1. ROLE OF HR IN
MERGERS AND
ACQUISITIONS
Syed Qarib Raza Kazmi

2. Mergers and Acquisitions
 Mergers and acquisitions represent the
ultimate in change for a business.
 No other event is more difficult, challenging, or
chaotic as a merger and acquisition.
 Hence it is imperative that everyone involved
in the process has a clear understanding of
how the process works.

3. Some interesting M&A figures
Virtually every major company in the United States
today has experienced a major acquisition at some
point in history. And at any given time, thousands of
these companies are adjusting to post-merger reality.
For example, so far in the decade of the 1990's
(through June 1997), 96,020 companies have come
under new ownership worldwide in deals worth a total
of $ 3.9 trillion - and that's just counting acquisitions
valued at $ 5 million and over. Add to this the many
smaller companies and nonprofit and governmental
entities that experience mergers every year, and the
M & A universe becomes large indeed.
The Art of Merger and Acquisition Integration,Alexandra Reed Lajoux

4. Why you need to know this ?
 You might be asking yourself, why do I need to
learn the merger and acquisition (M &
A)process?
 Well for starters, mergers and acquisitions are
now a normal way of life within the business
world.
 In today's global, competitive
environment, mergers are sometimes the only
means for long-term survival.
 In other cases, such as Cisco
Systems, mergers are a strategic component
for generating long-term growth.

5. M&A defined
 When we use the term "merger", we are
referring to the merging of two companies
where one new company will continue to exist.
 The term "acquisition" refers to the
acquisition of assets by one company from
another company.

6. Mergers can be categorized as
follows:
Horizontal: Two firms are merged across
similar products or services. Horizontal
mergers are often used as a way for a
company to increase its market share by
merging with a competing company. For
example, the merger between Exxon and
Mobil will allow both companies a larger share
of the oil and gas market.

7. Mergers can be categorized as
follows:
Vertical: Two firms are merged along the
value-chain, such as a manufacturer merging
with a supplier. Vertical mergers are often used
as a way to gain a competitive advantage
within the marketplace. For example, Merck, a
large manufacturer of pharmaceuticals,
merged with Medco, a large distributor of
pharmaceuticals, in order to gain an
advantage in distributing its Products.

8. Mergers can be categorized as
follows:
Conglomerate: Two firms in completely
different industries merge, such as a gas pipeline
company merging with a high technology
company. Conglomerates are usually used as a
way to smooth out wide fluctuations in earnings
and provide more consistency in long-term
growth. Typically, companies in mature industries
with poor prospects for growth will seek to
diversify their businesses through mergers and
acquisitions. For example, General Electric (GE)
has diversified its businesses through mergers
and acquisitions, allowing GE to get into new
areas like financial services and television
broadcasting.

9. Reasons for M & A
Every merger has its own unique reasons why the
combining of
two companies is a good business decision. The
underlying
Principle behind mergers and acquisitions ( M & A ) is
simple: 2
+2=5
Synergy value can take three forms:
1. Revenues: By combining the two companies, we will realize higher
revenues then if the two companies operate separately.
2. Expenses: By combining the two companies, we will realize lower
expenses then if the two companies operate separately.
3. Cost of Capital: By combining the two companies, we will
experience a lower overall cost of capital.

10. Strategic Reasons
 However, the best mergers seem to have strategic
reasons for the business combination. These
strategic reasons include:
 Positioning - Taking advantage of future
opportunities that can be exploited when the two
companies are combined.
 Gap Filling - One company may have a major
weakness (such as poor distribution)whereas the
other company has some significant strength.
 Organizational Competencies - Acquiring human
resources and intellectual capital can help improve
innovative thinking and development within the
company.
 Broader Market Access - Acquiring a foreign
company can give a company quick access to
emerging global markets.

11. Basic business reasons
 Bargain Purchase - It may be cheaper to acquire
another company then to invest internally.
 Diversification - It may be necessary to smooth-
out earnings and achieve more consistent long-
term growth and profitability.
 Short Term Growth - Management may be under
pressure to turnaround sluggish growth and
profitability.
 Undervalued Target - The Target Company may
be undervalued and thus, it represents a good
investment.

