The HR Guide to European Mergers and Acquisitions

James F. Klein, Robert-Charles Kahn

• Publisher: Routledge
• Year: 2017
• eBook ISBN: 9781317028413
• Topic: Business
• Subtopic: Business General
• Index: Business

News of a merger or acquisition is a big event in the life of a company, which stirs uncertainty, anxiety and fear. The changes, redundancies and so on, that often follow this news, are a further source of turmoil for the employees of both companies involved. There is no magic formula to avoid these effects completely. However, good planning, communication and human resource practice can mitigate the worst of them; keep everyone that matters on board; and ensure that the new organization maintains your reputation for sensitive people management. Get it wrong, on the other hand, and you may lose the very people you were most anxious to keep; put the success of the process at risk and even face employment tribunals or other legal proceedings. In addition, imagine how these processes are complicated by any transnational elements. James F. Klein and Robert-Charles Kahn provide a practical, hands-on guide to successfully integrating HR functions following any merger or acquisition within Europe. The book guides you step by step, providing the methodology, tools, sequence of events and necessary material. It includes comparative tables, tips and stories illustrating the differences, specific issues and pitfalls that are particular to the different European countries. 20 years of human resources experience across companies in continental Europe has gone into creating this blueprint to successfully implementing the people side of successful mergers and acquisitions.

Part I
The early stages

You got to be careful if you don’t know where you’re going, because you might not get there.

Yogi Berra

This section will cover:

• Necessary questions for a good general understanding of the deal
• Essential points of a Due Diligence report
• Key steps in an integration plan
• Main components of a communication plan

Chapter 1
Understanding the objectives, scope and expectations following a merger

You need to gain a good understanding of both companies if you are to focus on the right priorities from the very beginning of the process. This is not only a question of understanding products, clients and market share, but also of obtaining an accurate feeling for corporate values, working styles, and methods. By taking the time to ask questions, you will gain early insight of where people see the strengths and weaknesses of the deal, how they perceive they might win or lose in the process, and which parts of the process will require more attention, diplomacy or savoir faire.

Even if you were not involved in the pre-merger discussions and only brought in to handle the Human Resources integration after the deal was signed, it is unlikely that the final organization chart, reporting lines and functional responsibilities will have been fully defined. Therefore, you will need to gain a thorough understanding of both companies’ approach to business to provide valuable and reliable input throughout the integration process.

Getting information

If you have not been involved in the early stages of the deal, your first step will be to obtain this information quickly.

The CEO, CFO and COO will be the obvious first people to go to, if they can find the time to sit down with you and go through the rationale of the deal.

If you are a public listed company, an Offer to Shareholders will invariably have been prepared, which will provide you with information on:

• The background and reasons for the offer
• A summary of each company including:
  1. – operations, objectives and strategy
  2. – services and products
  3. – cooperation and alliances
  4. – group structure and personnel
• The financial reports.

All of which will help you in getting a preliminary overview.

The next step is to compile all of this information and prepare the communication plan. Make sure that you rely solely on information coming from authorized personnel. Answering questions from troubled co-workers with statements such as ‘I believe, I have heard … it is possible …’ will not help you gain time but, on the contrary, only add to confusion.

If you don’t have the answer to a question, just say so, make it a point to enquire about it, and when you have the answer, communicate it. The questions in Checklist 1 are a useful starting point for your communication plan.

Checklist 1: Getting the complete picture

• What are the key objectives of the deal? For example: Eliminating a competitor, gaining market share, gaining technical expertise, growing the balance sheet, attracting key executives, broadening the scope of products, gaining international exposure, etc.
• What are the timing and milestones to close the deal?
• Is there a preliminary vision of what the new organization chart will look like?
• How will product lines, sales areas, customer care be affected?
• How will the deal affect the headcount?
• What level of confidentiality is needed when addressing the above?
• Are there key employees to the deal who must be retained?
• Has a legal network been set-up to deal with local legal issues? Who can have direct access to it?
• Are there any countries or districts that require special attention or handling and why?
• What systems, procedures, accounting/reporting principles will be given priority?
• Have transitional decisions already been taken regarding functional reporting, compensation and commissions of sales staff, performance measurements, product lines, overlapping products, functions or countries, etc.?
• Have integration group leaders already been identified to handle the above?
• Who is handling the communication of the acquisition, both externally and internally, and what is the core message?
• Is the acquired company, or any of its subsidiaries or branches unionized? How have the unions reacted to the deal?
• If the acquisition includes international branches or subsidiaries, how will the local boards be reshuffled?
• Likewise, who will act as country Managing Director ad interim? And how and when will this be communicated?
• How does the deal affect employee stock option ownership?
• Are there any objections or reservations to the deal that have been voiced by members of one or the other company’s top management?
• Has an Integration Manager been appointed in the acquired company? Have his or her reporting and cooperation guidelines been clearly established?

