Mergers and acquisitions give organizations an opportunity for growth and expansion. However, it also means change — both for the acquiring company and the target company.
A large portion of change affects employees. And knowing how to navigate the transition process so that employees from two companies are cared of is one of the primary tasks of deal-makers.
So, when a company buys another company, what happens to the employees? In this article, we discuss the main concerns acquiring and target company’s employees may have, model possible scenarios of what happens to employees after acquisition, and share several recommendations to maintain and boost employee morale during the acquisition process.
Job security concerns
During the company acquisitions and formation of a new organization, employees from both sides often face significant fears and uncertainties about their job security and future career prospects.
What’s more, Culture Amp’s survey shows that M&A processes negatively impact employees’ perceptions of decision-making, alignment, and motivation.
Most employees’ concerns typically stem from the following:
- Fear of job loss
Company acquisition or merger usually comes with restructuring, downsizing, or role redundancy. This is because the newly formed company will seek to streamline operations, eliminate overlapping functions, and reduce costs. This logically makes company employees worry about their future in a new company and potential merger layoffs.
- Uncertainty about role changes
Even if an employee’s job is secure, there’s often uncertainty about how their role might change in a new company. Employees may worry that they will be reassigned to a different position, department, or location, or that their responsibilities will increase or shift in ways they are not comfortable with.
- Cultural fit concerns
When one company acquires another company, it also gets a totally different culture with it. And there are often concerns about how well the cultures of the parent company and the acquired company will integrate. Employees may fear that the culture of the combined company will not align with their values and work style, or that they won’t fit in with the new team. What’s more, poor cultural fit remains the top factor for deal failure and one of the most common problems of post-merger integration.
- Fear of changes in compensation and benefits
Employees may also have concerns about salary reduction, bonus elimination, or unfavorable changes in retirement benefits. Even if compensation remains the same, employees might worry that future opportunities for raises or promotions will be limited.
- Lack of communication concerns
Lack of clear and transparent communication from senior leaders is a common issue occurring in the M&A process and often leading to deal failure. Certain employees may feel left in the dark about the reasons behind the merger, the timeline, and how the changes will specifically impact them. Such lack of information can result in rumors and mistrust in the human resource team and the leaders, enhancing overall stress.
- Fear of losing status of influence
When one company purchases another, employee integration can lead to certain changes in a job description, especially for senior-level roles or managers. Those employees may worry about losing status, influence, or opportunities for advancement in the newly merged organization. This, in turn, can lead to resistance to the merger, which might heavily impact its success.
Possible scenarios for employees when a company is acquired
Now, let’s take a look at the realistic picture and model what happens to employees when a company is acquired. Below we describe some of the most common scenarios.
1. Layoff
Unfortunately, layoffs are very common when the acquirer and the acquired organization integrate. This is because many of the roles, and sometimes even departments, become redundant due to the responsibilities overlap. A newly formed entity doesn’t need two sales or HR departments, for instance.
As a result, certain employees might be laid off. Those affected might receive severance packages and outplacement services, but the experience can be unsettling and disruptive.
One of the huge employee layoffs examples is Elon Musk’s acquisition of Twitter (now X). Sources state that about 80%, which is more than 6,000 people, were laid off, leaving only 1,500 people employed.
2. Promotion
On the bright side, a merger can also create opportunities for promotion within the newly formed organization.
As the company restructures and redefines roles, employees who demonstrate leadership, adaptability, and strong performance may be promoted to higher positions. These promotions may result from the need for new management to oversee larger or restructured teams, or from the recognition of talent that fits the new company’s strategic direction.
It means that employees who embrace the changes and align with the company’s new goals may find themselves on a faster track to career growth.
3. New team
A merger also often means that employees might need to join new teams, as those they worked on before might be reorganized or laid off.
A new work environment with new colleagues can be both exciting and challenging. Employees might need to adapt to new workflows, navigate different work styles, and establish new work connections.
An adaptation process requires patience and flexibility, however, it can also open new career doors and bring positive outcomes afterward.
4. Change in role
A merger often leads to shifts in job responsibilities. Employees’ roles change, either by expanding to include new tasks or by shifting to a different focus area.
This typically happens due to the reallocation of resources, the introduction of new business strategies, or the need to align with the newly combined company’s goals.
While some may see this as an opportunity to grow and learn new skills, others might struggle with the transition, especially if it moves them away from their preferred or specialized areas of expertise.
5. Extra income
Some employees may experience an increase in income following a merger. This can happen if the new company offers better compensation packages or if employees take on additional responsibilities that come with higher pay.
Additionally, bonuses, stock shares, or other financial incentives may also be part of the merger to retain key talent and motivate employees to stay and contribute to the success of the newly merged entity.
What’s more, stock-for-stock mergers specifically are based on the stock exchange between the acquirer and the target on the pre-agreed ratio, which is usually not 1-to-1. This means that if certain employees own stock in a target company, they may get, for example, two stock shares in the combined company. This is because the target’s shares cease trading, while the shares of the acquiring company continue to be traded.
6. Resignation and own business
Fortunately, for some employees, company purchases can become an opportunity to start a business on their own. Typically, this refers to directors and other high-level positions, but it’s not the rule.
Such employees have enough experience and knowledge to start their own business. And they can easily become ready to do so if the outcomes of a certain M&A deal are not comfortable for them.
For instance, that’s what Brian Acton and Jan Koum did. Both worked for Yahoo for more than nine years and left the company after a series of different mergers and acquisitions. A year after that, they incorporated their own startup — WhatsApp.
Employee morale and engagement during mergers
What happens when a company gets bought out is change, which can have a heavy psychological impact on employee morale and engagement levels.
Employees might feel anxious or demotivated due to fears of layoffs, changes in leadership, or new job expectations. Due to uncertainty, they may also become less enthusiastic, productive, and engaged in their tasks, which can lead to a decline in overall performance. Additionally, though not obvious from the start, many employees feel guilt amidst acquisition layoffs (this corresponds to those who are not affected by layoffs).
Obviously, this needs to be timely and effectively addressed by the leadership team, since human capital is what makes deals work.
Tips for maintaining and boosting employee morale during mergers
Here are a few recommendations of what a leader should do to retain key talents and ensure a smooth employee transition during the post-merger integration process:
Being clear about all the changes and transition stages is the most important thing to do to ensure employees feel better about their future in the new company. Regularly update employees on the status of the merger, potential changes, and how it might impact them. Transparency helps reduce uncertainty and builds trust.
Allow employees to voice their concerns and participate in the transition process by providing regular feedback. This can help them feel valued and more in control of the changes happening around them.
Offer counseling, workshops, or other support services to help employees cope with the stress and anxiety of the merger. Also, ensure they have the tools and training needed to adapt to new roles or systems.
Acknowledge and celebrate employees’ hard work to maintain motivation and morale. You can also celebrate small wins and milestones throughout the merger process — this can help maintain a positive atmosphere and keep employees updated and motivated.
Key takeaways
- When companies merge, what happens to employees is the change in operations and organizational structures, which results in fears and uncertainties employees might feel.
- The most common employee job security concerns include fear of losing a job, uncertainty about the role changes, cultural fit concerns, fear of changes in compensation and benefits, and more.
- Among the most possible scenarios for employees that undergo a company’s acquisitions or merger are layoffs, promotion, new team, change in roles, extra income, and sometimes even a resignation and opportunity to start their own business.
- To maintain and boost employee morale during mergers, ensure clear and transparent communication, involve employees in the process, provide regular support and resources, and recognize and reward contributions.
