CEOs: Empower HR To Ensure Successful Deals In 2025 M&A Boom

“Mergers and acquisitions are the largest destroyer of corporate value in America,” declared Aswath Damodaran, NYU’s valuation guru. Our carefully analyzed evidence, based on a sample of 40,000 acquisitions over the past 40 years, concurs. It indicates an alarming M&A failure rate of 70–75 percent. If that’s not bad enough, the M&A failure rate keeps increasing over time. A managerial “reverse learning curve” so to speak. All these statistical conclusions, the main reasons for the failure rate, and how to avoid them are exposed in our new book: The M&A Failure Trap–Why Most Mergers and Acquisitions Fail and How The Few Succeed (Wiley, 2024). As we elaborate below, HR personnel are sometimes part of the failure, and more importantly could play a major role in preventing it and assure successful acquisitions.

The extant research and the voluminous advice on M&A focus on the success and failure determinants of acquisitions. Thus, for example, the finance literature deals extensively with overconfident CEOs and their proclivity for multiple failing acquisitions. Paying high premia for targets and borrowing heavily to finance the acquisitions are universally regarded as failure contributors, so is a poor due diligence of the target. Many emphasize the challenges and the importance of successfully integrating the target into the buyer. Curiously absent from all these important acquisition issues is the role of HR and employees in determining acquisition success. We are not familiar with any serious discussion in the M&A literature on the HR role in acquisitions.

We therefore assume that in real acquisitions HR plays a minor role, if that in the elaborate acquisition process. This is a serious mistake and following are the reasons. In fact, integrating HR into the acquisition process will significantly improve the success likelihood of corporate acquisitions.

HR Challenges and Opportunities

1. Target employees bailing out.

Our evidence shows conclusively that when an acquisition is announced (or sometimes even rumored), the target (acquired firm) key employees bail out. They know that many acquisitions fail, and even if not, they suspect they won’t get the same position and responsibility they now enjoy at the merged company. Better find early an attractive position elsewhere. (Note, when they bail after the acquisition announcement they will enjoy the stock price hike, because the target’s stock prices increase substantially in anticipation of the acquisition). The target is therefore left with a degraded human capital, where remaining employees are those with no attractive outside opportunities.

In this situation, endangering the success of the acquisition, HR should play a key role in identifying and retaining the target’s key talent by offering attractive retention bonuses and assuring key target employees that they will get an equivalent or a better job at the merged company. These will go a long way in solving the problem.

2. HR integration issues.

The acquisition’s integration with the buyer is often the most challenging stage of mergers and acquisitions. Who gets what and at what terms at the combined company are the utmost issues for both buyer and target employees. HR personnel must play a key role in all stages of the integration. The botched employee situation in the Sprint–Nextel merger—told in our book—was a key contributor to the colossal failure of this acquisition.

3. Managing synergism.

In many mergers, buyer executives announce to shareholders that synergies (efficiency gains) are a major reason to do the merger. Usually synergies, like closing service centers or bank branches, involve massive layoffs of employees. This shouldn’t be taken lightly. Those laid-off employees are mostly long term, trusted members of the buyer company. HR has to play a key role in this process, making sure that only those who really need to go, go. Others should be reassigned within the organization. Generous retirement packages have to be offered, and paid opportunities for re-education suggested. The whole process of layoffs has to be handled with sensitivity and dignity, and good HR departments should be able to execute it.

We have thus seen that rather than being a neglected factor at corporate acquisitions, HR should play a key role in them. Our new book The M&A Failure Trap will enable HR personnel and executives to clearly design and build their role to assure the success of corporate acquisitions. HR should play a key role in this important and hazardous corporate activity.