Mergers and acquisitions have ceased to be something extraordinary long time ago. A company always becomes more powerful and gains the possibility to survive in the market after merging another one. However, if the other company is undergoing similar problems, the transformation process always suffers. Problems with personnel, especially middle and senior managers, during mergers and acquisitions cannot be avoided. HR manager is not only a strategic partner of the company's management but also an agent of change because any changes in management influence employees. Therefore, the problem of HR management in the process of reorganization refers to inform the staff about the essence of changes and get loyalty of employees to these innovations.
Definition of the M&A
Mergers and acquisitions practice was developing for a long time. Companies have always been merging with each other or absorbing smaller competitors. The highest point the flourishing of the M&A market in the US reached in the 1980s due to the widespread of "junk bonds," i.e. bonds with low credit ratings and higher interest income (Roberts, Wallace, & Moles, 2012). The mechanism of using junk bonds was simple enough: a company produced many junk bonds and used the money to buy a target company. Cash flow of the absorbed companies overlaps interest payments on the bonds, and the company continued the practice, which eventually leads to a significant transaction and a rapid growth of stock indices (Roberts et al., 2012).
Mergers and acquisitions evaluate the end of the continuum of companies' variants, and they are often combined with each other. The least intense form of combining companies is licensing (Philip, 2009). The other variants of mergers and acquisitions are alliances, partnerships, and joint ventures (Philip, 2009). Mergers and acquisitions enter into a combination of options (Philip, 2009). These combinations are most important for the size of investments, control, integration requirements, the pain of separation as well as issues connected with people management (Bagdali, Hayton, & Perfido, 2014).
The terms of mergers and acquisitions are synonymous to the same process. In fact, these terms have some aspects that can impact the overall atmosphere in which these processes occur. When a company gains control of another one and declares that it has become its new owner, the deal is called absorption (Roberts et al., 2012). Legally acquired company ceases to exist, the buyer swallows the whole business, and shares of the buyer continue to grow on the market. Merger, in turn, will be referred to a process when two companies that are about the same size decide to continue their business as a single new company rather than remain separate companies owned and operated by different people (Roberts et al., 2012).
To avoid misinterpretation of the existing diversity of views on the nature of mergers and acquisitions, this paper provides the following understanding of these terms. A merger deal is an association of several legal entities to create a new entity without any interference of the hostile external environment. Acquisitions are transactions in which there is a connection of one or more legal entities to the existing legal entity with the cessation of the activity of the former. Mergers and acquisitions are the forms of organizational change. Despite ambiguous results, these forms of organizational change continue to exist. It is due to particular factors, including cultural gaps and collisions as well as incompatibility and loss of key people. Leaders who have gone through the process of changing ownership now recognize that managing the human side is the key to maximizing the value of the transaction.
The Significance of the Topic
As the preparation of mergers and acquisitions takes more than one month, HR managers have time to understand their problems and plan work in each project that the leading and the absorbed company are involved, which determines the essence of the integration process (Bagdali et al., 2014). Nevertheless, the role of the HR specialist is to overcome resistance of the staff and motivate them to actively participate in the process of change, thereby helping to improve business efficiency. To do this, HR managers from both companies need to take a comprehensive look at the process of preparing changes to predict reactions to them and to ensure employees' loyalty to their company's integration and workflow throughout the project.
Although the role of HR in both companies is the same, the challenges in the process of leading the organizations are more complex. Therefore, the success of the project largely depends on the HR specialist. Human resources manager could combine offices and client base. However, if employees are not interested in the development and increasing efficiency of the transformed company, the cost may be unnecessarily high (Bansal, 2016). Hoping for a synergistic effect of the merger, business managers can lose sight of the human factor (Yahiaoui, Chebbi, & Weber, 2016).
Therefore, it is significant to maintain communication and keep the feedback to employees during such changes. There is a need not only to explain the purpose and meaning of company reorganization, but also to work with the objections. The employees need to get answers to the questions that concern them - what will happen to wages, what they will be guaranteed, who will leave the company, whether there will be a social package, and what exactly will change in relation to them. Otherwise, gossips, stress, and nervousness in the team can arise, thus increasing the turnover and the possible loss of valuable employees.
