When a company buys another company, what happens to the employees? For many, it marks the beginning of a period filled with uncertainty, change, and difficult decisions. Roles may shift, leadership can change, and the organizational culture employees once knew begins to shift. In this environment, retaining talent becomes one of the most critical, but often overlooked, challenges of any merger or acquisition.
This article explores why employees often leave after mergers and acquisitions (M&As), why it matters, the core challenges companies face, and — most importantly — what actionable strategies can help improve employee retention.
Why employees often leave after a merger or acquisition
Following a merger or acquisition, many employees choose to leave as uncertainty, stress, and disengagement begin to take hold. According to an EY study, the average employee turnover after a merger is 47% within the first year, and 75% within three years following the deal.
Below are some of the primary reasons behind this:
- Cultural mismatches
About 30% of M&A retention failures are attributed to differences in company culture between the merging organizations. When values, communication styles, or workplace expectations shift dramatically, employees, especially those from the target company, may feel out of place. This disconnect reduces employee engagement and leads to high exit rates.
- Lack of communication and transparency
When leadership doesn’t clearly explain upcoming changes, employees may become confused and uncertain. One study found that 61% of employees considering leaving their jobs cited poor internal communication as a contributing factor.
- Increased workload and role ambiguity
Post-merger integration often leads to increased workloads and unclear job roles. Employees may find themselves taking on additional responsibilities without adequate training or support, leading to stress and dissatisfaction. According to HR Daily Advisor, 40% of employees with poor training leave their jobs within the first year.
- Changes in compensation and benefits
Changes to pay, bonuses, stock options, or benefits can have a big impact on employee morale. Even rumors about possible cuts can create unease, especially if they think their overall compensation might be reduced. Without clear communication or reassurance, many employees may start looking for more stable opportunities.
- Poor change management
A successful merger demands specific change management skills and strong leadership. When the acquiring company fails to provide a clear roadmap or neglects talent retention programs, employees may become overwhelmed or apprehensive. Without thoughtful planning, the organization risks losing top performers in critical roles, undermining both business performance and long-term success.
To reduce the risk of key talent loss and improve integration outcomes, companies should involve employees early, communicate openly, and plan for long-term engagement. For more on how to navigate this process effectively, read our guide on post-merger integration.
The importance of employee retention post-acquisition
Employee retention after an acquisition is crucial for the success and long-term health of the company. It helps mitigate post-acquisition risks and challenges that often arise when key employees leave, and organizational continuity is disrupted. Here’s why it matters:
- Avoiding high turnover costs
Losing employees after an acquisition is expensive. Replacing staff involves recruitment, hiring, and training, all of which cost time and money. In fact, replacing an employee can cost from 0.5 to 2 times their annual salary. These costs can delay integration and hinder the company’s ability to achieve the benefits of the acquisition.
- Preserving institutional knowledge
Employees, especially those who have been with a longer tenure, hold valuable knowledge about operations, processes, and customer relations. When employees leave, this knowledge is lost, which can make the integration process more challenging and slow down the company’s ability to adapt to changes.
- Maintaining customer relationships
Key employees often manage important customer relationships. When these employees leave, it can disrupt those connections and negatively impact the company’s reputation. Retaining these employees ensures continuity and stability for customers, which is essential for ongoing success.
- Protecting employee morale and engagement
If employees see colleagues leaving after an acquisition, it can negatively affect morale and increase the likelihood of further departures. High turnover rates can also damage workplace culture, making it harder to maintain a positive and productive work environment.
- Ensuring a smooth transition and integration
Retaining employees ensures a smoother integration process between the merging companies. Experienced employees can share knowledge, guide new hires, and help maintain business continuity, ensuring the company continues to run efficiently during the transition.
Employee retention challenges after an acquisition
The biggest challenge after any acquisition is retaining the right talent. These are often the employees with the deepest institutional knowledge, strongest customer relationships, or most critical skills – they’re also the most likely to be approached by competitors.
But this isn’t the only obstacle that a merger and acquisition team can experience. Let’s explore other common obstacles:
- Lack of a clear career value proposition. Employees want to know if staying will benefit their careers. If leadership can’t offer a clear career path or show how professional development fits into the merged organization, retention efforts will likely fall short. This is especially true for employees who are already exploring other opportunities.
