Preparing for an M&A Boom
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January 7, 2005
January 7, 2005
After ebbing for a number of years, merger and acquisition (M&A) activity both in the U.S. and abroad began flowing again in 2004, a trend that may well continue into 2005. Some experts argue that this is a good time for HR professionals and other managers to assess their M&A readiness.
"A surge in merger and acquisitions activity and spending made 2004 a year to remember for U.S. and European dealmakers alike," reports FactSet Mergerstat, a provider of global M&A information. In 2004, the U.S. saw more M&A activity than it had since 2000. M&A announcements rose 14.8% in 2004 over the previous year, while spending on deals jumped 42.7%. In Europe, M&A activity increased by 6.6% and spending rose 43.5%, according to Mergerstat.
Things could heat up even further in 2005. "Yes, it appears that there will be an M&A boom in 2005," well-known takeover lawyer Martin Lipton has written. "The recent increase in M&A activity reflects a return to confidence in the economy and to accommodation to the new accounting and corporate governance requirements" (Sorkin, 2005).
There's research to back him up. One Bank of America Business Capital survey found that 23% of chief financial officers said they expect to participate in an M&A in 2005, up from just 14% who said so in 2004 (FactSet, 2005). But much will depend on a range of other factors, such as geopolitical stability, terrorism, company purchase prices and the strength of the dollar.
In 2004, the top M&A deals done in the U.S. tended to occur in the financial services, media and telecommunications industries (Lerner, 2004). In 2005, more mergers may happen in businesses that haven't been as accustomed to them, such as the software industry. The deal in which Oracle Corp. agreed to acquire PeopleSoft Inc. after an extended pursuit "demonstrates how software companies that are perceived as leaders in their niches are flush with cash and have enjoyed big run-ups in their stock prices, giving them two forms of currency to use in big deals" (Zuckerman, 2004). Many experts are also predicting that - due to the weakening dollar - more foreign firms will acquire U.S. companies in 2005 and that larger companies will make more strategic acquisitions of smaller organizations.
The danger, of course, is that companies will be no better at conducting M&As today than they have been in the recent past. "Mergers have an unusually high failure rate, and it's always because of people issues," states Ron Elsdon, director of retention services at HR consulting firm DBM (Gale, 2003).
Companies that engage in M&As in 2005 will need to do two big things well to be successful. First, they will need to limit deals to those that make the most strategic sense. Research conducted by Jim Collins, author of Good to Great, shows that great companies tend to carry out acquisitions that share three characteristics: they "accentuate what the company can do better than any other company in the world," they "enhance a powerful pre-existing economic engine," and they "fit the driving passions of the company's people" (Collins, 2004).
Second, companies must execute their M&A plans well, and this requires the careful handling of workforce-management issues. Mike Taylor, now HR director for Hewlett Packard UK & Ireland, was part of the team that worked on the merger between HP and Compaq. He notes that "very little could happen within that first 12 months without the intervention of HR" (Weekes, 2004).
HR professionals must be up to the challenge of both helping their organizations choose the best possible M&A deals - especially during the due diligence phase - and implementing those deals for maximum success. It helps if HR has some kind of M&A playbook handy, one that can serve as a resource for HR professionals whose specialties are crucial for M&As. Compensation experts, for example, can benefit from a playbook section that addresses "technical issues typically encountered only in M&As, provide a foundation for effectively staffing and managing the work of a deal, and address how the day job of those professionals is to be managed in the face of the added work of the deal" (Brown and Donoghue, 2004).
It also helps to assess HR's general state of M&A readiness. Executives can analyze, for example, their HR employees' depth of mergers knowledge, their change-management and organizational integration abilities, and their support network if they should need extra help (Brown and Donoghue, 2004). HR executives should also take a close look at their technological resources. The HP/Compaq merger was greatly aided by an intranet-based self-service HR portal that allowed the organization "to disseminate a mass of information during the run-up to the merger which included the rationale behind the move and the role employees could play within the new organization" (Weekes, 2004).
In short, by assessing HR's readiness and then providing the function with the necessary knowledge and technical infrastructure, organizations can help ensure that their future M&As will not suffer the failures of so many mergers that have come before.
