As consolidation steamrolled through home building's landscape in 2005, another 18-plus merger and acquisition deals of varying sizes went down, involving more than 2,000 employees on the acquiree side, and thousands more on the acquirer side. In 2004, noteworthy acquisitions totaled 17. We can't be sure how many deals will be struck in 2006. Still, the usual alchemy of strategically opportunistic appetites and chance meetings will doubtless engender another passel. Arguably, bigger is better when it comes to high-volume production home building.

Although buyers' and sellers' motivations tend to be as unique as the deals, the ultimate expectation is constant. An acquirer believes there is “opportunity,” which is often a nice way of saying that once the deal is done, new management can unleash unprecedented rates of growth and profit from the company being bought. Surprises happen, though. It's important to ensure a “best practice” approach to deal-making, so that everybody's expectations of “more-faster-better” are in synch. It comes down to being smart about people, and there are tools to help do that. Three critical tools are: completing the human capital audit; balancing the benefits scorecard; and communicating to ease any apprehension or distraction.

Let's drill down a bit.

Early in the due-diligence process, thoroughly audit the human capital of the two cultures. Long before making the “final deal,” a side-by-side scorecard should detail every element of how both companies manage staff. This should be a team effort, completed by acquiring and acquired human resources representatives. For confidentiality's sake, fewer high-level executives should carefully review relative practices at both organizations (see table, below).

At Toll Brothers, which acquired Coral Gables, Fla.-based Landstar Homes in June, human resources vice president Jon Downs affirms the importance of the pre-deal human capital audit. “Landstar employees have years of experience and local market knowledge that were of key importance in the valuation of the acquisition,” he says, “so we bent over backwards to stress that they would be retained and that their ‘new' company would offer more opportunity both because of our size and our geographic diversity.”

The next task is to balance the scorecard from a benefits standpoint. Typically, an acquiring company's overall programs tend to be richer and more sophisticated, thus enhancing the lives of the acquired staff. Still, as an acquirer, look for practices in the acquired company that might be worth adoption. Often, smaller companies use creative strategies to attract and retain employees. As Toll acquired Landstar, “we ‘grandfathered' employees' credit for years with Landstar when calculating vacation, 401(k) vesting, and virtually all other benefits,” according to Downs.

Finally, in an era of increased transparency, communicate the integration plan early and often. Bring all employees of the acquired company together for a presentation to detail the historic and current financial state of the acquiring company; highlight key locations, products, and executives; include upbeat introductions by CEOs of both companies on how the merger is going to benefit all parties involved—and the integration plan; and feature a Q&A session, both public and private.

As in many other things, M&A human capital best practices are mostly common sense. They also mean a lot when you're trying to get from here to there.

PRE-DEAL DUE DILIGENCE HUMAN CAPITAL AUDIT Create a side-by-side scorecard of both companies in the following topic areas

  • Mission statements
  • Staffing (Including all organization charts and job descriptions)
  • Compensation (all levels, all bonuses, “at-risk compensation,” payroll schedules)
  • New-hire orientation (including presentation materials and forms)
  • Compliance with federal and state regulatory agencies
  • Benefits (health and insurance plus special “perks” like discounted goods programs)
  • Policies and procedures (attendance, discipline, eligibility schedules, business travel, workplace safety)
  • Vacation, holiday, and personal time-off schedules
  • Performance management (performance reviews, succession planning, “360 feedback programs,” career-pathing)
  • Training (technical, managerial, sales, leadership)
  • Pre-employment hiring practices (resume processing, pre-employment testing, reference checks)
  • Retirement programs