M&A considerations during the COVID-19 pandemic

A series of megadeals have recently driven global M&A activity to its strongest start of all time in the second half of 2020, as chief executives resume acquisitions after sitting on the sidelines during the height of the COVID-19 pandemic. The list includes Johnson & Johnson’s $6.5 billion acquisition of Momenta Pharmaceuticals and Sanofi’s $3.7 billion deal to buy Principia Biopharma among others.

Delivering integration results as early and as quickly as possible has become imperative to making an integration work in the current environment. Due to the high level of uncertainty, any delays are likely to increase integration costs and impact the timeline.

In this context, companies implementing mergers and acquisitions are leveraging the capabilities of organizational network analysis (ONA) to accelerate and inform decision-making, reduce uncertainty and maximize the success of their deals.

Organizational Network Analysis (ONA)

For those who are new to the field, organizational network analysis (ONA) is a People Analytics method that allows companies to visualize and analyze both formal and informal relationships that exist within an organization. These interactions can be mapped through an online survey (active ONA) or by monitoring the employees’ digital footprint through corporate email and other collaborative tools (passive ONA).

Mercer’s global talent trends 2020 report indicates that 44% of companies already use organizational network analysis, which presents multiple use cases across change management, leadership development, onboarding, organizational design, post-merger integration and employee well-being among others.

For those who want to learn more about ONA, this article from People Analytics thought leader David Green provides a deeper dive into the concept, types, vendor landscape, case studies and more.

Introducing ONA M&A use cases

In this article we will explore 5 ways ONA creates value in mergers and acquisitions: 1) enhance due diligence during the pre-deal stage, 2) reducing top talent attrition, 3) preventing cultural clashes, 4) accelerating realization of IT synergies and 5) monitoring integration effectiveness. These use cases are sorted chronologically and are agnostic to deal size and value:

1) Enhancing due diligence during the pre-deal stage

Companies should never pursue an acquisition deal unless the background legwork comes up perfectly clean. However, current travel restrictions and other policies in place during the pandemic can make the due diligence process especially challenging.

ONA allows the acquiring company to understand the internal collaboration patterns of the target company, including the identification of organizational silos and bottlenecks. This is achieved by leveraging AI-powered algorithms for automated community detection and delivery of benchmarking insights on the company’s organizational health. This exercise can be especially useful during the pre-deal stage but also during – and after – the post-merger integration.

It is unusual for the target company to grant the acquiring company access to its HR data during the pre-deal stage. Therefore, in this scenario ONA can be best implemented through a third-party who provides the insights without disclosing the processed data.

2) Reducing top talent attrition

An EY report suggests that 47% of key employees leave a company within a year of the transaction and that 75% leave within the first three years. When a merger or acquisition is announced, employees often face a high level of uncertainty. They suspect their job might be affected in some way, but they don’t know exactly how, who will make the call, what criteria will be applied or when it will happen. In that context, looking for alternative opportunities seems like a reasonable step for many.

In this context, companies can leverage ONA to identify who are the informal leaders in the organization and prioritize their retention. An informal leader is an individual within an organization that is viewed as someone worth listening to due to their perceived experience and reputation among peers. The informal leader does not hold any position of formal authority or power over the peers choosing to follow their lead but can influence the decisions of others. It is important to note that 1) informal leaders can’t be properly identified by exclusively relying on the feedback from formal leadership roles, 2) informal leaders can only be identified through active data sources, although passive data sources can provide useful complementary information, and 3) ONA is not intended to be implemented as a standalone tool when identifying high potential employees, but to complement existing decision-making processes by integrating social capital metrics.

When informal leaders leave the organization during the post-merger integration not only is there a significant loss of value for the acquiring company, but there is also an important negative impact on the morale, productivity and overall engagement of the remaining employees, thus jeopardizing the success of the deal.

3) Preventing cultural clashes

Cultural factors and organizational alignment are critical to success in mergers and acquisitions. Yet leaders often don’t give culture the attention it deserves, which can lead to poor results.

Informal leaders identified through ONA can be positioned as cultural ambassadors and mitigate or prevent cultural clashes. When positioned as early adopters, informal leaders can accelerate strategic change adoption in a very significant manner. Our research indicates that, on average, the level of influence of informal leaders is 40% greater than formal leadership roles.

If the acquiring company does not convince informal leaders in the target company to act as early adopters of cultural changes, they are likely to use their influence to create resistance against the new culture, thus reducing cultural assimilation in a very significant manner.

4) Accelerating realization of IT synergies

When a target company is acquired, a common way to realize IT synergies is to replace legacy tools by centralized systems, thus driving cost-avoiding savings related to maintenance, licenses and subject matter expertise among others. Driving adoption of these new centralized systems is no easy task, as employees are required to get out of their comfort zone to adopt a new technology they are not familiar with.

In this context, appointing subject matter experts and process owners who are not respected by the employees in the target company can be a serious mistake. Employees might reject the new system and continue working with their legacy tools, or continue utilizing legacy processes on top of the new system, thus leading to work duplication and a significant loss in productivity.

By appointing informal leaders identified through ONA as subject matter experts and process owners of the new centralized systems, companies can significantly accelerate their adoption and mitigate these risks in a proactive manner.

5) Monitoring integration effectiveness

Last but not least, ONA enables companies to assess integration effectiveness at the organizational and team level after the post-merger integration has been completed. Companies can monitor whether employees are creating new connections with peers from legacy organizations or they are sticking to their previous connections, and correlate this with performance metrics.

 

Source: Linkedin

 

“As a surge in megadeals points to M&A recovery during the second half of the year, companies are leveraging the capabilities of ONA to:

1) Enhance due diligence during the pre-deal stage

2) Reduce top talent attrition

3) Prevent cultural clashes

4) Accelerate the realization of IT synergies

5) Monitor integration effectiveness, thus reducing uncertainty and maximizing the success of their deals.”

Alexander KING