Hr Outsourcing

ROLE OF HR IN MERGERS & ACQUISITIONS

TABLE OF CONTENTS

1. INTRODUCTION 3

1.1 Common reasons for mergers and acquisitions 5

1.2 Common factors of success 5

1.3 Reasons for failure 6

1.4 Neglect of HR issues during mergers and acquisitions 8

2. Role of HR in Mergers and Acquisitions 9

2.1 The Merger & Acquisition process 10

2.2 The importance of HR 14

2.3 HR issues in various Merger stages 17

2.4 HR readiness 18

3. HR activities during merger and acquisition 20

3.1 Pre - Combination stage 21

3.2 Integration stage 22

3.3 Solidification and assessment stage 26

4. The Role of Cultural Diversity in Integrating Mergers and Acquisitions 27

4.1 Role Of Leadership In Successful M&A 31

5. Financial impacts on HR 32

6. Managing human resource after M&A 35

6.1 Retaining Talent 35

6.2 Uncovering Liabilities 35

6.3 Matching Salaries 36

6.4 Motivation during organizational change 36

6.5 Retention of sales force 40

6.6 Trust in Mergers and Acquisition 41

6.7 The Problem of Unplanned Turnover 44

7. Recommendations 48

7.1 Mechanisms for smooth transition 49

7.2 Key HR Initiatives 49

7.3 The guiding principles 50

7.4 Systems approach to successful M&A 51

7.5 communication strategy 52

8 Future Direction for HR in M&A 53

8.1 General Idea 53

8.2 Different roles for HR 53

8.3 Research in HR 53

8.4 Road ahead for HR 54

8.5 HR Function As a strategic Business Partner In Mergers and Acquisitions 55

1. INTRODUCTION

Mergers and acquisitions are the prime mechanisms for increasing the profitability of the companies. Merger happens when one more companies join together with an existing company or they may form a new company. An acquisition happens when an acquiring company acquires part or all of the assets of the acquired company. India Inc's appetite for mergers n acquisitions has seen the total deal value nearly double in just two months of this year to about 37 billion dollars from 20 billion dollars in the entire 2006.

Despite many high-profile Mergers & Acquisitions (M&A) failures, senior executives continue to see M&A ventures as vehicles for strategic growth. Continued M&A activities are projected across multiple industries, and a major success factor is the level of integration achieved by each organization. They are seen by many as a relatively fast and efficient way to expand into new markets and incorporate new technologies. Yet their success is by no means assured.

While some failure can be explained by financial and market factors, a substantial number can be traced to neglected human resource issues and activities. The factors that have driven the M&A activity in the past decade are forecast only to intensify: need for large economies of scale, deregulation, globalization, expanding markets, risk spreading, and need for rapid response to market conditions.

In a merger, two companies come together and create a new entity. In an acquisition,

one company buys another one and manages it consistent with the acquirer's needs. In general there are mergers of equals, (eg Citicorp and travelers forming citigroup) and unequals (eg Chase and JP Morgan creating JP Morgan Chase). Similarly there are two major types of acquisitions: those involving acquisition and integration such as those typically made by Cicso Systems; and those involving acquisition and separation such as between Unilever and Bestfoods. Acknowledging these types of mergers and acquisitions is critical in describing and acting upon the unique people management

issues each has. For example, a merger of equals often compels the two companies to share in the staffing implications; whereas a merger of unequals results in the staffing implications being shared unequally. An acquisition that involves integration has greater staffing implications than one that involves separation.

The human resource issues in the mergers and acquisitions (M&A) can be classified in two phases the pre-merger phase and the post merger phase. Literature provides ample evidence of difference in between the human resource activities in the two stages: the pre-acquisition and post acquisition period. Due diligence is important in the first phase while integration issues take the front seat in the later. The pre acquisition period involves an assessment of the cultural and organizational differences, which will include the organizational cultures, role of leaders in the organization, life cycle of the organization, and the management styles. The mergers often prove to be traumatic for the employees of acquired firms; the impact can range from anger to depression. The usual impact is

* high turnover

* decrease in the morale

* motivation

* Loss of productivity leading to merger failure.

The other issues in the M&A activity are the

* changes in the HR policies

* downsizing, layoffs, survivor syndromes

* stress on the workers

* information system issues

The human resource system issues that become important in M&A activity