Minimising staff leakage after acquisitions and mergers

Chris Cheetham
30 June 2016

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Mergers & Acquisitions

When companies merge or acquire other firms, management need to prioritise their employees to avoid staff ‘leakage’, which can damage and destabilise writes Chris Cheetham.

Organisations merging and/or acquiring other businesses is not a new phenomenon. The scale of some of the ‘deals’ within the consulting sector in recent years is, however, significantly larger and more complex than was traditionally seen. Unlike some other businesses, the value of the consulting firm is almost entirely derived from the knowledge and skills of its employees. As is frequently quoted, “the assets go down in the lift each day”.

The time and effort spent on due diligence work, legal agreements and financial forecasting ahead of such corporate transactions is immense. Often this is led by external specialist teams, highly skilled and charging levels of fees which engineering consultancies can only dream of! And, following the hiatus of ‘the deal’ those teams usually disappear and the less sexy but in reality more important work of delivering value (and probably cost savings) from the new entity begins.

This is the point at which all the employees below the board ask the all-important question: “What is in it for me?”

The response to that question may well determine whether an individual nails their (new) colours to the mast or decides to quietly have a look around and “see what is out there for people like me”.  Not important you may say, only one individual amongst hundreds/thousands. But it usually isn’t.

The whole process of acquisitions, mergers and restructures has the effect of unsettling a large proportion of the employees. So, during the entire process, many will be quietly updating their Linkedin profiles, having a catch up coffee with old colleagues/contacts and registering for email alerts on job web sites. Nothing outrageous or even visible, and whilst the directors and advisors are focused on closing the deal this will all happen unnoticed in the background.

So, returning to the point when post-deal the integration is in full swing with (often) new finance and IT systems; new processes and procedures and the all-important new organisational structures are announced, the original “what is in it for me?” question returns, only with more urgency.

Because whilst the top management have been locked away working on due diligence, closing the deal, systems, new ‘high level’ structures/targets etc, the rest of the organisation, the people generating fees rather than being an overhead, have quietly been exploring their personal ‘plan Bs.  Most will do this in isolation, others will do so in teams.

So, when the ‘roll-out’ of the new structure reaches most people, those individuals have often prepared for the conversation to a far greater extent than the person delivering the ‘corporate message’ and depending on how that conversation goes may well determine whether their plan B  is then initiated.

For those fascinated by numbers, let’s use a simple example:

1,000-employee business sold to a larger competitor
£80,000 fees per head = £80,000,000
10% profit margin =£8,000,000
Multiple of 6 x earnings = £48,000,000.

Let’s be very conservative and assume only 5% of the employees are not happy with the new structure and their perceived future opportunities and decide to follow a plan B and leave.

And that only 5% of clients decide they are not happy with the changes and take their business elsewhere.

And over the following 12 months a further 5% of the employees follow former colleagues to their new greener pastures.

A total of only 15% leakage. Not bad by many reported statistics.

Again for the Financial Directors:

£48m x 15% = £7.2 million of value of the business lost.

£7.2m buys a great deal of time and effort to spend with the assets of the business. The people.

How many organisations in the midst of takeovers/mergers/restructures manage to keep a focus on employees and customers ahead of finance, legal and IT matters? In our experience, not many!

Chris Cheetham is director of recruitment consultancy Cheetham Hall Limited.