When Walmart agreed to acquire the e-commerce startup Jet in August, a key component of the deal was that Jet CEO Marc Lore would take over the retail giant’s entire online operation as its new CEO of e-commerce. As the Wall Street Journal’s Joann Lublin observes, this type of acquisition, in which the acquirer makes a point of retaining the acquired company’s chief executive, is becoming noticeably more common:
Similarly, Darius Adamczyk will take the helm of Honeywell International Inc. next March—nine years after he joined the industrial conglomerate through its purchase of Metrologic Instruments Inc., which he led. “I didn’t think I would stay more than a year,’’ Mr. Adamczyk recalled.
Yahoo Inc. CEO Marissa Mayer has bought more than 50 startups since 2012. About a fifth of her top deputies are former heads of acquired startups. Among them is Adam Cahan,who developed a social app IntoNow, says he remained partly because Yahoo pledged to keep his old team intact for at least a year. Verizon Communications Inc. recently committed to purchasing Yahoo’s web assets.
Acquirers “are now more aware of the relationship between effective integration of top management teams and merger success,’’ said Jeffrey A. Krug, business school dean at Bloomsburg University of Pennsylvania. Yet the task remains so tough that “many mergers will continue to fail,’’ he said. Dr. Krug has studied executive turnover rates involving thousands of U.S. takeovers since the 1970s. On average, he said, companies lose a third of their executives within the first two years of being purchased.
Overall, CEB TalentNeuron has noticed that acqui-hiring, meaning an M&A strategy with a focus on obtaining top talent, has increased in recent years. While tech companies are the most prominent acqui-hirers (Facebook has made prolific use of the practice, as has Google), companies in traditional industries can also employ this strategy to bring in new-in-kind talent to fill emerging critical roles.
Once you’ve got that talent on board, it’s important to make sure they stay there. CEB’s investigation into what differentiates successful mergers and acquisitions found that retaining key talent (at all levels) is critical for success. However, it’s not enough that these individuals stick around: They must also be actively involved in the process. When it comes to managing successful integrations, organizational expertise—not change expertise—matters most. Organizations must ensure they not only keep the key talent (at the top and throughout the organization), but actively involve them in managing the integration process.