Analysis Shows Clear Link Between Investing in Human Capital Issues and Exceeding Deal Objectives
LINCOLNSHIRE, Ill. — Corporate transaction activity is expected to increase in 2010, yet many acquiring companies around the world say they fall short in meeting their deal objectives. One contributing factor? Failure to execute leadership and critical talent agendas, according to a new global survey by Hewitt Associates, a global human resources consulting and outsourcing company. As deal activity heats up this year, Hewitt’s survey shows that effectively addressing human capital issues can be a critical tipping point in the success of an organization’s deal.
According to Capital IQ, deal activity — including mergers and acquisitions (M&A), joint ventures, divestitures and IPOs/spin offs — totaled $2 trillion (USD) in 2009. Hewitt’s quarterly M&A pulse survey of 278 organizations around the world shows that 72 percent expect to increase their deal activity over the next two years. However, almost half (47 percent) said their past transactions did not achieve their intended financial and strategic objectives. Further, while almost two-thirds (65 percent) of companies indicate that leadership and key talent retention are critical to the success of a deal, nearly half (49 percent) of these organizations report they have lost critical employees at the same rate or at an even higher rate than non-critical employees.
A separate Hewitt analysis shows that the loss of critical employees can have a devastating impact on corporate transactions. Based on a sample of 96 companies representing more than $568 billion (USD) in total deal value over a two-year period, Hewitt’s analysis found that more than $54 billion (USD) — or 10 percent — of a deal’s value depends on the rate at which critical employees separate during or immediately after corporate transactions.
“As we unravel the reasons why companies aren’t achieving their M&A goals, it’s not surprising that leadership and critical talent issues are a major piece of the puzzle,” said Elizabeth Fealy, global leader of Hewitt’s Corporate Transaction and Transformation practice. “Often, the loss of critical employees may be enough to erase much of the synergy value companies sought in the deal. In other words, having your most valued talent leave during a merger or acquisition can be a true ‘deal-breaker.’”
To explore this point further, Hewitt compared the survey responses of companies that exceeded deal objectives (Overachievers) versus those organizations that did not achieve their deal objectives (Underachievers). In its analysis, Hewitt found a clear link between deal success and investment in leadership and key talent issues. Overachievers and Underachievers both say leadership and talent strategies are important to the success of a deal (69 percent versus 62 percent, respectively). However, less than a third (32 percent) of Underachievers report their leadership and key talent strategy in transactions as being effective, compared with 70 percent of Overachievers. Overachievers are also twice as likely to effectively identify and retain leaders (81 percent versus 42 percent) and assess critical talent (73 percent versus 35 percent).
“Human capital is one of the top three intangible assets of any organization, yet many companies fail to execute a rigorous and sustained leadership and key talent approach, permitting key leaders and talent to walk out the door,” adds Fealy. “As companies prepare for 2010 and beyond, there is a real opportunity to shift the dial. Having a formal strategy and game plan for leadership and key talent and effectively executing on it is critical for achieving better deal success.”
About Hewitt Associates
Hewitt Associates (NYSE: HEW) provides leading organizations around the world with expert human resources consulting and outsourcing solutions to help them anticipate and solve their most complex benefits, talent, and related financial challenges. Hewitt works with companies to design, implement, communicate, and administer a wide range of human resources, retirement, investment management, health care, compensation, and talent management strategies. With a history of exceptional client service since 1940, Hewitt has offices in more than 30 countries and employs approximately 23,000 associates who are helping make the world a better place to work. For more information, please visit