After 2020, no one feels confident to be in the predictions business, but I predict with 99.99% certainty that 2021 will go down as the year all prior M&A deal records were broken. It’s an easy prediction since most records were broken this summer. Records reported by Refinitiv in October like number of deals done (nearly 44,000 deals by September) or highest combined value of deals (some $4.4 trillion), or highest quarterly figure ($1.52 trillion in deal value for Q3 ’21 – the highest quarterly figure on record). Then there is the ultimate bellwether, the Dow Jones Industrial Average which topped 35,000 for the first time in July. All M&A players (e.g., dealmakers, investment bankers, corporate development, lawyers, etc.) are agreed on one point: deal-making in 2022 will continue in the same direction – up.
As a human capital advisor and founder of Day1 Ready, än M&A consultancy, I focus on the people-piece of deal-making, helping leaders in the merged businesses to lead through post-deal uncertainty. Every industry and business is dealing with what feels like wave #52 of uncertainty. Whether Fortune 1000 companies, small or mid-market businesses or start-ups and entrepreneurs, each has been affected by M&A in 2021. Given this reality, it’s a good time to consider the human capital implications of all this deal activity, for 2022 and beyond.
To solicit predictions, I spoke with subject matter experts (SME) in businesses on the sidelines of deal-making. That is, not directly involved with putting the deal together, but often tapped to help achieve the forecasted valuation post-deal. SMEs in areas such as talent acquisition and retention, sales training, learning and development, brand identity/marketing, cybersecurity and data management. These specialists have a lot to do in normal times (i.e., non-record-breaking years), and they’re already seeing the positive and negative effects of 2021’s deal frenzy.
Here are the Top Five post-M&A deal trends predicted for 2022:
1. Human Resources won’t just have a seat at the deal table – they will have a voice
“People are our most important asset” has been a common refrain for decades. Trouble is, too often leaders were seen as giving lip service to this point. “Thanks to the pandemic, social unrest, increased burnout and the great resignation, the value of people to a business has come sharply into focus” shared Laura Queen, Founder and CEO of 29Bison, the leading middle-market transaction services provider specializing in human capital. “Add to that, changes in regulatory disclosure requirements to provide transparency around sustainability and inclusive capitalism. All of this has highlighted that people are companies’ most important and investable asset.”
Prior to the pandemic, leaders were focused on big data, enhanced automation, and artificial intelligence. This focus tended to distract from the importance of people. Thanks to severe labor shortages and ongoing shifts in business strategies, the value of people to a company’s success has taken center stage. “I believe that HR won’t just have a seat at the table, they will be helping to set the agenda for a company’s growth strategy moving forward,” predicted Queen.
2. The employee experience and engagement, already altered by the pandemic, will be additionally transformed by M&A and leveraged more proactively to retain talent
“The frenetic deal activity adds another layer of complexity to the changes employees have already experienced with the shift to remote and hybrid,” shared Claudia Richman, CEO of We Grow Forward, an organizational design and change management consultancy. “With M&A, companies need to reconcile two (or more) cultures and ways of working while promoting ways to build connections across the newly joined organization. Add to that the complexity of engaging in such efforts in remote environments, and the demands on leadership to be thoughtful, strategic and inclusive just multiply.”
Many companies have experienced a stop-start-stop effect to their hybrid work policy roll out as employees fought back. How will this impact the employee experience in post-deal scenarios? According to Mark Nestler, President of Nestler Strategies, perhaps the emerging metaverse will offer some solutions to foster collaboration. “Maybe the metaverse will provide an “old fashioned” solution, by bringing people together, without being in physical proximity. But who knows? It will be critical to M&A culture integration to figure this piece out.”
Maintaining company identity and culture has been a growing focus for executives struggling in times of increased remote work. Mary Williams, Head of People at Pinnacle Advertising, added the importance of identity in that post-M&A deal time. “Strong employee engagement drives retention and plays a critical role in combatting the tide of the ‘Great Resignation’” remarked Mary. “When two cultures are combining as they do in M&A, it’s important for both sides to see some of their identity preserved. It will be increasingly difficult for the acquiring company to eliminate the other company’s identity and still expect to hold on to talent.”
3. As sales portfolios expand and contract, sales training will dramatically evolve and customer data management will influence the value of the deal
“With the merging of sales cultures, sales training can’t purely focus on deal-level transactional skills” shared Amy Franko, a leading sales consultant and CEO of Amy Franko Associates. “The focus will be on building overall stronger sales acumen and promoting a productive sales culture.” Product-driven companies, for example, will adapt their approach for a more sales-solution orientation. This was always true, but in a record-breaking year where valuations continue to be inflated, retraining sales to be successful will be critical.
