How can dealmakers win the new race for top talent?
17 February, 2022
By Victoria McCullagh and Alex Murray
People and talent have always been critical to the success of the deal. With so much focus on factors such as market openings or operational synergies, talent can often end up being an afterthought in strategic evaluations, targeting and due diligence.
Once the deal is sealed, people do move to the forefront of the agenda. From a short-term rather than strategic perspective as buyers scramble to identify, incentivise and retain the pivotal talent needed to keep operations running and deliver value drivers. Cheques are waved and executives are sent out to sweet talk newly acquired teams.
The world has changed and this approach is no longer enough. For a start, people are a crucial element of the capabilities fit that our recent Doing the Right Deals research identifies as the key to value creation. Target organisations include the innovators and tech specialists needed to drive digital transformation. Human capital goes beyond a small selection of rainmakers. If we look at innovation as an example, the workforce as a whole plays a key role in creating the culture and ways of working that can help to foster new ideas and harness their full potential.
“When we acquire a business, we’re acquiring a team of people and we need those people to stay and help us build this business quicker, and more successfully. If we don’t keep those people, we’ll never achieve the investment case for the acquisition.”
‘The great resignation’
The other big shift in people dynamics is the surge in talent mobility. With skills shortages mounting, prized people know they have the advantage and can easily move if they don’t get what they want.
The COVID-19 pandemic has also spurred many people to rethink their working lives and ambitions. The result is what has come to be known as the ‘great resignation’ as disenchanted employees go in search of a better work-life balance or more fulfilling opportunities elsewhere. Salary hikes, however large, may not be enough to convince disillusioned people to stick around.
Acquisitions can sometimes be a catalyst for leaving. And if talent goes, not only will a lot of the anticipated financial uplift from the deal disappear, you could also face the double hit of losing these people to a competitor. If handled well, the deal can offer people the new start and the reason to commit their futures that they’ve been craving.
Put people first in a deal to create value
So how does deal strategy and execution need to change to reflect the new talent dynamics? First and foremost, people should be at the top of the agenda for creating value from the outset, don’t always assume what you have got is fit for purpose in today’s environment. This includes putting talent demand and capabilities at the centre of the strategic rationale, acquisition targeting and due diligence processes. What expertise, creative drive and other talent capabilities do we need to realise our strategic objectives? How can the target organisation help to bridge identified talent gaps? How much is this human capital worth as part of the overall valuation? What are the risks in areas such as attrition or cultural mismatch that could impair the capabilities fit and how can these be mitigated?
What does value mean to your people?
An equally important consideration in the wake of the ‘great resignation’ is your organisation’s purpose. How can you align your strategy for the merged business with people’s values in areas such as sustainability and contribution to society? How can you boost diversity within the workforce and its leadership? How can you create a more attractive working environment in areas such as flexibility and inclusivity?
These areas aren’t often thought about as long-term considerations in M&A discussions and will therefore require deal teams and advisors with a broader range of expertise. However, they could be decisive differentiators in talent motivation and resulting value creation.
Getting the tactics right, from the very start
Proactive retention mechanisms will appear more genuine, be better received, and be more likely to be successful in appeasing potentially flighty employees before they even realise an urge to leave. The financial side is always important, but increasingly the less tangible elements are also equally, if not more, compelling. For example, having a clear Employee Value Proposition and pathways for learning and development.
Upping the table stakes
From employee engagement and retention to incentives for achieving key deal value milestones, the tactical basics are still important - but without upfront strategic foundations, recent experience shows that the tactical levers are becoming harder and more expensive to pull. The good news is that with a viable people strategy in place, the amount of salary escalation and other last-minute scrambling needed to get integration and deal value creation up and running is markedly reduced.
If you would like to know more about putting talent at the forefront of value creation, please get in touch. You can also check out our Doing the Right Deals report for more insights into how to capitalise on capabilities-driven deals.
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