Mergers and acquisitions – HR’s seat at the table

Robert Shore: Hello, and welcome to the Brightmine podcast, formerly known as the XpertHR podcast. Brightmine is a leading provider of people data, analytics and insight, offering employment law expertise, comprehensive HR resources and reward data to meet every HR and organisational challenge and opportunity. You can find us any time of the day or night at www.brightmine.com.

My name is Robert Shore, and I am your host today, and we’re going to be discussing mergers and acquisitions, and specifically HR’s role in mergers and acquisitions (M&As). I’m delighted to say that I’m joined to do this today by Steve Allan, a HR M&A expert. Steve, welcome.

Steve Allan: Hello, Robert.

Robert Shore: Can I get you to begin by having you tell us how you got into HR and into mergers and acquisitions (or M&As) in the first place?

Steve Allan: Yeah. So I started, alarmingly, about 30 years ago now. I trained as an actuary. So I started doing actuarial work on defined benefit pension plans in the UK. Very quickly decided that ongoing actuarial evaluations wasn’t particularly exciting. We’d added a couple of projects in M&A where clients of mine were doing deals, and certainly within the UK if you’re buying a company with a defined benefit pension plan, it’s a big number. Pension plans are complicated, they’re difficult, they’re hard in M&A. And that really interested me. I found that fascinating. And so I started doing more of that work, and the work evolved from defined benefit pensions to broad pensions, to broad pensions and benefits, then into total reward, then into things like broad employer value proposition, then into broader HR.

And at the same time I again followed my nose on what was interesting and ended up working for several years in London, followed by several years in New York, and then several years in Tokyo, very much doing global work, multi-country work, but again frequently and increasingly dominated by M&A. I’ve been back in the UK now for about a decade, and for about the last 20 years, frankly, M&A’s what I’ve done. It’s been the centre of my work. I’ve led the global HR M&A consulting business, one of the big global consulting firms, and the last three years I’ve been in a large global tech company leading all of their deals. And we had a portfolio of about 100 deals or so we were looking at and running, where they were onboarding, very talent-led acquisitions, buying people for their skills.

So really it’s just been really interesting. I enjoy M&A because it’s a moment of huge change. Generally a lot of deals are driven by this desire to buy and grow talent which is, again, fascinating and it puts people at the front of the business agenda, which again I find really
interesting.

Robert Shore: You said there you’d been working in the tech sector, and I think before that you were in pharmaceuticals. I wonder whether there’s a big difference between a tech M&A deal and a pharma M&A deal, or are they essentially the same?

Steve Allan: There are similarities, there are differences. Certainly in my pharma experience, some of the pharma deals I worked on were very large, if you like, industrial-scale deals. So we’re looking at 20, 30,000 people in 30, 40 countries. If you like, very much a sort of portfolio transformation-type of deal. Imagine someone buying the entire consumer products business off a competitor or the entire global vaccines business off a competitor. So those sort of major, global-scale transformational deals.

There’s a lot of choreography required. You’re moving a lot of people all at the same time and there’s a lot of what we kind of call ‘plumbing’, project management involved. You have to move people over. You have to make sure that you’ve done all the consultations, all the communications to works councils, all the practical things, if you’re moving that number of people, that you’ve got them all onto the payroll on the right day. You’re doing all of that at the same time in all of these countries, and you have to make sure that that process is driven and is choreographed and is compliant and is organised. And at the same time you’ve also got then the transformation element of the deal because there’s going to be a portion of that 20 or 30,000 people whose jobs are fundamentally going to change. For most people, they continue doing what they’re doing. But for some people — and it could be the executives, it could be the salesforce — some people it’s going to be a fundamental change. You have to manage that at the same time.

Robert Shore: When you’re doing these big deals with vast numbers of employees involved, what sized team are you part of? You’re talking about the plumbing there. How many plumbers do you need, exactly?

