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The Human Side of M&A: An Interview with Jennifer Fondrevay
by Firmex
This interview features “M&A whisperer” Jennifer J. Fondrevay, discussing best practices for managing the human element of M&A and Touchpoint.
Closing a merger or acquisition is one thing, but successfully integrating the two companies post-M&A brings complex challenges, not least of which is getting the workforce on board so that the value of the merger can be realized. We sat down with Jennifer J. Fondrevay, organizational transformation consultant and “M&A whisperer” to discuss best practices for managing the human element of M&A.
Jennifer J. Fondrevay is an organizational transformation guru and the founder of Day1 Ready™, an M&A consultancy that works with Fortune 500 companies, start-ups, and small businesses to keep their growth strategies on track. Serving as an advisor to senior leadership and a liaison to middle managers, Fondrevay ensures the human component of a company’s plan, such as culture, productivity, and retention remains a cornerstone of success during times of change. Having been on all sides of the M&A equation, Jennifer sheds light on navigating a rapidly changing work environment through her speaking engagements and soon to be published book NOW WHAT? A survivor’s guide for navigating and thriving through acquisition.
TOUCHPOINT: You’ve written about “the secret language of mergers and acquisitions” where executives say one thing and employees hear something else entirely. How can business leaders make sure they’re speaking the same language as their workforce post-M&A?
JF: There are three things a business leader needs to keep in mind when sharing news post deal:
Expect that the majority of the workforce already knows something is going on. Do not assume people are clueless. They may not have all of the details correct but they will be aware that something has been in the works. The first mistake leaders can make is to believe that people have not been paying attention to what is going on. In speaking to your workforce, treat them with respect in how you share the news.
Do not use clichéd, “jargony” marketing language to sell the vision and persuade the workforce that this is a great thing. It makes the message less believable. People are not oblivious to the fact that big size M&A deals have typically failed (consider: AOL/Time Warner; HP/Palm; Alcatel/Lucent; Quaker/Snapple) and all the words that have been imprinted in people’s brains around these failed acquisitions are jargony, marketing words.
Be transparent as much as you can be. Respect your workforce’s desire to know the truth. Connect the vision of the acquisition to the work that you are doing and where you are going. Tell your people openly how the vision came to be and how the acquisition contributes to that future (whether you were acquired or acquired another). They need to hear from your heart why this is such a good thing. If you speak from a place of honesty and passion and purpose, people will begin to hear your message.
TP: What are some of the most overused and clichéd phrases that executives use to “sell” a merger or acquisition to employees?
JF: “Nothing is changing” is the #1 most overused phrase. The reality is everything has already changed.
“You will have better benefits, more resources, and greater opportunities”
“This is a merger of equals”
“This allows us to transform our business.”
“We expect minimum reductions in staff.”
I do believe that the phrases are well-intentioned, meaning that the messenger believes the message to be true. Unfortunately, they have become so cliché that people simply don’t buy it. Additionally, people are naturally thinking about themselves, not the company, when they first hear the news. So what they hear is often “blah, blah, blah…” because they are focused on themselves. The best analogy I’ve used is the Gary Larson cartoon – “What we say to dogs, what they hear”:
If I were to replay the above Gary Larson cartoon scene through the lens of M&A, here is what Ginger (ostensibly our workforce – go with me here) would hear from the executives:
What Executives say to the workforce: We are very excited to share with you that XYZ companies have been acquired by ABC company. This means great opportunities for us all. You will have enhanced benefits and be out in the marketplace with a greater portfolio, enjoying expanded aspects of your job.
What the Workforce hears: We/ are very excited to share with you that XYZ companies have been acquired by ABC company. This means great opportunities for us all. You will have expanded benefits and be out in the marketplace with a greater portfolio enjoying expanded aspects of your job.
The workforce can’t hear what’s being said because their primary focus is “What happens to my job?” If messaging leaves that unclear for too long and how you sell it seems disingenuous, significant parts of your workforce can have a hard time getting behind the vision. They will stay in denial.