- Inadequate financial incentives and retention agreements. While compensation isn’t everything, timely and well-structured financial incentives matter, especially during uncertain times. Many companies struggle to put effective retention agreements in place for key employees, which can lead to early departures and loss of intellectual property.
- Overlooking the importance of career development opportunities. When integration efforts only focus on structure and cost-cutting, growth opportunities can vanish. Employees need to understand how they can grow within the new business. Offering flexible working arrangements, access to learning, and support for career development shows a commitment to the entire company, not just the leadership team.
- Loss of trust in leadership. Acquisitions often bring leadership changes, which can shake employees’ confidence in the future. If new leaders fail to earn employee trust quickly, employees may doubt the company’s direction and opt to leave rather than wait to see how things unfold.
Retention strategies to keep employees after a merger or acquisition
Here are some actionable strategies to help retain employees and ensure a smooth transition into the new organization:
1. Provide a clear career path and development opportunities
One of the most critical aspects of talent retention during an acquisition is ensuring that employees understand their future growth potential within the new company. For example, offering leadership development programs can help employees see opportunities for career advancement, which can increase employee satisfaction and reduce the likelihood of a reduced talent pool.
By focusing on leadership skills and clear development paths, companies demonstrate a commitment to the long-term success of their workforce.
2. Offer M&A employee retention bonuses
A well-structured M&A employee retention bonus can be an effective tool for keeping key employees during a time of uncertainty. Financial incentives not only reward employees for staying through the transition but also serve as a sign of the company’s commitment to retaining talent.
Nearly 60% of organizations are now using retention bonuses. These bonuses are typically reserved for employees in critical or hard-to-replace roles, such as senior leadership or technical experts, where sudden departures could significantly disrupt integration plans.
3. Foster open and transparent communication
Communication plays a crucial role in building trust during the acquisition process. It’s vital that employees feel informed and supported throughout the integration journey. Regular updates from the integration team about company goals, changes in structure, and employee expectations can alleviate fears and prevent rumors from taking root.
Moreover, using post-acquisition employee survey questions helps assess employee feelings and gather feedback, allowing HR leaders to adjust their approach if necessary.
4. Invest in human capital and employee experience
The most valuable asset a company has is its people. Prioritizing human capital after an acquisition means investing in training, development, and well-being programs that enhance the workplace experience. By recognizing the importance of existing employees and creating a positive work environment, companies can increase employee loyalty and reduce turnover.
Companies should also focus on ensuring that new employees integrate well into their team, fostering a sense of belonging and purpose within the organization.
5. Conduct an accurate analysis during the due diligence process
The due diligence process isn’t just about financials. It’s also an opportunity to assess the cultural fit between the merging companies. Conducting an accurate analysis of both organizations’ values, structures, and employee groups can identify potential talent issues before they arise.
Understanding how existing employees may react to the merger and where potential challenges lie helps to inform retention strategies, ensuring that companies are proactive in addressing concerns and reducing the risk of losing talent.
6. Focus on key roles
Certain employees, especially those in key roles, may require more personalized attention during the transition period. HR leaders should identify critical team members and offer tailored retention plans to ensure these employees feel supported and secure in their roles.
These strategies might include specialized leadership development programs, mentorship opportunities, and enhanced job security. Ensuring that top talent remains in key roles is essential to a successful merger and prevents disruption in the organization’s operations.
Key takeaways
- Employee turnover often spikes after an acquisition, with studies showing up to 47% turnover within the first year. This is mainly due to uncertainty, stress, cultural shifts, and unclear roles during the transitional period.
- Losing top talent puts the success of the acquisition at risk, as it can lead to the loss of institutional knowledge, disrupted customer relationships, and decreased productivity during integration.
- Transparency and frequent communication from leadership are critical to help employees understand what’s changing, why it matters, and how it affects their future in the new company.
- Cultural mismatches between the acquiring and target companies are a major cause of employee turnover, highlighting the need to assess and align values, behaviors, and expectations early in the process.
- Career development programs and clear advancement paths help retain employees, showing that they are valued and have opportunities to grow within the organization.
- Retention strategies like M&A, employee retention bonuses, and targeted incentives are effective in reducing immediate talent loss, especially for those in key roles or with mission-critical skills.
