This article has been written by Ms. Aarsha Prem, a 5th year LL.B. student from CLS GIBS college.

Introduction

Companies merge with one another to reap economies of scale and other advantages. The merger process and its conclusion have an impact on the company’s stakeholders. Employee’s are an essential stakeholder of the company having significant relations with the company. A firm restructure will therefore affect them. 

Employee loyalty may be significantly impacted by corporate mergers. Employees may feel uneasy and insecure about the future of the business and their job security in the short term. This can lead to increased absenteeism, decreased productivity, and higher turnover rates. Long-term, a merger that is effective can give staff new possibilities and room to grow. The merger could, however, result in employment losses, cultural conflicts, and a lack of a clear direction for the business if it is not properly planned and carried out.

Mergers and Acquisition

One of the most stressful situations that employees might experience is a merger or acquisition. Nonetheless, the long-term advantages of mergers and acquisitions for management, stockholders, and the bottom line of the company may outweigh the difficulties in the near term. Due of this, mergers and acquisitions are frequently mentioned as a method of strategic business expansion. 

Even though the phrases mergers and acquisitions are sometimes used interchangeably to refer to the joining of two businesses into one, their definitions are slightly different. A merger is the coming together of two corporations to create a new company. A merger of equals, as the name implies, often comprises businesses of the same size. When two businesses merge, the stock of each is ceded, and fresh equity shares are issued for the new company. 

An acquisition occurs when one corporation buys out another, taking ownership of the target company in the process. In other words, after an acquisition, the acquired company no longer exists because the acquirer has absorbed it. The acquiring company’s equity shares are still traded. The stockholders of the target firm receive shares of the acquiring company, but the target company’s stock shares are no longer traded. The buyout terms, however, determine how many shares of the target business belong to the acquirer. In most cases, it is not done one-on-one. 

Combining businesses involves more than just combining cash assets. Office complexes, factories, machinery, and workers all work together to form a whole that is apparently bigger than the sum of its parts. 

Most significantly, organisations that merge reap the benefits of one other’s distribution routes and customers. Equal shares of the new company are distributed to stockholders of the two companies. Stock values could increase because shareholders’ investments are backed by the assets of both companies. It stands to reason that by combining operational costs, the new business’s overall costs will go down and its profits will increase.

Benefits of a Merger or Acquisition to a company

1. The removal of unnecessary expenses may result in an increase in revenue. 
2. A possible rise in market share, either across international boundaries or through devoted customers eager to consider new items created as a result of the merger or purchase. 
3. Less competition can boost profits and encourage innovation. 
4. The businesses gain access to new assets and human capital that their rivals previously owned. 
5. Brand recognition might rise. 
6. As a result of the merged assets and decreased expenses, stock values can increase. 
7. Because of the aforementioned advantages, incremental development might be easier to achieve.

How employees may react to a Merger?

Despite their advantages, mergers and acquisitions can have a stressful effect on personnel. 

1. As employees observe their co-workers laid off, they can experience uncertainty. 
2. Rather than cooperating, employees from the two organisations can engage in competition. 
3. Employee morale may decrease as a result of combining two corporate cultures. 
4. As frustration with new roles, coworkers, or management rises, employee motivation may suffer. 

One would want to tackle these difficulties head-on as the company’s owner or manager. The greatest strategy to minimise the impact of mergers and acquisitions on employees is to be transparent and honest during every phase of the process.

