European companies losing billions due to poor deal management

Global M&A data which shows that European companies are throwing away billions of euros by failing to address vital people management issues during the deal process, is released today by Hewitt Associates, a global human resources consulting and outsourcing company.
Hewitt’s Global M&A study M&A Transactions and the Human Capital Key to Success – Global Report, surveyed 96 major international companies, representing over $568 billion of deal volume over the past two years.

40 European companies participated, representing a deal volume of $296 billion.

The companies were asked about their approach and effectiveness in closing deals and integrating new assets, with the results showing that 83% of European companies fail to meet key transaction goals.

92% of all companies cited human capital challenges, such as cultural fit and leadership selection, as the primary reason for failure.

Calculations by Hewitt show that poor people management can erode total deal value by between 5.6% and 12.8%, due to losing key talent and a longer integration process.

Based on this, the European companies that responded to the study may have lost up to €12.5 billion over the past two years alone, purely as a result of poor management during and after transactions.

These figures have prompted Hewitt to issue a warning to European companies on the consequences of failing to plan adequately for people issues during transactions

Stephan Vamos, European practice leader, Corporate Transactions & Transformation at Hewitt Associates said:

“Companies cannot afford to ignore the human element of deals. This has been an established fact for some time but it still continues and by doing so, companies are costing themselves millions and limiting the potential success of a deal before it has even closed.

“Mastering the more complex aspects of due diligence and integration will be vital for companies as these are the most powerful drivers of deal value. With early signs emerging of new M&A opportunities after months of inactivity, now is the time for companies to revise their approach. Failure to act will ultimately undermine the long-term financial health of the company.”

Hewitt’s study also revealed that European companies lag behind others worldwide in using input from HR during due diligence and integration.

– Only 7% of European companies frequently involve HR in target selection, compared to a global average of 36%.

– A mere 24% of European companies involve HR in drafting the employee section of the sale or purchase agreement, versus a global average of 43%.

– Only 45% of European companies involve HR in the integration planning phase, versus a global average of 73%.

Stephan Vamos said:

“Human capital is frequently considered the poor relation in negotiations and due diligence during deals, with many companies merely paying lip service to HR. Most companies involve their HR function as an after-thought, by which time it can often be too late to prevent serious people issues arising.

“If deals are to be successful, the issues surrounding human capital need to be a vital consideration at the earliest stages of discussions.”

Retention of key employees is a core M&A challenge and one that Hewitt believes is significantly eroding deal value. The study revealed 34% of European companies have seen an increased rate of attrition post-deal.

Furthermore, a quarter of all companies noticed that, if poorly managed, key talent is inclined to leave the company more quickly post-deal than non-critical employees.

Stephan Vamos said:

“Managing the more concrete HR tasks associated with integration, such as retaining and engaging the critical talent, is an easier feat than successfully integrating disparate groups of people and getting them to work together. However, therein lies the key to success.”

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