MEET­ING OF MINDS OF SE­NIOR MAN­AGE­MENT ON BOTH SIDES IS KEY TO MERGER SUC­CESS

BioSpectrum (India) - - Bio Contents - AJAY BHARADWAJ CEO, An­them Bio­sciences Pri­vate Lim­ited

As­tudy of the his­tory of mergers and ac­qui­si­tions of­fers a broad spec­trum of lessons that should be learnt, so as to en­sure that such deals are suc­cess­ful. Be it the first wave of con­sol­i­da­tion that oc­curred in the US and Europe in the 1890s or the post glob­al­i­sa­tion con­glom­er­ate be­he­moths that are a re­sult of the re­cent wave of mergers; a key com­po­nent in the suc­cess of these op­er­a­tions is strate­gic hu­man re­sources plan­ning.

The three pil­lars on which any post-merger suc­cess­ful strate­gic HR plan must be based are – set­ting

out the HR ob­jec­tives that the new en­tity wishes to achieve, a HR strat­egy and de­tailed plan on how to achieve it, along with a time­line and lastly, HR per­for­mance met­rics to mark the progress of the im­ple­men­ta­tion of the agreed upon plan. This sounds al­most too sim­ple but as HR in­volves peo­ple and very of­ten dif­fer­ent or even con­flict­ing cor­po­rate cul­tures of the two merg­ing en­ti­ties, it is of­ten fraught with hur­dles, which al­ways vary on a case to case ba­sis. In ad­di­tion to these pit­falls, the biotech and health­care in­dus­tries pro­vide their own set of unique chal­lenges.

One of the most im­por­tant keys to the suc­cess of any merger is that se­nior man­age­ment on both sides should have a meet­ing of minds. This is es­pe­cially true in the biotech space, where com­pa­nies are hav­ing a high tech­nol­ogy com­po­nent. The ac­quirer gen­er­ally needs a lot of hand hold­ing to un­der­stand the na­ture of the busi­ness of the ac­quired com­pany. Here trust be­tween merg­ing en­ti­ties is para­mount. In other in­dus­tries one could ac­quire and re­place the top man­age­ment quickly, fill­ing re­moved man­agers with com­pe­tent in­dus­try hands, but sci­ence led busi­nesses have their own nu­ances and this if of­ten not the rec­om­mended route to em­ploy. A more bal­anced ap­proach is needed where key man­age­ment and sci­en­tific per­son­nel of the ac­quired com­pany are held on and the best ones re­tained. Even the be­low par per­form­ers should be let go only when re­place­ments with the same skill set are iden­ti­fied. This seems to be a more ef­fec­tive HR strat­egy.

Apart from the se­nior man­age­ment be­ing on the same page, a suc­cess­ful M&A deal also re­quires the cul­tures of both or­gan­i­sa­tions to be com­pat­i­ble. If one is just a trad­ing busi­ness or one with low tech­ni­cal con­tent and the other a dis­cov­ery fo­cused com­pany, then the cul­tural clash could scut­tle the merger. This is of­ten over-

looked during due dili­gence, but is as im­por­tant as good fi­nan­cials, prod­uct pipe­line and other quan­tifi­able met­rics. That not­with­stand­ing, if the two or­gan­i­sa­tions with very dif­fer­ent cul­tures are at­tempt­ing to merge then the HR plan must lay out what the new man­age­ment en­vi­sions should be the cul­ture of the com­bined en­tity. In­cor­po­rat­ing good as­pects of cor­po­rate cul­ture from both or­gan­i­sa­tions will not only pre­vent em­ploy­ees from feel­ing alien­ated but also al­low both en­ti­ties to im­prove their ex­ist­ing cor­po­rate cul­tures.

Of­ten the com­pen­sa­tion and re­ward prac­tices of the two en­ti­ties are com­pletely dif­fer­ent. This can cre­ate con­fu­sion and ten­sion be­tween the two sets of em­ploy­ees. Un­der­stand­ing this and find­ing an ac­cept­able ra­tio­nal­i­sa­tion of com­pen­sa­tion is must for a suc­cess­ful M&A.

As with any re­la­tion­ship, suc­cess­ful mergers re­quire the ex­pec­ta­tions of both sides to be paired. There will be a lot of in­vest­ment in time and money for both merg­ing en­ti­ties, which should be ex­plic­itly un­der­stood by man­age­ment on both sides. This is es­pe­cially true since most M&A deals oc­cur be­tween com­pa­nies in ei­ther the early stage dis­cov­ery phase or near­ing mar­ket readi­ness phase. Ma­ture biotechs are few and rarely tar­gets of such deals. Un­der­stand­ably, there­fore, a lot of work needs to be done post ac­qui­si­tion. Here, HR plan­ning plays a key role in bridg­ing the gap be­tween the merg­ing en­ti­ties. An ef­fec­tive strate­gic HR plan that lays out the spe­cific re­spon­si­bil­i­ties with time­lines of both par­ties in­volved can avoid a lot of the con­fu­sion that fol­lows post-merger.

An ef­fec­tive HR plan must also take into ac­count not to be too dis­rup­tive. It is un­der­stand­able that at the time of a M&A deal, em­ploy­ees are of­ten un­cer­tain of what the fu­ture holds. It can be ex­tremely de­mor­al­is­ing for em­ploy­ees, es­pe­cially if im­me­di­ately post-merger they per­ceive a cull of their old col­leagues. This can lead to loss of com­pe­tent em­ploy­ees and cre­ates un­nec­es­sary tur­bu­lence at an al­ready stress­ful time. A smooth tran­si­tion, while un­der­stand­ing which per­son­nel from both or­gan­i­sa­tions are in­dis­pens­able is cru­cial. These in­di­vid­u­als need to be kept mo­ti­vated and it needs to be en­sured that they are re­tained post-merger.

Mergers and ac­qui­si­tions are al­ways deals that are fraught with risk for both or­gan­i­sa­tions. The mit­i­ga­tion of this risk in­volves not only do­ing a thor­ough run through of the per­for­mance met­rics of the or­gan­i­sa­tions and mak­ing a de­ci­sion based on that, but also tak­ing into ac­count that peo­ple’s liveli­hoods and jobs are tied in with the suc­cess of this merger.

Look­ing at the merg­ing en­ti­ties in a more holis­tic way: do their cor­po­rate cul­tures and poli­cies match? Are their goals aligned? Are the man­age­ments think­ing along the same lines? These and other such ques­tions are just as im­por­tant be­fore and after the merger, and must be dealt with to en­sure suc­cess.

Ajay Bharadwaj

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