Center for Advanced Human Resource Studies

HR practitioners have new case study for complex M&As

"A double back flip with a twist level of difficulty." That's how Kevin McManus, chief human resources officer of ConvaTec Inc., describes his company's recent organizational changes.

The medical device company's HR team has played a strategic role in its separation from Bristol-Myers Squibb (BMS) and acquisition of a global medical products company. This was no typical merger and acquisition. ConvaTec is now owned by two private equity firms and the company it bought is based in Denmark.

ConvaTec is a leading global developer and marketer of innovative medical technologies. Its products help improve the lives of people managing chronic and acute wounds, debilitating illnesses and difficult surgeries.

ConvaTec oversees more than 8,000 employees in over 90 countries. The company serves consumers and health care professionals on six continents through four business divisions—Ostomy Care, Wound Therapeutics, Continence and Critical Care and Infusion Devices.

The "carve-out"

This company is thriving after its own "surgical" procedure. McManus explains the transition they have made. "ConvaTec was a division of BMS—we shared everything from office space to compensation and benefits structures. In August 2008, we were acquired by two private equity firms, Nordic Capital and Avista Capital Partners. We purchased Unomedical Corporation shortly thereafter."

The company went from 3,500 employees to 8,000 employees with $1.6 billion in revenue. McManus, who's been with ConvaTec since 2004, now leads a new team in a new company but one with a 30-year heritage of high-quality products and compassionate care.

With the carve-out, as he calls it, McManus has established a new HR function that is honing its skills. ConvaTec has a regional and center of excellence model. Two regional heads lead Europe and U.S./Asia Pacific HR and manage all HR generalists.

There are centers of excellence for global compensation and benefits and for organizational effectiveness, which includes staffing, talent management, and performance management. Rounding out the organization is program management, which is focused on change management.

Hyper-change management

Change management was crucial to ConvaTec's rapid transition. "A lot of consultants said we couldn’t pull this off," says McManus.

"We announced the carve-out from BMS in May 2008 and had until August 1 to be ready to function on our own from an HR standpoint. We still share IT, but beyond that, we have put in place our own payroll, compensation and benefits structures, procedures/policies and are currently working on a new HRIS system."

To say HR has been an essential player in this complex transition is an understatement. In addition to managing the change, the way HR does business is changing significantly.

Private equity puts keener HR focus on the P&L

"In the private equity world, there is a very high focus on growth and cost control," McManus says. "Private equity is very new for HR as a field, and there are no best practices out there for us to model. It is a much faster paced world than even what a Fortune 50 company is used to."

Most HR professionals know the importance of having financial acumen, but when your company becomes another company's investment, this competence takes on a whole new meaning. McManus' team is literally learning a new language.

"It's all about EBIDTA (Earnings Before Interest, Taxes, Depreciation and Amortization). Private equity firms manage very tightly to that," says McManus. "They're purchasing an asset because they believe it will grow. As an HR professional, you must quickly become very competent in the financials of your company."

McManus contrasts this mindset to what exists in many large companies. "In some businesses, you can have a working knowledge of the business and financials, but work on your talent management or change management programs without much focus on the bottom line. In this world, you can't."

How has this impacted HR's strategy at ConvaTec?

"To increase EBITDA, you either create growth or manage costs," McManus remarks. HR can play a role here especially with compensation and benefits. "Compensation and benefits can account for up to 30-35 percent of costs. There's significant opportunity there to help manage the company's bottom line," he says.

"Add to that a robust real time talent management strategy and focus on optimizing business processes," says McManus, "and you see our HR practices ensure the value created by the function is clear and measureable."

Most HR executives would agree on the need for cost consciousness, but being owned by private equity firms brings even sharper focus.

A focused HR strategy

To some extent, the current economic challenges are not impacting ConvaTec as much as they are other companies.

"People use our products because they need them," says McManus. "We have not moved off our growth strategy or the growth performance we are targeting. We are continuing to look for opportunities to invest and minimize our costs."

As ConvaTec looks to the future, McManus will focus on optimizing team effectiveness and building a strong corporate culture.

"We have new teams at the top of both our business units and staff functions. There are plenty of change management and cultural challenges," he says. "Even if we had not bought Unomedical, we'd still be working on our own acquisition issues, so the complexity of combining this carve-out and acquisition is huge."

Championing a new culture

To start, ConvaTec is conducting its first employee survey and creating an engagement council. "The council is a global group of line leaders who will champion our culture," says McManus. "They’ll help us ensure the right messages are getting out and that the executive committee is getting the right messages back."

Through the survey and this engagement process, ConvaTec hopes to make sure its people are excited about the journey the company is on. McManus is quick to point out that those employees are all over the globe, with the majority residing outside the U.S.—making cultural and diversity issues critical to success.

Learning from and sharing with CAHRS, HR professionals

McManus is pleased ConvaTec is a CAHRS partner and believes its resources will be helpful. "I see us using ILR graduate students and their fresh insight to help us think differently about things," he says. "Having exposure to others also stretches my thinking about how we do the business of HR."

CAHRS partners will likely learn from ConvaTec as well. "We don't feel the deal wheel is done," says McManus, hinting other acquisitions may be in the future. "ConvaTec will have more opportunities for growth, and therefore more lessons and ideas we can share."