8 Steps to a Winning M&A People Strategy in Asia Pacific

Building a resilient workforce

The success of merger and acquisition (M&A) deals often comes down to having the right people strategy. Whether it’s your first, second or 50th deal, the human element of combining organisations and merging cultures often yields unexpected challenges. This is particularly true in the dynamic and unique markets of APAC, where M&A deals are on the rise due to several important factors:

54% of global firms view APAC (excluding Japan) as the most relevant and attractive region for M&A, and the business case for investing and doing deals in APAC is strong
APAC is the only major region growing in double digits in most sectors
The potential for growth in APAC is substantial – with opportunities including market access, distribution, adding topline, new local brands /product lines and talent
Post-COVID supply chain and market diversification beyond China economies is on the rise
Western Unicorns and high-growth SMEs are looking to expand into APAC, including Japan
Per capita income, investment and infrastructure spending is rapidly expanding in SEA
Asian firms have an increasing appetite to go global, with many outbound deals between the US and Europe with firms in emerging markets such as India, Malaysia, Thailand, and China

Standing out among the challenges facing APAC M&A deals are people issues that are difficult to quantify and hard to predict, which can ruin even the best-laid plans. From culture and leadership style to grades, compensation, benefits, and employee policies, these may not initially be considered dealbreakers, but can and have derailed many deals at every stage imaginable.

“As more western and large Asian firms look towards APAC for market access, growth headroom, innovation, talent and skills, new product augmentation or supply chain de-risking plays, it will involve sizeable M&As

It is therefore critical for these firms to have an APAC-tailored strategy, run solid due diligence and guide or integrate these chunky acquisitions to prevent diminishing the deal value.”

Sharad Vishvanath, APAC M&A Advisory Partner

There is also regulatory risk to consider when acquiring local companies. One major cause of deal failure in recent years is tighter scrutiny from regulators, with a growing number of competition or antitrust reviews taking place. The abandonment of NVIDIA’s US$40 billion acquisition of Arm from Softbank in February 2022 is just one such high-profile example.

According to Aon’s M&A Risk in Review 1H 2022 report, more than two-thirds of companies are expecting global M&A deal numbers to increase over the next 12 months - including 38 percent who anticipate an increase of more than 5 percent.

Despite a global downturn in M&A activities1, Asia Pacific’s share of global deal value increased from 23% in 2021 to 25% in 2022.

Market analysts predict a noticeable increase in deal-making activities further into the latter half of 2023, and a significant rise in cross-border activities in the next two years and beyond. Digital transformation and market share will be key drivers of M&A in 2023, and 76% of APAC dealmakers expect to spend more time over the next three years scrutinizing ESG factors during due diligence.

Finance sector mergers and acquisitions in Asia-Pacific could pick up in 20232 after slowing in the previous year, as potentially attractive valuations and pent-up demand in China spur dealmaking in the region.

HR professionals will need to address key people challenges that emerge before, during and after a deal is closed. Let’s consider some pitfalls to avoid when doing M&A deals in APAC, and what to do instead:

Pitfall #1: Total Rewards

Without an appropriate total rewards analysis, companies miss the opportunity to streamline spending. Ignoring potential synergies, unexpected expenses and compliance risks could prove to be costly.

Compensation structures are unique to each market in APAC and understanding local realities and market pressures is critical to successful deal management.

Best practice: Focus on rewards during HR due diligence and run detailed analysis from announcement to close. For example, a US technology firm doing a large deal covering five key APAC markets adopted a differentiated tailored approach - using side-by-side comparisons of compensation levels, variable pay plans, and LTI (long term incentive) design in the due diligence stage, they identified and resolved major compliance issues and drove several cost-saving initiatives.

Pitfall #2: Retention

Retaining and integrating talent is often a stated goal in an acquisition. Yet too often, companies fail to consider top talent in the due diligence process. Employee engagement is critical to ensuring those top performers with one foot out the door don’t decide to leave.

In APAC, this risk is amplified in competitive markets, where key skills and market knowledge are lost after the deal is closed, especially in the tech and services sectors. Such deals require clear integration strategies – ensuring strong cultural fit, addressing pay gaps and other diversity, equity and inclusion issues (DE&I), minimal disruptions for incoming employees, and maintaining employee engagement.

Best practice: Classify talent relevant to deal success, such as top management, future leadership, key skills, and talent needed in the interim for a smooth transition. Design a multi-tiered, nuanced retention program that will address employees’ diverse needs and can be rapidly deployed and accurately budgeted.

Your new “acquihires” should have a strong belief and acceptance of the organisation’s goals and values, an eagerness to work hard and the desire to remain a member of the team.

62% of companies consider culture, employee value proposition, and diversity and inclusion key to a successful talent strategy.

Source: Aon’s Eighth Global HR Pulse Survey, January 2022

There has been a wave of resignations in Asia Pacific3, with almost half of respondents (47%) having only been at their current jobs for no more than two years.

Research also shows that 73% of the respondents will look for new career prospects over the next six months.

Meanwhile, 65% of respondents are willing to accept a lower salary or forgo a pay rise or promotion for better work-life balance, overall wellbeing and happiness.

