Buyers must 'take a step back' before diving into M&A activity

04 May 2023 5 min. read

While mergers and acquisitions are becoming a common way for firms struggling to recruit, to add expertise to their headcounts, buyers need to take a step back and think about which purchases make most business sense. Jana Mercereau, Head of M&A Consulting Great Britain at wealth management consultancy WTW, explains what firms should look out for when evaluating potential bolt-ons.

In today’s economic climate market, it’s common for significant deals to seem like they are “happening” to companies rather than being driven by strategic insight. Imagine this scenario. You’re the head of total rewards or a human resources director/officer. You open your laptop this morning and read a group email that your company is buying your largest competitor Acme, Inc. – the same email every other employee received this morning.

This is not a fantasy (or nightmare, to be honest). In fact, it’s more common than you might think. Buyers often prioritise speed, sacrificing strategic insight, advance planning and analysis, which usually means the HR function is left out of the deal planning, leading HR to ask: “What is the deal rationale for this acquisition?”; “What are we going to do with its employees?”; “How and when are we going to do the due diligence?”; and “Which HR concerns need to be addressed immediately?”

Buyers must 'take a step back' before diving into M&A activity

Instead of focusing on strategic growth initiatives, today's M&A buyers focus on cost mitigation, environmental challenges or other pressures. This isn’t the case for strategic buyers with acquisitions that have been long-forecasted or in the works for some time. However, recent market reactions have shifted the balance, especially in the financial services industry where buyers must act quickly to capitalise on opportunistic acquisitions.  

Activity doesn’t always mean progress

There’s a human bias toward action over inaction, but activity (ticking boxes in the project plan) doesn’t always mean progress. When faced with an unexpected acquisition, taking a step back and considering the long-term implications of the deal is essential. Clients often jump into tactical project tasks because they want to feel productive and they’re nervous about deadlines. This knee-jerk reaction can lead to a drain on critical and limited resources at a time when morale is low. This effort often results in inefficiencies such as onboarding employees who might later be “right-sized” or replicating pension plans and other employee benefits programmes.

As a result, significant unnecessary costs are incurred when managers rush integration work. It's crucial to pause, avoid the temptation to fight fires and instead think longer term to map out a strategic plan. This plan should identify critical actions that need to be taken immediately (and those that can wait); prioritise resources; and establish a clear order of execution.

We sit down with clients and assess what will “break” if we don’t do something immediately and then construct a day one plan, a 100-day plan, a one-year plan, and more, to ensure they’re spending time on the right resources in the right order.

When you take time to carefully identify and prioritise actions, issues that are not obvious may jump to the top of the list just because of the significant lead time required for implementation. Prioritising interconnectivity, as well addressing and averting potential system failures, is critical. The best-laid plans can be compromised by a conflicting internal priority such as a global human resources information system (HRIS) rollout at the same time as day one for onboarding a newly acquired company.

No sudden movements

The idea of “no sudden movements” refers to ensuring strategic M&A activity happens at the right pace and time so you don't have to repeat work. While quick decisions may seem tempting, consideration of long-term implications will more likely lead to a successful “fast start” on day one, better outcomes and a more successful M&A deal. These areas are critical to mitigating the immediate risks inherent in a significant change and enable rapid progress post-close:

Leadership assessment

Assess leadership to understand individual strengths and vulnerabilities. This helps identify potential gaps and areas of improvement. There must be strong governance around how you review leadership. It must be fair and transparent, so there’s no hint of favouritism.

Talent assessment and retention

Ensure appropriate leaders are aligned with the acquisition strategy and equipped to perform their roles during the transition and beyond. Identify key talent and roles at different levels to inform the development of appropriate retention strategies.

Communication, engagement and change

Develop a communication strategy that addresses concerns before they arise and enables a focus on business-as-usual activities. Communications and employee engagement plans should comprise strategies for pre-close, day one and post-close. They should also ensure that leaders and employees alike are informed and engaged. People-focused change enablement is key to the rapid adoption of changes on the horizon.

Compensation and benefits alignment

Conduct compensation planning for key roles, including long-term incentives, remuneration committees and shareholder interaction. Conduct a broad side-by-side analysis of all reward programmes to identify potential liabilities and critical harmonisation issues for the deal.

Culture alignment

Assess the buyer and seller company cultures. Ascertain key cultural opportunities, barriers or risks to inform effective communication and integration planning.

Organisation alignment

Conduct organisation design and cost modelling to identify functional integration, synergy opportunities and implications for employees.

With careful planning of these six core areas, buyers can pave the way for a smooth transition and minimise risks associated with M&A deals. Taking a breath to assess and analyse these factors thoughtfully, buyers can achieve their strategic growth initiatives with a higher probability of success.

Founded in 2016, following a merger of the Willis Group and Towers Watson, WTW is a British-American multinational company, providing advisory services to wealth management clients around the world.