Article: What are the ingredients of a successful M&A?

C-Suite

What are the ingredients of a successful M&A?

Days before the Sun-Taro merger was called off, People Matters spoke to Dr. Gavin Watkins and Vivek Nath, of Towers Watson
What are the ingredients of a successful M&A?
 

HR can play a key role in identifying if there is a cultural mismatch between two companies and devising ways of managing the differences

 

Organisations need to have a proper framework in place. The intuitive way of doing business in India, doesn't work internationally

 

Days before the Sun-Taro merger was called off, People Matters spoke to Dr. Gavin Watkins and Vivek Nath, of Towers Watson, on synergy, integration and governance – the key pillars of a successful deal.

Q. People involved in an M&A deals are generally picked up on a project basis and the same people may not necessarily be a part of the next deal. In such cases, how can organisations ensure that the tacit knowledge gained during the process is made to optimal use?

Gavin Watkins (GW): It depends on how frequently an organisation is involved in a merger and acquisition (M&A) activity. Large firms such as GE have the luxury of having a full-time M&A team. It gets more complicated for conglomerates because a deal in one industry may be quite different to a deal in another industry. So, it can be difficult when there is a lack of frequency. There are companies which, even when they are not doing deals, maintain their M&A bench strength. They keep educational programs running that expose new joiners to M&A concepts and process. Even if a company isn’t doing deals frequently, from an education point of view, it is better to keep a state of readiness that will make it easier to move quickly. The last thing a company wants is to be saddled with a brand new M&A team that doesn’t know the rules of the game.

The success of a deal rests primarily on the synergy and how seamlessly the integration takes place. How should companies address this, and how can HR play a pro-active role here?

Vivek Nath (VN): As organisations, in their bid to acquire or build assets, opt for M&A they cannot simply acquire an asset and move on to the next acquisition. In the lack of synergy, different acquired units would function as separate entities within the organisation without bringing in the value add that it was supposed to. It is here that HR can play a pro-active role in instiutionalising a policy that helps integrate various operations.

Q. Purely from an Indian perspective, I do not think that HR in India is institutionalized vis-à-vis the M&A process. There are variations in practice across industry as to when HR gets involved in the M&A process. In some cases the HR doesn’t really come to the table when the deal is being announced and is more involved in the interpretation of it. HR should take a leaf out of how GE has institutionalised the process.

GW: Despite their importance in the process of integrating two different companies and often cultures there are certain challenges that HR often faces: firstly HR often isn’t involved in M&A discussions at an early stage; secondly, often they are not well represented on the team that conducts and seals the deal. Importantly, HR can play a key role in identifying if there is a cultural mismatch between the two companies and devising ways of managing the differences before it is too late.

Q. Talking of the new phase of integrations, how important is it to have governance strategies in place?

GW: The problem with governance is that it sounds much more daunting than it is. The hard part is to acknowledge that appropriate governance strategies are critical in big deals. Whether a company believes in a centralised or de-centralised mode of operation, it needs to have some form of compensation and benefits governance. There are four areas that I believe to be absolutely critical:

1. The companies have to be clear about their global compensation and benefits philosophy i.e. how they intend to oversee their compensation and benefits arrangements from a global point of view.

2. This requires there to be appropriate guidelines for the different aspects of compensation and benefits globally.

3. There should be absolute clarity on the expectations of the head office in relation to compensation and benefits eg. approval processes etc. Similarly, the issues on which local offices have full autonomy or no autonomy should also be clarified.

4. Have clarity about different stakeholders and their responsibilities so that people in key positions know what each other’s responsibilities are and who is accountable for what. Governance responsibility should be fully documented.

5. Have a small number of key HR metrics that are aligned with the key business metrics. These should be based on what really matters to the organisation.

VN: I think it is really important for organisations to understand why they need to have a proper framework in place. The intuitive way of doing business in India, which most of us are used to, doesn’t work internationally. There are huge financial risks involved. It is about understanding where the synergies are, where the risks fall, and then designing the right framework that works for an organization. I think organisations have started working in this direction.

Q. Once the deal is struck, what are the challenges that companies face in setting up a clear governance structure?

GW: Within organisations there are different stake holders. Internal stakeholders such as HR, Finance, Legal are at a ‘peer’ level. The people in these roles and at these levels typically do not report to each other or take instructions from each other. The governance isn’t the sole responsibility of Finance, HR, Risk or Legal. It has to be a joint cross-functional effort because that is the only way you can get risk management and opportunity management right. The most difficult part is the first step of getting these various stakeholders to work together to identify and manage the various HR risks and opportunities.
 

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Topics: C-Suite, #MergersAndAcquisitions

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