Positive Aspects of the HR in the M&A
Mergers and acquisitions are the leading forms of organizational changes. A wave of mergers and acquisitions swept the business world in the late 1990s. One of the key objectives of all mergers and acquisitions is synergy, which results in an increase in the income and savings as well as in the generation of ideas and organizational development (Yahiaoui et al., 2016). It is currently becoming apparent organizations have greater efficacy after mergers and acquisitions than when they operate separately. However, synergy is quite difficult to achieve since it does not occur immediately after the merger of two companies and serves as the main problem to be solved in such transactions (Yahiaoui et al., 2016). Increased uncertainty in the business and work environment during mergers and acquisitions leads to changes in all business processes in the organization and affects people due to a change in the organizational structure and management style of the company. That is why, before implementing economic synergy, interaction between employees and departments should be achieved (Yahiaoui et al., 2016).
The function of HR in an organization in general relates to HR specialists as well as human resources policies, practices, and systems of the organization. It involves all the selfless activities that the organization utilizes to influence the behavior of its employees. A HR manager can be a valuable business partner in promoting the development of corporate goals and strategies, particularly in the planning stage, decision-making, and evaluation of relevant policies. When planning, HR manager may be involved in the process of scanning the environment to anticipate changes and ensure the necessary organizational capacity. During the decision-making process, HR manager can provide an in-depth analysis of the activities of employment or study financial implications of potential strategies, especially in the matters related to employees. In assessing appropriate strategies, HR professionals can bring a unique perspective that takes into account the important people-related issues and the consequences of neglecting them.
It is clear that the successful implementation of mergers and acquisitions passes through a continuous dialogue and work with the staff, organization of their consistent training and planning, recognizing cultural and organizational differences between employees as well as their needs (Bansal, 2016). Consequently, the role of HR specialists is a significant training required prior to mergers and acquisitions. For the successful implementation of integration, HR manager needs to provide employees with information on the objectives and solutions to problems which occur during the process of merger or acquisitions (Bagdali et al., 2014). Most employees do not realize what awaits them; they are afraid of losing their jobs and are unable to take an active part in the integration process (Bagdali et al., 2014).
Specialists in human resources management should be involved in activities for the implementation of mergers and acquisitions not only at the stage of actual implementation but also in their planning. They need to learn managerial styles, life cycles, corporate culture, internal communication, human resource management systems of different companies, motivational approaches and realize what cultural and organizational differences are crucial to a particular transaction (Jain, 2014). Human resources can help determine whether the culture of the two companies could pass through a merger or acquisition. HR manager should be clear about the company's corporate culture and learn the culture of another organization to make such a determination. Cultural differences may include the definition of success of the companies and their understanding of the benefits for employees, such as additional payment for overworking or insurance payments. Moreover, management styles of both organizations could also express the differences in cultural understanding of the companies. HR manager should also be ready to find out the attitude of staff and managers towards their business functions and the industry itself. It was suggested to carry out an audit of various practices in human resources management and organizational culture along with drawing up a profile of the company as a part of the management staff analysis in the framework of a comprehensive evaluation (Jain, 2014). There is particular importance of the cultural urological evaluation component of the personnel management analysis in integrated assessment activities as well as investigation of access to information issues (Jain, 2014).
There are different concepts and principles of successful mergers and acquisitions which focus on these success factors. General restrictions investigated model is a mismatch between an available understanding of proposed models and their expected relevance. Thus, the academic model is formal and correct, but not user-friendly, while the model of consulting companies is easy to use, but it does not meet the academic requirements. Significant human resource management issues in mergers and acquisitions refer to the analysis of failures during mergers and acquisitions, one of the main reasons for which is the human factor. A growing number of international mergers and acquisitions facilitate investigation of the effect of differences between national cultures as a result of such transactions (Jain, 2014). Differences in national cultures are also an important factor impacting the transaction (Jain, 2014). Recently the focus has been shifted from success factors of a transaction to the vision of what, how, and when the personnel department can do to ensure success of the merger or acquisition (Jain, 2014). There is a model and a specific organizational scheme for effective integration and further development. However, there is no analysis of the role of the human resources management system at the stage of comprehensive assessment of mergers and acquisitions.
