Only 20 percent of Canadian mergers and acquisitions succeed, according to a survey of finance executives. The study confirmed that mergers only succeed if companies strategically plan to minimize risks in their cultures and workforces.
“Human capital risk stands out as a critical area for the success of an M&A, and, as such, requires management’s attention as soon as an organization enters into discussions with another entity,” said Michael Conway, Chief Executive and National President, Financial Executives International Canada (FEI).
The study, “Human Capital Risk in Mergers and Acquisitions,” examined M&As from 2007 and 2012. Sponsored by Towers Watson, the study was conducted by the Canadian Financial Executives Research Foundation (CFERF). CFERF is the research arm of FEI Canada. (Towers Watson merged with Willis Group to form Willis Towers Watson in January 2016.)
“Our research also shows that companies that very successfully completed an M&A all paid unwavering attention to human capital at all stages of the process, while this was not the case for less successful transactions,” added Mr. Conway.
The study’s conclusions aren’t a surprise. Most mergers fail. If you’re contemplating a merger, be very careful about your human capital – whether you’re in the public sector, a small business or a global company. At the minimum, if an M&A tempts you, consult your HR pros.
Remember, if one of the companies has cultural issues, the merger will be too difficult to achieve. At least six salient steps are needed to implement a cultural change for profits.
What determined the success of the Canadian mergers?
The successful mergers involved companies that were the most-diligent about identifying people and cultural issues to address early in the M&A process. Obviously, key factors must be identified and addressed during the initial due-diligence stage.
Survey respondents indicated that they determined the success of their transactions by measuring different metrics:
- 69 percent of respondents measured revenue growth
- 63 percent of respondents measured achievement of specific synergies other than cost reduction
- 45 percent of respondents measured retention of key talent
“In order to effectively manage a cultural integration, organizations should upgrade their toolkit before the next deal” said Eric D’Amours, Account Director & Canada Leader, Mergers & Acquisitions, Towers Watson.
“When the next transaction comes up, they would then be better prepared to prioritize issues to be addressed as part of the due diligence process, including plans to help employees cope with the upcoming change,” he explained.
The study also showed that more than 80 percent of respondents expect try another M&A. My sense is that they, too, won’t be successful without due-diligence and implementing strategic measures.
The study caught my eye because it confirms what I’ve long maintained – companies must consider culture and employee-morale factors and use best practices to solve issues – before implementing an M&A.
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