Dealmakers Planning for a Successful Merger or Acquisition: The Challenge of Identifying and Retaining Key Talent Once the Deal is Final

Key Talent Retention

Last month In MidMarket Talk, Dealmakers Planning for a Successful Integration: First Steps in Carrying Out the Integration by Aligning the Executive Group described essential steps in bringing together the Executive Group and getting them working together as a team. The executive team for the new organization needs to make some additional critical decisions on moving forward with the new organization. This month we take a step back to more fully probe the challenge of retaining key talent for the new organization. Retaining key talent is another critical decision the executive team needs to make. 


Key employees are people without whose personal active participation the achievement of the business objectives or purpose of the acquisition may be at risk. (Carleton & Craig, 2015) We identified early on that Cultural Due Diligence or CDD should be made part of every deal to help insure its long-term success and retention of key personnel is an integral component of that process. The numbers remain staggering insofar as upwards of 90% of deals fail to achieve financial targets or strategic objectives due to cultural issues. 

Included in those cultural issues are several Human Resources (HR)-related issues. The Society for Human Resource Management (SHRM) states, “This rate of failure is often attributed to various HR-related factors, such as incompatible cultures, management styles, poor motivation, loss of key talent, lack of communication, diminished trust and uncertainty of long-term goals.” (SHRM, 2016) Loss of key talent can be devastating to the long-term success of a merger or acquisition but is so often overlooked. 
Again, as a quick review, Vector Group’s Roadmap identifies nine phases:

  • Phase I -Target Identification
  • Phase II -Target Evaluation
  • Phase III -Pre-Go/No Go Decision Meeting 
  • Phase IV -Due Diligence
  • Phase V -Integration Planning
  • Phase VI –Go/No Go Decision Meeting
  • Phase VII -Share / Asset Purchase Agreement
  • Phase VIII -Integration (First two weeks)
  • Phase IX -Integration (First year)

When we developed the M&A Roadmap for Success for a Canadian engineering company about five years ago, we placed the emphasis on HR to deal with these challenges. HR is undoubtedly in the best position to do so since their focus is on human capital.  As early as Phase II-Target Identification, we strongly recommend that HR begin the process to identify key talent and develop strategies for retention and engagement.

HR Objectives Related to Identification and Retention of Key People:

  • Identify essential/key employees and retention package for technical experts and management
    • Technical expertise
    • Management 

HR Deliverables Related to Identification and Retention of Key People:

  • Compensation evaluation
  • List of essential / key employees with rationale
  • Retention strategy that fit the key employees’ definition
  • Identification of high level risks pertaining to human capital
    • Cultural gaps
    • Ethics
    • Management capabilities needed to bring the organization to the next level
  • Identify key players and begin development of retention packages
  • Conduct high level assessment of key or critical players
    • Does the intended management/supervisory group have the requisite skills, knowledge, and desire to successfully implement and achieve the intended strategy of the business unit?
    • Assess the probability, and employment details required, to keep any key (must have) players on board, in both body and mind, long enough to achieve the business objectives

An example of a successful key talent retention effort during an acquisition comes from Austin, Texas-based Borland Software’s $100 million acquisition of Lexington, Mass.- based Segue Software in 2006 (Green, et al., 2007). Due to the intensive human capital nature of the software business, more than four-fifths of Segue’s roughly 200 employees were expected to be important to sustained deal value. This talent included key sales and support personnel as well as a core team of 40 software engineers located in Linz, Austria. 

Borland’s CEO Tod Nielsen had a vested interest in the success of the acquisition. Certainly, it was one of the biggest acquisitions the company had ever made, but, additionally, several acquisition attempts under previous management had not delivered on expectations. Because of that experience, Borland executives believed that their task was to develop and execute not just an acquisition integration strategy, but also a well-designed and effectively executed talent retention strategy. Borland management determined that this would require a simultaneous effort on multiple fronts. First, the program would demand the attention of C-level executives to underscore its importance. Second, clear guidelines would need to be established for assessing the value of Segue employees to the combined entity. Finally, they would need to commit to communications that were transparent, rapid, synchronized and persuasive. 