Positive actions of a HR manager in the matters of mergers and acquisitions are also one of the main goals of a comprehensive assessment of the human resources management system. Thus, it is necessary to identify in what ways the target company is different from the parent company and how they are similar as well as determine whether it is possible to resolve the existing differences. This corporate strategy and objectives of mergers and acquisitions should be the focus of a comprehensive assessment of the human resources management system. It is essential to outline that the importance of a comprehensive assessment of human resource management is greater in those companies which play an important role in intellectual and social capital, i.e. social bonds, relationships, intellectual potential, personnel competence are the underlying factors in companies working in the field of information technology, consulting, training, etc.
One can distinguish seven aspects when systematizing answers to the question of which areas in the field of human resources management should be analyzed prior to mergers and acquisitions. These are the organizational structure, compensation and benefits, HR processes, including the legal aspect of work with the staff, availability of key personnel, corporate culture, employees' knowledge and skills, and, finally, statistics related to the organization's personnel (Bansal, 2016). In HR management, there is a special importance of interaction with real people in the framework of mergers and acquisitions, not only in the processes related to people. Characteristics of national and organizational cultures stand out as an important factor in the success of mergers and acquisitions.
Comprehensive assessment of the human resources management system should be carried out by specialists in human resources and expert members of the project team in cross-functional comprehensive assessment. It should be noted that regardless of their job position, specialists with experience, analytical skills, systems thinking, and in-depth knowledge of the human resource management system should perform this kind of analysis. Besides, it is important that the specialists have good intuition as well as sufficient skills of building relationships and establishing informal social networks. In addition, a comprehensive human resource management evaluation should involve specialists' work not only with the staff of the acquired company but also with the representatives of the parent company.
Whenever a merger or acquisition takes place, there is a lot of pressure on the team management to establish new levels of expectations from employees. In addition, a successful deal is not only about achieving a positive result in the transaction of the day but also about being able to ensure that all elements of various businesses and, in particular, their human resources are effectively integrated during the following weeks and months. The M&A is aimed at reaching the level of success it originally expected from the deal. At the same time, thoughts and feelings of laborers are not taken into account, so many managers do not even think of how merger and acquisition will affect individual employees.
Negative Features of HR in the M&A
For decades, there has been a belief that successful M&A is a necessary and sufficient condition for a well-planned management of financial resources of a company, neglecting the focus on the total control of all the available resource capacities (personnel, corporate culture, communication, information, etc.). The lack of attention paid to human resources ultimately leads to unexpected and negative results of M&A. However, senior managers who accompany the process of M&A now realize that in the current economic conditions, human resources management within the context of changes is the key to success (Khandelwal, 2015). Typical problem areas related to the management of human resources in the process of M&A are the lack of communication, lack of direct involvement of staff in the process of M&A, and the lack of staff training in regard to the process of merger and acquisition (Kansal & Chandani, 2014). These aspects could lead to the waste of the key talent, customer loss, and weakening of the corporate culture.
During the preparation of mergers and acquisitions, the company's procurement management should distinguish strategic and financial benefits to future transactions in order to provide confidence in their accuracy and profitability. HR managers of the parent company should evaluate the structure and the advantages of the other one. Thus, there is a possibility to identify any potential problems, such as a pension plan which is running out of resources, or a health insurance package which will cost a considerable sum if the company pursues it. These are also some minorities, which significantly influences the HR department of both companies. Therefore, the HR department of the buying company should pay enough attention to all the features of another company.
Moreover, people are often afraid of change, and merger or acquisition develops uncertainty and fear of changes in employees of both companies. The aim of the HR department in both companies is to adhere to every employee to make a smooth transition while providing necessary answers about the effect of the deal on each employee personally. Moreover, it is the task of the HR manager to detect and eliminate any kind of rumors and layoffs since they could harm the image of the company and its labor. However, this task could harm the mental health of the HR manager, so it could be also considered as a negative effect of mergers and acquisitions.
