Keeping the HR function at the forefront of successful integrations

The stakes involved in an acquisition are numerous, whatever the objectives and magnitude. During the various stages that mark the path from intention to integration, the HR function must play the role of a guiding compass and maintain a key role at the decision-making table.

The acquisition process is divided into several phases:

1. The strategic thinking, notably in case of potential external growth, from which we derive the criteria that will be used to filter the opportunities that may arise, or more proactively, used to compile a list of potential targets
2. The letter of intent, when discussions with a potential seller begin to take shape, followed by due diligence, i.e. analysis of the target and determination of its price
3. Signing of the Sale and Purchase Agreement (SPA) or put option
4. Preparing for the takeover and the closing, i.e. completion of the transaction

Strategic thinking is an important stage in structuring decisions and aligning internal stakeholders. We observe that “target screening” often fails to include HR criteria, apart from those relating to management profiles, particularly when value creation is far removed from skills or management issues.

While the opportunistic dynamics of mergers/acquisitions and a certain number of biases reduce the scope of choices at this stage, it remains an interesting moment to clarify the imperatives and points of attention for the HR function, and to anchor the function in the ecosystem of decision-makers of the "deal" within the company.

If an opportunity becomes a reality, the due-diligence phase is more decisive. It invariably includes a review of the main financial elements (evolution of personnel costs, analysis of corporate liabilities, etc.) and a legal review (risks, compliance, compensation of management and statutes in particular). These elements are key to determining price and guarantees.

However, it is often necessary to invest further in purely HR aspects. Even if access to information is difficult, human capital is an asset. Understanding its stability, challenges and investment needs requires a detailed review. In this respect, the HR function needs to innovate and make greater use of information external to the company, by venturing into "big data". It must also be a partner in expert sessions with management and impose face-to-face meetings to take the pulse of the company. There is no substitute for a site visit, for example, to get a feel for the intangible issues on which to base your instincts and convictions.

The HR function must then take part in negotiating the terms of the "Sales Purchase Agreement". The basic aim is to ensure business continuity and secure the interim phase. However, to prepare for integration, you also need to ensure that you have access to more information than during the due-diligence phase. For example, regular access to staff lists with grading and compensation breakdowns is essential to prepare for integration. Similarly, it is vital to be able to monitor the transfer of key personnel. “Clean teams" can be set up to protect confidentiality before the actual takeover, as is customary at least for HRIS interconnection. Lastly, communication with the teams in this early phase is critical: contractual documents must keep consultation and coordination procedures under control.

Finally, financial players are reluctant to enter the field of organizational culture, which they perceive as immaterial, non-measurable and difficult to change in the short term. As a result, questions about culture remain low on the agenda.

Yet cultural "clashes" are a major cause of value destruction in Deals. General management should be concerned by this issue and can carry out diagnostics and ensure awareness of the particularities of each party, to facilitate mutual understanding and dialogue from the earliest stages of collaboration. It can then turn its attention to defining an aspirational culture that will enable the company to use this key moment to bring about behavioral change.

As an essential vector of transformation, an acquisition can be leveraged opportunistically to better adapt cultural underpinnings to new market needs.

As we see it, one of the challenges will be to prioritize, given the limited resources available to the HR function. It is important to briefly train employees: objectives, hierarchy of issues, mastery of relations with the seller, with third parties, etc. It must help them to understand the real limits of antitrust, and to avoid any instrumentalization of the necessary limits in the pre-closing phases.

While the stakes vary from one deal to another, controlling the payroll (social status, changes in the workforce, etc.) and anticipating appointments (target operating model, careers, etc.) must remain central concerns.

In this way, the function can contribute to bringing the company to the best possible level at Closing, with a neutral takeover for employees and engaging communication that breaks away from the mundane and contributes to the company's project.

As with other Corporate Social Responsibility considerations, the sale or acquisition of a business goes beyond the company's boundaries. It is important to consider that it has a direct impact on the economic health of companies, and therefore on employment, but also on well-being in the workplace through a proper understanding of the meaning of a transaction.

From our point of view, it is therefore the responsibility of the HR function to make its voice and technical skills fully heard, to get teams on board during the period of uncertainty surrounding these operations, and to contribute to value creation in the long term.