Steve Allan: Yeah. It’s a large team and it’s a multifunctional team. So I’ll very much lead the HR side of that, and we would often have a global…a core, central team. But also we would have colleagues in each and every country. ‘Cause every country is complicated. Every country has its own local nuances and you really have to have boots on the ground there who get it. Not just language but can also look employees in the eye and say, ‘I understand what matters to you because of how this country works.’ So you’ve got that complication.

You’ve also…HR is only one of the workstreams. We’re hand-in-glove with legal, we’re hand-in-glove with tech, in terms of the systems. Hand-in glove with tax. So there will also, as well as all those workstreams, on top of that you’ll then have that. Typically you’re organised by corporate development or global integration PMO pulling all those strings together.

So it absolutely is a…I mean, people say it takes a village, and in some of the big deals it takes a small township. We could have a dozen workstreams, and if you think about it you’re going to need probably some element of boots on the ground in every country plus a global hub for each of those workstreams. It’s a lot of people. It’s a lot of project management. But it’s very focused, business-driven project management set to an external timeline.

Robert Shore: Are tech deals generally similar in scale in your experience? Obviously experiences will vary.

Steve Allan: Yeah. I mean, that’s the beauty of M&A; every deal is different. But certainly the tech deals, there are some very large tech deals. They do happen. But the vast majority of deals, certainly in the tech sector, are much smaller. And a lot of the deals I worked on were very much around talent acquisition. We would be buying companies which might have 100, 200, up to 1,000 people type of size. But we were very much saying, ‘Well, we need skillsets in…pick a topic…AI, for example. Or cloud or…’ things like that, the up-and-coming technologies where you can either grow people, you can hire people, you can buy people with those skillsets. And we were buying companies ‘cause we needed that skillset.

And actually, in those deals there’s a lot more…you have to get the plumbing right, clearly. If you fail to pay people on time you’re going to lose engagement and lose talent. But it was much more about saying, ‘This is where this big global organisation who’s buying you…it’s much more exciting. We can offer you more.’ We can bring those people in, we can make them excited about what they can do on a global scale that they couldn’t do in their smaller, 200-person startup. So there’s a lot more focus on that employee engagement, on that change management. We’re buying it ‘cause we really, really, really want those people to be excited about it.

Managing organisational culture

Robert Shore: Right. Let’s talk about culture now, organisational culture. When you’re doing an M&A, possibly transnationally or globally, bringing together businesses with very different cultures and very different ways of working, what should HR be trying to do?

Steve Allan: So I think the first thing to do is just be aware about what you are trying to do. You’re never going to change national culture. If you’re doing a global deal, people live in different countries. They live in different ways of living, and they’ve been brought up in different ways etc. That is what it is. So there’s a lot about awareness. So if you’re doing a global deal and you expect to drive culture change, you’re not going to drive culture change if it’s a national culture.

If you’ve got a business culture way of working…and again it happens a lot, particularly in, let’s say, the tech deals — large company will buy a small company — very different ways of working. The best thing to do, in my opinion, is don’t beat yourself up about defining culture. Say to yourself, ‘How do they get these things done? What is crucial? In this business we’re buying, we’re buying it because they are brilliant at how they innovate around AI,’ let’s say. ‘What do we mean by “innovate around AI”? How do they do that and how do we do that, and how do we want them to do that after the deal?’ Very much focused on the business driver for the deal. If you focus on that, that is culture, ‘cause you’re talking about how people work and how people get things done.

But it’s much more practical ‘cause then you can sit down with the business people and say, ‘You’re doing this deal because…’ — it’s around innovation and AI, let’s say — ‘Okay, then we need to understand, “How do we want them to do that and how’s that going to change?”’ And if you focus on that, you can get much more practical around things like, ‘How do we empower managers? How do we allow people space to go and work across functions and work with different teams and form teams that have less problems when they’re needed? Is that what we do as a large tech company (‘cause it’s probably different to how they work as a small one)? And are we going to ask them to change to our ways of working? Are we going to be comfortable if we let them continue?’ Those sorts of questions are much more practical and are going to get you a much more tangible handle on actually how we’re going to integrate this business.