One of the most significant negative results of M&A concerns staff turnover (Khandelwal, 2015). This is especially noticeable when talented professionals with high leadership potential who are carriers of corporate culture, knowledge, experience and are capable of providing a solution to corporate objectives leave the company. It would be wrong to describe this problem as existing only within the M&A. The problem of staff turnover is common to any organizational change regardless of its source and purpose (Khandelwal, 2015). The basis of the described problem is, on the one hand, the employees' fear of the unknown and uncertainty of future prospects; on the other hand, the lack of communication with the management in the process of M&A also exacerbates the problem. In turn, these issues result in the lack of interest in the issues happening, alienation, and loss of confidence. In fact, the problem is far more threatening. It is obvious that, in the absence of proper HR management the company assumes the risk of not only related to the lack of labor or carrying out operational tasks but also external threats coupled with the loss of market position in the rapidly growing industry (Kansal & Chandani, 2014).
Another problem of M&A for the HR department could be found in the organization and structure changes of both companies. Therefore, some redundant positions could face elimination, whereas other departments could be combined. Establishment of the process of changing the two organizations so that they work together as one may take several months, and HR plays a significant role in this process. The HR department handles any changes in the structure, and the manager has to communicate with each employee so the work of the company is smooth and productive. Human resources can work with the management and employees to change job descriptions of the various positions, ensuring that everybody understands his/her role in the organization given the recent changes. Experience shows that the management of corporate culture change is much more far-reaching than the effects of mergers and acquisitions on all the management at all levels of the organization.
The Research of the Topic
James Baba Abugre has held a study on the issues of the development of the role of HR manager in the complex issues of M&A in the 2014 (Abugre, 2014). The study has an exploratory goal. With the help of the qualitative analysis and the analysis of evidence collected, human resource managers in each of the studied organizations considered the most appropriate research approach (Abugre, 2014). Therefore, the researcher had to take a targeted approach to the sample to make an overwhelming investigation with a particular focus on the role of the HR department in mergers and acquisitions.
With the help and direction of the GIPC, the researcher had chosen the best recipients for the study (Abugre, 2014). With the aim to develop the peculiarities of work issues of HR managers, the study focused only on cooperation between the HR departments (Abugre, 2014). Although this approach may involve some shortcomings, personnel managers were the only ones to provide necessary information. For the study, semi-structured interview questions after a literature review were used. All the interviews were scheduled so that an interviewer could meet only one recipient a time, so the method allowed flexibility and opportunity to investigate or to ask clarifying questions and follow new customers (Abugre, 2014). There were 10 recipients from 10 different companies, all of which were a part of the M&A process once (Abugre, 2014). All the respondents were previously involved in the M&A process, and had significant working experience (no less than 5 years up to 16 years in the same position in the company) (Abugre, 2014). Moreover, many recipients were occupying the same positions even after the merger or acquisition.
It took from half an hour to an hour for an interviewer to communicate to every HR manager (Abugre, 2014). All the data were handwritten because the recipients refused to record their voices (Abugre, 2014). All interviews were held in the offices of the respective HR managers (Abugre, 2014). For the codification of data, the researchers used a standard content analysis procedures that are provided for identification and recording of certain passages from the texts of the interviewees, which generated similar value.
The interviewer asked the respondents about their roles during the M&A and the level of their involvement in the process (Abugre, 2014). According to the responses of the recipients, it became clear that they lacked involvement in the process. HR managers believe that mergers and acquisitions are more successful in large international companies when the local manager of the staff has a minor role to fulfill in the process.
As for the role of communication, HR managers had a lot in common considering the process of M&A (Abugre, 2014). The responses on the effectiveness of the role of communication varied, but every HR manager was involved in the process. In general, all personnel managers played an effective role as communicators. The respondents claimed that they had a lot of communication before and after the merger and acquisition process. Moreover, all the recipients of the study gave an affirmative answer to the question about the difficulties they were facing while integrating the cultures of the two companies, which proves the role of minorities in the M&A process (Abugre, 2014). The problems included cultural incompatibilities, performance management systems, adoption of an entirely new workflow, and the problem with the dominant power players defined by strategically placing its personnel in key positions of influence in the new company (Abugre, 2014). The question of cultural differences, apparently, becomes a paramount challenge facing the majority of HR managers after the merger or acquisition of companies.
