Merging Forces
Aug 1, 2007 12:00 PM, By Elaine Misonzhnik
Managing your assets
A particular problem for REITs is that in order to ensure that the property portfolio — often the very thing the merger is undertaken for — is protected, they need to offer workers from the acquired company incentives to stay and help through the integration process, at least on a temporary basis. That entails the offer of an employment contract spanning for up to six months and a better pay rate — on average, 20 percent to 30 percent higher than the rate they were getting before, Ryan says.
“A lot of people are open [to staying temporarily], because they can start interviewing for another job knowing that it will take them a month or two anyway to get their situation figured out,” he notes.
That way, even if the acquiring REIT plans to bring in new people for asset management, there will be time to figure out how the properties work and who the tenants are, as well as an opportunity to close any leasing deals that might have been in progress. A comprehensive ownership transition strategy is of particular importance for regional mall portfolios, which tend to be very management intensive compared to strip centers.
The larger company also has to move quickly if it wants to retain any of the top personnel from the smaller REIT. In merger transactions at public companies, what normally happens is that the top level of management is gone in a matter of days and people with valuable skill sets need to be approached before they accept a job offer somewhere else.
“Some companies just run down to the new office and scramble [to figure things out],” Ryan explains. “I've heard of people getting acquired and they didn't meet anybody from the other firm after two months have passed.”
The smarter REITs, on the other hand, start evaluating the issue of human resources before the merger even happens, during the deal-analysis process. Looking at the new personnel on a case-by-case basis rather than just splitting the combined workforce in half leads to a more successful integration, according to Allan.
“What we find is that if you bring an organization together and there are synergies, the most successful transactions are those [where the management] takes a step back to decide what jobs they want [to keep] and what competencies they want in the long term,” he explains. “Taking the time to do that is certainly better than deciding who to let go beforehand.”
A little more conversation
A clear long-term plan also helps corporations succeed once a merger happens. The key word in retaining top-notch personnel is communication, according to human resources experts. What they don't know makes people nervous, “so they start thinking ‘Is this where I want to be?’” says Allan.
That's what's been happening at one of the retail REITs that has been recently acquired by a larger entity, according to Ryan. The transaction happened months ago, but the people on the ground don't have much to do and wonder if the deal was ever really thought through and whether they'll still have their jobs a few months from now. Since a merger integration process can take more than a year, addressing that question early on is critical.
To quell employee fears, the new management has to explain to them the long-term vision for the company, from how and when the various divisions will come into play to pension and benefit plans. Even if a lot of the details remain to be worked out, it's better to acknowledge the uncertainty than to leave people guessing, says Allan.
“In the absence of an explanation, people think the worst,” he notes. “Unless their questions are addressed, engagement levels really drop off.”
The new workforce also needs direction as to how things will be done at the merged company: whether they will be expected to adapt the business practices of the larger firm or if a whole new set of guidelines will be implemented. “No company has the same expectations, therefore clarifying those expectations is very important,” says McCormack. “When people know in reasonably clear terms what is expected of them, they can focus on [their jobs].”
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