Some companies do a lot of naval-gazing around defining culture, and you’re never going to get there because everyone knows what culture is but we all have our own answer. So actually, the focus on the practical business sense makes much more sense. But yeah, national culture you’re never going to change. And really, that’s much more about recognizing and acknowledging that, as opposed to trying to change it.

Robert Shore: Have you been involved in many deals with the culture of the company you’re buying has changed the culture of the acquiring organisation?

Steve Allan: Absolutely. And many deals, particularly if you’re buying a business because you are trying to expand in to a new area, let’s say, you need to say, ‘Well, it’s going to change the acquiring company.’

A very clear example comes from my time in Asia. We had an Asian client who came from a country which was very much driven by status, and people higher up the food chain and higher up the corporate ladder have an element of control. And they were buying an innovative company in a different country. And they couldn’t understand why they had such a large talent drain. Because the leaders were saying, ‘Well, we give them a call every Monday morning and talk about what’s going to happen, and we give them a call every Friday evening and ask them what they’ve done.’ And in the eyes of the Asian leadership, this was being hands-off management. We’re leaving them alone five days a week. It’s never what we do for our own people in our own home country.

Of course, from the eyes of the acquired people, this was like, ‘I’m being checked up on every Monday morning and every Friday evening. It’s like teachers coming to see have I done my homework.’ And the leaders of the acquired company were getting really fed up, and a huge talent drain. And we had to just say to the acquirer, ‘If you’re going to go into these other countries — again, talking about national culture — that’s not what they mean in their national culture about being hands off. And you’ve bought an entrepreneurial business. You need to set some goals at the start of the year, be very clear about what you want from them, but let them get on with it. And if you’re not going to do that, you’re going to continue to see this talent drain.’

And we did a lot of coaching with them about future deals. Could they be comfortable, could they get their head around this idea of hands-off management and empowering leaders to run a business when they wouldn’t empower their own leaders in their own home country to the same extent? It was incredibly difficult. And so you have a lot of that type of coaching where you have to kind of say to the buyer, ‘You’ve bought someone because they’re different. Now don’t change them and make them who you are because you’re destroying the value.’ And that’s really hard. Most buyers think, ‘Actually, look, I’ve bought them ‘cause they’re different but we bought you so surely what we say goes?’ It can be really hard. It’s really hard. And you see that all the time, asking buyers almost to step back and say, ‘Yeah, but they’re better at what they do than we are, which is why we bought them.’ And that’s a really hard thing for many buyers to get their heads around.

The impact of AI in M&A

Robert Shore: It’s 2024 so I have to ask you about AI. What impact is AI having on deals of this kind?

Steve Allan: Lots, which is a very unhelpful, glib answer. So coming from where I came from in tech, and also in pharma, deals are being done where AI is the target. So people are buying AI capabilities. It’s a whole business in its own right where a lot of companies are buying AI talent. So there are a lot of AI startups selling like hotcakes ‘cause everyone wants to get a hold of them.

But more generally, AI is changing the deal process. Because when I started M&A, and we talk about data rooms, there was literally a room full of piles of paper, and you sat there and you read stuff. Now you can point a computer engine at that and it will go through and analyse it for you.

So AI is speeding up the process. You can point AI at an electronic data room and a set of accounts or whatever it wants to be, and it will find it. You can point it at the web and you can get sent an analysis on the business culture instantly, at a touch of a button.

So it’s changing the ability to process volumes of data. Which means M&A can move much faster. However, it doesn’t mean that you can just use the computer to do it all because AI is brilliant but will only actually synthesise and consolidate data. What you do then need is that kind of intellectual experience and say, ‘Well what does this mean? And what questions have we not asked and what information have we not found?’ ‘Cause that’s what’s really important in M&A. It’s not what you’re told; it’s what you’ve not been told, and it’s the questions you haven’t asked yourself.

