People integration in M&A


Financier Worldwide Magazine

July 2018 Issue

FW moderates a discussion on people integration in M&A between Jeff Cox and Amy Kawabori at Mercer.

FW: Why are ‘people’ becoming a more important element in the success or failure of an M&A transaction?

Cox: We have been in a prolonged sellers’ market with record multiples being paid across broad industry and geography. The financial engineering of yesterday is gone with abundant access to cheap credit and debt. Deploying capital in M&A with the expectation of a reasonable return is riskier now more than ever. Disciplined dealmakers that are successfully delivering a return on investment (ROI) in today’s M&A environment understand a key and critical common denominator driving economic value is an informed, engaged and motivated workforce.

FW: In your experience, what are the critical people-value drivers for buyers and sellers?

Kawabori: Buyers with a clear culture, communications and socialised change management plan drive stronger engagement. Based on our research, there are consistent, tangible, people-related value drivers for buyers that mitigate risk and maximise return. Successful buyers are systematically and routinely assessing leadership teams and key employee capabilities, in addition to performing cultural diligence pre-sign. They can use skills inventories and competency assessments to gauge selection and ability to execute on strategy, effectively govern, lead people, drive culture change and deliver business results.

Cox: Savvy buyers are also proactively developing effective retention strategies to hedge flight risk of key talent across key employee stakeholder groups. This involves segmenting key employee groups – beyond the executive team – to determine appropriate severance programmes, stay and retention bonuses, roles and decision-making authority during and after the transaction. This helps keep customer relationships intact and allows for an orderly transfer of the knowledge required to operate the business going forward. High performing buyers understand the market competitiveness of rewards, and leverage their total reward programmes to attract and retain the right talent. This includes base pay and total cash to market, internal equity, incentive metrics and targets, and non-cash rewards. They ensure people at all levels understand their decision-making rights, performance expectations, risk management protocols and how the new organisation intends to measure success short, mid and long term.

Without a clear business strategy you cannot outline and document an effective talent strategy.
— Amy Kawabori

FW: What considerations need to be made when assessing a potential target or merger partner’s culture in the diligence phase?

Cox: A seller’s management team is often looking for a partner buyer willing to invest in its vision and align with its mission. While there is no question sellers are motivated to take advantage of today’s rich multiples, these same management teams intent on sticking around post-close want to be aligned with their new partners around critical aspects of the business moving forward, including decision-making rights, governance, risk management, growth, and so on. Buyers have an opportunity during the exclusive diligence period to adopt a disciplined approach to cultural diligence and leadership assessment. Commitment to a comprehensive cultural diligence review and leadership assessment should be no different than the thorough process buyers leverage during financial diligence. Done correctly, cultural diligence will differentiate the buyer and uncover ‘deal breakers’, important ‘red flags’ and other inconsistencies that may outweigh or change the business rationale for the deal. This is true of regional culture as well as organisational culture.

Kawabori: We are seeing more foreign buyers, particularly in the past 12 months, entering into other countries and taking advantage of cultural diligence to ensure alignment and uncover deal breakers prior to close.

FW: What can be done to avoid the risk of failure post-close due to cultural misalignment?

Kawabori: Because most every organisation has unique cultural aspects to the way work is done that are fundamental to its success, the last thing a buyer wants is to disrupt a target organisation’s cultural keystones. To minimise risk associated with culture gaps, a buyer should identify culture components, operational impacts and perceived criticality by implementing a data-driven assessment approach early in the transaction process. It need not be complicated or onerous, but must incorporate true data gathering rather than feelings and passive thinking. For added measure, empower the deal team with a set of tools that resonate with the buyer’s working style, like structured interviews and surveys, or a standing agenda item to categorise, discuss and action plan around cultural observations. The way individuals work together, or the culture of organisations, may seem mysterious, but know that there is cause and effect at play, as with any business process. Taking a data-driven approach to understanding the behaviours, attitudes and principles within each entity separately is a great first step. Then acquirers must consider operational drivers within each organisation and the impact they have on employee behaviour. Everything from rewards, organisational structure and career framework, to leadership behaviour and corporate approach to risk, even systems and processes operational drivers throughout the organisation directly and indirectly, guide employee behaviour. Uncovering the connections between these drivers and behaviours provides insight to strategically modify or augment drivers to adjust behaviour and ultimately deliver business results. Whatever the approach, buyers should identify key cultural attributes, pinpoint the downstream operational impacts, understand differences and similarities to buyer attributes, identify risks in operational impact and buyer/target compatibility, and actively plan to mitigate risks and drive successful integration.

