- Talent loss after M&A is often substantial, yet not inevitable
- Build talent analysis into your due diligence
- Four strategic steps can promote a successful coming together
2018 was a standout year for mergers and acquisitions. According to Mergemarket, a leading provider of M&A data and intelligence, domestic M&A value reached $1.5 trillion last year -- the second-highest total deal value for U.S. companies ever recorded (after a record-high $1.98 trillion in 2015).
To prepare for a deal, companies conduct due diligence on a range of factors -- including financial reviews and operational readiness -- before leaders sit down at the negotiating table. There, they employ great rigor, countless hours and a lot of money to get the merger right.
Yet, half of all mergers fail. That's like flipping a coin. You might acquire a company, a brand, technology or intellectual property that revolutionizes your company. Or you might get a lemon.
That may be because companies rarely include an accurate analysis of key talent in the due diligence process. During M&As, the focus tends to be on getting the top leadership team in place. But a recent EY report suggests that 47% of key employees leave a company within a year of the transaction and that 75% leave within the first three years. Additionally, Gallup research shows that 35% of workers report changing jobs in the past three years, and slightly over half of all employees say they are actively looking for a new job or watching for openings.
So the talent you think you're acquiring already has one foot out the door -- and that will cost you in ways a conventional due diligence process won't spot. Gallup analytics shows that highly talented employees who are not engaged are the first to go. In fact, their turnover is on par with lower-talent, disengaged employees.
Overlooking talent issues during an M&A is a recipe for disaster. Use these four strategies to avoid problems down the road.
1. Identify and Retain 'Super-Keepers'
Knowing the star players in the acquired company is vital. These super-keepers are key talent best suited for the most critical roles in the merged enterprise. But how can you get to know players you haven't seen in action?
Leaders can request a list of "stars" or high potentials in the acquired company, but these lists are liable to be very subjective. You can get a talent review of the highest performers, but they may not fit the specific needs and challenges of the integrated organization. You can even conduct your own recon with questions and close observation, but what you really need is an objective and predictive view of the star players in mission-critical positions, not just executive roles.
That means an objective, critical role analysis -- your first step to avoid role redundancy, duplication and the unintentional misevaluation of a super-keeper. Analyzing incumbents' talents in these critical roles is remarkably helpful because a simple inventory of their knowledge, training and pedigree will be insufficient.
Why? Because a merger disrupts everything -- systems, processes, even customer relationships -- and integrated companies evolve. You want your best people in front of your biggest opportunities and challenges. You want people with passion and talent who can learn things fast and start delivering with high productivity and precision.
You want to know who's up for all that, and a CV won't show you. You need a much closer analysis.
And they need to analyze you. Show your super-keepers a clear career value proposition at your company. Where possible, conduct stay interviews so you can get to know them and their talents, experiences and aspirations better. Schedule a conversation for the 30-day, 60-day and 120-day marks to keep up with these talented workers consistently.
2. Go Beyond the Retention Bonus
Large retention bonuses for top talent are the norm during a merger. It certainly works in the short term -- people will stick around for a big jump in pay. But throwing money at top talent doesn't cause people to remain engaged, inspired and willing to adapt to their new reality. And it may not promote feelings of safety and security, which is crucial during post-merger integration.
Gallup research shows that only about 34% of U.S. employees are engaged at work. The "not engaged" are insecure about their employers, making them easy targets for competitors hungry for new talent. But what talent wants is not more money. Our research shows that a competitor would need to pay an engaged employee over 20% more to get them to switch jobs. Disengaged employees will leave for almost any increase in salary.
Talented, engaged people need assurance that their organization is making the right decisions and driving a smart strategy. And they want to be part of a strong culture with a well-defined purpose and strategic direction. Only 22% of employees strongly agree that the leadership of their organization has a clear direction for their organization. Fewer yet, 15%, strongly agree that the leadership of their organization makes them enthusiastic about the future, and 13% strongly agree that their leadership communicates effectively with the rest of the organization.
They're evidently not getting what Gallup finds followers want most from leaders: trust, compassion, stability and hope. Frame your post-merger integration communication around these four needs. Communicate them consistently in town halls, leadership meetings and listening tours as you start to get to know the combined enterprise. Give your stars what they want more than money, and you'll give them a reason to stay.
3. Enlist Top Talent to Help Create a New Culture
Evolving two cultures into one is a real challenge post-merger. Most companies conduct a culture due diligence for that reason. But in many ways, culture is defined and driven by leaders and top talent. They want their culture, values and identity to be respected, acknowledged and, where needed, retained. Including their views in the culture due diligence is important. Don't, and you set the conditions for a clash of cultures.
An example of successful cultural integration can be found in the relationship between online retailers Zappos and Amazon. When Amazon acquired Zappos, according to Fortune, it "promised to leave Zappos alone so long as it hit certain financial targets." And Zappos has, which protects its unique culture and ways of working.
In many ways, culture is defined and driven by leaders and top talent. They want their culture, values and identity to be respected, acknowledged and, where needed, retained.
The deal or integration team should conduct some exploratory research -- ask questions about what the other company values the most, the words they use to describe their culture, their wishes and aspirations, the cultural elements they find sacred. Work within that paradigm. Evolve where you must -- but in areas that are unique and important to the acquired company, leave it be.
4. Use Mergers for Leadership Development
End-to-end management of an acquisition -- including due diligence, integration and managing cultural change -- is a phenomenal learning experience for leaders, especially for those who are unfamiliar with the challenge.
A gig on the integration team certainly pushes leaders out of their comfort zone, but it also gives them a deeper understanding of running new businesses, functions or divisions, as well as specific change management skills. And it gives your top talent significant visibility and exposure to executive-level leaders.
Providing emerging leaders with the skills to manage complex acquisitions will make your company stronger and more capable of driving successful mergers in the future. In today's dynamic and highly complex markets where business consolidation is common, these leadership skills will be highly valued.
Mergers are also a great opportunity to provide your talent with the freedom and empowerment they need to do their best work, while you have the freedom to reset policies and structures that make their work even more effective and profitable.
And that might be enough for you to beat the 50/50 M&A odds and have the coin land in your favor.
Discover how Gallup can help you make -- and make good on -- great employment promises:
- Download Gallup's Designing Your Organization's Employee Experience report to learn how to create an employee experience that improves individual, team and business performance.
- Create a winning employee experience strategy and keep your top talent by partnering with Gallup.
- Offer an onboarding experience that puts new employees on the path to long-term success at your organization.