The first quarter of fiscal year 2007-08 is said to have seen Indian Inc acquiring companies abroad for a value of $11.37 billion as compared to less than $2.06 billion of foreign buy outs of Indian firms as per the ASSOCHAM Eco Pulse study (AEP). Similarly Indian companies gained the momentum by making acquisitions worth $2.63 billion in the domestic market as compared to $2.06 billion by the foreign firms in India. With the Tata Group making the maximum investments amounting to $4.53 billion on international acquisitions, their domestic activities were limited to $60 million. With the mergers and acquisitions made for ensuring success in the highly competitive world, care should be taken to guarantee that the acquired firm blend in smoothly with the existing system for its success. Though the legal and financial aspects are given more priority under normal circumstances, due diligence study on the human aspects is vital as the employees decide the direction of the flow of the activities.
The HR tasks related to M&A can be divided into pre-merger, merger and post-merger activities. The criticality of the job of HR varies with the type of merger. For example, merger could be conglomerate merger of two companies having different product mix or end market which are not related to each other, horizontal merger of two companies competing with each other or cross border merger of companies belonging to different countries of origin. The HR is to establish the need for the merger or acquisition. Certain M&A are done with the intention of imbibing the key talents of the other firm into the parent company. Under such circumstances, the role of HR is vital as the success of the deal arises from a well conducted analysis of the human culture and composition of the two firms involved.
In the pre-merger state, the first step is the identification of a team leader who can guide the company through the contract. The HR has to conduct a due diligence study to analyse the success rate of the deal. He has to scrutinise the organisational culture of the companies involved and analyse the outcome of the new mould. This is crucial when cross border mergers are involved as the smooth blend of the two cultures is inevitable for the victory of the venture. He should also evaluate the employee compensation and severance policies, the industrial relations, labour laws regarding compensation and severance of contracts and the existing HR policies. The HR has to investigate the existing employee litigations and their possible outcomes before the finalisation of the deal. Identification of the key talents is a major task at this stage as this decides the organisation structure and employment policies of the new firm.
On the merger, the HR has to appoint an integration manager who is capable of taking up the job of easy transition. He has to create a new organisation structure deciding on the key players of the top management. He has to create the company policies and remuneration structure taking into account the labour laws prevalent in the country. The new structure must be capable of retaining the key players wiping out their sense of insecurity. The degree of insecurity will be more in cross border and conglomerate mergers. The retention plans can be structured only after the identification of the key players. The merger might follow a policy wherein the employees of the latter are terminated from the service over the period of months after the transfer of knowledge. The HR has to then take measures to give advance notice to the employees whose service will be terminated. Abating the fear is crucial as it can otherwise impact the performance adversely. A well defined plan must be communicated to all the employees for smooth changeover. Cross culture training and joint workshops must be conducted to help the employees in having an insight to each others’ modus operandi.
The post merger activities include proper evaluation of the new culture and identifying the loopholes and taking corrective action. Keeping watch over the employees can guide the HR in solidifying its policies relating to leadership and employee retention. Measures to strengthen the employee relationships and improving their performance must be undertaken by the HR in the post merger period.
With the man power being the deciding factor for success, the role of HR in mergers and acquisitions is crucial.