Global merger and acquisition (M&A) activity, particularly in the tech sector, may have slowed this year due to high interest rates and ongoing geopolitical tensions. But the proportion of deals taking place to acquire tech talent is on the rise, particularly in high-demand skills areas, such as cyber security and artificial intelligence (AI).
Moreover, this trend is only set to continue during 2024, according to Claire Trachet, chief executive of business advisory firm Trachet.
“I don’t think there’ll be an explosion in the number of acquisitions over the year ahead, but the people and team acquisition element will play a bigger role than in the past,” she says. “Technology is moving so fast that if you acquire a team already working well together on bleeding-edge technology, you can be up and running from day one.”
But purchasing a business to get hold of talent is one thing. Holding onto that talent to deliver on the hoped-for value from the acquisition is quite another. The problem here is that if employees are unhappy with the move, feel uncertain about the future, or cannot see any post-deal career progression opportunities, they will simply vote with their feet.
Geoff Robbins is a business transformation specialist and co-author of Business Morphology: How to Navigate Through Change. He believes there are myriad reasons why M&As may fail to provide the value expected.
Why many M&As fail to deliver value
One relates to difficulties in providing the operational savings required to make the original return on investment calculations look good. Another is a “flawed appreciation of the market or geographies” purchasers are entering, Robbins explains.
But other common challenges also include poor post-integration planning and a lack of cultural alignment – especially if staff at a small company are being brought into a larger one. Another is unhappiness among those being acquired at their acquirer’s management style.
“If any one of these triggers exist people will start looking for new jobs, but the moment they do so, you’ve lost them, if not physically, then emotionally,” Robbins says. “However, it’s a vibrant market out there for people with key skills, so ideally you want to stop them looking in the first place.”
A key problem with the way many M&A transactions are conducted though, he believes, is that “people tend to come last on the priority list after financing and geography” – even though “you’re asking them to do the equivalent of move home, which because the decision isn’t theirs, can feel threatening”.
But Robbins warns: “You fundamentally need to retain people, skills and capabilities if the deal is going to be a success. The business depends on two things – its customers and its staff, and if you’re not giving them what they want, it’s not going to go well.”
Learning from your M&A mistakes
Someone who has direct experience of just this kind of challenging situation is Doug Stevenson, a technology consultant and founder of consumer tech advisory website, BlinqBlinq. When a previous company he worked for undertook a major acquisition, a significant number of valuable employees quit.
“We underestimated how much they cared about using open source technology,” he says. “Our focus on proprietary software just didn’t jive with them, leading to a talent drain that caught us off guard.”
This meant it was not only freshly acquired staff but also longstanding team members who left. “The lesson was that understanding, and aligning with, the team’s values is paramount,” Stevenson says.
Other key learnings included a recognition that “engagement and motivation are often fragile during the M&A process”, not least as staff frequently feel vulnerable in the face of uncertainty. But dissatisfaction can also stem from a lack of transparent communication, mismatches in organisational culture and perceived disparities in things like compensation.
“Cultural fit is the secret ingredient that’s often overlooked,” Stevenson says. “It’s not just about rules and objectives – it’s about those everyday interactions that make a workplace feel like home, the understanding nods during meetings, and the cheers for small wins that make the big picture complete.”
In fact, he says, it is these “seemingly minor details” that “form the glue that holds a merged entity together”.
Robbins agrees. “A good culture is characterised by a strong alignment in the purpose and values of the organisation,” he says. “But it also involves leaders role modelling appropriate behaviour, clear and consistent communications and employees who feel nurtured and cared for, all underpinned by a vibrant social environment.”
Three phases for M&A success
Paul Bryce, meanwhile, believes there are three key phases to an M&A transaction, each of which has its own requirements in terms of talent. Bryce is managing director of consulting and managed services provider Node4. The company has undertaken 10 acquisitions over the last 10 years. The latest was security consultancy ThreeTwoFour, which it acquired for its talent.