For more information about a tool that might be used in the due diligence phase of an M&A, see HRI's "Measuring Organizational Effectiveness" in the white papers section.
For more information on FactSet Mergerstat, go to
http://www.mergerstat.com/
To read "FactSet Mergerstat's M&A Roundup in 2004," go to
http://www.mergerstat.com/new/press/release27.htm
Documents used in the preparation of this TrendWatcher include:
Brown, Doug and Moira K Donoghue. "Bracing for the Next M&A Front: Forecasts Indicate a Storm of Activity." Workspan. ProQuest. April 2004, p. 28.
Collins, Jim. "The Merger Mystery." Time. ProQuest. November 29, 2004 , p. 48.
FactSet Mergerstat. "FactSet Mergerstat's M&A Roundup in 2004." January 3, 2005. Retrieved from www.mergerstat.com/new/press/release27.htm
Gale, Sarah Fister. "Memo to AOL Time Warner: Why Mergers Fail." Workforce. ProQuest. February 2003, p. 60.
Lerner, Jill. "Mergers Hit Highest Level Since 2001." Atlanta Business Chronicle, November 19, 2004 , p. A1.
Sorkin, Andrew Ross. "Wall Street's Designs on '05? A Boom in Merger Activity." New York Times, January 2, 2005. Retrieved from www.nytimes.com/2005/01/02/business/02dealz.html?oref=login&8bl
Weekes, Sue. "The Merger Man. " Personnel Today. ProQuest. October 12, 2004 , p. 23.
Zuckerman, Gregory. "Surging Economy, Stock Market Fuel Recent Revival of Big Mergers." Wall Street Journal. ProQuest. December 14, 2004 , p. A1.
Below are other recommended articles:
"Finance and Economics: Merger Muddle; Cross-Border Deals in the European Union." The Economist, December 4, 2004, p. 84.
Marks, Mitchell Lee. "Surviving Madness." HR Magazine. ProQuest. June 2003, p. 86.
Thornton, Emily, Michael Arndt and Joseph Weber. "Why Consumers Hate Mergers." BusinessWeek. ProQuest. December 6, 2004 , p. 58.
Wells, Susan J. "Merging Compensation Strategies." HR Magazine. ProQuest. May 2004, p. 66.
"A surge in merger and acquisitions activity and spending made 2004 a year to remember for U.S. and European dealmakers alike," reports FactSet Mergerstat, a provider of global M&A information. In 2004, the U.S. saw more M&A activity than it had since 2000. M&A announcements rose 14.8% in 2004 over the previous year, while spending on deals jumped 42.7%. In Europe, M&A activity increased by 6.6% and spending rose 43.5%, according to Mergerstat.
Things could heat up even further in 2005. "Yes, it appears that there will be an M&A boom in 2005," well-known takeover lawyer Martin Lipton has written. "The recent increase in M&A activity reflects a return to confidence in the economy and to accommodation to the new accounting and corporate governance requirements" (Sorkin, 2005).
There's research to back him up. One Bank of America Business Capital survey found that 23% of chief financial officers said they expect to participate in an M&A in 2005, up from just 14% who said so in 2004 (FactSet, 2005). But much will depend on a range of other factors, such as geopolitical stability, terrorism, company purchase prices and the strength of the dollar.
In 2004, the top M&A deals done in the U.S. tended to occur in the financial services, media and telecommunications industries (Lerner, 2004). In 2005, more mergers may happen in businesses that haven't been as accustomed to them, such as the software industry. The deal in which Oracle Corp. agreed to acquire PeopleSoft Inc. after an extended pursuit "demonstrates how software companies that are perceived as leaders in their niches are flush with cash and have enjoyed big run-ups in their stock prices, giving them two forms of currency to use in big deals" (Zuckerman, 2004). Many experts are also predicting that - due to the weakening dollar - more foreign firms will acquire U.S. companies in 2005 and that larger companies will make more strategic acquisitions of smaller organizations.
The danger, of course, is that companies will be no better at conducting M&As today than they have been in the recent past. "Mergers have an unusually high failure rate, and it's always because of people issues," states Ron Elsdon, director of retention services at HR consulting firm DBM (Gale, 2003).
