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HR lacks confidence in M&A financials

HR professionals are unable to speak the same financial language as their company’s dealmakers during mergers and acquisitions (M&As), according to research by Towers Watson.

The research found that 59% of HR respondents admitted to having only a minor impact or no impact at all on revenue growth related to M&A, while just a quarter (23%) gave themselves a ‘highly effective’ rating for business acumen.

Those aspects of the transaction quoted by HR teams as priorities tended to be non-financial, the research found. These included ensuring cultural alignment, internal communications and due diligence support.

Steve Allan, M&A practice leader (EMEA) at Towers Watson, said: “The level of M&A activity across sectors and around the world is currently extraordinarily high, so there has never been a better time for HR to carve a niche as mission-critical. We see time and time again that deals perform better over the long term when HR teams are engaged early.”

“But, in order to be effective at the table, HR professionals need to earn the respect and confidence of the core M&A team by demonstrating strategic insight and speaking the same language as the deal makers, who are mostly likely to have a finance background.” 

The Towers Watson research also explored what HR teams do differently in ‘very successful’ deals compared to ‘fairly successful’ ones. It found that HR influencing the effectiveness of senior leaders, clearly defining metrics for success, and creating a M&A centre of excellence were factors common to ‘very successful’ M&As.

Allan said that HR teams should focus on a new set of skills during M&As so they aren't perceived as a peripheral part of the process. “Traditional HR tasks, such as benefits harmonisation and service delivery expertise, are still vital to sustainable deal-making as part of the employee engagement puzzle. However, our research shows that the HR function can have a material impact on deal outcomes if it turns its attention to more high-profile matters such as influencing leadership behaviour,” he said.

“For example; by coaching the senior team to inspire the workforce around the vision and purpose of the deal, taking a leading role in the new organisational design, as well as mobilising the implementation of change.” 

Jessica Norton, director of executive compensation at Towers Watson, said: “A key area where HR teams can make a big difference is around leadership retention planning. For example, during deals there is a tendency to focus on retention structures. These are typically a short-term tactic to buy time while the details are firmed up. HR needs to take a more strategic approach focusing on leadership engagement and empowering leaders to drive change, leveraging the window of opportunity that deals create.”