Human capital issues key to making M&A work
By Chung Min-uck
The human capital issue should be one of the top priorities to ensure success in cross-border merger and acquisitions (M&A), according to a global consultant with expertise in such deals.
He points out that Korean firms are inclined to pay more attention to tangible issues, such as legal and financial matters, but equal weighting should be placed on intangible and soft issues, such as those related to human resources, during the course of M&A.
“Korean companies especially like to have soft issues made hard. They want to see data, benchmarks and competitor information. To them this (human capital issue) is too fussy. They look at issues like pension liability. It’s important but it doesn’t drive the success or the failure of the transaction,” said Mark Arian, executive vice president of Aon Hewitt and co-leader of Aon Merger and Acquisition Solutions, in an interview with Business Focus.
“Human capital issues are addressed too late. In cross-border transactions it is even more important,” added Arian.
Arian claims that the human capital issues such as corporate culture, leadership cooperation, employee engagement and aligning employee practices with a new set of goals, are not something that cannot be changed. They can change depending on the purpose of the M&A.
As for the reason why human capital issues are not taken into account in advance, he says that it’s mainly because people who are in charge of M&A deals comes mostly from financial backgrounds.
“The problem is how to make this marriage work. Making the marriage work is much more important than getting married,” said Arian.
He says that the degree of employee engagement tends to drop 7 percent after going through M&A. So it is crucial to maintain the previous level of the employee’s engagement which would in turn bring along customer engagement, and eventually lead to boost in shareholder interest.
On the recent issue of joint ventures by Korean firms such as Mirae Asset and Fila Korea to acquire Titleist and Footjoy, the world’s top golf ball and shoes maker through a consortium, Arian said the transaction is considered a fine one because it will help them capitalize on tremendous opportunity in Asia, citing the 4 million Korean golfers and the rising Chinese golf market which can reach from present 1 million to 5 million players in a handful of years as his basis for the evaluation.
Yet, he didn’t forget to talk about problems in the transaction: different players with different agenda.
“You’ve got to get everybody on the same page. They are saying different things in the market. It’s like having four parties to the marriage. The NPS (National Pension Service), Mirae Asset and Fila, there are just too many partners. They are saying different things. The management team in Massachusetts needs to know who they are answering to. Who is the ultimate decider? Are they speaking with a consistent voice?” said Arian.
The partners of the consortium to acquire the golf businesses from Fortune Brand, a consumer-brands firm based in Illionis, are Fila Korea, the owner of world Fila brand, Korean private equity fund Mirae Asset, NPS and Korea Development Bank.