May 2015

M&A – solving the people problem

The landscape of the global tech sector has always been changeable: shifting and expanding with each new innovation and every new venture. But now, perhaps more than ever, the industry is being shaped through consolidation. 2014 saw the highest number of technology M&A transactions since 2000 – up 55% against the previous year – and partnership announcements were a major theme at this year’s Mobile World Congress event.

The trend looks set to continue and research conducted by Pinsent Masons back in January revealed that mobile and cloud were the two segments expected to experience the most M&A growth over the next two years.

This anticipated wave of activity is good news both for the start-ups looking towards an exit; and for the acquiring organisations, for whom the pickings have never been richer. The entrepreneurial end of the tech market is populated by an ever-growing number of exciting young businesses with groundbreaking IP and highly talented people. Mergers, acquisitions and partnerships – if successful – can enable both parties to penetrate new markets and develop truly disruptive technologies.

But, when it comes to M&A deals, success can be elusive – depending, as it does, on so many complex factors. One of the most common reasons cited for acquisition failure is people and cultural differences – highlighting the importance of having a robust talent and human capital strategy from the outset. Whilst there is no “one-size-fits-all” approach to guaranteeing results, key talent considerations should be taken by all stakeholders long before putting pen to paper.

For instance, the acquiring business must decide what to do with the existing team as a primary concern. Likewise, the acquired company’s leaders will need to think carefully about if and in what capacity they would like to stay on.

Talent analysis

When making an acquisition, conducting a qualitative analysis of the talent in the business must be a part of due diligence. This includes looking at the effectiveness of the existing senior management team and identifying high performers. Business leaders need to recognise the key people in the company they want to buy and, moreover, what makes them so influential. For example, is it their knowledge, experience, skill-set or network? Talent in one organisation doesn’t necessarily translate to being talent in another, so in order to know who to keep, it is essential to understand why.

Future needs

Recognising pivotal individuals is vital but so is identifying pivotal roles: positions that may not currently exist but that will need to be filled if the acquired business is to scale up effectively. From an early stage of the M&A process, this identification exercise will help to build a picture and inform a strategy that will retain key people and align the right talent to critical posts.

Retention & collaboration

Retaining talent both through and beyond an acquisition is more likely if those individuals are brought into integration-related activity at an early stage and able to play a key role in developing a shared vision of the business’s future. A collaborative approach to addressing talent and human capital issues is important – especially when looking at integrating the target company’s team into a new structure and culture.

Embracing entrepreneurialism

It is often the case – particularly in tech sector deals – that the acquiring business is keen to maintain the spirit of entrepreneurialism within the acquired entity. They will look to fit the business, its IP and/or people into the existing structure in a way that does not quell dynamism, innovation and ambition. For example, one of our clients – a highly acquisitive multinational ecommerce and internet conglomerate – appointed a Global Head of Entrepreneurial Resourcing to address this exact issue. This person had a remit to support and drive the organisation’s venturing activities by adopting and rolling out an entrepreneurial approach to the acquisition and management of talent across the organisation.

Cultural fit

Culture is a crucial element of a successful M&A deal – but this isn’t just an internal issue. If an acquisition has been made with the purpose of expanding into new countries, then having the right talent on board who knows the market – and, indeed, culture – can have a huge impact on results. In today’s global market, it is becoming increasingly important to appoint and develop talent locally (or at least with significant experience of a given territory); as opposed to importing senior management from the parent company.

Talent – especially in the context of mergers, acquisitions and partnerships – is a multi-faceted topic; and one that poses a number of challenges to all stakeholders. However, as long as it is a central part of the deal and exit planning process, it can also be the key to success.

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