How HR Can Increase The Chance Of A Successful Merger or Acquisition
According to HBR, 70-90% of M&A (mergers and acquisitions) fail – a pretty daunting stat for organisations working in this area. If you are an HR professional working in a fast-growing organisation it’s likely you’ll have to face the challenges associated with a merger or an acquisition somewhere along the way.
An acquisition, from due diligence to onboarding and integration is a great example of collaboration and team effort across multiple teams in HR: HR Ops, HR Partnerships, Benefits, Payroll, Employment Legal, Compensation, HRIS, Equity, and IT.
In addition to needing great collaboration, every acquisition comes with its own circumstances and presents its own challenges. At Spotify, we embrace controlled chaos, which puts us in a strong position to be able to handle all the pieces of the large puzzle as is typical with M&A. Having this mindset allows us to accept the complexity that comes when working with culture, people, and change, and right from the beginning, we know it can’t be completely controlled.
We certainly can’t say we’ve completely mastered this work, but we’ve definitely made some learnings. We believe that leading with a clear goal of what we want to achieve will guide the process and the evaluation of the product, people, or combination that we’re looking to buy. Here are some of the most common challenges.
Challenge Number 1: Staying objective and unbiased
The challenge that becomes obvious first is about us as human beings. As soon as the Letter of Intent has been signed, there is likely to be some confirmation bias, meaning you’ll immediately be biassed toward finding green flags during the due diligence. And our role as HR professionals is really to look for the red flags. These are things that can be detrimental to the deal, similar to what we would in a recruitment process.
Challenge Number 2: Ensuring alignment in culture and people philosophies
The second challenge is probably mentioned in every article on M&A out there, but nevertheless it’s highly important as a culture clash would place you in the 70-90% of failed mergers or acquisitions. HR’s role when evaluating this risk is crucial to the future success of any merger or acquisition.
Challenge Number 3: Assessing talent
During the due diligence, you can’t assess the talent you’re potentially buying in the same thorough way you would do if this was a straightforward recruitment. It’s likely that employees aren’t aware of the deal and you might only have access to the founders and the leadership team to help you assess the talent.
Challenge Number 4: Onboarding and engagement
Finally, if you complete the due diligence, keeping employee engagement and retaining the team is not something you can take for granted. During the onboarding and integration, it can be that many people’s roles will shift in scope and focus. They may feel like they’re becoming a small fish in a big pond and even if you discovered synergies between the two company cultures during the due diligence, it will not be exactly the same.
Challenge Number 5: Integration logistics.
Contracting, IT onboarding, system integration, benefits and payroll enrollment, employment law, mobility and visa are all sizable pieces of work to support a merger or acquisition at the integration stage. A huge consideration at this point is whether or not you have a legal entity in the country where you are making the acquisition. If you don’t have one, this is the first thing you must do. It’s a huge piece of bringing control to the chaos.
Bringing Control To The Chaos With Our Playbook
Our approach to M&A has developed over the many acquisitions throughout Spotify’s history. The locations, company sizes, and business ideas have all varied, giving us different experiences each time. The learnings we’ve made make up today’s Playbook. It gives structure to the process all the way from due diligence to integration. It acts as a people-focused foundation for any M&A and is tailored depending on the size, location, and talent of the acquired company. It helps us with everything from watching our biases, evaluating culture and talent, the nitty-gritty of integration logistics all the way to having the new band members join Intro Days in Stockholm.
How do we then ensure alignment in culture and beliefs? We do this in two ways. By applying the same structured process to interviews as we do with external hiring. Secondly, by helping other internal stakeholders understand the importance of culture and how it can make or break the acquisition. This way, we are setting ourselves up to look at things objectively and making sure we as a group are equipped to see those red flags and dare to pull up the handbrake if we don’t see a cultural match.
How do you know you are bringing in talent that will have an impact and perform? You simply don’t. However, you have to put trust in the business performance they have accomplished as a team. This won’t guarantee high performers all round – there will probably be a normal distribution of performance. That’s something you have to be okay with. This mindset together with the same interview process as you use when hiring externally will give you an overview of the skills, and competencies of the team. In our experience this is done best in close collaboration with the founder(s). Building trust that you are in this together early in the process is key to making successful long-term organisational plans, with clear roles and responsibilities.
We build engagement amongst the new band members by spending time onboarding. We make sure to give context and communicate frequently. We find different ways to provide an “in” to the company. This could be embedding employees in another team, they take part in shadowing, or they get themselves a buddy. It doesn’t matter which method is chosen, just as long as they can build crucial relationships and expectations can be set from the start – showing them all parts of the culture (the good, the bad and the ugly). If the cultural integration and people onboarding isn’t done properly, it will surely backfire so being thorough, even if things move a bit slower than you’re used to, is the top priority here.
We would love to claim that the administrative integration is simply done by structured integration practices, but in a company with the speed and complexity of Spotify, it’s more of a beast. And it’s hard to get it 100% right the first time. Having relationships in place and being able to make a collaborative effort, helps massively. We don’t reinvent the wheel – we apply the normal onboarding process but tailor it. It is more challenging to onboard an entire team to the Spotify culture and ways of working compared to one new hire so we’re mindful to set clear expectations on how long the team can expect “white glove” HR support and what the channels will be after that. We bring any internal partners early on. For example, the part of the business the acquired employees will be joining plays an important role in the onboarding.
We have had our share of tough learnings of the challenges M&As present but by holding retrospectives with all parties to discuss what went well, what we could/should have done differently, helped us to uncover what we’ve learned and to become better equipped today. To develop our approach to M&A, we zoomed into the HR workstream and asked ourselves how we can drive the process and evaluate if we’ve reached our goal.
Our approach is underpinned by our culture and we believe in staying true to our values throughout the entire process. This means acting with sincerity and being transparent with expectations (everything will not be perfect), embracing the controlled chaos and accepting that change will happen, being collaborative by involving the founders in all steps, and finally, having empathy for the change the acquired team is going through – using dialogue as your main tool to understand each other.
If you can adopt this culture and values, focus and pair that with a structured set process all the way from due diligence to integration, you’ll get a long way.
