Holding a Full House: Retaining Talent During M&A

Until Brexit came along, consolidation was all anybody talked about in the gambling and gaming industry, mainly because there has been so much of it recently. Inevitably, these discussions involve the relative merits of businesses coming together, the synergies, market share gain, improved technology platform and product set, shareholder value and, of course, the cultural implications of competitors coming together – just how will they get on? One of the other overlooked implications of consolidation and M&A however is with regards to the industry talent pool.

Case studies

Many people remark that we must be inundated with CVs of people from these merged businesses, but that’s not actually the case. Even the Gtech-IGT mega merger last year didn’t result in a huge number of casualties, and those senior execs who didn’t find themselves with a role in the merged entity were, in the main, either approached by the competition or decided to leave the sector (which has become more of a common theme in the last 18 months regardless of consolidation).

In terms of some of the other deals, completion of Gala Coral/Ladbrokes is not likely until 3Q16, meaning it will be 2017 before we get a clear picture of the implications of that merger on talent and of the new group structure. That’s also a long time for key employees to remain focused and not get distracted by potentially better jobs; GVC has already picked off a new COO from Coral. Some people I have spoken to also have some pretty strong views on the merits of both senior teams and who will win out in terms of taking the online lead in Gibraltar.

The Betfair-Paddy Power deal went through early February and we are already seeing some senior people moving on, particularly in areas such as marketing, corporate development and product. Given the close relationship between the Paddy Power team and Betfair’s CEO, I understand they have been talking for some time and are likely to have had the structure set well in advance.

The GVC/bwin.party deal is expected to deliver €125m of cost savings by the end of 2017 (although not all in staff costs, of course). But GVC traditionally runs a lean ship compared to other operators, particularly bwin.party, so I wouldn’t be surprised to see significant number of departures from the acquired business in the coming weeks. Their company cultures are also very different, from what I hear, so this is likely to have an impact.

In many of these mergers, the main brands will remain separate. However, there will be overlap of talent in the majority of functional teams, and going on what we have seen before, technology and marketing are likely to be the areas under closest review, followed by product, customer service, operations and back office functions. Whilst the initial focus in such mergers is usually on synergies and therefore cutting headcount, we will see a few strategic senior hires in the short-term, plugging gaps in the new structure that cannot be filled with existing employees.

Often, 9-12 months after a merger we start to see smaller reshuffles. There are suggestions this is happening now at Gtech/IGT. Firstly we see ‘tweaks’ with the Day 1 structure as the new business beds down, then we see senior people leave at the end of their ‘retention’ period, or having tried a new role find out it’s not what they expected. Finally, some people leave because they genuinely don’t believe they fit the new culture.

Retaining top talent through a merger 

The big challenge in any consolidation is as much about how you manage and retain top talent as it is about dealing sensitively and fairly with the departures. Identifying which employees are going to be critical to the success of the transaction and ensuring this talent remains is key.

A study by the CIPD suggests that 52% of people who have been through a merger or acquisition actively thought about leaving their jobs. The primary reason for this was an emotional one. Numerous other studies have been undertaken to specifically determine the drivers of employee engagement during mergers and acquisitions. Having a plan that addresses these challenges will help organisations retain key talent.

Shareholders and the investment community of course, see a merger as a way to reduce costs. But what about the other associated costs, from declining morale and decreased productivity, the impact on employees who lose their jobs and the employees left behind after departures are announced? There is also the loss of institutional knowledge, potentially increased workloads, the ‘chaos’ caused by restructuring and a sense of uncertainty about the future and the strategy/vision for the merged business.

Certainly, many if not all of these issues can be avoided or at least mitigated with careful planning. What follows are some of the critical points raised by our discussions with a number of senior execs in the industry.
• Communication
The obvious first point to make is that the key to a successful transition is open and early communication with employees regarding the vision and mission for the new organisation, also mapping out the changes and new direction of the business and the positive outcomes this will lead to.

Silence prompts rumours and speculation, as in the absence of communication, employees will rely on the ‘rumour mill’. Senior leadership need to be pro-active.

To an extent, this is about selling the deal internally and winning hearts and minds, sharing a rationale and a vision that employees can buy into. “Repeat, repeat, repeat. Even though you are dealing with ambiguity, there is no such thing as too much communication in a merger situation”, said one senior executive I spoke with.

The moment employees learn about a merger, fear, uncertainty and doubt will likely take hold – this is perfectly normal. Answering the critical questions of key employees early will allow them to get on with focusing on what needs to be done.

• Preparing employees for the new culture
Creating a single unified company after an M&A is a daunting task. The first 90 days are critical to success and achieving a cultural change for the new entity. Company culture will be impacted and in some cases a brand new one created, which could affect morale unless handled properly. Uncertainty can spur good employees to seek new jobs with competitors, or lead to general demotivation.

Either scenario leads to disruption. According to a recent study by HR consulting firm Aon Hewitt, when a company is acquired the number of actively disengaged employees increases by 23%, and takes three years to reach pre-merger levels of highly engaged employees.

• Clear definition of roles and accountabilities
It is critical that key employees know clearly how they “fit” into the future of the company and how the company’s future can help advance their own career. Where possible, key talent should be involved in the decision-making process. This was the No 1 driver of employee engagement in both M&A and organisational change as a whole, according to a recent PwC study.

• Reward and recognition
Monetary factors (such as retention bonuses) play a part in retaining senior employees but are not a silver bullet. It is important to recognise and reward employees for their roles in managing change and promoting collaboration between ‘new’ colleagues, while also ensuring the business continues to deliver
despite the obvious distractions. Studies suggest that organisations reward and incentivise personal sacrifices made by employees. This visible ‘commitment to the cause’ often breeds further employee engagement and willingness to go the extra mile among others.

• Promote collaboration
It is important that people from both sides of the merger are given the opportunity to connect with each other early and often. This could be in the form of companywide meetings, although given the size and geographical spread of some of the merging businesses in gaming, this is likely to be difficult. It is more likely therefore that employees come together on specific transformation or synergy projects or for social/team-building events.

Keeping the two pools of employees apart can often spark competitiveness and conflict. Friendly competition is good but not when it creates tension and distracts people from the collective goal. Some people I spoke to said this was partly the reason for the bwin.party deal not performing as it should. Some will
argue that a dual-CEO structure has its benefits, but many would say that in bwin. party’s case, this perpetuated the feeling that it was two companies and sets of employees operating under one roof.

• Organisational Justice
Companies should be aware of how they treat the people who are leaving as this will ultimately have an impact on the people that are left behind. A key factor in predicting how remaining employees respond is their perception of what some call organisational or procedural justice. Were fair standards and clear guidelines applied, or were the departures made in an unfair manner? Consistency is critical, as is communication and explanations to the people who are losing their jobs. Is the process fair and transparent, and recognized as such? Is there the perception of justice within the firm?

In conclusion

This is by no means an exhaustive list of factors to consider, but is a good reflection of the key issues raised in my conversations with people in the industry.

It will be very interesting to see the ramifications of the current consolidation on senior talent. I’m sure others will have a view on the relative success and/or failure of each merger, not least in the financial performance of these organisations over the coming months and the quality of talent that these businesses are able to retain.