TP: What’s the biggest reason mergers and acquisitions fail to deliver value after the M&A deal is done?
JF: To uncover the consistent challenges of M&A, I interviewed 65 executives from multinational to small- to medium-size companies all over the world. The interviewees included C-suite executives, private equity dealmakers, business owners, entrepreneurs, and middle managers.
From these sessions, there were 4 reasons consistently cited:
- incorrect valuation – in essence, making it too high, which then requires herculean efforts to make that valuation a reality in Year 1
- underestimating the operational complexities
- cultural integration issues
- “unexpected people problems”
TP: What’s the most common blunder that organizations make following an M&A transaction?
JF: Although people are critical contributors to the upfront business valuation and post-deal integration success, leaders more often delay the people planning piece. Not doing the people pre-planning on the frontend can doom success on the backend. Earlier I cited “unexpected people problems” as one of the reasons consistently cited for M&A failures. I always challenge that. They aren’t unexpected. You can expect them; by preparing for them on the frontend you can minimize the challenges. In my Day1 Ready™ approach, I focus executives on three key areas to prepare for people challenges:
- Gaining Executive alignment (across both companies) on the vision – if there is not 100% alignment in the direction, the workforce won’t buy in
- Defining the organizational structure required to achieve the vision – define the org structure, then the roles needed and then the people who could do it
- Conducting a pre-mortem for the execution of the vision – mapping out all the things that could go wrong and identifying the possible solutions in advance will mean you’re better prepared when the challenges arise
TP: The people who put M&A deals together – entrepreneurs, owners, CEOs, CFOs, investment bankers and M&A advisors – are experts at analyzing balance sheets and growth strategies. In your experience, do they struggle with the human element of M&A, and, if so, what is the impact?
JF: It’s not that the people who put the deals together struggle with the human element – it is simply not their focus. If you think about it, no one ‘wants’ the post-merger effort to be unsuccessful. It’s an unfortunate aspect of being too short-sighted and ONLY considering the numbers. I get that – most of the advisors’ expertise is in evaluating businesses, running the financials, forecasting growth potential, etc.
I would suspect that private transactions have a higher percentage rate of ‘success’ because they don’t have to answer to Wall Street in 90 days and speak to the “actual results.” Equally, I see Family Offices enjoying strong success rates and I expect that is due to their more patient approach on results and a focus on values/human capital.
There are millions of dollars our there ready to invest – in order to make these deals happen and to be successful, dealmakers need to think differently about their positioning going into the deal and the metrics for success of that deal. My position is, they need to more consistently and proactively bring in that human capital advisor role so that they can better anticipate what the people challenges will be and how to prepare for them. Future deal success is what is at stake for dealmakers.
TP: Investment bankers and advisors are focused on finding the right buyer and closing the deal. What, if any, role do they have in post-merger transformation?
JF: The tough part is, Investment Bankers (IB) are not usually compensated for work post-merger. For those who do, it’s largely ‘goodwill’, if you will. The IB’s ability to have an influence on the post-merger transformation is limited by what the client and/or acquirer allow the investment banker to do and whether the client is staying in the business or exiting. I have seen Investment Bankers be most successful by proactively defining their role beyond just putting the deal together. They invest time upfront beyond the numbers to set the business up for success.
One of the values of running a process is to help the client engage with multiple parties to get a ‘feel’ for how their culture would fit with potential acquirers. Once the ideal acquirer is designated, successful IBs begin shepherding those human relationships while the other ‘deal-centric’ tasks get completed. Smart IBs also tap into a wide variety of service providers who bring unique areas of expertise that help make the deal successful. Given the time they have typically spent with the client, these investment bankers know which advisors to pull in when. When an IB can play a role post-merger, there is a better chance for success on the backend, and the advisor is more likely to become known for putting together successful deals.
TP: I’d like to believe that most business owners care about their employees. When negotiating an M&A deal, what can owners and their advisors do to ensure that the best interests of employees aren’t treated as an afterthought?