12. The M&A Process
 Phase 1 - Pre Acquisition Review
 Phase 2 - Search & Screen Targets
 Phase 3 - Investigate & Value the Target
 Phase 4 - Acquire through Negotiation
 Phase 5 - Post Merger Integration

13. Phase 3-Investigate & Value the
Target
The third phase of M & A is to perform a more detail analysis of
the target company. You want to confirm that the Target
Company is truly a good fit with the acquiring company. This
will require a more thorough review of
operations, strategies, financials, and other aspects of the
Target Company. This detail review is called "due diligence.“
The main objective is to identify various synergy values that
can be realized through an M & A of the Target Company.
Investment Bankers now enter into the M & A process to assist
with this evaluation.

14. Phase 3-Investigate & Value the
Target
 A key part of due diligence is the valuation of the target
company. In the preliminary phases of M & A, we will
calculate a total value for the combined company. We
have already calculated a value for our company
(acquiring company). We now want to calculate a value
for the target as well as all other costs associated with
the M & A. The calculation can be summarized as follows:

15. Due Diligence Check list (HR)
 Plan Due diligence for  Integration planning
organization  Recommend HR policies and
 To develop acquisition programs
guidelines  Development of a C&B
 Understanding the strategy for the combined
employment law companies
issues, critical people issues  Retention of key people and
such as leadership, employee separation of redundant staff
communications, talent
retention and cultural  communications strategy
alignment development and
implementation
 Assessment of critical people
and deployment of  Integration of payroll, benefits
appropriate resources in the and HR-IS ( SAP)
new company
 Development of
organizational chart and
reporting line

16. Phase 5-Post Merger
Integration
 If all goes well, the two companies will
announce a agreement to merge the two
companies. The deal is finalized in a formal
merger and acquisition agreement.
 Every company is different - differences in
culture, differences in information
systems, differences in strategies, etc. As a
result, the Post Merger Integration Phase is
the most difficult phase within the M & A
Process.

17. Typical M&A Process
Timeline of M&A Events
Implementation of
Strategic Confidential Price and Terms Preliminary Integration Plans
Planning Courting Negotiations Announcement Program Design Closing and Programs
“DAY 1”
Candidate Formal Program Design
Candidate Formal Initial HR Strategy Identify ImplementationDetailedHR Strategy
Initial ImplementationDetailed Program Design
Scouting
Scouting Due Diligence HR Strategy
Diligence Leaders and Team
Leaders and Team HR Strategy Decisions
Decisions
HR Process
Strategic HR—Due Integration
Integration
Diligence Preparation
HR-Liability Program Create Create Execute Execute Monitor
Strategy Deal
& Synergy Office “100 Day” Optimization Day
100
... Optimization
Synergy
Assessment Input
Gap Assess. Setup Plans Plans Plan Plans Realization

18. HR Role
Why the role of HR is important in M&A

19. Background of Study
Participation: Operations Location
 Web-based survey Taiwan, 1%
Indonesia, 1%
conducted in 2006 India, 1%
New Zealand, 3%
Thailand, 6%
 Conducted in 11 Australia, 6%
U.S, 7%
China (PRC), 36%
markets: Australia,
China, Hong Kong, India,
Singapore, 7%
Hong Kong (SAR), 7%
South Korea, 15%
Malaysia, 10%
Indonesia, Japan,
Malaysia, New Zealand, Participation: Global Headquarter Location
Thailand, 1%
Singapore, South Korea, Japan, 1%
India, 1%
and Thailand. Other, 3%
Canada, 3%
 Conducted in four United Kingdom, 5%
South Korea, 5%
U.S., 26%
languages: Chinese, Australia, 5%
Japanese, Korean, and China (PRC), 7%
English Singapore, 10%
Malaysia, 10%
Europe, 22%
 73 companies
participated

20. Why are Companies Acquiring?
Improved market access by far the number one driver of M&A activity:
Improved market access
Combined business creation
Coordinated strategies
Consolidation of functions
Shared know-how
Vertical integration
Shared tangible resources
Other
0% 20% 40% 60% 80%
Percentage of Respondents
Rank 1 Rank 2 Rank 3