FW: How can a buyer best hedge the flight risk of key talent in a deal?

Cox: A ‘bottom-up’ approach to assessing talent needs is a buyer’s best practice to hedge flight risk in today’s ultra-competitive employment environment. The ‘bottom-up’ approach requires the buyer to best understand what talent is instrumental and vital to the success of the business post-close and for what period of time. Many companies today still operate with a ‘top-down’ approach, where usually a retention budget is identified first before there is any consideration given to a people retention strategy, and the cost of flight risk as measured by things like customer turnover, key supplier relationship, institutional knowledge and history, research and development progress, intellectual property, relevant data and analytics capabilities, and so on.

Buyers have an opportunity during the exclusive diligence period to adopt a disciplined approach to cultural diligence and leadership assessment.
— Jeff Cox

FW: Is there a proven, repeatable process a buyer can follow to identify and retain critical talent post-close?

Kawabori: Based on our research the key, number one priority, which is fundamental to every successful retention programme, is to understand the underlying investment thesis. Without a clear business strategy you cannot outline and document an effective talent strategy. Successful buyers are segmenting key employee stakeholder groups to understand and document who is critical to running the ‘day-to-day’ business – in the short to medium term – and separately identifying select individuals who can play a longer term role in the new business. They are also leveraging systematic market-based rewards data and retention programmes, branded employee value propositions and career growth opportunities to lock down talent. Interestingly, now more than ever, it is common to see acquisitions of talent to be a primary investment thesis. Nowhere is this more prevalent than in high tech or with Asian outbound buyers, according to our research.

FW: Looking ahead, do you expect buyers to pay more attention to the people issues in M&A? Are there signs of increasing awareness in this area?

Cox: From our lens, people will remain a critical path to success for dealmakers intent on unlocking sustainable economic value. Across broad business and industry, we see selling, general and administrative (SGA) costs averaging 40 percent of total expenses and often constituting one of the top costs. Prudent executives are managing the total people spend with the same rigour they do balance sheet risk and other significant expense categories, including M&A. We have the perfect storm with global economies thriving, unprecedented levels of capital on balance sheets and dry powder in private equity, and shareholders of all types demanding more value through focus and growth. Record unemployment in particular pockets around the world is another wake-up call for leaders that an engaged, informed, motivated workforce is a critical factor in driving business results.


Jeff Cox is a senior partner and Mercer’s Global Transaction Services leader. He has more than 25 years of experience developing and executing business and human capital strategy. Through his work on over 500 M&A transactions, Mr Cox has advised both strategic and financial buyers and sellers on a variety of global people issues. Mr Cox has a B.A. in organisational management from Concordia University and a graduate degree in law from Loyola University Chicago School of Law. He can be contacted on +1 (312) 237 9609 or by email: .

Amy Kawabori is a principal in Mercer’s M&A Change Management Services business, specialising in organisational transformations and culture change initiatives. She is primarily responsible for the development and execution of large-scale change management strategies for her clients, frequently partnering with other strategy and consulting firms, inside and outside counsel, and other involved advisers to facilitate the best outcomes for her clients. Ms Kawabori earned her Masters from Pepperdine University in Organizational Communication. She can be contacted on +1 (206) 920 2243 or by email:

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Jeff Cox

Amy Kawabori


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