People First: How human aspects are at the heart of successful acquisitions

How a people-driven approach leads to more value creation within M&A transactions.

Photography: Vincent Gorissen

From developing a strong People Value Proposition to navigating shifting priorities and achieving cultural transformation in M&A deals, three experts from People Related Services at PwC (Legal) highlight the challenges, opportunities and best practices arising from the people side of transactions .

Being successful in business operations, and certainly in M&A, depends on the human aspects. At PwC, People Related Services (PRS) is the one-stop-shop for all people matters in a company. PRS consists of four teams that work closely together: People & Transformation, Employment law (PwC Legal), Reward Services and People Technologies.

“This allows us to cover all human aspects for companies and M&A transactions end-to-end”, says Serafine Vandebuerie, who heads the People and Transformation team at PwC Belgium. Together with two colleagues from PRS, Dominique Vanhove (Senior Manager Reward Services) and Sara Vanderstraeten (Employment Lawyer and Director at PwC Legal), she explains how a people-driven approach leads to more value creation within companies and in M&A transactions.

The importance of a People Value Proposition: Building a strong corporate culture
One of the key points in which the PRS teams of PwC assist companies is developing and strengthening their People Value Proposition. “This is the entirety of your core values and what you have to offer people as a company. This no longer only applies to your employees, but to your entire liquid workforce”, Serafine explains.

“What do you stand for as a company? For example, what is your culture? And what is the leadership style? What flexibility options are there? These elements are all part of your People Value Proposition.” The People and Transformation expert emphasizes that companies must ensure that their promises to their people match reality to avoid value conflicts.

From money to well-being: The shift in what employees really find important
The financial aspects still remain important, but other aspects are gaining in importance, sees remuneration expert Dominique Vanhove. “Values and norms, culture, flexibility, personal development, leadership and work-life balance. These are all things that count heavily”, says Dominique. “It is certainly no longer the case that the organization that pays the most, achieves the highest retention figures or manages to attract the best talent. It is the total wellness story that counts.”

Serafine Vandebuerie cites a recent study that shows this. “The importance of financial reward has decreased by 25%, while the importance of values and standards has doubled”, she indicates. “The importance of more flexible remuneration, such as health benefits, child care and wellness, has also doubled. The work-life balance has even tripled in importance.”

Serafine Vandebuerie: “The importance of values and standards has doubled”

Flexibility and balance: Challenges and opportunities in post-pandemic work-life dynamics
Sara Vanderstraeten discusses the challenges companies are grappling with, especially post-pandemic, regarding flexibility and work-life balance. “Teleworking is now commonplace, but employers are re-evaluating their teleworking policies”, she explains.

“Employee training has slowed down a bit since the pandemic, and a lack of team cohesion is also a challenge at times. But setting a minimum number of office days is often not well received by employees. Companies are trying to find a balance between flexibility and maintaining efficiency in training and teamwork. However, this is not equally successful everywhere, and Belgian legislation also poses a challenge because it does not always support flexible working.”

Flexibility in this regard varies widely by sector and company size, with start-ups and scale-ups showing more flexibility than large companies, especially in sectors with production requirements. Implementing changes and being flexible is often easier for smaller companies. Balancing flexibility and operational requirements remains a widespread issue that many companies have yet to address.

Serafine Vandebuerie also wants to add a positive note. Namely that attention to culture, wellbeing and human aspects has increased enormously since the pandemic. “And we also see that companies that invest in this are able to attract the best people. So I would argue that as a company you should definitely pay sufficient attention to this. But as my colleagues have said, there are still quite a few challenges.”

Culture as a critical success factor in an M&A transaction
Then the step to M&A: How important are these and other challenges surrounding human aspects in deals? “Very important”, states Serafine: “If an acquisition fails, 97 percent of the time it has to do with people aspects. If we look a little deeper, culture is super essential. If the culture does not match, you face a very big challenge. In the cultural transformations we supervise, the central question is which elements of corporate cultures match and to what extent they can be integrated.”

In addition, companies involved in M&A processes are faced with the question of who will be the leaders of the new organization. Serafine: “How do they determine who is the right person in the right spot? The fact that you can objectify this with assessments, for example, helps a lot. Then you take that emotion out. That’s really something you can do to influence this process. You can also do assessments around culture, so you can really map out in a factual way what the cultures are of company A and company B. This allows you to determine which aspects you want to keep and which you don’t.”

Sara Vanderstraeten emphasizes that if things go wrong with HR aspects of mergers and acquisitions, it is often because insufficient attention was paid to these aspects at an early stage of the deal. She illustrates this with examples of situations where companies have completely different HR practices, such as variable compensation plans, which makes integration difficult. “If attention is paid to this, it is possible to identify and anticipate the risks and opportunities, both during and after the deal”, says the Director of PwC Legal.

Sara Vanderstraeten: “If things really go wrong, it is often because not enough attention has been paid to all aspects of HR very early in the deal.”

HR in the due diligence phase
Fortunately, there is a clear trend where clients pay more attention to HR aspects at an early stage of the deal, according to the PwC experts. This includes calculating costs and savings associated with human resources harmonization and integration. “In the past, this often only happened after the deal had been closed, so that is really a shift that we see”, according to Sara Vanderstraeten. “Look at the integration and synergy options beforehand and then calculate in advance what the impact will be.”

