Despite the volatility and uncertainty of today’s global economy, organizations keep looking ahead, and many of them are heavily engaged in M&A activity. But what have they learned from the excesses and recessionary consequences of the last decade? If anything, they must be more focused than ever on adding complementary opportunities to their core business portfolios, with an unerring eye on the human-capital implications that can determine their ultimate return on investment.
Indeed, the talent being acquired is often the key factor that can deliver on or undermine the ROI of a deal. To optimize the ROI, a human-capital risk review should be undertaken, focused on more than just the cost of employment (such as compensation and benefits) and the elimination of redundancies. In addition, companies should consider the value of the human-capital-asset and the practices and policies in place to support it. Increasingly, companies are focusing on workforce analytics to deliver on their business priorities —such analytics are also crucial in meeting today’s M&A challenges.
It’s worth noting, of course, that there are different kinds of deals. Some are pure asset transactions — such as those to acquire intellectual property rights or physical plants — while others bank their future financial performance on the people side of the businesses. Where it is the workforce, beyond just leaders, that drives future earnings, a focus on the human capital asset can make the difference. For many acquiring companies, the link between the workforce and future success is too simplistic — it is made by gauging historic revenue per employee, assuming and setting improvements in productivity, and settling on a required number of workers.
“There are different kinds of deals. Some are pure asset transactions — such as those to acquire intellectual property rights or physical plants — while others bank their future financial performance on the people side of the businesses.”
This budget-driven approach to managing just headcount may be attractively straightforward, but its simplicity fails to account for the human capital drivers of ultimate financial success. For a human-capital intensive enterprise, a more appropriate evaluation will require a more complex understanding of the target organization’s internal labor market (ILM) — that is, the processes by which that organization obtains, develops, rewards, and retains its talent and, given those processes, how its talent performs.
ILM talent “flows” reveal how desired results of the deal can be achieved through changes in HR decisions, policies, and practices after the deal closes; it can also reveal the true sources of value that support the organization. Specifically, examination of these flows will show relative focus on buying versus building talent, developmental bottlenecks, dependencies on the external labor market for filling critical roles, and retention pain points, as well as alignments/misalignments in practices, including hiring profiles, pay-for-performance, and training programs, any of which can argue for or against a deal moving forward. In the case of a merger, differences in such practices between organizations that must come together to realize desired synergies need to be addressed before going ahead.
Thank you for your interest in Mercer’s "Looking at Labor: Workforce Analytics in M&A Transactions" article. If you do not have your pop-up blocker enabled, you will be prompted by your browser to download the report or to view it in a new window. In addition, you will receive an email from Mercer shortly with a link to access the article.