“It is crucial to keep an open mind about introducing change. Switching from the original ‘buyer’s viewpoint’ to a more integrated and nurturing attitude will ultimately achieve workforce alignment. Clear communication will also be key, as is identification of any legacy issues, including workforce structure and compensation.”

Maggie You, Head of People Advisory, APAC

Pitfall #3: Employee Experience and Culture

Cultural misalignment is another major cause of failed deals. The younger demographic of employees in APAC makes it critical to look proactively at potential cultural friction points with an open mind. Otherwise, younger talent may not perform to their potential – or worse, they will leave in search of a better cultural fit, despite generous retention packages.

Best practice: Determine and articulate what the desired combined culture will look like. For example, in a large energy sector deal, transitioning employees joining an acquired company were accustomed to quick decision making and a higher level of empowerment where authority was delegated – requiring a balanced approach to integration and governance. A similar challenge might occur where one organisation allows remote working and limited meetings, while the other requires employees to work in the office and meet in person to make decisions.

As soon as a deal is closed, deploying a change and communication plan immediately will help to actively demonstrate your go-forward culture, so everyone is clear about what is expected of them and how they fit into the big picture – while noting that cultural alignment is a give-and-take journey that takes time.

“Culture conflicts typically arise in the M&A process when the acquirer ignores the core values of the target company. APAC companies seeking expansion are those who have grown rapidly in recent decades. They tend to be extremely confident and are more likely to ignore different cultures, which can lead to conflicts that they cannot even recognise.

We recommend acquiring targets that are close to the acquirer's own values, where possible; at the same time, it is necessary to consciously establish the concept of Diversity, Equity and Inclusion, and respect the target; to align interests of various key stakeholders, especially in cross-border mergers and acquisitions, and to strengthen mutual learning and inclusion.”

Maggie You, Head of People Advisory, APAC

Pitfall #4: HR Operations

Not having a strong HR infrastructure in place from day one can prevent employees from getting their job done and having a good experience. While these details may seem mundane compared to high-level strategy, one shouldn’t underestimate its impact on employee morale, efficiency and disruption.

Best practice: Define, classify and prioritise the changes required in HR policies, processes and systems for integrating employees. Compare what is changing in each entity and develop a clear roadmap for the interim and future-state HR operating model, from, including the HR information system, payroll, compensation and benefits to administration, recruiting and performance management. If the new systems cannot go live on day one, define which integrations are most necessary.

Support the development of transitional service agreements, which are typically in place until the entity can set up their own HR infrastructure. Then develop the headcount or staffing model required for continued business operations, as well as the process flows to integrate all HR activities.

Pitfall #5: Organisational Design and Talent Planning

Companies often do not realise the significant planning that needs to occur before a deal is closed, especially for deals that are highly scrutinised from a regulatory perspective

Best practice: Use the “sign to close” period as a starting point for the organisational and talent planning process. Consider broad talent assessments as part of the integration, to understand the skill levels of acquired talent. Effective and aligned organisational design is crucial to successful integration, as it helps to identify synergies. If not addressed proactively, companies could experience closing delays, talent attrition and lower employee engagement.

Pitfall #6: Financial Considerations

A lack of defined benefit pensions, rich benefit plans, compliance gaps, change-in-control and other transaction-related payments can have a material financial impact on the deal – in terms of both company valuation and future cashflows.

Best practice: Ensure the HR team reviews the people assumptions contained in the financial model. These often significantly underestimate costs and timeframes for people-related items, such as retention program design as well as compensation and benefits programs. You should also review the impact of pay equity on decisions to mitigate legal risks and ensure that integration decisions don’t inadvertently create an unfair pay gap.

Pitfall #7: Employee and Labour Relations

Without understanding labour nuances and cost-benefit analyses specific to APAC markets, and having an appropriately aligned approach and communication strategy, companies could end up missing vital deadlines, and fail to realise potential synergies.

Best practice: Identify legal entity and employment transfer strategy requirements by country as early as possible, including notice and consultation requirements and timing. To avoid delays, it is critical to engage early with employee representative bodies where required.

Pitfall #8: Project Management

Project mismanagement can be catastrophic and can affect workstreams that relate to the people strategy, from missed due diligence risks to delays in onboarding employees, which result in business disruption.

Best practice: Establish and communicate the governance model early, including who is accountable for different tasks, guiding principles and people success metrics. Identify and track key milestones, decisions, issues and risks, and the most significant interdependencies, including legal entity formation and transfers, systems integration, and employment transfers.

Establish regular meetings with workstream leads to ensure teams are set up for success. Also, be sure to consistently drive horizontal workstream efforts related to change management and communication.

Looking Forward to Better Deals

Ignoring the people side of M&A until it’s too late can potentially disrupt the transaction at any time, to catastrophic effect. Yet organisations that adopt best practices, including proper due diligence, a strong project management office (PMO), and experienced M&A resourcing will be better positioned for a successful deal, and give the new entity its best chance of success.

To learn more about managing people issues during M&A deals, please contact us.

¹ Brunswick Financial Situations & Capital Markets, Asia Pacific M&A Q1 2023 by Brunswick Group
² Finance M&A deals to pick up in Asia on China reopening, valuation reset | S&P Global Market Intelligence (spglobal.com)
³ The Great X Report | Michael Page Asia-Pacific (ukabc.org.uk)