2012 already looks like being a busier year of mergers and acquisitions and Q1 got off to a promising start for corporate finance professionals. As consolidation continues apace the role of HR should not be overlooked, says Simon Whitehead an employment partner at national commercial law firm EOS Law LLP…
Management teams are increasingly deciding that acquisition, rather than organic growth, is a more tangible and quicker way to achieve their business objectives. Private equity funds are cash rich, hedge funds are sitting on plenty of unwanted equities and banks, despite the fact that they are criticised for not lending, do appear to have an appetite for well-structured deals – whether it’s a large PLC or a fast growing SME. As the CEO’s and FD’s together with their professional advisers and investors huddle in the boardroom to plot the details of a deal – what is the role of the HR director? All too often the role of the HR director is overlooked leading to an increasing trend of HR directors suffering PMB – or post-merger blues. Symptoms of PMB include not having the right people in the right roles, poor internal communications between freshly merged departments, unclear roles and responsibilities, wrangles over pay and benefits, unexpected liabilities popping up after the deal and the unenviable task of trying to achieve a cultural fit between the organisations often leading to accusations that HR is ‘failing’ from other areas of the business. It can be a very stressful and daunting period for the under prepared HR director.
The root cause of PMB actually begins many months before the completion of a deal if HR is neglected from the deal. At the start of a transaction due diligence is carried out by the acquirer identifying potential issues in the target which may effect the attractiveness of the deal and which provides comfort allowing the deal to happen. HR hasn’t traditionally played a role in this ‘DD’ process which is normally focused on financial metrics, regulatory issues or commercial contracts. HR directors now need to step up to the plate and demand to be involved in this DD process. The earlier HR becomes involved in the information gathering phase preceding a deal the better decisions and preparation management teams can make and there will be a greater likelihood of avoiding PMB.
The input of HR is crucial for joining up all the ‘people’ issues that a deal throws up. Under TUPE, there is a mechanism for the vendor to give the acquirer Employee Liability Information but it is by no means exhaustive or required to be provided at the right time in a deal and it would be reckless to simply rely on this alone. TUPE also require information and consultation exercises to be completed. Having a good grasp on the practical issues of a deal enables you to understand how the transaction will affect people in both organisations so HR can be prepared with the right communications in advance.
A recent deal involving two SMEs nearly ‘fell over’ shortly before completion because the HR team belatedly uncovered a £10m employee liability which affected the value of the transaction. The deal was saved but only after a lot more expense and hassle to overcome the issue. Had this been spotted earlier, the value of the deal and expectations on both sides would have been managed earlier at much less expense.