If you’re a long-time reader, you’re probably tired of hearing about how 83% of M&A transactions fail to make it to the finish line-—but it’s true… Don’t just take it from me! The Harvard Business Review recently came to a similar finding, stating that between 70-90 percent of transactions fail to close. From wacky valuations and owner dependency to customer concentration and shareholder disagreement, we’ve covered a ton of the reasons for these failed transactions (if you haven’t seen them, our website is a great place to start!). We’ve also talked about the importance of having a transition team to tackle the pieces of the M&A process that require an outside expert. But what about the team you already have: Your employees?
Your employees are the lifeblood of your company, and their engagement and loyalty during a merger or acquisition can be the difference between success and failure. In this article, I want to emphasize the significance of nurturing your team through the transition and ensuring they remain committed to the journey, just as you are.
A study from Kings Business School and the University of Helsinki found transitions are far more likely to be successful if team members feel they’re treated fairly and that their jobs are safe. The only way to provide these to them is to communicate openly and succinctly, lest you go about losing key talent!
Losing key employees not only diminishes the value of your business, but it also creates a massive financial burden during an already tense time. When employees think their job may be up for grabs or eliminated altogether, they quickly start brushing up on interviewing skills and refining their resumes. Don’t let it be a surprise to your employees when the company does eventually transition, and definitely don’t let it become the elephant in the room. More on that below…
The Human Factor in M&A Success
Behind every successful business, there's a team of dedicated individuals working towards a common goal. In the context of a potential transition, this team may suddenly find themselves navigating uncharted waters, unsure of their future within the organization. It's no secret that uncertainty breeds anxiety, and in the world of business, this anxiety can lead to a mass exodus of talent. As business owners, we MUST recognize that human factors are just as critical as the financials in M&A transactions.
While the vast majority of transactions fail to reach the finish line, amidst the challenges of exiting lies an opportunity to defy the odds. By prioritizing the well-being and engagement of your team, you can tip the scales in your favor and emerge stronger than ever before.
Communicate Openly and Honestly
One of the gravest mistakes a business leader can make during, or in the time leading up to, a transition is to keep employees in the dark. Rumors and uncertainty can be incredibly destabilizing, leading to productivity declines and an overall sense of discomfort among your workforce. To combat this, communicate regularly.
At my last company, Granbury Solutions, every single employee on staff knew we were for sale… We were transparent with everyone in that we were building the business specifically to sell it. We talked about it in executive team meetings, in casual conversation with the guys from development and support—everyone knew. This worked to inherently create a culture where every decision made by any employee was against the backdrop of maximizing our value.
Now, when it came time for the actual transition process, only the players that needed to know where involved. Buying and selling companies can take time and are huge business disruptors, so I would have internal and external transition teams focused on the transaction and everyone else focused on driving the business.
Share your vision for the merger or acquisition with your team early on. Explain why it's happening, how it will benefit the company, and what the future holds for the employees specifically. Be transparent about potential changes and challenges. Remember, your employees are stakeholders in this process, and their peace of mind matters.
Address Employee Concerns
During any major change, employees are bound to have concerns. Will they keep their jobs? How will their roles evolve? What about their benefits and compensation? It's essential to address these questions promptly and honestly.
Create forums for employees to voice their concerns and ask questions. Consider conducting town hall meetings, setting up Q&A sessions, or establishing dedicated communication channels where they can get answers and share their thoughts. This not only builds trust but also fosters a sense of inclusion in the decision-making process.
Invest in Retention
The time leading up to and immediately following a transition can be emotionally taxing for your employees. It's crucial to acknowledge this and provide support. Consider offering retention bonuses or other incentives to key team members to ensure they stay on board during the transition. Sometimes the greatest motivator for employees to focus on maximizing business value is to have a little piece of the business itself. Think about it: Would you work harder to make yourself a buck or to make one for someone else?
Additionally, invest in training and development programs to help your employees adapt to their evolving roles within the new organization. A well-equipped team is more likely to embrace change and contribute positively to the post-merger success.
Cultivate a Positive Culture
Company culture can make or break an M&A deal. If your employees feel connected, motivated, and valued, they're more likely to weather the storm of change with enthusiasm. Encourage cross-functional collaboration, celebrate wins, and keep morale high.
We embraced this cultural element at Granbury Solutions, too. In fact, our NPS score improved dramatically after we originally disclosed it to our buyer during the 6 months leading up to the retrade conversation.
Remember, you are not just merging businesses; you are merging cultures. Identify the strengths of each and work to integrate them in a way that fosters a unified and vibrant work environment.
In Conclusion…
As you strive to beat the odds and successfully transition your business, don’t forget to focus on the human element. Your employees are not just cogs in the machine; they are the heart and soul of your company. Nurturing and engaging them throughout the merger or acquisition process is not just a strategy for success, it's a commitment to the people who make your business thrive.
At Mastery Partners, we understand the intricacies of M&A processes, and we know that every deal is unique. But one thing remains constant: the importance of your team. By treating your employees fairly, keeping them informed, and supporting their growth, you can increase the likelihood of your transaction succeeding and maximize the value of your transition, and your business!
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