It's been well documented that culture clash is the downfall of many M&A deals that looked great on paper. But what does this mean in real terms? Mercer inaugurated People Risks in M&A Transactions as the first research report of its kind to find out.
Mercer surveyed 323 M&A professionals on the buy and sell sides, interviewed 78 corporate and private equity clients and investment bankers, and analyzed nearly 450 M&A transactions both domestic and cross-border.* The research concludes that companies must consider people issues at the outset if they hope to protect the value of the transaction.
“Buyers have the opportunity to manage the people spend with the same discipline and rigor as other capital investments, such as property, plant, equipment, R&D, M&A among others,” said Jeff Cox, Co-Leader, Mercer M&A Transaction Services.
“We’re in a seller’s market, with excess capital fueling bidding wars among buyers,” said Mr. Cox. "In the rush to merge, dealmakers tend towards skipping a thorough assessment of people risk—which can lead to the deal falling through down the line."
Sellers too are far from immune to risk. Pressure from activist investors to unlock value for shareholders, as well as the need to demystify pension risk for buyers, is clouding the sights of eager sellers.
New strategies are needed to maximize exit price, and that is where people risk comes to bear.
“The root of people risks lies with individuals’ inability to manage uncertainty and change, which can lead to declining organizational performance and loss of transaction value,” said Chuck Moritt, Co-Leader, Mercer’s M&A Transaction Services.
“Coupled with the volatility and ambiguity of the current deal environment, these risks can have serious implications for companies and their employees, if left unchecked," said Mr. Moritt.
Key findings from the report include:
- More than half (55%) of buyers report that talent challenges will remain a significant HR issue in future transactions.
- 41% of buyers report less time to complete diligence before making a binding bid compared to the prior three years.
- 33% of buyers say that sellers are providing less information about the asset for sale.
- Companies conducting global (35%) or multi-country (37%) deals anticipate sellers disclosing less information in the future, due to the competitive nature of transactions.
- Companies are embracing higher risk tolerance than before. 25% of buyers are more inclined to consider multi-country transactions than they were prior to 2014, enticed by the promise of reduced costs in emerging markets.
*Conducted by Mercer's M&A Transaction Services business during 2015
Complete the form below to find out more, including Mercer’s recommendations for buyers and sellers in M&A deals. The full research report will be released February 2016.