Overlooking human-capital issues may kill mergers and acquisitions.

Mergers and acquisitions can be great opportunities for businesses to reduce costs and enhance profits through collaboration, synergy of services and operations, strategic alliances, increased market leverage, reduced demand variation or right-size capacity.

When researching the viability of a merger or acquisition (M&A) decision, however, human-capital concerns are often overlooked. These issues can be stumbling blocks or deal-breakers for companies contemplating a major change in structure or ownership.

The following checklist will help companies considering a merger or acquisition to avoid these pitfalls and ensure that human-capital concerns are identified and addressed:

1.  Assess the cultures. Before M&A negotiations are completed, analyze the cultural aspects of the two companies. Culture is usually difficult to change, so there should be enough similarities for the deal to succeed.

In some M&As, you may need to create a new culture for the combined company. The entire organization will need to be involved in defining values, operating styles, customer service and everyday professional business conduct of the employees.

If the integration of services and employees is not required, the two companies can work independently and retain their separate cultures. This can be a complex relationship, which requires strong leadership to avoid competition and animosity between companies.

2.  Analyze benefits plans. Review the details for every benefit plan written in the past five years for each company, noting advantages and disadvantages of key features. Conduct due diligence and examine benefit options, including the older, defined plans for tenured workers, perks and agreements — from insurance plans and vacation days to stock options — as well as travel allowances or expenses. Understand how they have been implemented. Is there consistency in the application and approval of benefits, or are modifications made in special circumstances or to individuals at specific employment levels?

One company may offer extra perk benefits that the other company doesn’t. Before eliminating them, talk to employees to analyze the impact and value of the extra benefits. Removing these perks may create ill will and have a significant impact on employee morale, which could increase turnover or lower productivity. It may be wiser to extend the extra benefits to all employees and cut costs in an area that has less value to employees.

3.  Evaluate labor contracts. Understand the written contracts and agreements, especially as related to changes in benefits due to mergers or acquisitions. Review employee complaints and any litigation on the horizon.

4.  Assess contracts. Review all contracts written with benefits partners and third-party administrators. Examine operational and payment policies. You may need the assistance of labor professionals to ensure all government regulations are being followed. Assess the costs of continuing these plans versus terminating the contracts and renegotiating them for lower rates for a larger group size.

5.  Develop a composite list of your research. List all of the plans and agreements of your company and the one you plan to merge with or acquire. Compare the list for significant variations, eligibility differences or benefit contribution packages that could be potential deal-breakers or cause legal issues.

Once this information is compiled and issues have been addressed, prepare a plan for integrating the benefits.

6.  Select the right benefit plans. It’s important to have a seamless transition of employee benefits. Before the final deal is signed, evaluate the benefits needs of the employee group and develop a list of the critical elements for the plans. The new benefits plan should be close to what employees at both companies currently enjoy. If the discrepancies are extensive, the deal may be unworkable.

M&As can be complex, so it’s important to work with insurance carriers that offer desired benefits and can redesign plans to accommodate changes in the group size as the company grows. The carriers selected must have the administrative systems and plan flexibility to meet a range of employee needs.

7.  Create a master schedule. Develop a list of the due dates for filing forms, making contributions to benefits premiums or investment plans, paying taxes or renegotiating labor contracts. Regularly review this schedule to ensure these important responsibilities are not overlooked.

8.  Design a proactive communication plan. Educating employees about the M&A or partnership is critical to the success of the decision. A carefully implemented plan will increase productivity and aid in the retention of existing quality employees and the recruitment of new associates.

Management must clearly explain how the M&A will impact the corporate culture, how it fits in the overall scheme of growth opportunities for the company, how employees should respond, its affect on employee jobs and responsibilities, and changes in benefits plans.

In preparing your communications strategy, consider these guidelines: 

a.  Anticipate employee reactions. Change in business operations often creates high anxiety for employees. Make a list of potential questions and determine how you’ll address them.

b.  Keep messages simple. A merger or acquisition can be detailed and complex, with many layers of information to share. Don’t use the dump-truck approach with employees and unload information that will overwhelm them. Develop your key message points in plain language, avoiding jargon and legal terminology.

c.  Develop a communications schedule. Determine when you’ll announce the merger or acquisition, and the order in which employee groups will receive communications. Make sure senior leaders and managers have detailed information in advance so they can answer questions, address concerns and forestall rumors.

d.  Integrate communications through multiple vehicles. Employees need to receive consistent information in a variety of ways. Use email, Intranet, bulletin boards and posters, recorded video, teleconferencing or videoconferencing and face-to-face meetings to ensure all employees are informed. Keep the communication doors open, so new details can be released as soon as they’re available.

e.  Fine-tune your communications. After the initial wave of information is released, listen carefully for follow-up messages that need to be shared or points that need clarification.

Mergers and acquisitions can provide exciting growth opportunities, but remember that potentially huge liabilities await companies that fail to do their HR homework before an agreement is complete.