5 Critical Talent Challenges That Can Make or Break Cross-Border M&A Deals

top view of senior managers discussing talent challenges

By Andrew Lindquist, Partner, GoGlobal

In today’s world of continuous business disruption, more companies are turning to inorganic growth strategies, such as mergers and acquisitions (M&As), to gain a competitive advantage, secure new revenue and drive success. Some companies, to conquer a tight talent market, are even using ‘acqui-hiring’ – an acquisition aimed at acquiring talent – as a means of bringing new skills and perspectives to the workforce.

We have seen time and again that how you manage human capital – before, during and after an M&A transaction – can make or break the deal. Success hinges on the acquired team being integrated and fully capable, motivated and on board to fulfill the buyer’s mission. 

However, the road to success can be a bumpy one. According to research published by MIT, up to 33% of acquired employees leave a company within a year compared to 12% of regular hires. Up to 75% exit within three years, according to data published by Gallup.  

While corporate deals are almost always complex and subject to HR issues, we’ve observed that talent engagement becomes even more precarious when the transaction crosses international borders.

The following are some of the most common talent challenges companies face when a cross-border deal goes through. 

Challenge #1: Communicating with the workforce

The M&A deal is rarely a fun time for employees, especially if rumors swirl about pending layoffs and the direction of the company. Acquisitions have such a bad reputation that sometimes employees will start looking for another job as soon as they receive the news that a deal is going through. 

A transparent communication strategy, complete with frequent touchpoints and relevant information, may help stave off a mass exodus. 

To reach different audiences within the workforce, it may be necessary to lay out a multichannel approach. If certain segments are deemed a churn risk, face-to-face communication should be used in addition to written word and town hall style meetings. 

Challenge #2: Maintaining company culture

Company culture is the pillar of any successful company. If values and people are overlooked in the midst of a deal, the integrated company culture will suffer and so will employee engagement. 

M&As can be tricky because corporate culture is unique to every company. How do you bring two distinct company cultures together? 

In cross-border deals, external cultural elements (e.g. language, communication style, time zone considerations, etc.) may also play a role in how a cultural integration goes. 

However, an M&A doesn’t have to negatively impact culture. The buying company can navigate this common challenge by identifying the strongest features of both company cultures. 

With the proper planning in place, it may be possible to rebuild a stronger, more cohesive company culture that satisfies both existing and acquired employees.

Challenge #3: Aligning compensation and benefits

Another key consideration for the workforce is what they’re getting once the deal goes through. All too often, how acquired employees are to be compensated is overlooked during negotiations.

An M&A can lead to salary inequality between employees holding similar positions, depending on if they were acquired or with the buying entity prior to the deal. Similarly, benefits may not be aligned. If acquired employees are presented with inferior compensation or benefits, their engagement levels will likely suffer. 

It can be helpful for the buyer to, before the deal goes through, thoroughly review salaries, benefits, employment contracts, severance arrangements, stock options, bonuses and any other cash incentives. 

Changes to compensation and benefits are almost inevitable. It may be virtually impossible to match the exact plans acquired workers have. Instead, as a rule of thumb, the worker’s overall compensation, including benefits, should be equal or better under the new employer. In some cases, this is a legal requirement.

It is important to implement a communication plan that includes group meetings (and sometimes individual meetings) before any changes in compensation or benefits take effect. This creates a forum to explain why adjustments are being made, walk employees through the plan and address any questions they may have.

Challenge #4: Onboarding employees

While any type of corporate transaction can be a complex process – from diligence to integration – the cross-border M&A carve-out deal can prove to be especially challenging for the HR department because of the ‘orphaned’ worker dilemma. 

Orphaned workers, although included as part of the acquired asset, come without an in-country legal business entity to employ them. 

We have found that, when a carve-out deal is on the table, the details and implications for orphaned workers can initially be overlooked. When not planned in advance, this situation can cause a real headache for both buyers and sellers. It can even throw off the timing of a deal or later emerge as an expensive surprise.

Challenge #5: Mitigating regulatory compliance risks

The expectation for companies to grow fast and save money often leads to myopic choices, which can become costly for the buying company following the inking of a deal. It can also be costly for the seller if these gaps come up in the due diligence process. 

For example, while engaging an individual as an independent contractor (IC) can contain fixed costs, it is not always a suitable substitute for permanent employment. If the relationship is not managed properly, it can also expose a company to legal and operational issues. Buyers may inherit the liabilities and costs if workers are indeed misclassified. This is something the seller should examine as well ahead of an asset deal. 

I already mentioned the orphaned worker compliance gap. But even when a legal entity is established in the target country, the HR team will be tasked with new responsibilities in tax, payroll processing, benefits, etc. Each one of these tasks has nuances that come with it. For example, cross-border payroll processing can be further complicated due to different payment methods, bank fees, currency exchanges, etc. 

Solution: Is an Employer of Record (EOR) right for your M&A strategy?

While there are numerous talent management challenges that can crop up in a cross-border M&A deal, there is a possible solution. Many companies find that partnering with an Employer of Record (EOR) can help them bolster employee engagement and address common pain points in regulatory compliance, onboarding, benefits, company culture and communication.

An EOR, like GoGlobal, is an organization with legal entities already established in the target countries in which a company (the EOR’s client) wishes to hire talent. It legally employs local workers on behalf of the hiring company, rather than the hiring company directly employing the worker. The EOR handles payroll processing and other HR tasks. At the same time, the worker is managed by the hiring company and carries out day-to-day responsibilities – just like any other member of the team. 

The EOR hiring model is a useful tool in specific situations, such as deals that involve assets overlapping across different countries, orphaned employees and workers who have been incorrectly classified. This model ensures that hiring and compliance are taken care of, allowing companies to concentrate on integrating their business activities. Meanwhile, the EOR takes care of critical HR processes such as onboarding, payroll and benefits.

An EOR solution can be used either as a temporary bridge to complete a transaction or as a long-term solution to sustain global operations. Because of the numerous advantages, many leading global companies are applying the EOR hiring model to make talent management a pillar of their M&A strategy. 

Check out our guidebook “Managing and Engaging Talent through Mergers, Acquisitions and Divestitures” or contact us to learn more about managing talent throughout the M&A lifecycle.