Impact of Merger and Acqu.

Impact of M&A on HRM in FMCG Sector� ��

�

�

Impact of M&A on HRM in FMCG Sector

Indian Institute of Foreign Trade (IIFT) Executive Post Graduate Diploma in International Business

(2014-16)

By

(Group 7: Akshay–4A|Ashirvad – 8A|Kavita – 19A|Rakesh-30A|Sachin-36A|Shiv-40A)


�

Contents

1. Introduction…………………………………………………..…………..……3 2. Key Issues

2.1 Communication ……………………………..…………………..…4 2.2 Power and conflict …………………..…………………………..…4 2.3 Culture ……………………………………………………………..….…4 2.4 Operations …………………………………………………………….…5 2.5 Geographical nuances ………………….……………..…….……..…5

3.0 The role of HR ………………………….…………….…….…………….…6

4.0 Opportunities for HR …………………………..….…………………….…7

5.0 Hazards for HR………………………..………………………………….…7

6.0 HR’s role before the Merger …………………………………………….…8

7.0 HR as an internal consulting group before the Merger ….………….…10

8.0 Conclusions……………………………………………………………….…10


�

IMPACT OF M&A ON HRM IN FMCG SECTOR

1. Introduction

Mergers and Acquisitions have become a common phenomenon in the marketplace.

There could be various reasons for M&A to happen some of which could be the

following:

� To achieve economies of scale

� To acquire better technology

� To avoid bankruptcy

People are the key to making a merger work, and it is the people-related problems like,

culture clashes, management disputes, loss of talent and the inability to manage change,

which are the basic reasons why mergers fail. The obstacles to achieving success with a

merger or acquisition are:

� An inability to sustain financial performance

� Loss of productivity

� Incompatible cultures

� Loss of key talent

� A clash of management styles

� An inability to manage / implement change

� Objectives / synergies not being well understood

� Communication

A KPMG study showed that 83% of mergers and acquisitions failed to produce any

benefits, and over half actually ended up reducing the value of the companies involved.

That percentage is only astonishing when one considers how many mergers occur in a

year, and how few companies seem to think matters through (particularly cultural and

systems methods) and consider alternatives. But, the opportunities are also immense. For

every eight failures, there is a case where both companies emerge stronger (such as the


�

merger between Fiat and Chrysler after the latter emerged from filing for bankruptcy). In

most cases, the success factor is where people in each organization show that they value

the other, and actively work together to bring out the best values in each.

Some key issues that may arise during Mergers and Acquisitions are as follows:

2. Key Issues

2.1 Communication

As people look inwards to try to find their place in the merged company and attempt to

see their future in it or outside it, the productivity drops. The grapevine can become a

major source of headaches. Constant, consistent, and honest communication from leaders

and HR is essential.

2.2 Power and conflict

It is essential to bring conflict out to the surface and deal with power issues honestly. If

one group is obviously in charge, that should be admitted early on so people don’t waste

time with second-guessing. Often, people get wrapped up in turf wars which are

destructive to both sides, rather than trying to figure out roles for both sides and have a

win-win situation. As the acquisition of Chrysler by Daimler-Benz shows, profitability

and practical matters can take a back seat to personalities and power relationships.

2.3 Culture

Organizational culture is an organization’s shared values, beliefs, and preferred ways to

behave. It is a key to success and though many talk about it, few seem to have the skills

to grapple with culture and work with both organizations to assure a good fit. Many

organizations use a brief cultural fit survey to assist them during mergers.


�

2.4 Operations

Ideally, processes can be examined to see where true synergies lie. In many mergers and

takeovers, power relationships determine operational changes, rather than actual

efficiencies or quality concerns. By making changes with facilitated cross-platform teams,

HR can help to ensure that the best operational practices of the two organizations are

preserved.

2.5 Geographical nuances

It is essential that FMCG buyers understand the local market nuances associated with

other territories. Following are the list of challenges presented by different emerging

market geographies:

Asia: Strong competition from rival bidders and alternate sources of funds makes

valuation one of the key issues for doing deals in Asia. Based on our data, about 50%

deals begin diligence but are aborted because of valuations.

Latin America: The regulatory environment in Latin America (e.g. Brazil), particularly

for tax and labour, is a complex one. There are high taxes and social charges on payroll,

sales and income. Taxes are diverse and legislation changes fast. Also compliance with

corruption laws is an issue in many companies, and there may be undisclosed balance

sheet transactions and commitments.

Eastern Europe: Eastern Europe is in some ways becoming closer to a developed rather

than a growth market. Corruption in businesses related to government contracts is still

an issue in many Eastern European countries, although governments are taking steps to

be more transparent in their purchasing, for example, using on-line auctions.

Africa: Government policy is more central to deals in Africa. Some countries can change

the rules on tax or legal parameters quickly. There is a massive deviation of culture and


�

economies within regions. Companies that have failed often have not had thorough

understanding of the local people, business conditions and environment.

Under these circumstances, the role of an HR manager becomes very important and if the

issues are handled properly, M&A can be a huge success. Mergers present opportunities

and hazards for both the company and the HR manager.

3.0 The Role of HR

HR may be in a unique position to question assumptions about the nature of assets and

synergies. For example, investment bankers have a narrower training, and are rewarded

for making deals due to which human issues tend to get lost or overlooked.