Companies that engage in M&As in 2005 will need to do two big things well to be successful. First, they will need to limit deals to those that make the most strategic sense. Research conducted by Jim Collins, author of Good to Great, shows that great companies tend to carry out acquisitions that share three characteristics: they "accentuate what the company can do better than any other company in the world," they "enhance a powerful pre-existing economic engine," and they "fit the driving passions of the company's people" (Collins, 2004).
Second, companies must execute their M&A plans well, and this requires the careful handling of workforce-management issues. Mike Taylor, now HR director for Hewlett Packard UK & Ireland, was part of the team that worked on the merger between HP and Compaq. He notes that "very little could happen within that first 12 months without the intervention of HR" (Weekes, 2004).
HR professionals must be up to the challenge of both helping their organizations choose the best possible M&A deals - especially during the due diligence phase - and implementing those deals for maximum success. It helps if HR has some kind of M&A playbook handy, one that can serve as a resource for HR professionals whose specialties are crucial for M&As. Compensation experts, for example, can benefit from a playbook section that addresses "technical issues typically encountered only in M&As, provide a foundation for effectively staffing and managing the work of a deal, and address how the day job of those professionals is to be managed in the face of the added work of the deal" (Brown and Donoghue, 2004).
It also helps to assess HR's general state of M&A readiness. Executives can analyze, for example, their HR employees' depth of mergers knowledge, their change-management and organizational integration abilities, and their support network if they should need extra help (Brown and Donoghue, 2004). HR executives should also take a close look at their technological resources. The HP/Compaq merger was greatly aided by an intranet-based self-service HR portal that allowed the organization "to disseminate a mass of information during the run-up to the merger which included the rationale behind the move and the role employees could play within the new organization" (Weekes, 2004).
In short, by assessing HR's readiness and then providing the function with the necessary knowledge and technical infrastructure, organizations can help ensure that their future M&As will not suffer the failures of so many mergers that have come before.
For more information about a tool that might be used in the due diligence phase of an M&A, see HRI's "Measuring Organizational Effectiveness" in the white papers section.
For more information on FactSet Mergerstat, go to
http://www.mergerstat.com/
To read "FactSet Mergerstat's M&A Roundup in 2004," go to
http://www.mergerstat.com/new/press/release27.htm
Documents used in the preparation of this TrendWatcher include:
Brown, Doug and Moira K Donoghue. "Bracing for the Next M&A Front: Forecasts Indicate a Storm of Activity." Workspan. ProQuest. April 2004, p. 28.
Collins, Jim. "The Merger Mystery." Time. ProQuest. November 29, 2004 , p. 48.
FactSet Mergerstat. "FactSet Mergerstat's M&A Roundup in 2004." January 3, 2005. Retrieved from www.mergerstat.com/new/press/release27.htm
Gale, Sarah Fister. "Memo to AOL Time Warner: Why Mergers Fail." Workforce. ProQuest. February 2003, p. 60.
Lerner, Jill. "Mergers Hit Highest Level Since 2001." Atlanta Business Chronicle, November 19, 2004 , p. A1.
Sorkin, Andrew Ross. "Wall Street's Designs on '05? A Boom in Merger Activity." New York Times, January 2, 2005. Retrieved from www.nytimes.com/2005/01/02/business/02dealz.html?oref=login&8bl
Weekes, Sue. "The Merger Man. " Personnel Today. ProQuest. October 12, 2004 , p. 23.
Zuckerman, Gregory. "Surging Economy, Stock Market Fuel Recent Revival of Big Mergers." Wall Street Journal. ProQuest. December 14, 2004 , p. A1.
Below are other recommended articles:
"Finance and Economics: Merger Muddle; Cross-Border Deals in the European Union." The Economist, December 4, 2004, p. 84.
Marks, Mitchell Lee. "Surviving Madness." HR Magazine. ProQuest. June 2003, p. 86.
Thornton, Emily, Michael Arndt and Joseph Weber. "Why Consumers Hate Mergers." BusinessWeek. ProQuest. December 6, 2004 , p. 58.
Wells, Susan J. "Merging Compensation Strategies." HR Magazine. ProQuest. May 2004, p. 66.
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