Neil Patel

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Dealmakers aspiring for successful mergers must not overlook the impact of M&A on employee morale and productivity. The primary focus during due diligence and evaluating the target company is on potential scalability and profitability.

Acquirers also strategize their deals, emphasizing the current economic and political conditions and how they can influence success. However, most tend to overlook the impact on human capital assets. A company’s workforce is the most dynamic resource, and without sustained motivation, productivity takes a hit.

Formulating an effective plan for integration and restructuring the surviving company is crucial for success. However, buyers should make employee attrition and discontent a critical concern. Losing core talent and vital skill sets can affect estimated growth rates.

Typically, due diligence processes evaluate a company’s worth by also accounting for the key workers and the value they bring. A robust talent set can contribute to expanding the customer base and, thus, lower competition in the market.

Developing and manufacturing new products and top-notch customer service is again reliant on the employees. Without adequate motivation, up to 33% of an acquired company’s workforce is likely to quit the merged company.

Interestingly, buyers also need to focus on their own company’s employees since at least 12% could turn in their resignations. These statistics indicate that dealmakers must work out strategies to maintain worker engagement and satisfaction. And that may include restructured salary packages.

Offering additional perks and health benefits and ensuring that packages remain consistent across the board is also critical. But before working on solutions, let’s dive in to understanding the impact of M&A on employee morale and productivity.

That’s how you can come up with practical strategies to achieve complete integration and avoid attrition.

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    Incomplete Information Leads to Stress

    Company owners tend to overlook the psychological impact of a merger on the workforce. Not relaying adequate information about the merger and potential integration leads to job insecurity. Employees need accurate and reliable information with dependable data to feel secure about what’s going to happen next.

    To address this risk, dealmakers need to develop a robust HR management team that compiles data relevant to the workers. They should also create a series of messages that are relayed to them

    Providing regular updates on the status of the merger keeps people in the loop so they know what to expect. Both the buyers and sellers should undertake efficient and timely communication, talking to them about the benefits of the merger.

    At the same time, they should also ensure that no misleading information reaches workers that can impact their trust in the company and its management. Acquiring their support and buy-ins will ensure that the deal progresses smoothly and the surviving company continues to function efficiently.

    Involving workers in the decision-making processes by having surveys and suggestion boxes makes them feel empowered. Most importantly, HR managers should convey appreciation for the results that top-performing workers have achieved for the company. Acknowledging their efforts adds to their confidence and prevents attrition.

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    Cultural Disagreements

    Cultural disagreements and conflicts are commonplace when the workers of two entirely unique companies merge. Every organization typically has specific workflows, processes, and a mission and vision that form the basis for their activities.

    Realigning this outlook to include new incoming people or assimilating into a new company is going to be challenging. And that’s something dealmakers should be aware of and prepare to address. Requiring workers to cooperate with an unfamiliar environment or accept newcomers without a pre-planned structure is impossible.

    Once again, open communication lines come into play here. HR managers must collaborate with the managers from different departments to devise a strategy for employees. While relaying information is key, so is welcoming feedback, and that includes expressions of discontent and dissatisfaction.

    Having a diversity of cultures and working styles is undoubtedly healthy for an organization and promotes growth. However, executing the integration smoothly is crucial and requires a careful strategy to avoid clashes and disturbances.

    HR managers should work toward developing a new culture that combines the best of the two companies.

    Unclear Roles and Responsibilities

    One of the key objectives of mergers is to achieve economies of scale. For that to happen, buyers may adopt scaling down the workforce. This may result in employees being unsure about their roles and responsibilities, which can lead to confusion with reporting.

    Typically, overlaps in roles typically occur in the lower tiers of the organizations. For instance, among the administrative staff, such as secretaries, personal assistants, IT support staff, and company caterers. Depending on the type of organization, some top executive positions could also become redundant.

    Restructuring the workforce is a time-consuming process, and workers may have to take on added tasks. Even if it’s a temporary situation, the management should be ready with appropriate bonuses and compensation packages.

    Making sure to provide detailed and clear directions and eliminating duplicated tasks is also crucial to maintaining efficiency. That’s how company owners can reduce the impact of M&A on employee morale and productivity.

    Knowing how to position the team in the pitch deck is a critical skill since you learn how to define the team’s roles and responsibilities. This skill comes in handy when you acquire a company and work out the integration process. Not sure how to do that? Check out this video where I have explained how it’s done.

    Job Insecurity

    Mergers and acquisitions invariably lead to eliminating redundant workers, which leads to insecurity. Workers who are unsure of whether they will retain their jobs are unlikely to focus on productivity or growth.

    Situations like these lead to a disengaged workforce unwilling to put in any real effort. Post-merger, companies typically notice more absenteeism, sick days, and unplanned vacation days. Employees leaving the organization in search of positions in competing companies is a common issue.

