Organizations are counting on value beyond short-term synergies
December 14, 2009:
by Towers Perrin: SOA World Magazine
TORONTO, ONTARIO -- (Marketwire) -- 12/14/09 -- a track record of effectively managing people-related issues during an acquisition are far more likely to have a very successful deal. This is the conclusion of a recent study by the Canadian Financial Executives Research Foundation (CFERF, the research institute of FEI Canada, the professional membership association for senior financial leaders), and sponsored by Towers Perrin. The most successful dealmakers put more effort into getting the right mix of skills and competencies, communicating and managing change with employees and properly estimating people-related synergies.
While 64% of financial leaders surveyed report revenue growth to be their key measure of merger and acquisition (M&A) success and 53% report that they look to achieve specific synergies beyond cost reduction, some are still focused on profit margin growth (50%) and cost reduction (37%) as key measures of a merger's success.
"The numbers suggest that while Canada's dealmakers count on the traditional short-term synergies and operational efficiencies, they are truly looking at long-term value creation and growth, which now includes a focus on people priorities, when on the acquisition trail, said Ramona Dzinkowski, executive director, CFERF. "Companies with access to capital are taking advantage of opportunities to acquire distressed companies, and others are actively pursuing corporate growth, whether that's acquiring new products or services, or opening up new markets and this demands that people priorities and risks become an important component in the merger checklist."
Aligning diverse corporate cultures was reported to be the single biggest integration challenge to M&A success. Interestingly, very successful dealmakers considered their human resources (HR) function to be significantly more effective in this area than other respondents (69% versus 48%), suggesting that increasing HR function capabilities may be one path to improving merger outcomes.
Companies looking to improve their odds in achieving M&A success are focusing on improving internal knowledge about M&A within their corporate functions, with 51% identifying the need to improve the HR function's M&A knowledge and 44% improving the business acumen of corporate HR and 38% identifying the need to improve the ability of finance to quantify people risks.
Approximately one third of respondents are considering actions such as reviewing their internal M&A processes (32%), increasing the involvement of finance in post-closing people-related issues (32%), and involving HR earlier in the process (29%).
Learning from Experience - The Keys to M&A Success
Senior financial leaders revealed that there is a long list of people risk considerations identified in the early due diligence stage; these range from key talent retention to workforce reactions and employee engagement. Senior financial leaders look to factor in a broad range of risks when doing deals, whether formally, by quantifying the risks into the purchase price, or informally, by making every effort to ensure risks such as employee engagement or turnover of critical staff are addressed.
"Successful dealmakers have developed new skills and have evolved processes to manage M&A deals, beyond the due diligence phase and well into integration planning and implementation stages," said Eric D'Amours, National M&A Practice Leader, Towers Perrin. "Financial leaders are largely accountable for ensuring deal success, and at companies where very successful deals have been completed, people priorities and risks have taken centre stage whether it's considering the impact of people risks even at the pre-deal stage, to making sure the organization has capability to address workforce integration challenges down the line."
Moreover, while the study revealed that a majority of respondents acknowledge the various people risks in a transaction, only a small minority are able to quantify and address those risks in their financials, even those with significant financial consequences, such as pension and benefits volatility.
The CFERF study was conducted online in October 2009 with 108 Finance executives who had recently completed a merger or acquisition. In addition, CFERF hosted a half-day forum where 17 senior financial executives shared their people risk experiences within an M&A context. Of those participants, 51% of respondents were from publicly-accountable companies, 38% were from privately-held organizations and the balance represented other ownership structures, such as Crown Corporations. The majority of respondents hold the title of Chief Financial Officer (45%) with the balance holding other Finance positions such as VP Finance, Controller, Finance Director or Treasurer.
About the Canadian Financial Executives Research Foundation (CFERF)
CFERF is the research institute of Financial Executives International Canada (FEI Canada), the all-industry professional membership association for senior financial executives that provides professional development, thought leadership and advocacy services to its 2,000 members. CFERF's primary objective is to study emerging financial management issues in Canada with the aim of increasing the competitive capabilities of Canadian companies across the country. Further information can be found at www.feicanada.org.
About Towers Perrin
Towers Perrin is a global professional services firm that helps organizations improve performance through effective people, risk and financial management. The firm provides innovative solutions in the areas of human capital strategy, program design and management, and in the areas of risk and capital management, insurance and reinsurance intermediary services, and actuarial consulting. Towers Perrin has offices and alliance partners in the United States, Canada, Europe, Asia, Latin America, South Africa, Australia, New Zealand and the Middle East. More information about Towers Perrin is available at www.towersperrin.com.