The HR manager, on the other hand, has an opportunity to influence events so that each

company comes out stronger. But, to do that, the HR manager must preserve their own

position. Consolidation and cost cutting may be great hazards to HR, but the

opportunities are tremendous if you can convince the leaders of your value in bringing

the combined company together. Before, during, and after the merger, HR may be

responsible for assuring that cultural issues do not derail integration, for increasing

innovation, for keeping communication going in all directions (upwards, downwards,

across departments, across organizations) and for lessening the impact on those who are

laid off and on the survivors.

Even at the highest level of the company, HR can have a role. The new leadership team

will need to work together on a daily basis, despite cultural and personality differences,

power issues, and other barriers. HR can act as a facilitator, and also as a coach to

individual executives. Personal and team assessments can be helpful in enabling team

members to work together constructively.


�

4.0 Opportunities for HR

Mergers and acquisitions are often planned and executed based on perceived cost savings

or market synergies; rarely are the “people” and cultural issues considered. Yet, it is the

people who decide whether an acquisition or merger works. The opportunity for HR lies

in the fact that customer and employee reactions determine whether the newly combined

company will sink or swim. If a convincing argument is made to senior leaders, HR may

gain more power to increase the effectiveness of the organization, and may be able to

mould the cultural changes instead of being pushed along by them.

5.0 Hazards for HR

One result of many mergers is the consolidation of staff departments. Eliminating one of

the HR departments is sometimes stated up front as a justification for the merger. If both

HR departments are kept, there may be issues of interdependence and autonomy, and

hard decisions about which policies and services should be shared and which should stay

separate.

In many cases, the parent company has taken on a great deal of debt to finance an

acquisition. The next logical step is to cut costs and HR is often the first department on

the block. With the advent of outsourcing agencies, even HR people in formerly

indispensible functions such as benefits administration can now be replaced for short

term gains. This makes it particularly important for HR managers to make a strong value

case to the senior leadership.

Fortunately, there are also opportunities for HR to bring out synergies, so that the

combined company is stronger than the originals.


�

6.0 HR’s role before the Merger

The HR leadership has an opportunity before the merger to ensure that both

organizations have a strategy mapped out in advance. Once the merger starts taking

place, people will often be too busy to keep a strategic perspective.

Before the merger takes place, the leaders of both organizations, at least of the dominant

firm, should have a strategy mapped out, including communications to employees and

customers, where layoffs will take place (if any do), and how the cultures should be

merged. A SWOT (strengths, weaknesses, opportunities, and threats) analysis should be

done for the combined company. If possible, a brief culture survey (preferably done via

interviews as well as paper or Web/e-mail) should be undertaken in both companies to

discover what the cultural differences are.

Sometimes this will be obvious in some aspects. For example, one culture values teams

and bottom-up innovation, the other favours command-and-control tactics. Also, there

could be different views on how and whether individuals and teams are rewarded for

innovations, how failure is dealt with, whether conflict is addressed openly, etc. This will

prevent disconcerting delays between the announcement and the implementation of the

merger/takeover. If the real purpose of the merger is to acquire another company’s

assets, in terms of a particular product or brand, its factories or patents, etc., that should

be acknowledged and dealt with up front.

Finally, before the merger or acquisition takes place, the leadership teams should

consider the non-financial issues. Will people in the two companies be able to work

together? Will acquiring a company, or merging with it, destroy the properties or drive

away the talent that made it worth having? Can a simple partnership, alliance, or even

stock ownership without integration provide more benefits than combining the two

companies?


�

These issues may be overlooked by the leadership teams and it is the job of the HR

manager to point out these issues. Some questions to ask the leaders, in person or via

open-ended survey, are:

• Are there viable alternatives to the merger (for example, greater integration with

suppliers, partnership deals etc.)?

• Is there a communication strategy to keep employees and customers informed?

• Are the cultures for the two organizations compatible? Is there a plan for merging

the cultures? Will one be dominant, and, if so, how will people operating under

the other culture be brought on board?

• What are each organization’s key strengths, weaknesses, opportunities, and

threats?

• What is each organization’s strategy? How will they be merged?

One way to get the answers to these questions is to have an outside agency speak with

senior leaders, one at a time or, if that is not possible, to have them circulate a brief

confidential survey and present the results at a facilitated meeting. Difficult questions,

for example whether there are alternatives to a merger, should be raised as early as

possible.

The HR manager may need to raise the issue of culture - how people work, how they

think, what they value and how they view the other organization. If the acquired (or

acquiring) organization is viewed with disdain, these issues must be addressed up front.

Likewise, severe cultural differences must be addressed. They can be overcome with

attention and work. The HR leadership may, because of its skill and background, be

placed in the uncomfortable but important position of persuading corporate leaders to

admit the truth to themselves, and to employees.


�

7.0 HR as an internal consulting group

HR is often one of the few units which can work as an internal consulting group during

a merger or takeover, along with quality or process engineering teams. In this light, HR

managers may be able to use management coaching skills to help managers and

executives to communicate effectively and completely, to address power issues, and to

deal with cultural issues. In some cases, HR may take a more active role; in others, HR

should act as a coach. Individual HR staffers need to understand their current skills and

may need to update their knowledge or practice with role playing to ensure that they are

working as constructively as possible.

8.0 Conclusion

By knowing what makes mergers succeed, keeping an eye on the human issues as well

as the financials, and using appropriate tools, companies can make mergers work. The

job of the HR manager is to quickly develop a strategy for helping the company to achieve

the synergies it needs and develop game plan for leading the process. It helps to have

achievable goals, with stretch targets, and concrete milestones for implementation.

�

Impact of Merger and Acqu.

Documents

Transcript of Impact of Merger and Acqu.