How to create HR’s M&A playbook

Addressing human capital risk early and in a clear and methodical way is fundamental to driving deal value in merger and acquisition transactions. Prime examples of people risks that can severely undermine deals and destroy value are poorly executed integrations, failure to consider culture and organizational fit, inability to retain top talent and lack of clarity in employee communications.

High-performing HR M&A teams combat these common risks by developing an HR M&A playbook that establishes a common approach to initiating and managing transactions. While every team’s HR M&A playbook is different, there are key elements that should exist in all of them.

First, the playbook must be a practical, how-to guide. An HR M&A playbook has traditionally served as a comprehensive encyclopedia, complete with process maps for each HR workstream and every possible deal scenario. But, in order for a playbook to be effective, it must provide enough guidance for the HR team to do its job effectively while avoiding information overload. The HR team must also be able to adapt the playbook for any deal scenario. It’s a difficult balance to strike.

Second, the playbook must define HR’s role throughout the deal lifecycle. To maximize deal value, HR must operate as a strategic partner and be able to clearly articulate where it fits in the deal context and how its involvement mitigates risk and achieves deal objectives. A well-defined playbook helps both new and experienced members of the HR-deal team understand the role they play and quickly start working through deal-specific issues.

Clearly delineated tasks and established decision-making parameters also inspire confidence in team members and ensure HR alignment with other business teams, including finance, legal and IT. Throughout the transaction, structured collaboration across the organization is vital to prevent teams from making crucial decisions in isolation. In this environment, HR can execute faster and immediately add value to the deal–which is the ultimate goal.

Third, the playbook must include due diligence. All too often, HR is engaged on the deal just before or at close, which prevents them from conducting thorough due diligence. This is compounded by today’s sellers’ market, where buyers face shortened due-diligence periods and, increasingly, a lack of data from the seller.

By not engaging HR early, companies are taking on unnecessary risk that could materially impact the deal price, integration strategy and timelines, and could even result in a “no-go” decision or diminished synergies. Common HR issues uncovered during due diligence include change-in-control triggers in executive agreements, high-cost severance commitments, retention risks, significant cultural gaps, underfunded defined-benefit pensions, and compliance issues with compensation and employee benefit plans.

An effective M&A playbook not only includes due-diligence tools to ensure the right data are requested and red flags are identified quickly, but it also builds the business case for why corporate development should engage HR early on.

Fourth, the playbook should outline a preferred integration approach. While every deal is different and exceptions are common, it is important to align with the HR and business leadership teams on a preferred integration approach (or different approaches for common deal types) upfront. As part of this process, teams agree on the ideal integration outcomes by workstream; understand the timing, budget and resource requirements to adopt this approach; and establish an approval process for exceptions or deviations.

With an approach outlined, the organization has a starting point when an M&A deal is made and can quickly review each workstream, determine if the deal thesis requires an exception and, if so, follow the established approval process to obtain the exception and move forward with execution. This will significantly accelerate the deal execution and contribute to the synergy realization. The integration strategy must be designed to achieve the results articulated in the deal thesis. While the M&A vision often belongs to the CEO, HR owns the execution from a people perspective.

READ MORE: Click HERE for 3 organizational culture mistakes to avoid during an M&A. 

Importantly, the preferred HR integration approach should be rooted in business strategy and address all people-related aspects of the deal. It should be structured to achieve:

  • a clearly articulated go-forward operating model and organization structure;
  • consistently defined roles, responsibilities and decision rights
  • a company culture that supports go-forward business objectives;
  • a plan to identify and retain critical talent;
  • a plan to objectively identify roles and individuals for release (as needed);
  • a rewards structure aligned with business priorities;
  • a unified and consistent communications plan to socialize changes across departments;
  • resources to support cross-training and employee acclimation; and
  • continuity of fundamental HR functions, such as payroll and benefits administration.

Fifth, the playbook should include project-management tools. Project management throughout the M&A transaction is vital. Setting milestones and success metrics, documenting key activities and ensuring their timely completion are all required to meet pre- and post-acquisition financial goals.

Robust activity-list templates are a central component of any playbook. These tools offer a starting point for each HR workstream to develop a comprehensive project plan guided by the company’s particular deal outcomes. These tools can be leveraged to ensure key steps are taken and to track results achieved along the way, such as early synergy savings.

An agile playbook is ever-evolving. At the end of each deal, it is incumbent upon the HR project management office to conduct a postmortem and incorporate any new best-practice learnings into the playbook.

Last, a playbook is only as good as the team implementing it, so it is critical to spend time upfront training the HR team on how to use the playbook and also to understand when it makes sense to enlist external advisors to supplement the team to address specific M&A issues. A well-executed M&A transaction keeps an organization’s most valuable asset–people–at the center. Given the significant people risks associated with deals, HR M&A readiness is a business imperative, and that begins with the ability to inform and orchestrate value-driven change.

By investing in an agile M&A playbook, companies can position their HR team to effectively support the business in all future transactions, engage the workforce and help deliver business results for short- and long-term success.

Emily Cox is a principal at Mercer and member of its global M&A team. Bart Hermans is a partner and M&A consulting leader at Mercer.