    As more people quit the organization, that results in a higher motivation to quit than stay. They prefer to turn in resignations before being let go. Since restructuring invariably leads to downsizing, the retained workforce may have lower morale and lack of engagement.

    Yet another factor is that potential promotions and raises can quickly become uncertain during a merger. Unhealthy competition with newcomers for positions, negative rivalry, and hostility can affect the workplace environment. And that’s the impact of M&A on employee morale and productivity.

    This situation can be avoided by instructing managers to welcome queries about professional stability. Providing detailed information about their future prospects within the newly merged organization can eliminate uncertainty.

    Loss of Top Talent

    Dealmakers should focus not only on the quantitative impacts of employee turnover but also on the qualitative impact. Losing top talent, especially in tech companies, that ideate intellectual property, can prove to be disastrous for the organization.

    Employee turnover involves significant monetary losses that companies going through a merger or acquisition may not want to incur. That’s because losing key personnel results in the company going through a long and tedious recruitment process.

    The new company must divert resources like time and money toward the entire hiring process, such as sending out job descriptions. Next, they’ll assign HR teams to screen candidates, onboard them, and complete the training and orientation process.

    Since the new hires must go through the learning curve for quality work, demonstrating productivity is, again, a time-consuming process. Issues like this will impact the organization’s bottom line, not to mention customer service, engagement, and retention.

    To prevent the loss of top talent, dealmakers should identify and communicate with the core workers. Informing them of their roles in the new organization will prevent attrition. Even if their roles are duplicated, dealmakers can consider offering them other positions where they can continue to add value to the company.

    Inequity in the Compensation Structure

    Inequity in the salary structure can trigger a negative impact of M&A on employee morale and productivity. Owners of the merging companies must plan compensation structures well ahead of the integration. As HR managers advise, workers always discuss their salaries with colleagues.

    Any disparities in wages will lead to discontent, especially among employees working in similar positions within the organization. Avoid this situation by examining the salaries and offering option pools and other perks to ensure equity.

    Offering training sessions to employees to help them advance their skills and qualify for better positions is another effective strategy.

    Keep in mind that in fundraising or connecting with employees, storytelling is everything. In this regard, for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.

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    Mitigating the Negative Impact of M&A on Employee Morale and Productivity

    Acquirers can take several steps to minimize the negative on productivity levels. When planning the integration processes, dealmakers should devise strategies specifically to manage their workforce. Here are some of the best approaches to adopt.

    Team-Building Exercises

    Undertaking team-building exercises is a good strategy to help workers adopt the new combined culture and work with new colleagues. Some exercises include informal get-togethers and parties after office hours so workers can mingle and make friends. Ball games and picnics also work well.

    Managers must make an effort to invite employees out for after-work drinks for casual interactions. Blending cultures also helps with team integration. For instance, one company follows a casual dress code, and the other is strictly button-up. A good solution is to enforce the formal business dress code but also have casual Mondays to keep the culture alive.

    Offering gift cards and perks for achieving targets acts as an additional motivational strategy to work together for a common goal.

    Communication is Crucial

    In the ongoing sections, we’ve talked extensively about communicating with employees. However, this strategy is crucial for all levels of management, starting with the top-level or C-suite executives. Keeping everyone in the loop is essential to get the full value from the deal.

    Dealmakers must start by crafting customized messaging for the management and adopt the top-down approach for the lower tiers. Ensure that employees receive all relevant information from their supervisors from within the company instead of public forums.

    It is advisable for workers to learn about the merger from within the organization rather than from social media sites. This information can be inaccurate and misleading, which can result in uncertainty and panic.

    Mergers can take years to execute and complete, and the company’s operations in the interim period can be affected by the lack of employee morale and productivity. Typically, post-merger companies see a dip in profits and revenues as the integration progresses.

    Dealmakers must take the necessary steps to sustain productivity and streamline the integration so that the surviving company gets back on track quickly.

    Address Employee Concerns and Queries

    Employees will likely have questions and queries about the merger and their continuing role in the organization. Being upfront with messaging and potential layoffs is always advisable. Managers should also welcome positive and negative feedback and encourage initiatives to speed up the integration process.

    Having anonymous suggestion boxes is a great strategy. Managers can also have group discussions and welcome workers to leave comments on how to improve the company’s functioning. Welcoming engagement and ownership is an effective strategy for employee retention.

    The Takeaway!

    Mergers and acquisitions have a low success rate, which ranges from around 10% to 30%. While several factors contribute to this poor ratio, employee attrition and lack of productivity need not be one of them.

    Strategizing and implementing the right approaches can minimize the negative impact of M&A on employee morale and productivity. The right time to devise their strategies is right after the deal reaches the final stages of negotiation.

    Informing employees right after the final decision is made is the opportune time to look for their support and buy-ins. That’s how dealmakers can hope for a successful merger.

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    Neil Patel

    I hope you enjoy reading this blog post.

    If you want help with your fundraising or acquisition, just book a call

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