As anyone with experience in merger and acquisition (M&A) activity knows, when it comes to hotel M&As, not every opportunity earns five stars. When evaluating potential opportunities, hotel investors consider an array of factors, including net operating income, chain scale, brand, geography, net income, management team, and strategic fit, among others. Careful consideration of these factors helps to ensure that a transaction will provide the longterm ROI that operators, owners, and investors are seeking.
When an acquisition target meets the investors’ criteria and a transaction occurs, the tricky part begins. Integrating disparate organizations can be daunting. If handled poorly, the integration can harm both the legacy and the acquired businesses. This can add to the already uncertain feelings of the employees, create confusion, and ultimately impact guest satisfaction. In the hospitality industry, poor guest experiences are quickly communicated and can have a profound and lasting negative impact on the new enterprise.
That’s why another factor—how to integrate and manage the people operations of the two businesses—deserves serious consideration. A fresh look at the human resource (HR) side of the business can help operations merge more smoothly and create unexpected value. A seamless integration process can provide a cushion of a few basis points from the start, which helps owners and investors increase the value of their investment as quickly as possible.
LESS BAGGAGE FOR MANAGERS
While the HR function is vital for any healthy company, it should fulfill a strategic, not tactical, role. This is why an M&A transaction is an ideal time to reconsider the HR, payroll, and benefits administration functions of the future organization. General managers play a key role in any successful transaction. Owners and investors place tremendous pressure on GMs and other operational leaders. These on-site managers are ultimately responsible for day-to-day operations, effective hiring and training, and guest satisfaction, as well as corporate initiatives related to sales and profitability. As the leaders closest to front-line employees, GMs experience intense pressure during the integration process. They may feel uncertain about their own careers, while also managing employees who are anxious about the future.
Not only must a company make every effort to retain GMs, it should also want to extract the most value from their expertise. Unfortunately, most traditional payroll bureaus and Software-as-a-Service (SaaS) providers are ill-equipped to help. This is where outside help, like a tactical HR partner delivering comprehensive expertise and technology, can make a big difference.
Outsourcing tactical HR functions can unlock additional organizational resources and flexibility for managers in the M&A environment. For example, special hotlines could give managers instant access to solutions from HR experts—with no runaround and no callbacks. Also, an online HR Information System (HRIS) portal empowers employees 24/7 to get answers to their questions without burdening their manager with requests. Importantly, these systems eliminate paper-based processes and reduce time and errors from manual, fragmented, legacy procedures.
This unburdening enables managers and operational leaders to focus on integration, employee retention, and guest satisfaction, all of which are key drivers of long-term value. It can also lower the risk of departures by key staff and employee turnover in general. An effective HR partner can also ensure ongoing legal and regulatory compliance and create long-term operational efficiency, leading to significant annual savings.
Here are some other areas where an HR partner can help:
Integration and onboarding. The integration process offers an opportunity to make all employees feel better about changes within the organization, not just GMs. An HR partner can develop automated onboarding processes, provide a process to distribute and acknowledge procedure and employee manuals, strengthen your culture, and improve recruitment and hiring practices. These services ease the stress from transactions and drive efficiency and profitability.
Systems that talk to each other. An integration is also an opportunity to revisit systems and how they interact with one another. Does the HRIS integrate with the analytics platform, general ledger, ATS, PMS, and other critical platforms? If people are rekeying information or looking at data in multiple systems to determine the “truth,” this is a great time to evaluate those processes.
Legal and regulatory compliance. Despite a thorough due diligence process, it’s not uncommon for an acquiring company to discover its new properties have failed to comply on a number of HR, benefits, and employment compliance fronts. One reason is that internal HR staff, traditional payroll bureaus, and SaaS providers often fail to see and flag compliance issues, which may be viewed as self-incriminating. Whether the issue is payroll or employment taxes, ACA and benefits-related regulations, or one of hundreds of wage and hour guidelines (local, state, and federal), an HR partner can provide an objective review, identify gaps, and deploy proven processes to ensure compliance.
Long-term operational efficiency. Transforming the internal HR platform provides a significant —yet often overlooked—opportunity to create value during a transaction. Right-sizing the HR function to operate at maximum efficiency can save hundreds of thousands of dollars annually, while improving the overall employee experience and protecting a hotel’s biggest asset: its workforce.
Choose your HR partner with care. When searching for an HR partner, insist on a company that understands both the demands of the hospitality and hotel management industry and the unique challenges of M&A integrations. They must have a demonstrated track record for moving quickly when acquisition opportunities present themselves.