So AI, I think, is going to speed up the process, is going to make it easier to handle those volumes of data. But it is going to then put much more emphasis on the M&A teams and the M&A…the people involved in M&A to ask the intelligent questions. ‘Cause that’s what will differentiate the…if you’ve got lots of potential acquirers, the ones who are going to be successful are the ones who answer the best questions and ask themselves, ‘What don’t we know? What else should we have asked?’ That’s where the value’s going to lie.

Understanding TUPE

Robert Shore: I have to ask you also, Steve, about TUPE, of course. TUPE stands for Transfer of Undertakings, Protection of Employment rights. So we need to know the difference between a deal that engages TUPE and one that doesn’t. What’s a good way of thinking about this?

Steve Allan: Yeah. And TUPE obviously is the UK version and we have similar rules across Europe and actually similar rules in many other places in the world. Essentially TUPE is if you are moving work from one legal entity to another, essentially TUPE says that people come with it and you can’t adversely affect the employees’ terms and conditions in that process.

So there may be many…there are many deals where someone will say, ‘We’re going to buy this division of your business but we’re not going to buy the company. We’re just going to buy that division. The work will move over, therefore the people will move over.’ That’s classic TUPE. So you’ve bought the business but you haven’t bought the employer legal entity.

The other way of doing a deal, of course, is you go out and say, ‘We’re actually going to buy the shares in the company,’ in which case the employment status of those people never changes. They work for Such-and-such Company Ltd., they still work for Such-and-such Company Ltd., it’s just the owners of that company have changed. That’s not TUPE. So it’s only TUPE if you buy a business and you effectively move people from one legal entity into your legal entity. That triggers TUPE and triggers lots and lots of protections. In simple terms. I would say, however, in any deal that’s a very kind of rough and ready guide. It always depends on the exact legal structure. You have to go back and actually consult with your lawyers based on the legal specifics. But at a high level, if you’re moving work into your legal entity and not buying a legal entity, that’s when you’re going to risk triggering TUPE or ARD, or similar rules elsewhere in the world.

Robert Shore: ARD, I think you said there. Remind us what that stands for.

Steve Allan: ARD is Acquired Rights Directive. So the Acquired Rights Directive is European-wide legislation. That’s where TUPE came from. In fact, the EU passed the legislation when the UK was still part of it, and then each country have a choice of how they implement that locally. TUPE, the Transfer of Undertakings, Protection of Employment, is how the UK implemented the European Acquired Rights Directive. So every country in Europe did a similar thing but they did it in a slightly different way depending on their local legislation. And lots of countries across the rest of the world — Asia, Latin America etc. — have similar legislation.

M&A top tips for HR

Robert Shore: Right. We’ve got to that point now, I think you said you had come up with some M&A top tips for us.

1. Get involved early

Steve Allan: Yes, absolutely. As a consultant people always ask for the top tips and they always have to be an odd number. So I’ve got five.

The first one is, be involved early. To be successful in M&A, HR needs to have a seat at the table, particularly if your business strategy is based around buying skills and talent. If you want to grow by acquiring people you don’t currently have, those types of people, fundamentally HR has to be there long before a deal is set. So you need to be in there with corp dev, you need to be in there with the businesses. So when you’re going to the initial management meetings and you’re looking at a company for the first time and saying, ‘Do we want to buy you? Do you want to buy us?, HR’s there. So HR has to be a seat at the table while corporate strategy is being set. I think that’s the first top tip.

Robert Shore: Okay, great start. What’s next?

2. Understand the deal

Steve Allan: I would say the second one is, really ask yourself when a deal is happening, understand, ‘What’s the deal purpose?’, ‘Why are you buying this?’ and ‘What are you buying and when?’ So we talked briefly about TUPE and the difference between buying a legal entity or not. Many deals, some of those deals that I’ve talked about where we had 30 or 40 countries, there could be different legal structures in every country. You can have some elements where you’re buying a legal entity, in some places you’re just simply buying the business and not buying legal entities. So all can be very different; even in one deal the structure can be different by jurisdictions or by business unit. So understanding, ‘What are you buying? Why are you buying it?’ Ask yourself, ‘Who is selling and why are they selling it?’ That can be very informative just to be very clear on that.