21. Synergy Objectives
Growth Return
Improved Coordinated Consolidation of
Tax
Market Access Strategies Functions
Benefits
(bigger is better) (together we conquer) (serve more with less)
Combined Shared Shared Tangible
Financial
Business Creation Know How Resources
Engineering
(new is better) (know more) (use same for more)
Vertical
Negotiating
Integration
Power
(process we own)
Synergies with significant “People integration” Issues

22. Due Diligence Top Objectives
Immediate and short-term objectives dominate. Long-term issues are of
lesser concern:
To determine that the deal can be successf ul in the
immediate/near-term
To def ine the right price
To evaluate the identif ied synergies
To identif y w hat needs to be done during integration
To examine the impact of a potential deal on competitors
and industry
Other objectives of the due diligence process:
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Percentage of Respondents
Rank 1 Rank 2 Rank 3

23. Most Important HR Issues During
Due Diligence
Retention of key staff and compliance with applicable laws are most
important. Much fewer companies focus on long-term issues such as
cultural fit:
Retention of key employees
Compliance with applicable laws
HR Issues
Alignment of comp. & ben. plans
Cultural fit
Employee communications
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Percentage of Responses
Rank 1 Rank 2 Rank 3

24. HR Issues in Due Diligence
HR issues rank slightly different when comparing importance vs.
complexity:
Percent of Companies (Ranking 1, 2, or 3)
According to Importance According to Complexity
Retention of key employees 41% 27%
Compliance with applicable laws 36 31
Quantification of severance/benefit obligations 32 35
Alignment of compensation and benefit plans 26 35
Leadership assessment 26 34
Cultural fit 25 49
Employee communications 24 23
Leadership retention 18 13
Corporate governance 16 13
Labor relations 14 25
Sales force effectiveness 10 17
Organizational structure 9 15
Orange shade: over 30% of companies rank this high

25. Top HR Integration Issues
According to
Importance and Complexity
Culture fit clearly dominates top HR concerns for importance and complexity
during integration:
Cultural fit
Harmonization of compensation and benefit
plans
Areas
Leadership assessment and selection
Decision-making
Employee communications
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Percentage of Responses
Rank 1 Rank 2 Rank 3

26. A Reality Check Why M&A fail
 Poor strategic fit - The two companies have
strategies and objectives that are too different and
they conflict with one another.
 Cultural and Social Differences - It has been
said that most problems can be traced to "people
problems." If the two companies have wide
differences in cultures, then synergy values can
be very elusive.
 Incomplete and Inadequate Due Diligence -
Due diligence is the "watchdog" within the M & A
Process. If you fail to let the watchdog do his
job, you are in for some serious problems within
the M & A Process.

27. A Reality Check Why M&A fail
 Poorly Managed Integration - The integration of two companies
requires a very high level of quality management. Integration is
often poorly managed with little planning and design. As a
result, implementation fails.
 Paying too Much - In today's merger frenzy world, it is not unusual
for the acquiring company to pay a premium for the Target
Company. Premiums are paid based on expectations of synergies.
However, if synergies are not realized, then the premium paid to
acquire the target is never recouped.
 Overly Optimistic - If the acquiring company is too optimistic in its
projections about the target Company, then bad decisions will be
made within the M & A Process. An overly optimistic forecast or
conclusion about a critical issue can lead to a failed merger.

28. A success Story
 Trivor Systems Pakistan was acquired by
Bentley Systems Incorporated in may 2007.
 Bentley is the global leader dedicated to providing
architects, engineers, constructors, and owner-
operators with comprehensive architecture and
engineering software solutions for sustaining
infrastructure. Founded in 1984, Bentley has
nearly 3,000 colleagues in more than 45
countries, $500 million in annual revenues, and,
since 2001, has invested more than $1 billion in
research, development, and acquisitions.

29. Key Aspects of the Acquisition
 Retention of employees with the domain and product
expertise.
 1st year plan, 2nd year plan
 Alignment of Job titles.
 Management structure remained largely intact.
 Improved Hardware policies.
 Proper Translation of Trivor compensation with Bentley
compensation structure.
 All hands Meeting Before formal acquisition process
 Formal signing of new contracts.
 Introduction of new benefits
 Enhancement of health cover
 Quarterly Team building events
 Continuation of old polices