Turn the Tables on M&A Risks: How L&D Drives Merger Success

In today's business environment, mergers and acquisitions (M&A) are common strategies for growth and expansion. However, despite their potential benefits, these transactions often come with significant challenges and risks. Studies show that between 70% and 90% of M&A deals fail to achieve their intended objectives, mainly due to issues like cultural differences, integration problems, overestimated synergies, and employee disengagement.

Only one-third of mergers and acquisitions create value for shareholders, while the remaining deals either break even or destroy value. This highlights the significant risk associated with M&A transactions and the importance of careful planning and execution. Research indicates that the failure rate of M&A transactions varies by industry, region, and deal size, with some sectors experiencing higher rates of failure than others, but the collective consensus is that companies who undergo a merger/acquisition will fail more often than they succeed. 

Mergers and acquisitions stand as pivotal moments fraught with both challenges and opportunities. With a strategic emphasis on learning and development initiatives during the acquisition process, organizations can adeptly navigate these complexities and enhance their prospects of success. By prioritizing crucial areas such as cultural integration, comprehensive training, effective change management, and leadership development, companies can not only mitigate risks but also bolster retention rates and sustain or elevate employee engagement levels. This proactive approach enables organizations to minimize the inherent risks associated with M&A transactions and fully harness the synergistic potential of the combined entity.

But why do mergers and acquisitions fail more often than they succeed?

Success in mergers and acquisitions depends on several factors. While financial performance, market share growth, and customer satisfaction are commonly emphasized, critical elements such as employee engagement, retention, and integration efficiency are often overlooked. These factors are greatly influenced by the strategies and initiatives implemented by learning and development departments.

With the odds stacked against companies, it’s important to not overlook the critical role learning and development programs have in making or breaking your success during and post acquisition. This is not the time to defund professional development programs. This is so important for every board member to hear, so we’ll say it again:

This is not the time to reduce L&D budgets! 

Mergers and acquisitions involve blending two distinct organizational cultures, which can lead to clashes in values and work styles. Insufficient due diligence and ineffective integration planning exacerbate these challenges, increasing the likelihood of failure as they directly impact employees performance, engagement, and ultimately if they choose to stay past the acquisition phase.

Employees are more likely to disengage and jump ship.

Employee engagement often faces challenges during mergers and acquisitions (M&A). During M&A activity, employee engagement tends to decline, and turnover rates rise as it becomes a stressful period of uncertainty for employees. concerns about job stability, disruptions to work routines, and uncertainty about the future direction of the organization.

Employee engagement can drop by up to 50%, and approximately 47% of key employees leave a company within a year of a merger or acquisition. Furthermore, around 30% of employees exit within two years post-transaction, with 75% leaving within the first three years post-M&A.

Employees tend to lose trust in their leadership.

Employees may feel out of the loop and receive mixed messages at times when they are already doubtful of the direction of their company. When doubt creeps in, employees may have more hesitation and procrastinate in getting things done. Over time, this constant doubt can lead to bigger mental health issues like anxiety and depression. Employees may decide that the company or manager is no longer suitable for them due to the negative effects it has on their health.

Only 22% of employees believe that their company's leadership has a clear direction for the organization. Even fewer, just 15%, feel genuinely excited about the future under their organization's leadership. Additionally, only 13% strongly agree that their leadership effectively communicates with the rest of the organization.

Why are employee turnover rates so high after M&A integrations? 

• Your employees fear losing important aspects of their workplace culture.
• They anticipate monumental changes to systems and processes.
• They worry their jobs, or the jobs of their colleagues, are no longer secure.
• They miss the close relationships they once had with colleagues who were laid off after the transaction.
• They feel alarmed that their workload may increase or their jobs will become more stressful.
• They've lost trust in leadership.
• They wonder if their role and contributions will be valued by new leadership.
• They worry they no longer understand or are aligned with the organization's goals.
• They may be confused or frustrated due to poor or insufficient communication.
• They fear their benefits or salary will decrease.

When you add it all up, it's not hard to understand why so many employees leave. But upon closer examination, most of these issues are worries—not necessarily realities.

