Poor people skills destroy merger values

Apparently European companies are losing billions by failing to plan the people side of big M&A deals.

by
Last Updated: 31 Aug 2010

That’s the conclusion of new research by HR consultancy Hewitt Associates, which surveyed 40 European companies involved in M&A deals in the last two years. Apparently 83% said they’d failed to meet their ‘key transaction goals’ (i.e. the ‘synergies’ they were expecting) – and in almost every instance, this came down to ‘human capital challenges’. In other words, because big companies aren’t thinking hard enough about the HR consequences of these big merger deals, the combined entity isn’t worth as much as it could be. At a time when so many other variables are out of their control, this seems short-sighted, to say the least.

All in all, the study considered European M&A deals worth nearly $300bn. Hewitt found that failing to plan for people issues that might arise from these tie-ups – like choosing suitable leaders, combining different cultures and losing key employees – makes it much more difficult to integrate the two businesses. This in turn affects the combined group’s valuation; possibly by as much as 12.8%, according to Hewitt's (suspiciously precise) estimate. So a lack of HR planning – an eminently avoidable mistake – may have destroyed about €27bn of value in the last two years alone, by our calculation. Not too clever, particularly in the circumstances.

What’s more, European companies appear to be much less concerned about the people implications of a deal than their international counterparts. According to this study, just 7% involved the HR department in target selection, compared to a global average of 36%; only one in four involved HR in drafting the employee section of the deal agreement, versus a global average of 43%; and less than half even bothered to involve HR in the integration planning, compared to the global average of 73%. So as a continent, we’re very much bottom of the class.

This isn’t exactly a new problem, of course. For years HR types have been complaining that CEOs spend too much time thinking about the strategic and financial benefits of a tie-up, and not enough time thinking about how it will actually play out on the shop floor. But things don’t seem to be improving – perhaps because the downturn has pushed such issues even further down the priority list. And with dealflow likely to pick up sharply as the economy recovers, it’s about time Europe raised its game.



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