From HR issues to cultural integration, the reasons behind M&A failures Orignal Link


MUMBAI: A high-profile manufacturing joint venture between one of India's top conglomerates and its European partner collapsed even before it could bid for the first big contract. The reason: a suggestion that a conference call be held during the Christmas holidays. The differences between both sides — over technology transfer; equity contribution and route to market — were simmering for months. That small issue, essentially a people issue, whether work can interrupt holidays, snapped the already frosty relationship. Managers and Angst could be the new meaning of M&A. Managers make deals, but in these heady days of a buyout boom more often than not they are breaking them too. Late last year, bruised egos wrecked the long-drawn negotiations between KPMG and BMR. Sources say, some senior BMR partners were not happy with the roles that KPMG offered to them. For example, a BMR senior partner was asked to report to a KPMG service line head who had previously been employed at BMR and had reported to him.

Talent challenges People risks are topping board agendas both while selling and buying, including pain points such as employee retention, cultural integration, leadership assessment, compensation and benefit levels and overall talent management, say M&A rainmakers and human capital experts. According to the inaugural "People Risks in M&A Transactions" report by Mercer, a global consultancy, more than half (55 per cent) of the buyers surveyed report that talent challenges will remain a significant HR issue in future M&A transactions. Another recent survey by Aon says that cultural integration is the number 2 driver behind failed deals. It's not just a global phenomenon. PE firms and strategic suitors of Indian businesses have also heightened their due diligence not just on the target companies but also their employees - an exercise which has even led to many negotiations turning sour in last three years. Gone are the days when people risks were addressed after the deal got signed. Human capital is right up there in all shopping checklists now. Even approach to diligence is changing with focus shifting more to key HR and people.

Tata bye bye Take Tata SteelBSE -1.19 % UK, for example. Overshadowing the proposed sale is the large pension scheme with liabilities of £14 billion, an estimated deficit of £700 million and 130,000 members — more than 10 times the active workforce. No potential buyer willingly wanted to inherit such burden, forcing the UK government to temper down such concerns with a sweetened financial package to any future owner, including a proposal to detach the pension schem ..

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