Meeting of minds of senior management on both sides is key to merger success

The acquirer generally needs a lot of hand holding to understand the nature of the business of the acquired company

ajay-bharadwaj

Ajay Bharadwaj, CEO-Anthem Biosciences Private Limited

A study of the history of mergers and acquisitions offers a broad spectrum of lessons that should be learnt, so as to ensure that such deals are successful. Be it the first wave of consolidation that occurred in the US and Europe in the 1890s or the post globalisation conglomerate behemoths that are a result of the recent wave of mergers; a key component in the success of these operations is strategic human resources planning.

The three pillars on which any post-merger successful strategic HR plan must be based are - setting
out the HR objectives that the new entity wishes to achieve, a HR strategy and detailed plan on how to achieve it, along with a timeline and lastly, HR performance metrics to mark the progress of the implementation of the agreed upon plan. This sounds almost too simple but as HR involves people and very often different or even conflicting corporate cultures of the two merging entities, it is often fraught with hurdles, which always vary on a case to case basis. In addition to these pitfalls, the biotech and healthcare industries provide their own set of unique challenges.

One of the most important keys to the success of any merger is that senior management on both sides should have a meeting of minds. This is especially true in the biotech space, where companies are having a high technology component. The acquirer generally needs a lot of hand holding to understand the nature of the business of the acquired company. Here trust between merging entities is paramount. In other industries one could acquire and replace the top management quickly, filling removed managers with competent industry hands, but science led businesses have their own nuances and this if often not the recommended route to employ. A more balanced approach is needed where key management and scientific personnel of the acquired company are held on and the best ones retained. Even the below par performers should be let go only when replacements with the same skill set are identified. This seems to be a more effective HR strategy.

Apart from the senior management being on the same page, a successful M&A deal also requires the cultures of both organizations to be compatible. If one is just a trading business or one with low technical content and the other a discovery focused company, then the cultural clash could scuttle the merger. This is often overlooked during due diligence, but is as important as good financials, product pipeline and other quantifiable metrics. That notwithstanding, if the two organisations with very different cultures are attempting to merge then the HR plan must lay out what the new management envisions should be the culture of the combined entity. Incorporating good aspects of corporate culture from both organisations will not only prevent employees from feeling alienated but also allow both entities to improve their existing corporate cultures.

Often the compensation and reward practices of the two entities are completely different. This can create confusion and tension between the two sets of employees. Understanding this and finding an acceptable rationalisation of compensation is must for a successful M&A.

As with any relationship, successful mergers require the expectations of both sides to be paired. There will be a lot of investment in time and money for both merging entities, which should be explicitly understood by management on both sides. This is especially true since most M&A deals occur between companies in either the early stage discovery phase or nearing market readiness phase. Mature biotechs are few and rarely targets of such deals. Understandably, therefore, a lot of work needs to be done post acquisition. Here, HR planning plays a key role in bridging the gap between the merging entities. An effective strategic HR plan that lays out the specific responsibilities with timelines of both parties involved can avoid a lot of the confusion that follows post-merger.

An effective HR plan must also take into account not to be too disruptive. It is understandable that at the time of a M&A deal, employees are often uncertain of what the future holds. It can be extremely demoralising for employees, especially if immediately post-merger they perceive a cull of their old colleagues. This can lead to loss of competent employees and creates unnecessary turbulence at an already stressful time. A smooth transition, while understanding which personnel from both organisations are indispensable is crucial. These individuals need to be kept motivated and it needs to be ensured that they are retained post-merger.

Mergers and acquisitions are always deals that are fraught with risk for both organisations. The mitigation of this risk involves not only doing a thorough run through of the performance metrics of the organisations and making a decision based on that, but also taking into account that people's livelihoods and jobs are tied in with the success of this merger. Looking at the merging entities in a more holistic way: do their corporate cultures and policies match? Are their goals aligned? Are the managements thinking along the same lines? These and other such questions are just as important before and after the merger, and must be dealt with to ensure success.

 

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