What are mergers and acquisitions?

Mergers and acquisitions (M&A) refer to a range of transactions that alter the ownership and structure of businesses. While often grouped together, mergers and acquisitions are distinct processes, and the reality is often more complex than one company simply selling to another.

• Mergers occur when two companies combine to create a new entity. This newly formed organisation may retain the name of one or both of the original companies and typically incorporates various elements from each, such as equipment, property and employees.
• Acquisitions happen when one company overtakes another. While this often involves a larger company acquiring a smaller one, it isn’t always the case. In most cases, the transition of the company to another is planned and offers some benefits for each party. For instance, a large tech company might acquire a smaller firm to gain access to proprietary software. The smaller company’s owner receives a significant payout, while its staff can benefit from access to the larger company’s resources and growth opportunities.

A less collaborative form of acquisition is known as a hostile takeover, where one company takes control of another without mutual agreement. This might involve purchasing shares, negotiating shareholder agreements or other forms of ‘hostile’ activity to assume control of management.

Why would a business merge with or acquire another company?

Companies may pursue mergers or acquisitions (M&A) for a variety of strategic reasons. Common motivations include:

Combining resources

Merging allows companies to pool resources to achieve greater success. This might involve uniting workforces, increasing market share or combining complementary knowledge, equipment or processes.

Gaining new resources

Acquiring a company often provides access to valuable resources. By buying another company, an organisation gains access to a fully developed process or product. In some cases, an acquiring company might get new patents, specialist employees with digital skills, equipment or property it needs to continue to grow, and is able to bypass the time and expense of developing these assets themselves internally.

Selling to a company better positioned for growth

On the opposite side of an acquisition, the selling entity may see this as an opportunity for further growth as well. A CEO that built a small company from scratch may have reached the limit of what they can do and may choose to sell to a larger organisation with the resources to scale the business further. Entrepreneurs often view this as an opportunity to move on to their next venture.

Reducing competition

Both mergers and acquisitions may be a strategic move to reduce competition. A larger company may swallow up smaller companies to keep them from competing, while mergers enable businesses to join together to work cooperatively instead of against each other.

Potential impacts of mergers and acquisitions on personnel

Even when mergers and acquisitions (M&A) are successful, they can significantly impact personnel and the business as a whole. Leadership is one of the first areas affected with M&A activity, and it often works from the top down. New CEOs and other executives take over. Staff may deal with new layers of leadership or begin reporting to a completely new manager. This can be confusing and stressful for many, particularly for employees who trusted or valued the previous leadership team. These changes may also spark concerns about job security.

As explained in our guide to TUPE, there may be UK legislation to consider during an M&A. TUPE ensures that employees retain the same rights if they transfer to a new employer or if there is a service provision change. However, in the case of share sales, these rules may not always apply, making it essential for businesses to understand their legal obligations.

Job losses

Layoffs can occur during an M&A, although this isn’t guaranteed. Redundancies may result in some employees being let go entirely, while others may be reassigned to new roles.

Upskilling and training

Whether or not an employee is moved to a new position, they may need to develop new skills. It’s common, for example, for one of the merging companies to win out when it comes to software or process systems. Staff originally from the other company may need to learn how to use these new systems. They might also have to learn information about new products, clients or updated company policies.

How to succeed in an M&A while looking after employees

Mergers and acquisitions (M&As) can be challenging, but businesses can take measures to ensure a smoother process and better outcomes for both the organisation and its employees. Key strategies include:

Offering retention bonuses

M&As can create uncertainty and stress for employees, especially when new skills or responsibilities are required. By offering key staff retention bonuses, businesses can help encourage employees to stay during the transition. This is particularly important for employees with specialised, hard-to-replace knowledge, and can form part of your succession plan. 

Effective change management strategy

Creating an organisational change management strategy can help employees to accept the new structure and changes in operations that often come with an M&A. This typically involves internally communicating new changes effectively, keeping employees up-to-date on training and development programmes, new role expectations or changes to leadership, for example. By reducing uncertainty and anxiety, businesses can improve staff retention and foster a smoother transition.

Upskilling existing staff

M&As often involve integrating new knowledge, processes or technologies. Addressing skills gaps through upskilling can prepare employees for changes to their roles while ensuring that teams remain effective. This is particularly important when merging businesses have different workplace cultures or skill sets. Proactively equipping staff with the skills they need can also increase retention and ensure that teams work cohesively in the new organisational structure.

Ultimately, M&A activity is a valuable tool for business growth and evolution. Whether it’s the right choice for your company depends on your business goals, the welfare of your employees and the potential benefits the other entity brings.