Mercer: People Risks Can Undermine Mergers

Last year saw a veritable “merger tsunami,” including health-insurance giant Anthem’s proposed $47 billion acquisition of rival Cigna Corp., chemical giants Dow and DuPont becoming one and Dell’s announcement that it would acquire EMC. The trend is expected to continue through 2016, as low interest rates and volatile capital markets spur companies to grow via mergers and acquisitions.

A failure to address people issues can lead to a merger's unraveling.
Failing to address people issues may lead to a merger’s unraveling.

Mergers can and do go wrong, however, and one of the most volatile components are the people, especially the talented and experienced ones necessary for making it work in the first place. This risk is magnified when the necessary planning for employee retention, cultural integration, leadership assessment and compensation/benefits is given short shrift. However, in its first-ever People Risks in M&A Transactions report, Mercer finds that corporate leaders are being given less time than ever to properly address these risks.

The report finds that 41 percent of buyers report less time to complete due diligence compared to three years ago, while 33 percent say sellers are providing less information about assets for sale. Notably, more than one-third of sellers (34 percent) say more and more of their divestment resources are needed to address HR issues.

For buyers and sellers alike, a plan for clear and consistent communication is necessary for minimizing disruption, says Mercer. Beyond that, the companies doing the buying should use skills inventories and competency assessments to gauge the capabilities of leadership teams and key employees on factors such as their ability to govern, lead people and drive cultural change.

Buyers also need to “adopt an enterprise or global view” to effectively manage benefits, the report finds, and develop effective retention strategies for key stakeholder groups beyond the executive team during and after the transaction.

Sellers also need to identify critical employee groups and consider a retention program, says Mercer, and document a clear talent management/staffing plan to establish the infrastructure of the entity being sold and determine which employees will stay and which will join the new organization.

“The people risks highlighted in our report are clearly part of our conversations with the deal community here in the [United States],” says Mercer’s Chuck Moritt, North American multinational client leader. “The good news is that both buyers and sellers are fully realizing the urgent need to address them in a thorough and thoughtful manner.”