However, obtaining information can be challenging as HR is often not a priority during the due diligence process. “Sometimes we also see that HR, for example, is not aware of the transaction and that you are just talking to the finance people”, says Dominique Vanhove. “Nevertheless, it is crucial to get a clear picture of the workforce, compensation and other HR-related matters to make the deal successful.”

Retention is also an important aspect, where companies must be careful when giving retention bonuses and should especially strive for the rapid integration of employees into their own remuneration package. Strategic workforce planning is essential to determine which profiles should be retained and how they can be motivated. “Succession planning also plays a larger role in deals”, according to Dominique.

“In the past, key management was looked at, while we now see that more attention is paid to a larger group of people instead of only management. There is also a larger focus on whether there is a succession plan in place for key individuals in deals to potentially anticipate departures & hence value loss”, continues the Senior Manager Reward Services.

“Who are the key people in the next generation? You don’t keep it purely and solely financially. You keep them by giving them an attractive future perspective. To make them feel how important they are within the company! And I think that is something that is still underexposed in Belgian deals. In the US, much more attention is paid to this. And rightly so: You really want to know that if important people may retire within a few years, there will be a next generation ready to jump in.”

And finally: achieving a successful post-merger
In the interview, Serafine Vandebuerie, Sara Vanderstraeten and Dominique Vanhove emphasize the crucial role of their teams in guiding companies after a merger or acquisition. Serafine points out the importance of leadership coaching, communicating the vision to staff, and actively working on cultural change. Sara and Dominique emphasize integration and harmonization, works council consultation, contract renegotiation and other legal aspects.

The experts at People Related Services also point out the importance of measuring success. Typical things that will be asked in a deal are figures about turnover, the number of vacancies and how quickly you can fill them. Dominique: “The reward team further measures how the compensation packages are experienced. There is a lot of software that allows people to indicate how happy they are with compensation and what they would like to see differently. In addition, you also have general surveys about well-being.”

Dominique Vanhove: “It is crucial to get a clear picture of the workforce, compensation and other HR-related matters to make the deal successful.”

According to the PwC experts, the results of such surveys can be confrontational, especially when it comes to issues such as leadership. Serafine: “You can think that everything is going well, but people have a different feeling. Yet you not only have to be very transparent about the results, but you also have to say what the concrete action points are afterwards. And you have to evaluate those actions to see whether they have the desired result or whether other actions may be necessary. Continuous dialogue is essential.”

Finally, the experts highlight that there is a clear shift towards greater focus on ESG as well as HR data during due diligence processes, with an increasing emphasis on the use of AI and technology on both sides of the deal. Sara Vanderstraeten: “I think that there is still a lot to be done by employers, which is also relevant in M&A. Compliance with CSRD in particular. We see an increased focus on ESG topics as part of the due diligence process. We also expect that AI will have a significant impact on the efficiency of due diligence. In an HR due diligence, for example, a lot of time is often spent on compiling overviews of employee and management salary packages and contracts. By analyzing and summarizing data and documents quickly, an AI tool will be able to prepare this work much faster, freeing up time for the diligence teams to focus on further in-depth analysis of specific identified topics.”

The emergence of tools, such as PwC’s workforce risk tool, offers opportunities to objectify various aspects of the workforce, making a more structured approach possible. These trends underline the need for companies to become aware of and prepare for the impact of HR data and technological developments on mergers and acquisitions. ▉

Five HR and people pitfalls in M&A processes

1) Involving HR too late
If HR is only involved when the deal has already been done, the HR people are lagging behind. And the HR department is often already understaffed. All aspects, such as communication, leadership, and strategic workforce planning, still have to be arranged. “We see that when HR is involved in a timely manner, these matters become a lot easier”, says Sara Vanderstraeten.

2) Not freeing up people to manage the integration
When the deal is closed, the process of value creation only begins. People must be released who will manage this. Dominique Vanhove: “Who will look at the cultural aspects? Who will look at the remuneration aspect? Who will ensure that all practical matters are arranged, such as the payroll systems? If you cannot pay your people on day one, that is a huge problem.”

3) Paying too little attention to collaboration
For an integration to be successful, there must be collaboration, but that collaboration in the leadership team does not happen automatically. “Plan regular coaching sessions, especially with the leadership on an individual & team basis as people don’t just work together as a team. Have a plan to support the leadership for the next two years ahead after a transaction”, says Serafine Vandebuerie.

4) Not getting a grip on the informal leaders
There is often a very important tension between the formal and informal leaders in your organization. “Formal leaders have their box on the HR chart and their formal position”, says Serafine Vandebuerie . “But very often the informal leaders are a lot more important in pulling the organization along. Gaining insight into this is super essential. There are technologies and methods to clearly map these networks and this should be an essential & integral part of the change management approach.”

5) Inadequate preparation for Day One
Dominique Vanhove emphasizes the importance of the period between signing the deal (signings) and the final completion (closing) from an HR perspective. Although signings are often seen as a crucial point in the deal process, Dominique states that the real work only begins then. “This intermediate period should not become a silent period, as this can cause a lot of unrest among the staff. Managing this period is essential, and a good balance must be found between involvement of the acquiring party and a quiet transition period.”

Dominique emphasizes that staff trust is one of the most important aspects and that it cannot be quickly restored once it has been damaged. That’s why it’s crucial to invest early in the process in maintaining trust and planning for a successful transition.

Read also: M&A is getting more complex: this is how you integrate all various aspects

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