While some leaders felt that their M&A process avoided resistance from employees because of long negotiations with the leaders of both national and local unions, others said the process adversely affected by the desire of some employees to take their money and leave the new business because they already faced financial problems (Abugre, 2014). HR managers were interviewed almost on the same basis, taking into account the factors they considered when designing severance package for terminated employees (Abugre, 2014). All of them reported that their inputs were sought in the development of a package of severance paid for employees who had to leave. HR managers said that it was not a difficult task as all the conditions were spelled out in the collective agreement. Some conditions of these packages are predefined, such as the length of service, the current salary of the injured worker, financial stability of the company, the number of people leaving, etc. and have to be taken into account (Abugre, 2014). However, most of the managers admitted having difficulty with respect to compensation due to the development of a general scheme of compensation for the new company, especially when it comes to attracting people who used a different compensation scheme.
The study described by James Baba Abugre had only proven the primary and minor roles of HR managers during the merger and acquisition process. M&A provide a huge potential for growth, which cannot be achieved as rapidly through incremental development. However, the success rate is not that high; therefore, the deals are rather expensive and risky. When financial services companies pay close attention to human aspects of a merger or acquisition, they significantly increase the likelihood that the transaction will gain success. Therefore, HR managers can make or break the M&A process.
The Changes of the Perspective on the Topic over Time
M&A has been around for a very long time, so it is not a newly introduced concept in the business world. It appeared in the end of the 1800s, and competitiveness in the global business environment largely contributed to its wide spread. Currently, mergers and acquisitions are dependent on a number of factors, which resulted in a wave-like nature of M&A development (Roberts et al., 2012). In general terms, seven "waves" of mergers and acquisitions are distinguished in the scientific literature. The first wave took place in 1897-1904 and was called "The formation of monopolies" (Roberts et al, 2012). The second wave occurred in 1916-1929, and it had the name of "The formation of oligopolies" (Roberts et al., 2012). The third wave covered the period from 1965 to 1969 and was called "The conglomerate mergers" (Roberts et al., 2012). The fourth wave, “The mega-mergers,” took place in the 1981-1989 (Roberts et al., 2012). The fifth wave called "The strategic restructuring" started in 1992 and lasted till 2003 (Roberts et al., 2012). The sixth wave lasted for 5 years in the period between 2003 and 2008 and is characterized by globalization processes (Roberts et al., 2012). The current wave started in 2011 after the global crisis (Roberts et al., 2012). The seventh wave has some peculiarities, namely it includes numerous merger and acquisitions as a means to help companies flourish in the difficult market conditions.
From 1996 to 2001, M&A failure rates varied from 50 to 80 percent (Roberts et al., 2012). The main factors underlying the seventh wave of mergers and acquisitions, which is lasting now, are globalization and the formation of a single world economic space, development and distribution of high technologies, and reduction of state regulation of the economy, which were typical of the late 20th - early 21st century. The global M&A market hit its peak in 2007, showing an increase of 10 percent compared to 2006, reaching a volume of $ 4.1 trillion (Roberts et al., 2012). The global financial crisis has had a dramatically negative impact on the development of the market. Experts also note that currently the focus and direction of mergers and acquisitions are changing fundamentally. Thus, in May 2015, the amount of mergers and acquisitions in the US reached a monthly record of $243 billion, which outweighs the gains observed at the peak of the Internet boom at the turn of the millennium and the debt boom before the global crisis of 2008 (Bansal, 2016). The previous record, recorded in May 2007, was $226 billion, and M&A transactions concluded in January 2000 resulted in $213 billion gains (Bansal, 2016). However, shortly after the peak the stock market faced a collapse.