The three phases he refers to consist of due diligence, the formal announcement, and integration. The due diligence stage, Bryce says, is about getting to know the culture of the acquisition target to understand whether they have similar approaches in terms of employees, clients and service delivery.
“It’s not just about what the business looks like on paper in terms of financial performance, customer base and so on,” he explains. “It’s about spending time with people, and not just the management team – we get staff feedback and do client interviews to help build up a rounded picture.”
Taking this approach means that, although it may be impossible to truly know if a merger or acquisition will work until it happens, at least “you get a gut feel”, Bryce says.
Another more direct means of keeping hold of both new and existing staff though, is to devise retention packages from the outset. The aim here is to ensure people are “incentivised to feel excited” about the deal, says Trachet. Such incentives might include special bonuses or stock options that are spread out over several years and paid out only if an individual stays put.
The power of communication
The second phase of a transaction, which is all about communication, kicks in once the merger or acquisition has been formally announced. This communication should be two-way and take place at both the team and individual level.
As Trachet points out: “It’s important to create space for these conversations to happen. It may feel like there’s no time, but it costs way more in both time and money terms if you don’t do it, so it’s a good investment.”
Robbins agrees. “You can’t overcommunicate when people are under stress or feel uncertain because they don’t always retain all the information you give them,” he says. “It’s important to point out the benefits and portray the situation as an opportunity for them to grow in the new organisation, while making clear it’s up to them to grasp those opportunities.”
Taking this stance can be a “double-edged sword” though, he adds. This is because “if you promise something, you have to deliver and make sure people feel valued, recognised and appropriately rewarded”.
The importance of empathy
Bryce takes a similar view. “People are concerned about job security, their growth potential, career prospects, the company culture and whether it’s going to be very corporate and so on,” he says. “So, we always focus 50% on what we do and the other 50% on how we do it.”
One of the biggest secrets to getting people onside though, is to take an empathetic approach and ensure everyone’s voices are heard. “You have to remember these are a bunch of new recruits who didn’t chose to join you, so it’s about helping them understand the benefits and to feel excited about the journey ahead,” Bryce says.
Another important consideration is transparency, not least to scotch the inevitable rumour mill. This means explaining the rationale for what is taking place, being upfront about any changes and clarifying what things will look like in future. It is also about explaining the company’s vision, mission and purpose and where new joiners fit into it.
But while some people will be reassured by such activity, it is almost inevitable that others will not.
“The reality is that the most negative people tend to be the most vocal, so all you can do is appeal to them to get on board,” Bryce says. “But with some, it comes to a point where you just have to say, ‘you’ve got a choice, either embrace change and be part of it, or don’t – it’s up to you’.”
Enabling successful integration
The third stage of the M&A process, meanwhile, involves integration. As Robbins acknowledges, any transaction will inevitably change the operating model of both the organisation and individual teams. This means it will be necessary for IT leaders to redefine roles and responsibilities based on the talent available and assign the most suitable individuals to each position.
Just as important is to provide a clear outline of what is expected of them and, if necessary, to provide coaching and training to help them achieve it. Actively managing performance – without micromanaging – is vital in this context too, not only to hold people to account but also to build rapport.
“Spend time understanding people as human beings, what their drivers, motivations and aspirations are from a career point of view,” Robbins says. “That personal interaction and giving people time, energy and attention goes a long way.”
To promote an “open, inclusive environment” in a post-M&A world, Stevenson suggests holding regular “town hall” meetings to enable everyone to voice their concerns and provide feedback. He creates cross-team projects as a vehicle for existing and new staff members to “understand different views and unify around a shared vision”.
He also holds regular workshops and team-building events so that people can get to know each other and how they work. One approach here is to provide training on communication styles to facilitate open dialogue and promote active listening. Another is to sit down together and actively create shared values and principles based on the combined ethos of both entities.
As Stevenson concludes: “Losing our tech team was a huge wake-up call, but the main takeaway was realising that although strategy and tech matter, people drive success. It also showed me the importance of communication, understanding and inclusion as a leader.”