The need to redefine key targets as customer datasets are merged will be an equal focus for sales, but with a twist. “Smart companies will do a deep-dive review on their merged client list to curate out customers who are draining: whether that be draining the bottom line or draining morale,” added Franko. On the flip side of that, “Regulatory complexities in privacy policies have significantly complicated merging contact lists for go-to-market strategies,” revealed Tara Kinney, CEO of revenue operations company Atomic Revenue. “While it sounded like a great idea to purchase a foreign company to sell your US products, hang tight on how you plan to use the contact data, market intelligence, and assets from that acquired company. You may be ensnared in legal issues for a while.”
4. The need for enhanced data management and cybersecurity protocols will slow deal integration efforts
Companies on both sides of an M&A transaction frequently have unique tech stacks. Marketing and sales operations, for example, can include customer-relationship management, content management, social media, automation, and analytics, just to name a few. Merging these processes and systems together can be a nightmare. There are routinely unexpected surprises and snags not evident when the deal is made. “With many companies pursuing a merger or acquisition to drive their digital transformation, executives and dealmakers will need to automate their M&A integration processes to succeed in 2022”, highlighted Dharmendra Singh, CEO of MergerWare Corp., an M&A software firm. “Not doing so will not only slow down the integration, but leaders run the risk of losing key talent and ultimately the value of the deal.”
“Many business owners and leaders are ill-prepared for the complexity of merging technology, process, and data so their newly combined entities can thrive as a single unit,” added Tara Kinney, CEO of Atomic Revenue. “Every company has its own way of measuring and managing data. This was already a big driver for M&A failing to achieve growth objectives in the past. Given the number of deals driven by digital transformation needs, without this data piece being fully analyzed, the combining of entities will present challenges for many business leaders and investors during M&A transitions in 2022.”
5. The ongoing war to attract and retain talent is forcing a more strategic approach to onboarding and commitment to workforce learning and development during deal due diligence
“Companies are addressing talent shortages at all organization levels. Successful post-deal recruiting in years past was usually a numbers game,” remarked Laura McQueen, founder 29Bison. “We are seeing a shift. Strategies being employed include identifying potential vacancies as early as possible; maintaining open job requisitions and a continual flow of candidates for high turnover positions and taking a high-touch approach with prized candidates to ensure their viability and interest. It’s no longer a numbers game.”
“The war for talent is intense, especially in emerging technologies like blockchain and NFT, where startups are being acquired,” added Caroline Stokes, CEO of Forward, an executive recruiting and coaching firm. “Innovative recruiting and retention strategies that aren’t purely money-based, but mission and inclusion driven, will be key.” Given the greater demand than supply for talent, smart companies are investing inside first, re-skilling and up-skilling employees into new roles as the organization integrates. “When we think about the work that needs to get done at a company instead of roles, multiple people in the organization could potentially fill that need,” shared Sarah Danzl, Head of Communications at Degreed. “Enhanced training and development help companies have a more well-rounded workforce that is ready for whatever is next. This shows up in better employee engagement while retaining critical historical knowledge and intellectual capital.”
One of the most interesting observations came from Diana Wu David, Founder of Future Proof Lab and Author of Future Proof: Reinventing Work in the Age of Acceleration. “A key driver for pursuing M&A deals has been to achieve scale. Yet at the same time, M&A deals are breaking records, multinational corporations are announcing their breakups. You see GE and Toshiba both breaking up. We’re seeing the emergence of an “Expand and Contract” syndrome in business.”
“The general trend in work right now is towards a smaller core of highly strategic staff and an ecosystem of more contingent workers and firms. The spate of M&A is a land grab with cheap money that will have its equal and opposite pull toward streamlining. How will companies manage that middle ground between onboarding/integrating and slimming down? That’s the key question.”
As I said, I am not in the predictions business, but I predict that each of these trends, born of all the deal-making in 2021, will have an impact on business in 2022 – somehow, someway. We wait and see.
Jennifer J. Fondrevay is the founder of Day1 Ready, an M&A consultancy focused on providing human capital strategies that retain deal value. Her Amazon best-seller, Now What? A Survivor’s Guide for Thriving through Mergers & Acquisitions, guides executives and middle managers through the challenges of business transformation and how to lead through them to achieve success for people and the company.