Creating the possibility for integration requires a new approach to transaction management. In the traditional approach, integration, integration leader, team and consultants had to focus on the prevention of incidents until the deal is done. In a rapidly changing course, there is a need to provide a fast and close solution to the question of how to make the combination work for successful use later. Therefore, HR managers seek to minimize the risks and realize cost savings associated with the reduction of redundant operations and people. Nevertheless, many transactions need to go beyond the values that justified the deal and look for new sources of synergy and cost efficiency. Therefore, the process of M&A is now closely dependent on HR managers, which are described as the main peculiarities of the fifth wave of M&A in the USA and worldwide.
From the future perspective, it is projected that intensity in the market of global mergers and acquisitions will grow and record a new peak in 2017 in the developed markets and in 2018 in the developing ones, which will be followed by recession (Bansal, 2016). Mergers and acquisitions are a comprehensive interdisciplinary category. Walking in the process of implementing particular successive stages, forming mergers and acquisitions, and conduction of transactions affect the interests of internal and external stakeholders and largely determine the success of each transaction. In this regard, the success of each specific merger transaction (absorption) is largely dependent on the ability of the initiating company to form a favorable image of the company within the market in question and build stable relationships with partners in the transaction, which is the responsibility of HR professionals.
In the future research, the dynamics of the integration process should be examined more carefully, even with the involvement of the recipients. The overwhelming integration is a significant aspect of the M&A process that greatly influences the HR. Moreover, some additional research on the role of mergers and acquisitions in the corporate growth strategy would also be helpful. The strategy should be recognized not as an alternative but as a complementary strategy for HR management during the M&A. Therefore, some additional research would directly address the interconnection between organic growth and growth through acquisition.
In addition to dissemination of information, it is also necessary to study the process of organizing staff training, join a new team with other business processes, and adapt to the new management system and culture (Philip, 2009). For many leaders of the process, the data it is excessive; it is very significant as it allows employees at all levels to overcome the fear of new requirements and develop professionally. To consolidate the staff, the key experts must first identify the most valuable employees, evaluate the consequences of their dismissal, their motivation to study and implement measures for their consolidation. For example, it is necessary to discuss the merging with the staff to enable them to participate directly in the process.
Perspective, Analysis and General Thoughts on the Topic and Its Importance to the Field of HR
After the analysis of the causes of possible failure of mergers and acquisitions, the researchers concluded that the issues related to the assessment of the role of human resources are extremely important for producing a synergistic effect. However, at the same time, they are the most undervalued and ignored during the period of implementation. More than 2/3 of cases of low performance of mergers and acquisitions have become established due to inefficient work with the staff. Although HR management specialists participate in the process of mergers and acquisitions, they tend to join it after the transaction is completed. However, successful integration requires planning and careful analysis. Thus, the need for a comprehensive assessment of the human resources management system and participation of specialists in the personnel management in the early stages of mergers and acquisitions is obvious.
The role of corporate culture of the merger companies should not be underestimated. After unification of West and East Germany, western companies bought many of the former Soviet blocs. However, most employees negatively perceived dynamic western managers because of their conceit and desire to change the usual way of operation. As a result, many energetic supporters of western management left the company. Therefore, there is a need for the company's corporate culture to audit its partner. It would help to avoid serious mistakes and effectively solve distinct problems associated with the differences of opinion, which may adversely affect the morale of the company. The audit will also help to mitigate the consequences of unpopular decisions in case they are needed.
The model of integrated assessment of the HR system is based on theoretical and empirical analysis and provides a comprehensive approach to understanding the issues of human resources management, which could affect the success of a transaction and point to the factors and parameters to conduct a comprehensive assessment. Moreover, it is attracts the potential user's attention to the connection of such an assessment strategy (including the purpose of mergers and acquisitions), the internal characteristics of a company, and the external factors of the labor market. Thus, the developed model is a comprehensive tool for risk assessment and prospects for professionals involved in the processes of mergers and acquisitions.
Mergers and acquisitions are increasingly important for business development. Successful M&A relies on the strong performance of management and proper operation of a HR manager. There are many reasons why an M&A transaction's failure. One of them is underestimation of the role of the staff in the work processes. The art of successful managers lies in the ability to determine when the staff is ready to surrender. Therefore, in mergers and acquisitions, special attention should be paid to the staff of both companies. Thus, the help of a HR manager can ensure proper operation of companies and will lead to success in the future.