Surviving M&A: HOW TO USE THIS BOOK

CHAPTER 1 AL HOW TO USE THIS BOOK RI TE MA D M TE GH ergers and acquisitions have a life of their own. No one, not even the chief executive officer (CEO) of the company, can control the changes taking place once an acquisition or merger RI is announced. Employees often feel like pawns in a chess game, PY but so do senior managers. Yet in the midst of all this chaos and turmoil, it is possible to bring more control to your future if not even improve your position with the new company. CO Two companies merge. Or a big company takes over a smaller one. Sometimes it’s two competitors, or maybe it’s a company buying just one division of another. A hedge fund or private equity firm acquires a start-up or failing firm. Possibly even three similarly sized companies come together to create a new organiza- tion. No matter what the form of the merger and acquisition (M&A) deal, what’s one of the first things to happen? An announcement by the new management that there will be a round of layoffs. Employees are fired. Whole teams are made redundant. 2 SURVIVING M&A In different companies and countries it’s called different things: jobs cuts, layoffs, redundancies. But they all mean the same thing: people are losing their jobs. The official announcement will typi- cally say that somewhere around 5–15% of the total workforce of the two companies will be made redundant. The painful truth about most mergers “It’s inevitable. If we acquire a company, we’ll make people redundant.” Michel Akkermans, Chairman and CEO, Clear2Pay A survey conducted in 2002 by consultants Towers Perrin found that 46% of companies going through mergers and acquisi- tions made immediate job cuts; further layoffs followed because of the deals, often several years later. In the USA, over 150 000 redundancies annually are due to organizational changes including mergers and acquisitions, according to the Bureau of Labor Statistics in 2008. These numbers are huge. During times of reces- sion (and, in some industries, depression) such as the economic downturn that started in 2007, the number is likely to be even higher as yet more firms merge or get acquired as they run into financial difficulties. Emotions run high when there’s news – even just a rumor – of a pending M&A deal. Such news can be “toxic” to a work environment which was once attractive to employees who had been committed to the company and engaged by their work. That previous employee engagement is replaced with selfish concerns about individual job security and other personal objectives such as which position they will assume in the new organization. From the company’s perspective, it becomes very difficult to retain employees or attract new employees until the deal is completed and, often many years later, settled. Even in more benign mergers, HOW TO USE THIS BOOK 3 where the promise of the deal is high, staff fear that there’s a hidden management agenda to cut headcount or to use the acqui- sition to claw back attractive employment conditions. It’s no wonder that employees are concerned. The New York Times reported in 1998 that over 75% of laid-off women do not have another job after one year. Other studies claim that nearly 75% of all Western households have a family member or neighbor who has been laid off. Most employers do have the best intentions in mind: they want to treat all employees fairly, but are also under pressure to show cost savings through layoffs. Managers try to be fair, focusing on a “correct” selection process (frequently asking outside consult- ants to advise and assist) and providing compensation above the statutory minimum in combination with counseling and outplace- ment support. Others, however, don’t realize the side-effects of conducting redundancy badly. They communicate poorly, comply only with the minimum law requirements, and stretch the process out over time, making the experience even more stressful for redundant employees. They cause an even greater amount of stress, fear, and even resentment not just in the people being told to leave, but also for those who remain. Anything seems better than living through the hell of a merger or acquisition … “I’m going to wash beer mugs in a biker bar – better pay, better hours, and a better class of people!” A banker following redundancy, as quoted in Here is the City, a London-based news and careers website Everyone reacts differently to the news of an M&A deal affect- ing their company, and they react differently again when they are told how it might or will affect them personally. Why do some people do better in a deal than others? Does it depend on whether 4 SURVIVING M&A you work in the front office or back office? Are some types of people able to exploit the situation more effectively? Is it purely a political game? Or is it just luck? Many books have been written about how companies can be more effective at merging – focused on the organization, longer- term strategic positioning, cultural integration, and the financial results of the proposed M&A deal. As it is important to the com- panies in structuring a deal, those books will also make a distinc- tion between a merger (usually when the two organizations are of similar size and when they together create a new third company so both prior companies cease to exist) and an acquisition (when one company, typically the larger one, acquires the second company and then the second company ceases to exist and becomes part of the first). Those distinctions are not critical in this book – as no matter how structured, people are fired in most deals. Accordingly, most of the comments in this book relate to either situation. Instead of a focus on the companies merging or acquiring, this book focuses on the personal situation of employees who are experiencing an M&A deal right now or who have recently been told that their company will be acquiring, taken over, or merged. It is intended for use by individuals as a guide to how to exploit for personal benefit a situation of corporate change which, in this case, is caused by a pending M&A deal. As many corporate or private equity (also including venture capitalist and other financial) buyers have discovered, one of the greatest challenges within the M&A process involves people-based decisions – who to retain and who to keep. A common wedding joke applies to mergers as well A wise person once said that a beautiful marriage is one in which two people become one. The trouble starts when they try to decide which one. HOW TO USE THIS BOOK 5 The personal impact is significant. Following redundancy, employees suffer both financially and socially (including lack of self-esteem and standing among friends and colleagues). This book will hopefully provide people facing this situation with a practical guide to various situations and illustrate scenarios with “sound- bites” from people who have had personal direct experience in being survivors or victims of mergers and acquisitions. The reason for layoffs is often the result of a very rational strategic process within the company making the acquisition. From a financial perspective, the reason for many mergers is to improve the company’s competitive advantages and to benefit from economies of scale. One way to achieve the necessary and prom- ised cost savings from a merger is via downsizing the workforce: firing people who thought they had secure jobs. Some people made redundant – usually in senior management – will receive attractive severance payments and retain some of their corporate benefits including medical and life insurance or share bonuses. Even for those who gain some benefits and definitely for those who find themselves with no work at all, it will be a traumatic expe- rience. While many employees may prefer to drag out the redun- dancy process and stay with the company for as long as possible in order to maintain their current pay and benefits until they find a new job, others prefer to be put out of their misery and go quickly as they feel that the waiting and not knowing is even worse. The Chartered Institute for Personnel and Development (CIPD) found in its 2008 annual survey of absence management that organizational change and restructuring, including acquisitions and mergers, can be the largest cause of work-related stress in some organizations. There are thousands of M&A deals annually, even in years when the level of M&A activity is “slow.” These deals are often front-page news and, especially when there are many layoffs as part of the deal, they receive intense media focus. Mergers and acquisitions therefore have become an inescapable part of most people’s lives – directly or indirectly. Few employees anywhere 6 SURVIVING M&A will have a career in which they don’t face a situation when their company merges, acquires, or is acquired – or faces the possibility of one of those. How you react will affect the outcome for you. This book focuses on layoffs due to mergers and acquisitions, but the larger number of employees facing redundancy for other reasons may also find helpful tips in this book.