Survey: Start Early During M&A Retention Efforts

New York — June 20

While the vast majority of companies involved in mergers and acquisitions (M&As) use retention agreements to retain key talent, a new survey by global professional services firm Towers Watson found that companies that are more successful at retention begin the process early — identifying people and tactics — and don’t rely solely on money.

The survey, conducted earlier this year, included 180 companies from 19 countries and focused on current retention practices as well as specific tactics used by those companies that the survey identified as more successful in keeping top talent.

The responses revealed the effectiveness of various retention strategies and also confirmed that, while economic uncertainty has slowed the pace of deal making in some parts of the world, acquisitions and divestitures remain a viable growth strategy for many organizations. More than half of the respondents completed between two and 10 acquisitions over the last two years.

Since most companies that use retention agreements as part of their overall strategy still face challenges in keeping people, Towers Watson focused on a subset of the acquirers that reported greater success at retention to learn what they did differently.

These “successful” buyers included the 44 percent of respondents that rated their retention agreements as being highly or mostly effective at retaining employees during an acquisition and that also retained all or nearly all employees through the retention period in past acquisitions.

The survey also found that companies with successful retention strategies identify which employees they want to target for retention agreements early in the process. Almost three-fourths of successful acquirers (72 percent) determine which employees are asked to sign retention agreements either during the due diligence stage or during the transaction negotiations. That is twice the number of less successful acquirers (36 percent) that ask employees to sign agreements during either of those times.

In fact, nearly 60 percent of less successful companies don’t ask employees to sign agreements until after the transaction closes.

While companies with successful retention strategies use many of the same tactics to retain employees as their less successful counterparts do, they also emphasize certain ones to a much greater extent. The vast majority (92 percent) of successful acquirers use retention bonuses, compared with just 53 percent of less successful companies. Additionally, three-fourths (74 percent) of successful companies use personal outreach by managers and leaders, more than three times the number of less successful acquirers (24 percent) that use this tactic.

Among the key findings from the overall survey respondents:

• Retention agreements are the primary retention vehicle — used by 84 percent of acquirers and 70 percent of sellers — with retention bonuses the cornerstone of this approach.

• Roughly two thirds to three quarters or more of both buyers and sellers use agreements, chiefly for senior leaders below the boardroom level, key contributors and technical experts.

• Retention bonuses are far more common in North America (reported by 83 percent of respondents) than either Asia (40 percent) or Europe (56 percent). Personal outreach by leaders to retention targets shows a similar pattern across the regions.

• Ninety percent or more of buyers across all three regions use time-based “pay to stay” provisions in their retention agreements, typically stretching from six months to one year post-close.

• Performance-based metrics are less common, but in use at roughly half the acquiring companies across the regions, with nearly twice as many (74 percent) using individual performance goals as using organization-wide performance goals (38 percent).

• Retention efforts can only go so far. Respondents said that of those employees who leave the organization despite having retention agreements in place, six out of 10 cite the deal as one of the primary reasons for leaving.

The Towers Watson 2012 M&A Retention Survey was conducted from late February through early April and encompasses responses from 180 organizations, including some of the world’s largest serial acquirers, from 19 different countries. The survey report will be available in July.

Source: Towers Watson