JF: In today’s market, with all that capital out there to invest, owners who are selling have the power. They can drive the conversation to ensure that their employees are not treated as an afterthought. Obviously, they need to be realistic about the expectations and the demands they make but they need to make the people piece a key part of the discussion upfront and gain agreement in writing around those expectations. They can’t just hope it will be taken care of. The moment they sell the business they are no longer in charge. I have seen well-intentioned owners think they have agreements that dissolve once the business changes hands. I also know other owners who made the expectations an essential part of the deal and prevailed. I want to emphasize, however, that the expectations have to be reasonable. It is unrealistic to expect that every employee can continue to play the same role once acquired by another company or a PE firm. The expectations need to be reasonable and agreed to.
I counsel business owners to make sure they talk to a human capital advisor the moment they start thinking about selling, especially if they don’t have a human resources executive on their staff. Typically, owners talk to their lawyer or accountant. These roles focus on the financials and legalities of the transaction. You need someone who can advise you on the people piece. It’s why I am jokingly referred to as the “M&A Whisperer” as I like to advise business owners on what to expect and how to best manage the people side in-going.
PODCAST: SPIRAL DYNAMICS LEADERSHIP SUMMIT WITH NATASHA TODOROVIC
January 4, 2021
Jennifer talks with Natasha about critical mindset tools to help lead through uncertain times.
COVID-19’s Uncertainty Has Things to Teach Us About M&A
Jennifer Fondrevay and Tricia Forbes
Watch the Video: Jennifer Fondrevay, Founder of Day1 Ready and author of “NOW WHAT? A Survivor’s Guide for Thriving through Mergers & Acquisitions” discusses what COVID-19’s uncertainty can teach us about M&A Integrations with MiddleM Creative Vice President Tricia Forbes.
Uncertainty’s Influence
A fair amount of attention has been devoted to what will happen with M&A deal-making once we are on the other side of this pandemic. Fairly consistently, the theories on what’s next end with something to the effect of, “This is unprecedented, and no one truly knows how it will all play out.” Despite the unknowns, there is a lot that we can learn from this crisis to better prepare us for M&A deals moving forward.
The common theme between COVID-19 and an M&A integration is the influence uncertainty has over people—and more importantly—how it affects their actions.
Even when an investment thesis is well supported, we only learn if things will actually work at the execution phase of a deal—when we uncover the challenges we hadn’t anticipated. In the current environment, we face a similar dilemma. We’re developing response strategies for the pandemic without a clear sense of what will be most effective. Similar to M&A integration, success is uncertain until we see what people do.
A successful outcome is contingent upon how quickly people will accept the reality of the situation, embrace the roadmap and implement it. This crisis can provide enormous insight into how we approach M&A deals and most valuably, how we execute them.
Traditional Leadership Methods Must Evolve When Navigating Uncertainty
Throughout the crisis, we have seen leaders stumble when they attempt to play by the more traditional rules of leadership—leading with vision, decisiveness and bold confidence. These leaders previously succeeded because they understood the metrics for success and excelled at them. They knew the rules of the game and repeatedly won.
This same type of leader can falter in a crisis because the metrics for success change rapidly, and the game’s rules are continuously being defined. They have a difficult time pivoting in reaction to new metrics and an equally difficult time accepting they might not know all of the answers. More traditional leaders often take longer to act and develop a response plan, which compounds a crisis and prolongs the pain.
When assessing the viability of leadership styles for post-deal integration, we often apply the traditional leadership criteria to evaluate the management team. This crisis is teaching us that those are not always the right metrics.
Over the course of this pandemic, people have been most motivated into action by leaders who demonstrate empathy and humility, are transparent with what they know and don’t know, actively tap others’ expertise to make decisions and role model the behavior they wish to see.
Learn from the People Closest to the Work
Before COVID-19 was declared a pandemic, many political leaders were sharing incomplete or contradictory information because it was being gathered in real-time and was outside of their scope of expertise. This heightened fear and anxiety (resulting in the hoarding of toilet paper).