Employee Concerns during a Merger

1. Employees of the target company are at risk as a result of the uncertainty that results from a merger or acquisition. If the staff didn’t like the transition, this uncertainty can come out badly. It makes sense to expect that fearful or threatened employees could perform less well than those who feel safe and pleased.
2. Job security is one of the biggest worries for employees following a merger. The fear that many workers may lose their jobs as a result of the merger could boost turnover rates. Employees can also be concerned about adjustments to their wage and benefit packages. In the past, mergers and acquisitions have frequently led to employment losses. The majority of this can be attributed to unnecessary processes and initiatives to increase efficiency. The CEO of the target firm and other senior management positions are among those under peril; they are frequently given a severance package and fired. However, in order to help fund the acquisition, the management team of the acquiring firm will seek to optimise cost synergies, which typically results in job losses for personnel in redundant departments.
3. The possibility of cultural conflicts between the two merging organisations is still another significant worry for employees. Diverse business cultures can result in miscommunications and disputes that have a negative effect on workers’ morale and productivity. Employees of the target organisation are also expected to be familiar with the new operating system, management structure, and corporate culture. Employee discontent may develop if the new management team finds it difficult to communicate effectively to smooth the transition.
4. Throughout a merger, communication is essential. Workers want to be kept informed about the merger process and how it will affect them. Rumors and false information can spread due to a lack of communication, which can further erode employee loyalty.
5. Opportunities for employee training and development may also be impacted by a merger. Employee confusion and a lack of direction can result from merging companies’ various approaches to employee development. There are a number of ways employees will be impacted by the change. Some of the problems will include change in management, technology, payroll system integration, change in reporting structure, or perhaps a change in office location, which might have an influence on employees’ personal lives. 

Steps that can be taken to ease the transition

Avoid leaving employees in the dark about their future; instead, communicate about new positions and layoffs as soon as possible to reduce ambiguity. 

Be clear about the expectations and the united corporate culture as well. Employee education, training, and an emphasis on engagement go a long way. You don’t want one corporate culture to replace another, particularly in the case of a merger. 

To aid in the employees from both organisations getting to know one another better, think of team-building activities, an after-hours party, or a group event like a ballgame or picnic.

Reward those people and groups who are assimilating the new culture, procedures, and norms and collaborating with their new coworkers. Maintaining enthusiasm and helping other workers to adapt to life in the new company go a long way. Little gift cards or even public praise through a corporate chat channel might help. 

Mergers and acquisitions are possible in all industries (M&A). It is a fact that can drive workers to advance in their chosen industry or suffer professional setbacks. It’s critical that all employees, especially those being acquired, feel appreciated in order to sustain a positive transition. Retaining your top performers and revitalising your staff should be your long-term goals.

Employers must concentrate on factors like wages, pensions, and benefits that affect overall employee compensation during a significant transformation. To ensure high engagement rates, which ultimately increase employee loyalty, any changes to these offerings must be carefully planned, considered, and implemented.

Conclusion

There will inevitably be conflict and tension when two businesses merge to form one operating entity. Acquisitions involve a takeover with what employees might view as winners and losers, whereas mergers involve the joining of two cultures and processes. 

Mergers and acquisitions can make firms stronger by increasing their consumer base, lessening marketplace rivalry and producing value that is larger than each company offers alone. Every year, more companies engage in mergers and acquisitions (M&A). For the employees involved, these transitions represent significant change and a challenge as they adjust to new procedures, leadership philosophies, and cultural norms. Understanding these transitions’ effects on your staff and developing plans to lessen any negative consequences can help you ensure success. Finally, business mergers can affect employee loyalty in both positive and negative ways. To minimise adverse effects on worker morale and productivity, it is critical for businesses to effectively plan and carry out a merger. Employee loyalty can be preserved during a merger by focusing on job security, maintaining open lines of communication, and attempting to resolve cultural conflicts.

References:

1. https://www.legalserviceindia.com/legal/article-10228-impact-of-mergers-on-employee-s-loyalty-.html
2. https://www.satisfyd.com/blog/employee-engagement-blog/impact-mergers-acquisitions-employee-engagement/
3. https://www.americanexpress.com/en-ca/business/trends-and-insights/articles/the-effects-of-mergers-and-acquisition-on-employees/
4. https://www.investopedia.com/ask/answers/041515/what-does-merger-or-acquisition-mean-target-companys-employees.asp

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