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How to manage the #1 threat to your M&A: Employees

Jun 09, 2021

The ink is dry on the definitive purchase agreement, monies have been wired to the seller's bank account and both parties are ready for the next stage. This is where the real fun begins: the integration of two wealth and asset management firms and their teams.

And although it’s tempting to focus on financial and operational issues during integration, studies show that there is a more pressing but overlooked issue: guiding your people through the acquisition process.

In fact, people are so important that they are the top reason behind most mergers and acquisitions failures, according to recent studies.

Anxiety and uncertainty

Not surprisingly, the inevitable changes that acquisitions often bring can cause a great deal of anxiety and uncertainty. Employees often feel helpless and nervous about losing status, power or autonomy.

Their biggest concern is about their new employer's downsizing and restructuring decisions — and for good reason. While buyers are normally cautious about cutting personnel because of their relationships with clients and referral sources, the opportunity to reduce costs by eliminating staff duplication can be appealing.

But there are hidden costs to layoffs, both to the firm and those who survive the cuts. Productivity is likely to decrease as employees devote time and energy to speculation and commiseration about the future.

If layoffs are not carried out according to reasonable criteria or if they are handled insensitively, survivors often become angry. Many cope with this anger by looking for another job, psychologically quitting or even sabotaging the operation.

But even if the downsizing and restructuring process is handled well, firms should expect an exodus of some key players due to anxiety or uncertainty.  

To add to the stress, changes in supervisor/employee relationships usually occur. This means employees of acquired firms must not only determine where their loyalties should lie but also balance, modify or perhaps reject their previous loyalties. Power struggles often ensue as managers and supervisors seek to maintain their status. This weakens attempts to develop a new management structure.

A merger's inevitable restructuring results in an immediate questioning of basic policies and procedures. No matter how accommodating a buyer is, no matter how justified the new policies, change tacitly suggests the previous way of doing things was wrong, which can create significant animosity.

Managers should recognize that acquired employees often react defensively to even minor policy adjustments and need make every effort to reduce such reactions.

For example, every aspect of day-to-day business — from critical issues such as decision-making authority, salaries and benefits to more mundane issues, such as dress codes and coffee break policies — should be clarified and discussed.

Finally, buyers and sellers must be wary of corporate culture clashes. Although cultural issues are subtle, they can nevertheless be extremely powerful and pervasive. Attempts by the buyer to impose its corporate culture on its new employees too quickly can lead to damaging conflict.

When an acquisition is announced also plays a role. If you tell employees early, that leaves more time to speculate on their future — and can leave to more resignations. To help minimize stress, the buyer should be introduced to all employees immediately following announcement of the sale. This way, questions and concerns can immediately be addressed.

Perhaps the most critical ingredient for ensuring a successful integration is consistent, timely, honest and empathetic communication — even when the news might be an uncomfortable announcement about restructuring and downsizing. When they don’t have information, people will fill in the blanks with their own speculation, which is often worse than reality.

Management also must ensure that verbal and written directives are consistent with their actions and behavior. For example, making broad, reassuring statements that business will proceed as usual but then closing a branch will only increase fear and erode trust with employees.

A proactive strategy between merging firms can address these challenges ahead of time and ease the transition for employees, which can enhance the long-term value of the entire transaction.

How Wipfli can help

Are you contemplating a merger? Or already starting one? Our team — dedicated to wealth and asset management — can help you with the financial, technical and personnel aspects of an M&A.  

We won’t just fill in spreadsheets and review contracts. We’ll be by your side through every step ensuring the best for you and your employees.

Learn more about how we help wealth and asset management firms achieve their goals.

You can also learn more by exploring our educational articles:

Author(s)

Paul T. Lally
Principal
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