When those closest to the work began to share their expertise, we began to get a true sense of what was happening, what needed to be done and how we all needed to behave. When frontline experts shared their knowledge, people had greater confidence in the plan of action, which motivated businesses and community leaders, as well as individuals. We developed a more complete picture of what was required of us and snapped out of denial.
When I consult on the human capital challenges of M&A, I consistently advise my clients to talk with the people who do the work in order to truly understand what it takes to get the job done. Not theoretically—not what it takes based on a sample budget or planned resources. You need to appreciate what the people who actually complete the tasks are up against.
Only then can you get a sense of what the roadmap looks like and what the implications are if some elements of the product or process are missing (say, ventilators or testing). You won’t have a complete picture of a successful post-close integration in your due diligence discussions until you engage your frontline leaders.
How, Not Just What, You Communicate is Vital to Comprehension and Buy-In
When your statements as a leader contradict what people are experiencing, you lose them. We saw this happen when leaders painted a picture of the virus’ spread and impact that didn’t match what people were seeing in their homes, communities and workplaces. People doubted their leadership, which heightened their stress.
For communications to be effective, your stakeholders need to feel that you know what they are going through and that you are being honest with them. You can’t claim that nothing has changed or that there will be little impact. When people are given incomplete or misleading information, they don’t feel invested in the outcome or comfortable about the decisions they must make—and they no longer trust your leadership.
Beyond that, information needs to be brought down to an individual, granular level. “What does this all mean for me and what do I need to do?” is what people want to know.
The leaders commended throughout this crisis have explained the good and the bad of what we face in basic terms, and they boil the situation down to personal action. People are more willing to believe in the way forward and feel invested in it if you are upfront with the challenges faced. Give them as much information as possible to help them understand their role and the specific actions they need to take.
Finally, we are seeing on a global scale that the acceptance of change comes at different rates. I noted in an earlier Fast Company article, “There are people who have accepted the reality of the pandemic and have begun to take action, and there are those who have resisted and delayed their change in behavior. People react to change differently. You can’t predict it or control it.”
Interestingly, that is a lesson M&A has already taught us. When I interviewed executives for my M&A survivor’s handbook, “NOW WHAT?”, each of them shared one common realization they wished they’d appreciated going into the deal: reactions to change vary widely, and you need to be prepared for that.
What Can the Worldwide Pandemic Teach Us About Managing the Uncertainty of M&A?
We have seen the type of leadership that people react to positively. We’ve also seen the leadership that falls flat when people are afraid. We have recognized that the ones closest to the work are those who need to be tapped at the beginning. We have also learned that not all communication is received equally. How it is presented is vitally important to people’s comprehension and what is shared is critical to their buy-in. Ultimately, we have seen that people get to acceptance at different rates. Sweeping change can only begin when a common level of acceptance is reached.
3 Lessons About Leading When People are Afraid
by Jennifer Fondrevay
The coronavirus crisis is a time for calm, confident leaders to really step up. Steady hands can build the confidence needed to ride out the storm.
Right now, there are more people who are afraid than not. It’s a fear driven by uncertainty magnified by the fact that our authority figures—the ones we look to in times like this—don’t seem to have all the answers and consistently contradict one another. That doesn’t lend itself to a calm.
I’ve experienced numerous business situations where fear was the operative emotion. Mergers, acquisitions, and business transformations bring with them a lot of uncertainty. Even when the strategy or business case seems well supported at the outset, it’s hard to know if it’ll work until it actually happens. In the current environment, we are facing a similar dilemma: We have a response strategy for the pandemic but no clear sense of what the future holds.
I would never equate the uncertainty that can ensue post-M&A deal to what we are facing now, yet there are lessons learned from those experiences that do apply. In researching my book, Now What? A Survivor’s Guide for Thriving Through Mergers & Acquisitions, I interviewed 60 executives who lead through M&A deal uncertainty. They shared one common realization: everyone reacts to change differently. You need to be prepared for that.