Chapter 2
HR Due Diligence

What is a Due Diligence report?

Due Diligence is a form of risk management most commonly known as ‘doing your homework before you invest’. The sample checklist below¹ is an example of the issues, which are examined, in the pre-acquisition phase. As this book focuses primarily on HR integration, Checklist 2 largely ignores non-HR topics.

Checklist 2: Sample Due Diligence items

• Corporate Organization
  1. – Articles of Incorporation
  2. – Corporate structure
  3. – Shareholder list, and agreements
• Financial Information
  1. – Annual and quarterly financial information over the past three to five years
  2. – Financial projections
  3. – Capital structure
• Products
  1. – Product offering
  2. – Description of products
  3. – Major contracts by product line
• Customer Information
  1. – List of top 10 to 15 customers
  2. – List of strategic relationships
  3. – List of 10 to 15 suppliers
• Competition
  1. – Description of competitive landscape
  2. – Trade publications
• Sales and Marketing
  1. – Strategy and implementation
  2. – Sales productivity models and pricing strategy
  3. – Distribution channels
• Management and Personnel
  1. – Organization chart and summary biographies of top management
  2. – Historical and projected headcount by function and location
  3. – Compensation and contractual terms of employment
  4. – Pension plans and medical benefits
  5. – Employee relations
• Legal and Administrative Matters
  1. – Pending lawsuits
  2. – Safety and environment issues and liabilities
  3. – Patents, copyrights, licences, etc.

I believe that the Human Resources Director should be brought in early rather than late in an M&A project. However, I have experienced a number of acquisitions where the Chief Finance Officer or M&A Director has conducted Due Diligence reviews that include key HR issues, without the involvement of the Human Resources Director. The HR Director was simply brought in at a later stage to validate or complete the findings and voice any additional concerns considered important.

Besides the unnecessary duplication of tasks this approach will create, it often leaves the door open to unexpected issues which should have been considered in the preliminary survey, particularly in relationship to direct and indirect financial implications associated with varying corporate policies and commitments, international labour legislation and unions.

To illustrate this, think about how your company records costs for personnel on temporary or consulting assignments. Although many European accounting legislations impose a predetermined accounting format for such issues, others do not and in such instances, these costs may not be included in personnel and temporary headcount, but integrated, for example, in ‘operational costs and services’, thus giving a misleading representation of manpower needs and costs.

In any event, an in-depth HR Due Diligence review should be carried out before the final deal is completed. It should further represent one of the cornerstones in the preparation of a merger integration plan.²

Key components of an HR Due Diligence report

When conducting an HR Due Diligence review, you will be looking for facts, which may have:

• Direct financial implications (hard facts)
• Indirect financial implications (soft facts)
• Miscellaneous implications.

Hard facts are generally fairly easy to collect and analyse as they are based on written documents such as working contracts, payroll records, standard agreements as well as statistical and analytical data.

But many other ‘intangible’ facts will come out as you talk with people. To get the information about these intangibles requires the ability to create trust and confidence between yourself and the people you will be interviewing.

One mistake that some integration group leaders make when conducting a Due Diligence process is to adopt a hard-line investigator attitude....

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Table of Contents
• List of tables and figures
• Acknowledgements
• Foreword
• Preface
• Part I: The early stages
• 1 Understanding the objectives, scope and expectations following a merger
• 2 HR Due Diligence
• 3 Setting up an integration plan
• Part II: The transition period
• 1 Analysis and comparison of terms of employment
• 2 Analysis and comparison of benefits
• 3 Human Resource Management Information Systems, tools and data transfer action plan
• 4 Comparison of general HR policies and handbooks
• 5 Designing retention programmes
• Part III: The integration stage
• 1 Process review
• 2 Manpower planning, assessments and redundancies
• 3 Assessment programmes
• 4 Redundancy strategy and guidelines
• 5 Finalizing transfers and integration
• Conclusion
• Appendices
• Appendix 2
• Index