To implement this plan, Borland assessed the 200 Segue employees and placed them into four categories: 1) Transition, those employees that were not needed in the new enterprise, which also included a plan to assist them in phasing out of the new company; 2) Integration Keys, employees who did not have a long-term future in the organization but possess critical skills for the transition period; 3) Keepers, those who were strong performers in needed roles; and 4) Long-Term Stars, who were central to many of the business processes on which the transaction was based. Borland’s effective implementation of their key talent retention strategy clearly contributed to the success of the merger. The final scorecard for the Borland-Segue merger was exemplary. Not only were all 34 Stars, 104 Keepers and 29 Integration Keys retained as desired, but as the merged company went forward, Borland was well on its way to achieving financial targets. New and old employees alike appreciated the openness of the process (Green et al, 2007, p. 47).

“The Borland experience shows that intentional efforts to retain and re-engage key talent pays important dividends in M&As. Absent from this example, as well as most merger and acquisition research studies, are practical suggestions as to what managers can do to apply the findings in actual M&A efforts. (Gilpin, Whittington & Maello, p. 44) Gilpin, et al, developed what appears to be an effective prescriptive model with an outline and procedures for identifying, retaining and engaging key personnel.

As Carleton & Lineberry indicated, “interviews with key people should be friendly and cordial and reflect a real interest in the person’s expertise and contribution. The basic purpose of the interview is to get to know the key person and to determine what he or she values about the current organization that, if lost, might make him or her look elsewhere.” (Carleton & Lineberry, 2004, p. 63)

  • Key Person Interview format and guidelines is designed to uncover basic values, interests, and drivers in relation to work beyond simply money. The interview format provides guidance on what is involved in keeping the person both physically and mentally
    • A 24-item interview requiring 3 to 4 hours to conduct. Requires a high degree of competence in qualitative interview techniques

A Sample Key Person Interview format might include the following:


  1. Schooling, employment history, family and hobbies?
  2. Career progression since joining this company?
  3. Personal values (family, profession, community, and so on?
  4. International experience (employment, schools, travel)?
  5. How do you manage the balance between company needs and individual needs?
  6. What are the skills and abilities you bring to this job?


  1. Two greatest successes with the company. Why and how accomplished?
  2. Two greatest failures or disappointments. Why and what was learned?
  3. Who was the best boss you ever had? What made it so good?
  4. What was the greatest job you ever had? What made it so good?
  5. What is your functional responsibility?
  6. What are your key priorities?
  7. What do you value most in your peers, subordinates, boss, customers?
  8. If applicable, how would your subordinates describe your management style? Your peers? Your boss?


  1. What is the company’s overall strategy?
  2. How does your function relate to the overall company strategy?
  3. What are this company’s strengths? Weaknesses? Threats? Opportunities?
  4. How does this management team work in relation to decision-making? Contention? Candor? Conflict?
  5. As this merger or acquisition proceeds, what are the key things from this company that you want to be sure to bring forward? What are the key things you would just as soon leave behind?
  6. What are the key things the companies need to keep in in mind to assure success as the acquisition (or merger) proceeds?
  7. Who are some of the heroes of this company? What are some of the legends and lore of this company?
  8. How would you describe the current morale in the company? In your function?
  9. What is the company’s competitive edge and how is it maintained?
  10. What do you value you most about the company? About your job? (Carleton & Lineberry, 2004, p. 64)

This sample interview protocol leads to the development of Key Manager Interview and the Key Individual Contributor Interview formats. 

  • Key Manager Interview format and guidelines is similar in format to the above Key Person Interview but significantly shorter with a different focus. This interview format is designed to quickly ascertain basic knowledge and underlying beliefs concerning the management of others.
    • A 14-item interview requiring 50 to 90 minutes. This requires moderate skill in qualitative interview techniques
  • Key Individual Contributor Interview format and guidelines is like the formats above but is more focused upon surfacing the issues beyond money that may be important to keeping the person onboard in both body and mind (like the Key Manager Interview above) but does not include the topic of managing others.
    • A 13-item interview requiring 50 to 90 minutes. Again, this requires a high degree of competence in qualitative interview techniques.

These types of interviews for key people leads us to the challenges of managing and leading change as well as dealing with the human side of change. What could be more stressful than to go through a merger or acquisition? 

