In spite of the daily geopolitical chaos, corporate mergers and acquisitions are alive and well.
In comparison to 2016, results from the first half of 2017 are showing some noticeable shifts. To name a few, global M&A volume is down 4 percent, but deal value is up 2 percent and the value of cross-border deals has increased by 9 percent.
Consistent with our research findings1 from last year, buyers continue to take greater risks, operate with much less information, invest in new geographies, and deploy unprecedented levels of capital in leveraging cheap debt and credit.
In taking a broad view of business and industry around the world, we see that one common denominator drives deal value: people. In our experience advising on more than 1,200 deals annually, we see clear evidence that buyers who consistently drive exceptional operating results have a disciplined process for identifying, engaging, and motivating key talent. This is underscored in Mercer’s Flight Risk in M&A: The Art and Science of Retaining Talent.2
In researching the people aspects of mergers and acquisitions to learn about emerging trends through the lens of deal experts, we shared insights that highlighted people-related transaction risks and introduced practical strategies and solutions to help deliver economic value.
Still, both the buyers and the sellers we polled needed specific data and a process to help them identify and retain key talent during transactions. Our research pinpoints specific actions that both buyers and sellers can take to hedge flight risk, engage key talent, and drive an affordable retention plan as part of an M&A transaction.
In today’s environment, where capital is abundant and cheap, the opposite is true for talent. Top performers are expensive to replace. And buyers are vulnerable to the flight risk of key talent in most transactions. The organizational change involved in most deals puts people on edge, and without an added incentive to stay focused, it can result in them opting out or becoming disengaged. Successful acquirers around the world routinely manage their people assets with the same rigor and discipline with which they manage balance sheet risk; they concentrate on three primary people practices to drive value:
People-First, Bottom-Up Approach is Key
One significant finding from the last time we looked at retention in M&A back in 2012 is that successful acquirers are taking a people-first, bottom-up approach when designing retention programs. They’re not first budgeting for retention and then distributing to employees-the typical top-down process; instead, they’re focusing on talent first and making sure retention is designed with a focus on key employees.
This bottom-up approach also revealed another significant trend: retention programs are expanding outside of the C-suite. In fact, when asked about retention bonus eligibility outside of senior management and the C-suite, 70 percent listed “other employees critical for integration” and 35% listed “other employees regardless of critical for integration.” This last figure is up 150 percent from the level found in Mercer’s related research report published in 2012.
In addition, the “where” matters. Mercer’s look at global talent retention practices revealed that a company’s headquarter location and industry can greatly influence talent retention practices. These nuances need to be understood and taken into account to avoid talent flight and to ensure the right level of expenditure. Buyers and sellers need to be aware of certain industries that pay financial incentives that vary greatly from the norm. For example, globally in the technology sector, buyers fund individual retention bonuses for all levels on average at 49 percent above the market median.
Successful buyers have elevated their retention strategies from an art to a repeatable science. The results are tangible and clear-increased productivity, engagement, owner-like behaviors on the part of retained employees, and accountability. As M&A activity continues its global race towards value, successful organizations cannot risk ignoring the right strategies for talent retention.
1. (2017, June 19). People risk in M&A transactions Mercer research report. Retrieved from www.mercer.com/our-thinking/mergers-acquisitions/survey-people-risk.html
2. (2017, June 1). 2017 Global M&A retention research report: making people the focus. Retrieved from www.mercer.com/our-thinking/mergers-acquisitions/comprehensive-retention-plans-global-research.html