And be very clear in the business, ‘Once we’ve bought this thing how are we going to make value from it?’ It’s expensive to buy a company. How are you going to make more money than you paid for it? It’s not hard to buy a company. It’s much harder to make more money from it. So understanding the business rationale, how you’re going to change, deliver value. What’s that going to mean for your existing business? Are we expecting our existing people to change? And how are we expecting our existing business to change to absorb this thing to make it better? Really getting down to the meat of that, and then trying to take those abstract questions into real, practical metrics.

So how are we going to measure these things? What do we mean by success? And if we have metrics, things like revenue growth or things like penetration into new markets etc., where are we now so actually we can see how these things are changing over time? If you don’t have metrics it’s very hard to determine success, or indeed to have signposts when the wheel may or may not be falling off.

And I think very early on is, ‘Are we ready? Do we have things like a proforma playbook? Do we have things like templates and project plans on the shelf ready to go?’ Not that you can ever just follow a proforma template. But starting off with a proforma you can then say, ‘Okay, this deal is different. How is it different? How do we change our proformas?’ But you’re not starting off from scratch each time.

Robert Shore: Wonderful. So two tips so far. HR should be involved early with a seat at the top table. And then HR needs to understand the deal, its purpose, structure and timing. What’s the third tip?

3. Prioritize due diligence

Steve Allan: So the third one is around due diligence. Essentially there, due diligence is a process that’s you understanding, ‘Do we want to buy this thing or not?’ And I would say do not be afraid to say no. So you’re not obliged to buy it. It’s much better to walk away from a bad deal than to charge ahead regardless. And deals get a lot of momentum. And it can be very hard for someone to turn around and say, ‘Look, this is not going to work.’ But don’t be afraid to say that. So you go into that process, you ask all the questions we’ve talked about, understand what you’re buying, understand where are the problems.

As I said, we’ve talked about AI. What are the questions we haven’t asked? What are the questions we haven’t asked in our process? What have we not been told? So really important, if you like, to be a professional cynic during due diligence. You’ve got your proforma playbooks. You want to understand, ‘If we buy this thing how are we going to make it work?’ Keep on coming back and saying, ‘Are we sure?’ Because at the end of due diligence you’re going to make a decision to buy this company or not and for how much. Once that decision is made, you are stuck with it.

Deals get a lot of momentum. So that natural cynicism to say, ‘What could go wrong? And if it could go wrong, how are we going to mitigate that? How are we going to feed that into our plans and our planning and our change management etc. to make sure that we actually deliver the value we’re committing to (recognizing we’re paying a lot to buy this business)? What’s that plan?’ And if we’re not comfortable with our plan, articulate those risks, and then the business can make an informed decision, ‘Should we go ahead or not?’

And particularly if you’re doing a talent-led acquisition — so you’re buying it because of the people — you’ll find HR should have a very loud voice in that conversation. I’ve done some deals where we were buying raw materials or access to those sort of things. And actually, the people were not that important a part of the deal. But in most deals they are. So HR’s voice will again come back to the deal purpose and what you’re buying, but if people are a fundamental part of it HR needs to have a very loud voice.

So in your due diligence it’s that process. And just be very careful that the deals will get natural momentum. So be that professional cynic and be ready to speak up.

Robert Shore: Yeah, that’s brilliant. And as you say, HR is really crucial in that.

Steve Allan: Absolutely. Yeah, absolutely.

Robert Shore: Great. Tip number 4?

4. Careful plan integration

Steve Allan: So, number 4 is around integration. Integration is where your deal is going to succeed or fail. There’s a lot of noise happens at the end of diligence. You decide to buy it, everyone signs a piece of paper, someone pops a bottle of champagne. Life is good, we’ve done a deal. That’s the start of the work. All you’ve done up until that point is actually spend money. Integration is where you say, ‘Now we’ve bought it, how are we going to absorb it? How are we, as the buyer, going to change? What do we want them to do?’