Studies consistently show that most mergers and acquisitions fail, mainly because of people and culture issues. In the period leading up to and immediately following a significant transaction, a tendency exists for employees to begin considering their own personal situation. Questions usually contemplated include "Where am I going?"; "What do I want out of both my personal and business life?" and "Will I like the new company and its management group?"
The longer the period of uncertainty lasts, the more attractive alternative employment becomes. To make things more difficult, the best and brightest managers are the ones immediately targeted by recruiters attempting to lure them to other organizations. The loss of key employees can seriously erode the potential value of a transaction for the acquiring firm. Perhaps equally damaging, and just as costly, are those people who stay on the payroll but who emotionally "check out" and do not perform at their previous levels of productivity. If the process is not managed well, a company may end up with the employees who simply had the fewest alternatives. (SHRM, 2016)

Focusing on the needs of key people is tantamount in keeping them and engaging them. As they look at their personal situations, fear and anxiety can drive them away. Answering those basic questions noted above, we can use some basic approaches to deal with the human side of change with specific focus on key people’s needs. 

In helping the organization manage change is not only to deal with these and other individual reactions to change, should they arise, but hopefully to preempt them, through the following actions targeting key people:

  • Enhance Benefit - Make sure key people understand the benefits—personal, team, unit and company-- that will result from the merger or acquisition; that they share in the vision/mission and are critical to the success of new combined organization.
  • Enhance Clarity - Make sure key people understand why the merger or acquisition was needed, what will change, what will not change, and how and when changes will occur in the new combined organization.
  • Diminish Uncertainty - Make sure key people understand how the merger or acquisition affects them, where they fit in the new system, and what their role and responsibilities will be. 
  • Diminish Level of Effort - Make sure key people are not overburdened with new responsibilities. An unmanageable workload can also drive them to seek other employment. Everyone affected by the merger or acquisition should have the least amount of additional effort related to the change, and that the workload is evenly distributed among all involved. (Adapted from Craig, 1991 and Vector Group, 1990 & 2010)

In Phase V or where most Due Diligence efforts take place, it is critical that HR delivers on the following:

  1. Assure that people doing Key Person and Key Manager Interviews have the requisite skill base in qualitative data gathering and interviewing techniques.
  2. Gather data to verify/evaluate the reasons that specific employees are considered Key or critical (Unique knowledge/technology? Key influencer? Other reasons?)
  3. Based upon the expanded knowledge of the Key people, do a reassessment of the probability of keeping them in both mind and energy along with the body. Adjust the retention package beyond purely financial issues as appropriate to increase the probability of retaining a fully engaged person. If this seems unlikely it could be better to lose them than keep them

When considering retention strategies for key employees, keep in mind that strictly financial strategies designed to retain the individual can run the risk of keeping the body in place while the mind and personal energy are lost which can often have a worse impact upon results than would occur if they left the company. Retention strategies for key employees are best when they are wide-based and include things like responsibilities, authority, and personal interests and career desires. 

“Retention policies must be designed to appeal to the very things that attracted people to the company in the first place. The key drivers for high-performing people staying with a (newly formed) company are rarely purely financial. They are almost always the characteristics of the job and working environment coupled with personal needs and desires which play a prominent role as well.” (Carleton & Lineberry, 2004, pp. 63&65) 

Management and leadership must acknowledge that it is not “business as usual” and accordingly, be as transparent and open as possible. People can handle truth unlike Jack Nicholson’s line in A Few Good Men when he asserts, “You can’t handle the truth.” People, and especially those needed Key People, can survive a merger or acquisition more effectively when they are told the truth and not given platitudes or empty promises like, “We have a great future ahead of us,” or “You will be a hero in the new way,” or even stating the “deal is a merger of equals” when there may be a clear case of a win/lose scenario. (SHRM, 2016)

We can talk about openness, respect, trust, dignity, caring, teamwork and the rest but people will feel what they feel after the deal is closed and the reality sets in with the new organization. Management and leadership needs to clearly and unconditionally demonstrate transparency, openness, respect, and empathy for people’s personal situation. Treating people in this way demonstrates that “Not only is this approach the humane thing to do, but it also is a powerful way of showing those who remain what kind of company they are now working for and of helping them begin to develop some positive feelings toward the new organization.” (SHRM, 2016)

