flow” is the movement of value across a process without interruption, confusion, or delay... more »

The Employee Journey Mapping Worksheet: Map Experiences Across the Employee Lifecycle to Surface Testable Improvement Opportunities. >

The Employee Journey Mapping Worksheet is used to understand how employees experience key stages of their lifecycle and where HR services either support or hinder progress... more »