This underscores the importance of communication and transparency in maintaining employee engagement during M&A activity. Research suggests that organizations that prioritize open communication, provide clear direction, and involve employees in decision-making are better equipped to mitigate the negative effects of M&A on employee engagement.

By implementing strategic L&D initiatives and proactive measures, companies can help mitigate risks and ensure successful integration.  

Mitigate Merger Risks by Empowering Team Leaders

The saying "people don't leave jobs, they leave managers" holds true during and after an acquisition for the reasons mentioned above. In addition to developing cultural integration and integration training initiatives, the importance of your managers cannot be underestimated. Learning and development departments can provide a lifeline for ensuring your mergers and acquisitions are successful. Here are a few ways you can invest in key managers during this crucial time.

Identify and Retain Star Players and Identify High Potentials

Firstly, recognizing star players within the acquired company is essential. They're ideally suited for critical roles in the merged enterprise. But how do you identify them without seeing them in action?

Leaders often request lists of "stars" or high potentials, but these can be subjective. Conducting talent reviews or personal reconnaissance may not provide the needed objective view of mission-critical positions.

An objective, critical role analysis is crucial to avoid redundancy and misjudgment. Simply assessing knowledge and pedigree won't suffice. Mergers disrupt everything, requiring adaptable individuals who can quickly learn and deliver with precision.

To navigate the challenges post-merger successfully, begin by identifying and retaining outstanding employees adept at handling the transition. Conducting a comprehensive 360-degree evaluation of key players can offer impartial insights into who should stay. Simultaneously, prepare and involve your most impactful leaders and managers in the transition process, starting with identifying competency development needs tailored to transitional skills.

Use Mergers to Offer Targeted Leadership Development

Providing leadership programs serves as a way to encourage employees to stay by offering opportunities for their personal and professional growth. Tailored training programs and coaching sessions can help employees navigate the post-merger environment, emphasizing effective communication and conflict resolution skills.

Mergers also present an excellent opportunity to empower your talent and allow them the freedom to excel in their roles. This is a chance to reassess and adjust policies and structures to enhance productivity and profitability.

• 76% of employees seek career expansion opportunities.
• 86% would switch jobs for better growth prospects.
• Retention rates increase by 34% for employees with professional development opportunities.
• Investing in employees' careers leads to a 94% increase in their willingness to stay with the company longer.

Essential Skills for Managers to Steer Company Goals During Change

Prioritizing learning during a merger positions companies to stand among the 10% that succeed, rather than adding to the 90% failure rate. In addition to enhancing engagement and bolstering retention, providing targeted leadership development equips employees with essential skills often lacking in many managers. Focus on programs that allow you to target:

Change Management Support
Provide change management support by equipping managers with the skills to lead teams through change and offering training on resilience and coping strategies for employees.

Employee Communication Training
Increase buy-in and ownership by openly communicating about the merger or acquisition and involving employees in decision-making processes.

Keeping Managers Focused on Strengths
Help managers stay focused on their strengths and those of others, maximizing team performance and morale. Provide training on strengths-based leadership, coaching, and feedback techniques.

Cultural Awareness and Sensitivity Training
Promote understanding and respect for diverse cultures, values, and work styles. Train employees on cultural differences, communication norms, and strategies for building relationships across organizational boundaries.

Technical and Job-Specific Training
Offer training on new technologies, processes, and job roles introduced post-merger. Ensure employees have the skills and knowledge to perform effectively within the integrated organization.

Team Building and Collaboration Training
Facilitate team-building activities and workshops to foster collaboration, trust, and cohesion among employees. Provide training on teamwork, conflict resolution, and problem-solving for improved collaboration across functional and cultural boundaries.

Conclusion

Mergers and acquisitions present both challenges and opportunities for organizations. With the guidance of learning and development leaders, companies can effectively navigate these complexities and increase their chances of success by prioritizing cultural integration, training, change management, leadership development, retention, and engagement. These efforts minimize the risks associated with M&A and unlock the full potential of the combined entity.

At New Level Work, we specialize in creating synergies. We understand that the true measure of a successful M&A lies in seamless integration and a unified vision. Our comprehensive suite of services addresses the common challenges of M&A, ensuring that your company not only survives the transition but thrives in its new form. With New Level Work, you can transform your managers and M&A aspirations into tangible success stories.

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