Human capital risk in mergers and acquisitions

Jan 23, 2013, 08:00 ET from Towers Watson

Minority of senior finance executives characterized their recent M&A as a true winner

TORONTO, Jan. 23, 2013 /CNW/ - Only one out of five finance executives who have been involved in mergers or acquisitions during the past five years say their transactions were very successful. However, according to Human Capital Risk in Mergers and Acquisitions, a study conducted by the Canadian Financial Executives Research Foundation (CFERF) and sponsored by Towers Watson, executives are not deterred from future attempts at mergers and acquisitions (M&As). The vast majority (more than 80%) of survey participants said they were at least somewhat likely to do another M&A in the next 24 months.

This study aimed to pinpoint and highlight what the highly successful companies did differently in their M&As from a human capital standpoint. The research found that most companies with a recent history of "very successful" transactions shared a set of specific strategies that were different from other respondents.

"Human capital risk stands out as a critical area for the success of an M&A, and, as such, requires management's attention as soon as an organization enters into discussions with another entity," said Michael Conway, Chief Executive and National President, FEI Canada. "Our research also shows that companies that very successfully completed an M&A all paid unwavering attention to human capital at all stages of the process, while this was not the case for less successful transactions."

CFERF, the research arm of FEI Canada, conducted the survey of financial executives across Canada and gathered insights from a research forum held in Toronto. The study's findings highlight the perspectives of CFOs and other senior finance executives on human capital risk in M&As.

Survey respondents indicated that they determined the success of their transactions by measuring different metrics.

  • 69% of respondents measured revenue growth;
  • 63% of respondents measured achievement of specific synergies other than cost reduction; and
  • 45% of respondents measured retention of key talent.

From the results of this study, it appears that the companies which were most diligent about identifying people and cultural issues to address early in the M&A process, well before the integration stage, were best positioned for a successful M&A. It is clear that an early assessment of key factors must be undertaken during the due diligence stage, not when the deal closes.

"In order to effectively manage a cultural integration, organizations should upgrade their toolkit before the next deal" said Eric D'Amours, Account Director & Canada Leader, Mergers & Acquisitions, Towers Watson. "When the next transaction comes up, they would then be better prepared to prioritize issues to be addressed as part of the due diligence process, including plans to help employees cope with the upcoming change."

According to this study, companies with a history of greatest success in M&As used specific processes and  governance policies at all phases of the M&A process from due diligence to implementation. This approach allowed them to retain key talent and improve both employee moral and productivity.

Please click here to view the full report.

The Canadian Financial Executives Research Foundation (CFERF) is the non-profit research institute of Financial Executives International Canada (FEI Canada). The foundation's mandate is to advance the profession and practices of financial management through research. CFERF undertakes objective research projects relevant to the needs of FEI Canada's 1,800 members in working toward the advancement of corporate efficiency in Canada. Further information can be found at www.feicanada.org.

Financial Executives International Canada (FEI Canada) is the all industry professional membership association for senior financial executives. With eleven chapters across Canada and more than 1,800 members, FEI Canada provides professional development, thought leadership and advocacy services to its members. The association membership, which consists of Chief Financial Officers, Audit Committee Directors and senior executives in the Finance, Controller, Treasury and Taxation functions, represents a significant number of Canada's leading and most influential corporations.  Further information can be found at www.feicanada.org.

Towers Watson

Towers Watson is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. With 14,000 associates around the world, we offer solutions in the areas of benefits, talent management, rewards, and risk and capital management.

SOURCE Towers Watson