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The Critical Process of Retention During an Acquisition: Know Who to Retain

 

Most companies invest considerable time and money performing financial and legal due diligence of target companies, but fail when it comes to human capital issues. Knowing how to manage this process will increase your chances of making your acquisition a success.

 

Be Prepared to Start Early

Planning focused on identifying and retaining the critical human assets being acquired begins in the earliest phases of the due diligence process.

There will always be key people you want and need to keep in the target organization. The challenge is to first identify who they are, then to devise ways to make sure they stay on as enthusiastic, committed team members. It is important to recognize that, in spite of your best efforts, valued people may still seek other employment elsewhere. The importance of approaching these individuals quickly and communicating a clear vision of their long-term roles in the organization must be taken seriously. 

Many times, management of the acquiring company makes staffing decisions prematurely without systematically determining who will fill what roles, what departments or corporate functions will be kept in place or dismantled, and the staffing needs for those various areas. Too often, management does not engage in the kind of extensive personnel-related due diligence necessary to strengthen the combined companies. 

If started early, the retention process can pave the way for a smoother integration stage and your key human assets can serve as conduits for feedback from employees to the very top of your organization.

 

Align the Selection Process with Company Strategy

Before you can assess the human capital of another company you must first have a clear vision of the strategy of the newly formed company.  Why did you acquire or merge with the company?  Was it to acquire new technology resources, new product lines or an increased market share?  Once you have a clear vision of the merger rationale and can effectively communicate it to your employees you can move forward in determining who the “must-keep” individuals are.

Along with a clear company vision, it is important to decide early what organization structure will work best for your company. Are you going to design a new structure, duplicate the structure of your organization or your target organization or absorb the target company into your current structure?   The latter may be the simple most direct strategy but more times than not, works as a temporary fix and valuable talent that could have played a critical role in moving the merged company forward will be lost. 

 

Set the Groundwork for the Assessment of Key Personnel

The first step is to form a team to focus on the selection process. The team should be made up of key members of the due diligence team and managers from both companies who will be responsible for the combined company’s success post acquisition. During the due diligence you should examine the processes, systems, structures, and interactions among managers and staff in all departments of the target company that support or impede business objectives. To build a truly high-performing organization, it is necessary to align the organization structure, business processes, people and culture with the overall company strategy.

Link your selection strategy to the company’s objectives and your desired culture for the new organization.  Detailed plans should be created for the assessment of skills needed and creation of the new organization structure.

Including these objectives in your assessment plan will guide you through the process and allow the team to evaluate the factors that are most important in the selection of your staff.

The selection process should be based on objective assessment of skills and competencies, not on political compromise.  The process for appointments should be seen as fair and rational.  It should also be timely, moving quickly to get the team in place and accelerate integration.

Be sure to communicate your guidelines during the assessment process. If the selection process is conducted with fairness and integrity, then the combined firm will keep key staff, maintain higher morale and have greater productivity.

Don’t Forget to Reward and Motivate to Retain Key Employees

Rewarding employees for exceptional work they've done is critical to keeping them motivated to want to continue to do their best.  There are many factors to consider when designing reward systems.  In general, ensure that you are rewarding the desired behavior and understand whose performance you are rewarding (individual, team, company).  Link rewards to short- and long-term integration results.

This could be in the form of salary, retention bonuses, tickets to the theater, or a department lunch.  The form of the reward is not as important as the gesture. 

Many experts agree that a majority of mergers succeed or fail based on a company’s ability to retain the people needed to attain the strategic objectives that are the foundation of the deal. Identifying those key human assets and devising retention strategies are the first steps that should be included in your acquisition strategy.          

Julie Corbo is Co-founder and Managing Director of EdgeStone Consulting, specializing in acquisition consulting and due diligence support to firms in the federal marketplace. For additional information, contact Julie Corbo at jcorbo@edgestone.net, or review more detailed information at www.edgestone.net.