As a manager, maybe you have team members who are fraught with anxiety. Or maybe you’ve even witnessed other leaders melting down, which is having an impact on your team. Based on interviews with executives who’ve repeatedly dealt with uncertainty, here’s how to lead during uncertain times:
Acceptance comes at different rates
Everyone reacts to change differently. How quickly people accept that change will vary. You can’t predict it or control it. The same can be said of what we are facing now. There were people who quickly accepted the pandemic news and took precautions. But we all saw some who at first said, “This is minor, go about your business.” It’s the equivalent of “nothing has changed.” And then there was a big percentage of people in the middle left wondering what to believe.
Now that we’re weeks into the coronavirus crisis, people, thankfully, have largely accepted that we need to change our behavior for this situation to play out positively. As a leader, we need to emphasize the importance of taking the guidance seriously and helping our teams accept the new reality.
Fear elicits “survivor” mode
When things are going great, people get along. When things start to go south and people are afraid for their jobs, or in this case their lives, you will see a different version of them—and it’s rarely positive. People go into survival mode. Why do you think the TV show Survivor has endured and remains popular? People are fascinated to watch how someone goes from being a friend and ally to everyone for themselves.
Be prepared for this reality. People who you assumed would be your rock can completely lose it and abandon you. When someone you trusted adopts a self-preservation attitude, it can be hard not to judge that person harshly. Try not to. People’s reactions to fearful situations are informed by their past, and you may not completely appreciate their current family situation. Our present environment, where so much is uncertain, can trigger people’s innermost fears. Recognize this may be the case. That said, don’t dwell on it either. Move on quickly and discover the people who can lead through times of uncertainty.
Look for levelheaded leaders
Once you realize that some previous leaders may not be capable when they don’t have all the answers, be open to the possibility that others who you’d not previously considered as a leader can surprise you. Don’t waste time trying to bring along those you previously counted on if they are losing it—you don’t have time for that. Look to those people who are calm and levelheaded. They may not be the person you thought you’d turn to, but don’t discount the possibility that they may be who can lead now. In times of high uncertainty, people who are afraid are willing to follow those who appear grounded in the face of so many unknowns.
To keep fear at bay for everyone, two final pieces of advice: make daily communication a priority, and focus on the things you can control, not the things you can’t.
People fill in a lack of information with worst-case scenarios, which ratchets up fear. We’re seeing the fallout of that since the initial COVID-19 communication was limited and contradictory. Be honest with what you know and transparent about what is still being figured out (emphasizing that it is being figured out). Pretending to know it all is not leadership, nor is waiting until you have all of the answers before you communicate. Use technology, frequently derided for isolating us, to connect and communicate. If you help to allay people’s fears, not with uninformed platitudes but with an educated view of what is known and what that could mean for the team, people who are afraid will have more confidence in you.
The more a team feels in control of what it is doing, the better chance you have of minimizing fear. Don’t waste energy on things you can’t control. This doesn’t mean you don’t develop a plan B. Having those plans can calm fears, showing you’re prepared for potential challenges. But don’t drive yourself crazy with those. Focus on the work and short-term risks to feel prepared, especially since changes seem to come daily.
Remember: In all of this uncertainty, there is an opportunity to be found. Everyone is figuring out what the new normal is. There’s nothing like a global crisis to level the playing field. While we don’t know today what the long-term effects of this crisis will be, we can rest assured some good things will come if we stay calm, keep our teams focused, and look for the opportunities.
PODCAST: THOUGHT LEADER LIFE WITH MITCHELL LEVY
April 1, 2020
Jennifer connects with Expert Mitchell Levy, a TEDx speaker and international bestselling author of over 60 books.
Here are a few highlights from this episode:
- Having been through three multi-billion dollar acquisition experiences, I saw how the integration of cultures affects the org on how they perceive their mission and vision.
- Orgs and companies that are doing #MergersAndAcquisitions have to deal with people challenges and the integration of cultures. How do you overcome those challenges?
- Mid-market or Fortune 500 companies should think smart when it comes to #MergersAndAcquisitions in order to survive or prevent possible problems.
- The people aspect when doing #MergersAndAcquisitions must be considered, as well as how to communicate the vision, mission and values in a way that galvanizes your workforce to really get behind them.