Post-merger blues

P Saravanan / Abhishek Totawar | Updated on August 23, 2019 Published on August 23, 2019

A key reason for this is neglect of HR issues

Acquisitions across the world, especially in technology-based companies, are being evaluated on parameters such as synergies, cost reductions, expanding customer base in existing and new markets, incorporation and introduction of new technologies, innovation, and the like. Based on these criteria, investment bankers justify their valuation numbers.

In spite of the due diligence, often many acquisitions fail. The primary reason cited for such failures is the neglect of human resource issues and lack of post-acquisition integration activities. L&T now holds around 60 per cent stake in Mindtree. Owing to the exit of its founders and key leaders, investors obviously are concerned about the future growth of the company.

Characteristics of tech firms: Tech firms are vastly different. They differ from manufacturing or other service firms in terms of their work culture and values. For instance, Mindtree differentiated itself from other mid-tier players by using its culture as a soft differentiator.

In an interview, Mindtree’s co-founder, N Krishnakumar, said: “What we sell is a promise of building a relationship… every firm has critical skills, the customer wants to know will those skills match my need and my organisation’s. Hence, our culture and values are key differentiators”.

What is post-acquisition integration?: This means involving people from both organisations who are in core business activities such as planning, decision-making, selling, etc. Involving people from both sides sends positive signals about the management’s commitment to learn and co-create value which is greater than what either parties could have created individually.

Engaging employees is the most important element of post-acquisition integration and if it is not handled carefully, the impact could be seen in the form of key people leaving the organisation.

Instilling confidence: Mindtree employs around 20,000 people and it refers to them as ‘Mindtree Minds'. The most natural question that comes to an employee following the acquisition is: ‘What will happen to me?’ Creating confidence in the minds of the employees is crucial. And, in attempting this, communication is key.

For employees of the acquired company, there is a threat to their career and livelihood whereas the for those in the acquiring company, it is an opportunity to learn and grow. Apart from employees, clients of the $1 billion software services exporter need to be convinced. Mindtree’s clients across the globe expect assurance and a sense of continuity from the new management.

In a recent interview, L&T head Subrahmanyan said: “AM Naik, Mindtree’s non-executive chairman, has written to each and every client of Mindtree, and assured them of full cooperation and the benefits of the services. And, we have got replies from some of the clients.” This is a befitting example of a well-thought-out communication. As far as the shareholders are concerned, L&T currently does not intend to increase shareholding to 66 per cent as originally mentioned in the open offer. The new management has assured the shareholders that they are going to concentrate on growth and can reap the benefits of L&T's global connections and networks.

Thus, when it comes to post integration, the major challenge for the new management is creating confidence in the minds of three parties — employees, clients, and shareholders. It is evident that L&T recognised these aspects and, accordingly, chalked out its activities.

The writers are faculty members, IIM Tiruchirappalli

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Published on August 23, 2019
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