Challenges Faced By Employees Through Mergers And Acquisitions

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Mergers and Acquisitions have become a common feature in the business world these days. Typically, mergers and acquisitions take place with a view to expand and consolidate a business. The reasons that drive the decision to merge with or acquire other companies are varied. New technological developments and fast changing economic environment influence such decisions. Product and market synergies are important factors that encourage mergers and acquisitions.

However, an important aspect that is often ignored or given less importance to, is the employee issue. Employees of the merged entity face serious structural and cultural challenges. It’s no surprise then that mergers often fail. According to top mergers and acquisitions law firms, in 5/6th of the cases mergers fail to enhance shareholder return and in 2/3rd cases the new entity lose value in the stock market.
The principal reason behind such a dismal performance is employee related. They face serious challenges in adjusting to the new work and cultural environment. Major challenges faced by the employees of the merged or acquired companies are discussed below.

Communication

Communication with employees is crucial to the success of mergers and acquisitions. Instead of keeping the employees informed about what’s happening in their companies, employees are generally left in the dark when mergers and acquisitions take place. Employees are not sure about their roles and responsibilities and their job security. Lack of communication creates distrust and insecurity at the workplace which leads to lower level of employee participation and engagement. If their concerns and fears are not addressed properly it can result in lower employee productivity. Proactively communicating with employees from both companies can create transparency and trust which have significant bearing on the success of the merger.

Employee Retention

Employee retention is major challenge in mergers and acquisitions as employees generally have negative attitude toward such deals. There is uncertainty about organization’s goal and direction, job security, leadership credibility, and there is overall confusion among the employees because of improper communication. There is mistrust and a feeling of betrayal by the leadership. During the initial stages after mergers and acquisitions it is vital for business continuity that employee turnover is kept low.
With mergers and acquisitions come several organizational changes that can lead to stress and anxiety among the employees who see role conflict and feel they are treated unfairly. These impressions have serious connotations on the employees regarding their future at the organization. Companies need to work proactively towards maintaining employees’ trust to retain them.

Loss of Team Spirit

Company culture is very important for today’s employees. When you work for a small company, a start-up, there is a sense of belonging. That feeling motivates you to work hard in building the brand. You work as a team and the company grows and becomes attractive for others to show interest in acquiring it. When acquisition actually takes place, the business dynamics are changed. The promoters get windfall gains but the employees are generally short changed. They feel betrayed and lose motivation to work with the same team spirit that they displayed earlier.

Incompatibility with the new Organizational Goals

The endeavour of the new management is to ramp up sales and cut costs. This may enhance the perceived value of the company but within it there is discontent among the employees. They have to put in extra work hours which lead to high level of stress. As a result, employees who were earlier happy and content and worked as if it were their own company suddenly feel ignored. They start looking for other avenues.

Dishonesty in Relationships

Honesty is important in maintaining relationships at workplace. The senior management try to convince employees that the sudden higher metrics were in sync with the long term future of the company. When you are not able to convey this message across convincingly to the officials of the company intending acquisition, you are cold shouldered by your bosses and you start counting your time.

Integration

Integration is a major issue in mergers and acquisitions. Integrating operations of the two merging companies is vital to the success of mergers and acquisitions. Cultural integration is all the more important. Work cultures at different organizations are different and coming to terms and adjusting with the new work environment is one of the serious challenges faced by employees through M&A.

Cultural Challenges

Financial and business rationale is the main drivers of mergers and acquisitions but they fail to address the cultural implications that it poses. According to top mergers and acquisitions law firms, many M&As fail because of dissimilarities in organizational culture. Lack of cultural fit negatively impacts the employees of the merged company. Carrying forward the culture of the previous organization is difficult and employees tend to stick to their underlying values and beliefs. Cultural influences are broad and far reaching.
For instance, decision making at two different companies can be poles apart and the leadership styles could be dictatorial or consultative. The way people work could be formal or informal. These cultural shifts are difficult for the employees to adjust to and may lead to disenchantment resulting in disruptions and unease to a company.

Mergers and acquisitions lawyers, who have seen it all, insist that success or failure largely depends on how the people aspect of the business is addressed.

Amy Jones

Amy Jones is the lead legal expert at, Ahlawat & Associates-the best law firms in India for top lawyers. She is a passionate writer and loves to help people in all aspects of legal matters.