So we’ve talked a lot about having that project plan and that process and how we’re going to drive integration, the element of the plumbing, making sure the systems, the contracts, reporting lines, all the consultation, total rewards etc. all happens in the right order, the right time, the right country. On top of that you’ve got your behaviour change. ‘What are we going to change about this business and what are we going to change about ourselves to make this successful?’

And at the same time, you know, these guys have actually got a business to run. They were running a business before we bought them. We’ve just turned up and thrown everything up in the air. Our existing business who’s going to work closely with them, we’ve made their lives more complicated. They’ve all got a business to run and a day job to do.

So all this plumbing and process and change management, we need to work out how we tread — if we can — relatively lightly because they’re also trying to run a business. So that integration process needs to be very carefully thought through, and you’re always going to have this tension between move fast, get on with it, really let’s make the impact, but also actually this is not their day job. Their day job is to run the business. So we need to work out how we drive that change gently but consistently, and also if we can as fast as possible. Because you don’t want to let deals fester. I mean, we’ve seen many companies who’ve done a deal and years later people will still say, ‘Well I’m legacy this, and I’m legacy that.’ Because they’re never really integrated. And if the acquisition was predicated on the basis that, ‘We are stronger together,’ and you’ve never integrated, you actually haven’t really achieved your deal objective. So you’ve spent a lot of money but for what purpose?

Robert Shore: So I think we’re saying HR’s most important role in any deal is in integration. Is that it?

Steve Allan: Absolutely. On any given deal, you’ll spend far more time doing integration than you will doing due diligence. That’s the bulk of the work. It’s much less glamorous. It gets much less attention. But that’s really where actually deals succeed or fail.

Robert Shore: Wonderful. What’s tip number 5?

5. Create a communication plan

Steve Allan: I think the last one is communication, particularly if you’re in the HR arena where you’re buying people. People want to know what’s happening. Silence can be very corrosive. People will naturally assume the worst. People will think, ‘Well they’re not telling us something because we’re going to lose our jobs. They’re going to close us down. They’re going to do this, they’re going to do that.’ And none of that may be true at all. Generally if you’ve done a deal it’s because you really want the people.

So having a very clear communication plan based upon why you’ve done the deal. Your communications have to be consistent with your business objective. Because if you say to your stock-holders one thing, that information’s out there. We’ve all got access to the internet, we can all pick up news wires and press releases. So it all has to be consistent and you have to have that constant flow.

You can’t come out with platitudes that don’t tally to what you’ve told your shareholders. But you do need to go out there and communicate to people. Try to be positive, try to be consistent. Communicate early and often. That doesn’t mean you always have to have brand new news. Your communication could say, ‘Well, we’ve agreed to buy you. We’re going to close a deal in six months’ time. Over the following six months you’ll start to see some changes.’ That’s brilliant. People now know, ‘I’ve got a year’s plan of what’s going to happen to me.’

And just make sure that you’ve got that communication plan, that the managers know what’s happening, you’ve got talking points for line managers. Be ready to listen to people. People will be naturally very nervous about what’s going to happen. Give managers talking points.

One of the dangers you’ll see in communications is if you don’t tell people what to say, people will make something up. And the number of times we’ve seen managers go around and say, ‘Oh don’t worry, nothing’s going to change.’ That’s clearly untrue because in an M&A everything changes. You’ve got a new owner, you’ve got new ways of working. That’s coming. But people will make something up to fill a silence. So give them the facts, be honest, but don’t feel you have to constantly come out with something new. It’s around empowering people and giving them the message, again to allow the vast majority of the workforce to simply carry on with their day jobs. They want to be carrying on with doing what they’re doing knowing they’re not going to be blindsided. And also because they’re the people who are also talking to your customers. They’re talking to future candidates, they’re talking to clients etc. They’re talking to the broader market. So all of that needs to be consistent.

So that communication plan is really very, very important.

Robert Shore: Some brilliant insights there, Steve. Thank you so much. And of course, we have lots of supporting materials on the Brightmine website, and we will put links to those in the show notes. It just remains then now for me to say thanks again to Steve Allan. Until next time.