Next in Phase VII-Share/Asset Purchase Agreement:

HR Deliverables:

  • Employment agreements for the key employees
  • Presentation of employee agreements and sign-offs prior to closing

This is the first concrete step in building/developing a long-term relationship with key new employees and can set the tone for expectations and trust as the merger or acquisition proceeds. If this is an acquisition, the parent company does not yet have a track record with this newly acquired group. Being thorough, timely, and prepared is far more important at this point than any later time. Managing this first impression well will set the tone for the future and earn the capability of weathering later problems with no development of ill will. (Carleton & Craig, 2011 & 2017)

As we move into Phase VIII or Integration: The First Two Weeks, HR and the Integration Manager (IM) need to lead the efforts in welcoming the new employees to the organization. They should act as ambassadors for The Company to ease the transition for the new employees.  

All efforts are directed at insuring the acquired company’s employees’ survival in the new environment. 

This phase is as much about perceptions and emotions as it is about concrete knowledge and data-based activities. If the newly acquired employees do not feel served, supported, and cared for and cared about, they will tend to assume the opposite. For Key People. this could mean leaving the company. 

While checklist-guided with many planned activities, briefs and materials this phase is most definitely NOT about ticking off all the planned actions as they are done. The result here is to have newly acquired staff understanding of and comfortable with their changed employment conditions. If the staff and particularly Key People do not feel good about the new situation by the end of this period, the overall objective of this Phase has not been met.

If people feel their issues and concerns are “heard and understood” by their management, even if management may not agree and/or cannot do anything about it, overall feelings of support, trust, and general job satisfaction along with productivity will go up and maintain levels higher than most companies.

A survey conducted by The American Management Association found that typically 25 percent of top performing employees in an organization leave within 90 days of a major change event such as a merger or acquisition, regardless of the fact they still have a job (Withenshaw, 2003). The loss of Key People has significant impact on achieving financial or strategic objectives. Dealmakers need to acknowledge this potential liability and advise their clients accordingly. 

Next month:  Dealmakers Planning for a Successful Merger or Acquisition: Aligning the Management Group



Carleton, J. Robert and Lineberry, Claude S., Achieving Post-Merger Success: A Stakeholder’s Guide to Cultural Due Diligence, Assessment and Integration, Pfeiffer, John Wiley & Sons, 2004, pp. 63-65. 

Carleton, J. Robert & Craig, Gary W., M&A Roadmap for Success, Unpublished Working Paper, ©2011, 2013, 2017. 

Craig, Gary W., Mergers and Acquisitions Roadmap to Success, Article published on LinkedIn, January 28, 2015

Craig, Gary W., The Human Side of Organization Change, Future Impact of Trends in the 90s, American Society for Training and Development (ASTD), Rocky Mountain Chapter, 1991, Alice N. Barnes, Editor, p.108.

Galpin, Tim, Whittington, J. Lee and Maellaro, Rosemary, Identifying, Retaining and Re-Engaging Key Talent During Mergers and Acquisitions: A Best Practices Framework, HR People & Strategy, Volume 35, No. 1, 2012., p. 44)

Green, A., Barbin, C., & Schmidt, M. (2007), December. Stars and Keepers. Chief Executive, 230, 44-47.

Vector Group, Inc., The Human Side of Change and Participative Change, Unpublished Working Paper, ©1990 & 2010. 

Society for Human Resource Management (SHRM), Managing Human Resources in Mergers and Acquisitions, Jul 19, 2016, Retrieved from

Withenshaw, J. (2003). Successful termination. Canadian Manager, 28(3), 20-24. 118.

©Vector Group, Inc., 2018

Gary W. Craig is Managing Partner and COO the Americas and Asia for Vector Group, Inc. You may reach him at  Vector Group is a global consulting firm specializing in systematic and systemic organizational diagnosis and interventions to ensure that corporate strategy, culture, and infrastructure are aligned to achieve breakthrough success. The firm’s focus is on Cultural Due Diligence (CDD) and Post-Merger or Post-Acquisition Integration. Vector Group, Inc. pioneered the concept of CDD. For more information, you may visit our website at or call us at (800) 566-0877.

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