“Send lots and lots of people, very, very quickly,” David Davies, CFO of €19 billion Austrian oil firm OMV, recalls was the advice he was given as he wrapped up a meeting in Bucharest with some Big Four audit partners. It was summer 2004 and OMV was about six months away from completing the €1.5 billion purchase of a 51% stake in Petrom, Romania’s largest company. Davies was curious to know whether the auditors had any thoughts about the best way for a company such as OMV to manage the acquisition of a state-owned asset.
After all, he says, “we were taking on a monster,” and he reckoned OMV might need all the advice it could get. With some 70,000 Petrom staff — nearly 10 times more than OMV — scattered across “120 companies, in 120 locations, with 120 cultures,” Davies could see all too well that the sprawling, state-owned behemoth was a force to be reckoned with. It didn’t take him long to realise just how sage the auditors’ advice would turn out to be.
Well before the deal was closed that December, Davies had been drawing up post-acquisition plans which included more than 100 projects for his own finance and IT teams, most to be completed by 2008, all of which involved the secondment of countless OMV staffers from Vienna to Bucharest, as well as the deployment of legions of external consultants. “Let’s just say we’ve been a major benefactor of the east European consulting industry,” says Davies with a chuckle.
Davies insists that the sheer magnitude of Petrom makes its integration a unique challenge. However, OMV and many other companies recently involved in privatisations highlight a critical component of successful M&A, private or public: the need to formulate a winning human-capital strategy. This ranges from basic skills-mapping of the target workforce during due diligence in order to identify synergies to determining whether, or how much, training will be needed to address more complex challenges such as equalising pay and benefits and creating a new work environment that melds the best of both corporate cultures.
But M&A experts point out that it is surprising how often human capital issues are routinely overlooked by corporate deal makers during negotiations or in the early stages of integration. And when it comes to privatisations, these issues may be magnified to much greater proportions than in other deals.
One reason for this, says Rachel Di Vito, a partner with Ernst & Young’s human capital division, is that these acquisitions are played out in the public arena — with unions, the media and government scrutinising, and often dictating, how acquirers manage their enlarged workforces.
And for better or for worse, these workforces will be coming from vastly different corporate cultures than their acquirers. “The total cultural shift that a company faces when it moves from the state-owned to the corporate world is one of the two biggest human capital risks in this situation,” says Stephan Vamos, head of European mergers, acquisitions and disposals at Hewitt Associates, an HR consulting firm, citing the cost of harmonising employees’ terms and conditions as the other top risk. “The inability of a significant proportion of employees to adapt to the requirements of the corporate world is clearly a risk to the profitability of the company.”