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Why does downsizing often come after a merger?

On Behalf of | Feb 7, 2024 | Mergers & Acquisitions

A merger is when two companies are essentially being combined. They’re going to be operating as one business entity. The business owners likely think that this gives them some critical benefits, making the company stronger and better able to meet consumer demand.

But what often happens is that a company that goes through a merger ends up downsizing its workforce. This can be somewhat confusing to employees. If the merger is supposed to make the business stronger and more profitable, why do they have to cut the workforce?

Overlapping positions

The issue is simply that a merger will often create overlaps when looking at the positions that people hold. The company may not need as many employees after the two businesses have combined.

For example, say that they are two small businesses. Each one just has a small HR department consisting of two individuals who handle any human resources issues.

Separately, each company needs to have this department and all four employees are necessary. But the merger means that the new company still only needs one human resources department. The company itself may not suddenly be so big that four employees are necessary. Two of them will be let go, not because they have done anything wrong or because the business is in a worse position, but simply because their roles overlap with others and so the company can cut costs.

Employee issues like this are only one of the complexities of a merger. Business owners who are going through this process need to be well aware of the legal steps to take and all of the issues they may need to address moving forward.