RegulationAccounting StandardsTraining and development: M&A

Training and development: M&A

A successful merger is as much about talent as it is about business synergies

While senior management were busily poring over the metrics and the vision of
taking on the Big Four, let’s hope someone whispered one word in the ears of
Robson Rhodes and Grant Thornton, when news first broke of their merger ­

It is frequently asserted that most M&A deals do not deliver the value
that was intended, with Deloitte claiming that a dismal 60% of mergers fall
short of their goals. On the upside, there is considerable reason to believe
that the situation is improving, not least when deals continue to boom.

According to Thomson Financial, global M&A levels were up 62% in the
first half of 2007. And, as companies become better at forming strategic
partnerships of all shapes and sizes, frenzy gives way to increasingly shrewd
due diligence and a better-articulated strategy for M&A. But what does all
this have to do with talent?

Quite a lot, actually, if the words of those who have undertaken M&A
deals are anything to go by. A recent study by The Forum Corporation looked at
organisations that had used various strategies, including M&A, to drive
growth. It focused specifically on those firms whose performance matched or
exceeded the industry average. For companies that had been involved in M&A,
talent retention emerged as their biggest challenge by far.

This superseded the financial considerations. Senior staff rated talent more
highly than long-term value generation and the swift demonstration of the value
that had been achieved in creating the new company.

In human terms, this is logical ­ after all, who likes change? But for the
FD, this may mean radically reshaping their strategic role in such corporate
developments, considering the undisputed importance of the finance function in
any major corporate activity.

Although M&A strategy will involve a number of different senior personnel
across the organisation, only the FD is in the unique position of having full
exposure to the business from both a strategic and detailed financial
perspective. If the CEO is ‘king’ in terms of embodying the cultural value of
the new organisation, then it is the CFO who is ‘queen’ on this most strategic
of chessboards. But putting a financial value against intangible assets needs to
include a true financial appreciation of the people at the heart of the company,
and businesses have yet to achieve this.

The financial consequences are clear. Reported skills shortages are
increasing, while talent is migrating ­ 83% of private sector buisinesses now
confess to retention fears, according to the Chartered Institute of Personnel
Development. Then comes wage inflation. The vulnerable time before, during and
immediately after an M&A activity only adds to this, leaving a business
distracted by recruitment right at the point when it most needs to focus on
costs synergies, processes and protecting its brand with its customers.

This vicious circle is particularly resonant for professional services firms
when value almost entirely rests in the minds of staff. Cost cutting will not
compensate for revenue slippage, particularly if not all the perceived synergies
are realised. It is similarly difficult to forecast when, why and which staff
you are most likely to lose, along with the financial ramifications of
recruitment and the effect on external business relationships.

With this in mind, it is crucial that the FD takes a more active role in
affairs that could so easily be dismissed as the traditional stomping-ground of
human resources. Balancing the need to quickly demonstrate the value of the M
&A against the need to identify, retain, and engage talent can be very
difficult. But extracting costs to maximise profits in the near term can come at
the price of future growth. By retaining employees for whom you’ve paid a
premium, you can lay the foundations for the long term.

From Forum’s research, organisations that outperform in M&A demonstrate
terrific skill in establishing a business climate in which employees feel ‘like
owners’, and avoid hierarchy where possible. These companies more successfully
bridge differences in the styles and values across the two firms. By contrast,
their less successful peers spend much greater time trying to communicate
success stories and in managing conflicts facing the new organisation. Culture
is everything.

It is thus vital once the board has been negotiated to identify those
remaining members of staff who are of most financial value to the business.
Address their position in the new organisation and evaluate the business climate
in which staff are operating.

Andrew Shapiro is executive consultant at The Forum
Corporation (

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