Analysis Shows Clear Link Between Investing in Human Capital Issues
and Exceeding Deal Objectives
LINCOLNSHIRE, Ill.--(February 22, 2010)--Corporate transaction activity is expected to increase in 2010, yet many
acquiring companies around the world say they fall short in meeting
their deal objectives. One contributing factor? Failure to execute
leadership and critical talent agendas, according to a new global survey
by Hewitt Associates, a global human resources consulting and
outsourcing company. As deal activity heats up this year, Hewitt's
survey shows that effectively addressing human capital issues can be a
critical tipping point in the success of an organization's deal.
"As companies prepare for 2010
and beyond, there is a real opportunity to shift the dial. Having a
formal strategy and game plan for leadership and key talent and
effectively executing on it is critical for achieving better deal
success."
According to Capital IQ, deal activity-including mergers and
acquisitions (M&A), joint ventures, divestitures and IPOs/spin
offs-totaled $2 trillion (USD) in 2009. Hewitt's quarterly M&A pulse
survey of 278 organizations around the world shows that 72 percent
expect to increase their deal activity over the next two years. However,
almost half (47 percent) said their past transactions did not achieve
their intended financial and strategic objectives. Further, while almost
two-thirds (65 percent) of companies indicate that leadership and key
talent retention are critical to the success of a deal, nearly half (49
percent) of these organizations report they have lost critical employees
at the same rate or at an even higher rate than non-critical employees.
A separate Hewitt analysis shows that the loss of critical employees can
have a devastating impact on corporate transactions. Based on a sample
of 96 companies representing more than $568 billion (USD) in total deal
value over a two-year period, Hewitt's analysis found that more than $54
billion (USD)-or 10 percent-of a deal's value depends on the rate at
which critical employees separate during or immediately after corporate
transactions.
"As we unravel the reasons why companies aren't achieving their M&A
goals, it's not surprising that leadership and critical talent issues
are a major piece of the puzzle," said Elizabeth Fealy, global leader of
Hewitt's Corporate Transaction and Transformation practice. "Often, the
loss of critical employees may be enough to erase much of the synergy
value companies sought in the deal. In other words, having your most
valued talent leave during a merger or acquisition can be a true
'deal-breaker.'"
To explore this point further, Hewitt compared the survey responses of
companies that exceeded deal objectives (Overachievers) versus those
organizations that did not achieve their deal objectives
(Underachievers). In its analysis, Hewitt found a clear link between
deal success and investment in leadership and key talent issues.
Overachievers and Underachievers both say leadership and talent
strategies are important to the success of a deal (69 percent versus 62
percent, respectively). However, less than a third (32 percent) of
Underachievers report their leadership and key talent strategy in
transactions as being effective, compared with 70 percent of
Overachievers. Overachievers are also twice as likely to effectively
identify and retain leaders (81 percent versus 42 percent) and assess
critical talent (73 percent versus 35 percent).
"Human capital is one of the top three intangible assets of any
organization, yet many companies fail to execute a rigorous and
sustained leadership and key talent approach, permitting key leaders and
talent to walk out the door," adds Fealy. "As companies prepare for 2010
and beyond, there is a real opportunity to shift the dial. Having a
formal strategy and game plan for leadership and key talent and
effectively executing on it is critical for achieving better deal
success."
About Hewitt Associates
Hewitt Associates (NYSE: HEW) provides leading organizations around the
world with expert human resources consulting and outsourcing solutions
to help them anticipate and solve their most complex benefits, talent,
and related financial challenges. Hewitt works with companies to design,
implement, communicate, and administer a wide range of human resources,
retirement, investment management, health care, compensation, and talent
management strategies. With a history of exceptional client service
since 1940, Hewitt has offices in more than 30 countries and employs
approximately 23,000 associates who are helping make the world a better
place to work. For more information, please visit www.hewitt.com.