M&A business has once again grown in the year 2006. Clear trends in this business can also be identified. German companies pursue a global acquisition strategy and do not even stop at hostile takeovers any more. Another significant fact is successful acquisitions often being made after bidding fights without prior so-called due diligence examination, i.e. without any careful examination of the company to be bought. In the following experts from Hewitt Associates in Germany list the most frequent mistakes and give recommendations for successful mergers and acquisitions.
“The explosive effect of the current trends in the M&A business consists in the fact that sometimes the purchase price can only be justified with synergy effects which the purchaser wants to achieve trough the M&A. As a consequence there is markedly growing pressure on the newly built company to really deliver the calculated synergy effects. The risk of failure increases”, says Mrs. Sabine Gangloff, who is responsible for M&A at Hewitt Associates in Germany.
The causes of failure may be due to weaknesses to be found already in the acquisition process. The following recommendations given by Carsten Hölscher and Sabine Gangloff, both from Hewitt Germany, help to avoid the most frequent mistakes:
1. Securing the value of the acquisition by reasonable decisions on staff
The acquisition of a company will result in capital growth only if the value of the acquired company plus the value of synergy effects on the one hand exceed the purchase price plus liabilities such as company pensions, which are also passed on to the purchaser, on the other hand. Personnel issues are therefore relevant in establishing a justified purchase price as well as in the realization of growth and cost synergy effects. The personnel department plays an important role in the implementation of the acquisition strategy and is therefore to be integrated at the right time into the acquisition process.
2. Effective implementation of the acquisition strategy
In order for synergies to take effect there is the precondition of changes (new processes, new structures, new customers, new products) to take place which means that requirements on employees change as well. Generally this fact applies to the staff of the purchased company as well as to that of the buying company. It is up to the personnel department to adjust the training of human resources to the objectives of the acquisition such that employees are motivated to do what they are expected to do. In order to achieve this aim it is important for the personnel department to be informed in due time about the M&A´s objectives.
3. M&As are teamwork
The determination of the purchase price in the course of a M&A is usually made on the basis of extrapolations on business development. In this process important assumptions are valuation periods and a plan fixing the times by which certain processes have to be implemented. The contribution of the personnel department consists in providing these assumptions with regard to the development of staff costs and other liabilities. At the same time it has to check whether the timing is realistic. The quality of the assumptions does not least depend on the quality of coordination between the several business units such as strategic planning, finance department, personnel department, legal section and all other business units involved.
4. Rapidness counts
The increase in value for the purchaser among other things also depends on how quickly synergies will take effect. What is important in this respect is how much time is needed to solve personnel issues such as staffing of executive posts, change management processes, personnel restructuring, overcoming of cultural differences and communication issues. The integration planning should therefore start already during the due diligence phase. Priorities have to be set in accordance with the strategy and integration tools such as timetables and organizational structures should already be in place.
5. Avoidance of disruptions of ordinary business
In order for M&A to be successful the smooth running of ordinary business has to be ensured. The quality of relations with customers of both the purchased as well as the purchasing company should not suffer from the M&A. This fact will be in particular relevant, if staff are worried about their personal future. It is the task of the personnel department to keep these disruptions to a minimum by taking recourse to a staff controlling adjusted to this particular situation or by adapting an appropriate communication strategy.