A report by Hewitt Associates reveals corporate transaction activity is expected to increase in 2010, even though many acquiring companies around the world say they are falling short in meeting their deal objectives.
Hewitt's quarterly M&A pulse survey of 278 organisations around the world found 72% expect to maintain or increase their deal activity over the next two years. Research from Capital IQ showed that global deal activity in 2009, including M&As), joint ventures, divestitures and IPOs/spin offs, totalled US$2 trillion.
Despite the expected increase in deal flow, the Hewitt global M&A survey highlights one common factor - the failure to address the human capital issues that increase the chance of achieving maximum value.
Hewitt found a clear link between deal success and proactive management of the leadership and key talent issues. Overachievers and underachievers both say leadership and talent strategies are important to the success of a deal (69% versus 62%, respectively). However, less than a third (32%) of underachievers report their leadership and key talent strategy in transactions as being effective, compared with 70% of overachievers. Overachievers are also twice as likely to effectively identify and retain leaders (81% vs 42%) and assess critical talent (73% vs35%).
Of the 69 European headquartered organisations that participated, over half (54%) said their past transactions did not achieve their intended financial and strategic objectives. Globally, almost two-thirds (62%) of companies indicated that leadership and key talent retention are critical to the success of a deal, while over half (57%) of these organisations reported that they have lost vital employees at the same rate or at an even higher rate than non-vital employees.
A previous Hewitt analysis in 2008 showed that the loss of vital employees can have a devastating impact on corporate transactions. Based on a sample of 96 companies representing more than $568 billion in total deal value over a two-year period, Hewitt's analysis found that more than $54 billion - or 10% - of a deal's value depends on the rate at which vital employees leave an organisation during or immediately after corporate transactions.
Stephan Vamos, European leader of Hewitt's Corporate Transaction and Transformation practice, said: "As we examine the reasons why companies aren't achieving their M&A goals, it's not surprising that the inadequate management of leadership and talent issues is at the core. It is known that the loss of critical talent and leader capabilities can be enough to erase much of the value companies sought in the deal. A lack of agreement among the post-transaction organisation's leadership can be as devastating. Put simply, poor human capital management can be a true deal-breaker."
"Most companies have an infrastructure and the resources to retain, focus and develop their critical talent pool, yet many organisations fail to execute a rigorous and sustained approach to retaining leadership and key talent, permitting key people at all levels to walk out of the door or to be out of line with key deal objectives.
"As companies prepare for their next transactions, there is a real opportunity for a dramatic improvement in their chances of success. Having a formal strategy and game plan for leadership and key talent - and effectively executing it - is imperative for achieving better deal success and retaining a competitive edge during a tough economic cycle."
