The environment

The challenges facing automotive industry business leaders are ever-evolving. And the demand for fast and often transformative action has never been higher. This business environment is driving business leaders across industries to turn to deals as a cornerstone of their business strategy, with 57% showing an increased appetite for M&A in the next 12 to 24 months. The rationale for these deals varies by segment of the auto industry. For example, a supplier might look to secure manufacturing capabilities closer to their customers. In another instance, a traditional combustion-engine producer focuses on acquiring the technology needed for electric vehicle production. The common value driver? How proactively people risks are identified and turned into opportunities through effective planning and execution.

Impact of people issues on value creation

Our recent research related to the untapped potential of people in deal value creation indicates that the three biggest value derailers in deals are:
 

  • Retention of key talent
  • Alignment within the leadership team
  • Alignment of the organizational culture with business strategy

We also see labor costs and union considerations as additional issues that dealmakers must successfully anticipate, plan for and execute against in automotive industry deals. Here are some examples of how inadequately addressed people issues directly impact deal success.

Deal thesis

Unanticipated people impact

Create a joint venture (JV) to accelerate entry into autonomous driving space

Retention issues were created at the original organization and the JV because people were unclear about opportunities, career paths and long-term job prospects. In addition, some leaders who thrived at the original organization struggled in leadership at a smaller, start-up-oriented JV.

Acquire a start-up organization to grow our electronic vehicle capabilities

Cultural issues related to decision-making and communication styles caused immediate problems in retaining key talent at the acquired organization. Attracting talent post-acquisition was also more challenging than expected because of perceived differences between working for a traditional manufacturing entity versus a technology-oriented start-up.

Expand our geographic footprint to have production facilities closer to our customers

Delays and obstacles related to local labor regulations and approvals were not reflected in the financial modeling (both cost impact and timing of those costs). Expected cost savings from workforce harmonization assumptions did not materialize.

The topics of Environment, Sustainability, Governance (ESG) and Inclusion & Diversity (I&D) are also emerging as significant deal impactors that need careful consideration. Differences in organizational approach to ESG and/or I&D are creating integration obstacles. While these obstacles can be overcome, all too often we see a cursory and delayed approach to them in the deal process, meaning they get identified late and dealt with reactively.

Creating deal value

Traditionally, business leaders have only considered the cost synergy impact of people in deals. This tactical consideration results in a reactive approach to people issues late in the overall deal process. We work with business leaders to not only capture cost synergies, but also maximize the positive impact people can have on delivering desired revenue synergies. Strategic and proactive consideration of people-related deal elements sets a foundation for value creation. Mercer’s dedicated global M&A advisory services team advises clients around these issues starting at deal thesis creation. We then support the entire deal process to test the initial people thesis and translate it into a post-close action plan. 
 

With global scale and a local footprint, we have the business acumen, deal experience and people expertise to solve your toughest people challenges anywhere in the world at a moment’s notice. We are focused on maximizing value, mitigating risk and moderating costs to capture the full value of your deal.

 

 

Jeff Black
By Jeff Black

Partner, Global and North America M&A Advisory Services Leader, Mercer