January 10
M&A Science Live - The Evolution of M&A Functions

Why People-Centric M&A Should Be Your Only M&A Strategy

Text Link
Access the training, tools, and expertise to optimize your M&A function.

The Industrial Revolution around the 1760s was the most profound change in human history, greatly impacting people’s daily lives. And as invention and innovation accelerated, companies felt the need to compete with one another. However, organic growth was deemed too slow, leading to M&A. Since then, it has become part of every CEO and Board playbook. 

The problem is companies focus too much on the financial side of the transactions, causing most of them to fail. After years of experience, people have started to realize that companies don't do deals, they don't run by themselves, and people are the ones who dictate the success of an acquisition. This article will feature John Morada, COO of M&AScience and Dealroom, as he discusses the three elements of People-Centric M&A. 

"Executing an integration plan is 99% about people and 1% about the framework. So if you get it right with the people, the integration will go much better." - John Morada. 

Financial-Focused M&A

Financial-only M&A refers to a merger or acquisition in which the primary motivation is to improve the company's financial performance. This can be achieved through several means, such as reducing duplication of effort, combining complementary products or services, or achieving economies of scale. However, its biggest downfall is the lack of focus on the people, culture, and processes. 

John has experience in a real-life setting:

Many years ago, Asia's top manufacturer of reprographics machinery acquired the number two business in North America. While it all sounds great, the transaction has to deal with three separate cultures:

  • An Asian headquarter
  • the North American headquarters of the Asian company
  • the local headquarters of the acquired company 

Things can get challenging when an Asian culture runs a North American culture. This transaction's biggest problem was its negative impact on the field service team. The parent company is well known for its efficiency methodologies and is very heavy subscribers to operational KPIs and metrics. Some even say “the birth of operational efficiency to the extreme.”

To translate it into real-life scenarios, they expected the field service team to report how many parts were used when the job started, when it stopped, and how parts were replaced. The target’s culture is distant from all those things.

In the target, they relied heavily on relationships. Field service personnel knew the secretaries, knew employee birthdays and were invited to company picnics. KPIs and metrics came second to retention and customer loyalty. With the parent asking why a 20-minute job was taking 90 minutes to finish and forcing everyone to comply with their new working system, the immediate tension was as thick as a fog on a San Francisco morning. 

Needless to say, customer scores went down as they were no longer happy with the service provided by the field service team. This acquisition was failing their investment thesis. 

Employee Centricity

Employee Centricity is the oldest and most popular element of People-Centric M&A. Many companies have embraced this and have put employees at the forefront of deals. But for companies that are new to this concept, employee centricity is about focusing on the existing and acquired employees during M&A. BOTH are important!

Employee turnover can be a significant issue during mergers and acquisitions (M&A). When two companies combine, employees may be uncertain about their roles and responsibilities, leading to frustration and feeling undervalued. 

In addition, employees may be concerned about job security, particularly if redundancies are expected. As a result, many workers choose to leave during M&A to find new opportunities elsewhere. Employee retention is, therefore, a key concern for businesses undergoing M&A. 

"Permeate the employee experience into every workstream, every playbook, and every status report." - John Morada. 

To reduce turnover, acquirers must learn from the past and continuously improve their processes to engage with the employees. For example, IMOs should build an employee engagement survey into their playbooks throughout the Integration rather than simply at the end. And keep this Integration survey separate from the annual company survey so as not to bleed results or findings. The last thing you want is to have both surveys so close that new and old employees feel confused. 

Also, having a dedicated person focused on the Employee Experience will be significantly helpful. According to new research, four generations of employees are in the workforce, making the impact of acquisitions even stronger and more complex. Managing the expectations of multiple generations will be challenging, and businesses should focus on communicating with employees throughout the process. Companies can help reduce employee turnover during M&A by taking these measures.

Customer Centricity

Most companies stop at employee centricity and neglect another critical element of People-Centric M&A: Customers. 

Customers are one of the most valuable assets of a company, and their satisfaction should be the top priority. That's because happy customers lead to customer loyalty and customer retention. And those are two things that are essential for any business' success. 

Studies have shown that it costs six to seven times more to acquire a new customer than to retain an existing one. 

Also, a study by Boston Consulting Group found that acquiring companies with a loyal customer base see 20% higher revenue growth and 30% higher profitability than companies that don't focus on customer experience. 

To keep existing and acquired customers happy, businesses must make acquisitions that will positively impact every one of them. Financial gain should never be the focus of an acquisition; if customers are happy, profits will follow. 

Here are three tips to improve customer experience:

"Customers are people too so create stories that delight them about why this deal creates value." - John Morada. 

1.Focus on marketing communications

Acquirers need to focus on how to market themselves as one company after the acquisition. Everything has to be seamless for the customers instead of being confusing. 

Customers wouldn't like it if they went to the grocery store, where the meat and the vegetable section had two separate cash registers. Sales teams have different messages, and products to sell will also frustrate customers. Acquisitions should make things better, not worse.

2. Communicate the Value of the acquisition

Customers should never hear about the impact of the acquisition from the news. It's better if it came from the acquirers themselves. Reach out to customers and talk about the narrative of why the acquisition is excellent and is to their advantage. 

It will also be a good chance to answer any questions regarding the deal. Make them feel that they are a significant part of the company. 

3. Never underestimate communication


Constant communication is essential to maintain good relationships and experience. Every acquisition will affect them, and they need to be kept in the loop every step, from the changes in the transaction to launching a new product.

For instance, because there is a change in ownership, acquired customers will now have to change the EIN on their payment forms. If acquirers fail to communicate something as simple as this, customers could send payment to the previous owner, which will cause massive issues.

Stakeholders Centricity 

This third element is what most companies and integration leaders miss. Stakeholder centricity is about managing all stakeholders in the parent and acquired company and overcoming hurdles for them. 

To succeed, the integration leader must know who the stakeholders are, have a good message for them, and live up to their promises. Stakeholder centricity involves everyone that has a stake in the success of the integration.

Integration leaders don't need to write to everyone. However, they need to have a level of communication that lets stakeholders feel engaged as part of the acquisition process. For example, transparency between the steering committee and the workstream leads is essential during integration. Integration leads should not act as secret gatekeepers, and they should serve as a pass-through of information that keeps fluid communication between the two stakeholders. 

Conclusion

Looking at the three elements of people-centric M&A, it all focuses on treating everyone as a person. Each person the deal will impact has lives, emotions, and expectations. Everyone should be treated fairly and equally to ensure that the integration goes well for employees, customers, and stakeholders. 

Definition

What is People-Centric M&A?

People-centric M&A is the concept of executing an acquisition with a focus on the people. Companies have realized that financial models break as soon as people leave the company. This approach is nothing new. In fact, other entities started to embrace this concept as early as 2014. However, we've noticed that they all have different interpretations of what it entails. And even though none of them are wrong, none got it right. 

People-centric M&A has three elements. And every IMO needs to touch all three to increase their chances of success. 

Pros
Cons