After a sluggish start to 2024, several headline UK M&A deals were announced in the second half of the year. In September, Carlsberg struck a deal to buy Britvic, a drinks brand. Then, in December, Direct Line, an insurer, accepted a takeover bid from Aviva, and Vodafone and Three received approval for their merger, which will create the UK’s largest mobile network.
M&A activity is expected to gain momentum in 2025, according to KPMG’s global head of deal advisory, Liz Claydon. Although mergers can accelerate business growth and increase company valuations, they will inevitably have a significant impact on workers and company culture. The process therefore requires careful management by HR.
Mergers are often followed by restructurings and redundancies, as the companies involved combine their various functions. It’s expected that 2,300 jobs could be lost through Aviva’s £3.7bn takeover of Direct Line, for instance. The change and uncertainty can also increase employee turnover, with some studies suggesting that a third of acquired employees leave following an acquisition.
“M&A, while generally a very positive thing, is typically a highly disruptive event for both organisations,” says Claire Williams, chief people and operations officer at Ciphr, an HR software provider.
HR leaders therefore should play a pivotal role in M&A decision-making. Their involvement at every stage of the process can help ensure a “smooth transition and alignment” between the merging organisations, Williams adds.
HR’s role pre-merger
Emagine, an IT and engineering consultancy, is in the midst of two acquisitions – these will be its ninth and 10th in the past five years.
While identifying which company to acquire is usually the remit of the CEO and CFO, Jesper Diget, Emagine’s group chief people officer, has been involved from the initial stages of the company’s recent acquisitions.
“HR used to get involved in the process only once the due diligence was quite far along and we were close to signing,” he explains. “Now, we are involved much earlier and play an equal role to finance during due diligence.”
This typically involves assessing the organisational structure and people analytics of the target company and meeting with its management teams. “It makes good business sense to involve HR earlier because we provide a different point of view and will ask different questions,” Diget adds. “It also builds trust with the other company and makes it easier to manoeuvre further down the line.”
HR now plays an equal role to finance during due diligence
Stephanie Kelly, chief people officer at Iris Software Group, a business-technology company, has been involved in 75 acquisitions throughout her career. She too believes HR should be involved from day one of the merger.
Kelly explains that her primary role in the process is to identify any “unacceptable risks” or potential liabilities that could be unaffordable for the acquiring company, such as defined benefit pension schemes or large severance packages for existing staff. However, company culture, a key concern for HR, is often a strong indicator of whether an acquisition will be successful.
“We will have calls focused on culture with the management team and ask them questions about the entire employee life cycle,” Kelly says. It’s important to look for healthy employee-engagement levels, leadership and management skills in the target organisation and alignment between the companies’ values.
“Acquisitions are much more successful when they involve companies with high employee-engagement scores,” she adds. “This shows a trusting relationship between employees and management.”
Getting insights into a company’s culture can be challenging. According to Kelly, Glassdoor and other publicly available information can be a valuable source of information. Diget meanwhile suggests having informal, in-person discussions with the target company’s leadership team to understand what drives them and get a better feel for who they are.
Closing the deal
Once the deal is approved, documents must be finalised and exchanged before the merger is announced and integration begins. This could take several days depending on the size and complexity of the merger. Kelly advises CHROs to use this time to improve their understanding of the target’s employee programmes, benefits, management structures and ways of working. “This is really important,” she says. “Being forewarned is forearmed.”
This will also help CHROs prepare their workforce communications, as announcing that an acquisition has been agreed can cause a lot of uncertainty for people in the business.
Acquisitions are much more successful when they involve companies with high employee engagement
“You’ve just turned that whole organisation upside down,” Kelly says. “Employees will be wondering what’s happening, so you’ve got to be ready to answer their questions.”
It’s important to be transparent during this stage, according to Diget. Following one of Emagine’s recent acquisitions in Germany, he visited the target company’s offices and provided the acquired staff with a timeline of each stage of the integration phase.
“It might be tough for some people to see, but it’s important to be honest and transparent – and to listen a lot,” he says.
Ensuring the integration stage is as short as possible can help to reduce further disruption and uncertainty. “The quicker you integrate the two businesses the better,” Kelly says.
However, the time this takes can vary depending on the size of the business being acquired and the complexity of its operations. Williams suggests establishing clear roles and responsibilities, fostering open communication and creating joint task forces to help ensure a seamless transition.
Post-integration
The post-integration phase must also be carefully managed. Jules Gordon, a fractional people director and executive coach, says this phase is about ensuring “there is no ‘them’ and ‘us’ and that everyone is operating as one.”
The number-one reason acquisitions fail is misaligned cultures
This can be achieved by building trust through clear communication at each stage of the process, she says. Organising joint projects and team social events can also help to improve communication between the newly merged businesses.
But merging two cultures is a delicate process. Employment Hero announced its acquisition of Humi, an HR tech platform, at the start of the year, and its chief operating officer, Robert Goodwin, remains acutely aware of this challenge.
“The number-one reason acquisitions fail is misaligned cultures,” he says. “Invest the time to truly understand the team you’re bringing on board. Build relationships early, spend time with their people, learn how they work and align on shared goals and values.”
By taking an active role at each stage of the deal-making process, HR leaders can help make their organisation’s M&A a success.
After a sluggish start to 2024, several headline UK M&A deals were announced in the second half of the year. In September, Carlsberg struck a deal to buy Britvic, a drinks brand. Then, in December, Direct Line, an insurer, accepted a takeover bid from Aviva, and Vodafone and Three received approval for their merger, which will create the UK’s largest mobile network.
M&A activity is expected to gain momentum in 2025, according to KPMG’s global head of deal advisory, Liz Claydon. Although mergers can accelerate business growth and increase company valuations, they will inevitably have a significant impact on workers and company culture. The process therefore requires careful management by HR.
Mergers are often followed by restructurings and redundancies, as the companies involved combine their various functions. It’s expected that 2,300 jobs could be lost through Aviva’s £3.7bn takeover of Direct Line, for instance. The change and uncertainty can also increase employee turnover, with some studies suggesting that a third of acquired employees leave following an acquisition.