Global M&A Integration Checklist: How Well Do You Know Your New Workforce?

new employees attending a meeting

By Andrew Lindquist, Partner, GoGlobal

In any global M&A deal, understanding the talent makeup of the target company is critical to achieving a successful M&A integration and realizing the full potential of the deal. After all, talent plays a crucial role in driving business performance and achieving strategic objectives. So, whenever you have a global M&A deal on the table, there’s an important question you need to answer: How well do you know your new workforce?

In this blog post, I’ll share some insights into understanding the makeup of talent in a global M&A deal as well as the pertinent risks and challenges. I will also provide a checklist of steps that a buying company can take when assessing talent needs as they enter a global M&A deal.

Assessing talent: Analysis and transition

A global M&A deal involves acquiring a company in a different country or region. This presents unique challenges to the buying company as they must navigate nuances like cultural differences, regulatory compliance issues and requirements and cross-border talent management issues.

Understanding the makeup of talent is crucial in supporting the transition of a global M&A deal. The following are eight key considerations in assessing  talent:

  • Talent flight risks: One of the key risks associated with a global M&A deal is talent flight. Talented employees may leave the target company due to uncertainty or fear of losing their job. This can lead to a loss of key skills and knowledge, which can have a significant impact on the success of the M&A integration.
  • Cultural integration: Another important consideration in a global M&A deal is cultural integration. Different cultures may have different expectations regarding work-life balance, management styles and communication styles. It is important to understand these cultural differences to ensure a smooth integration process.
  • Permanent establishment risks: This refers to the risk of creating a taxable presence in a foreign country and can occur if the acquiring company establishes a physical presence in the target country. Permanent establishment risks can have significant tax implications and should be carefully managed.
  • Independent contractor risks: In some companies, the use of independent contractors is common. However, the use of independent contractors can also present risks – such as misclassification and intellectual property (IP) loss – which can have significant legal and financial implications.
  • IP protection: As companies merge or acquire other companies, they may gain access to valuable intellectual property assets, such as patents, trademarks, copyrights and trade secrets. Protecting these assets is critical to maintaining a competitive advantage and maximizing the value of the M&A deal. A company’s talent strategy can directly impact IP protection, such as independent contractors 
  • Orphaned employees: An ‘orphaned employee’ gap can occur in a carveout or asset transaction where a company sells an asset that operates in a different country than the acquiring company. In such cases, the acquiring company may not have an existing entity in the country where the asset operates, leaving the acquired employees without a legal employer.
  • Regulatory compliance issues and risks:This refers to the risk of violating laws or regulations in the target country. These regulatory compliance issues and risks can have significant legal and financial implications and should be carefully managed.
  • Cross-border payroll: Managing payroll in a foreign country can be challenging, particularly when there are different payroll regulations and employment laws, tax laws, time zones, business cultures and language barriers. It is important to understand the payroll requirements in the target country to ensure compliance and avoid penalties. It is also helpful to have local support there for your workforce to assist in matters regarding payroll, benefits and taxes. 

M&A integration checklist for assessing talent needs

Here are seven key steps to consider when assessing talent needs in a global M&A deal:

☑️ Conduct a talent assessments: Assess talent makeup of the target company to understand the skills, experience and potential flight risks within your newly acquired workforce. These talent assessments  can help identify any talent gaps and determine what talent will be needed to achieve the goals of the M&A integration.

☑️ Understand the culture: Consider the culture of the target company and the local culture of the region where they operate. This understanding can help identify any potential cultural differences that may impact the M&A integration process.

☑️ Assess regulatory compliance issues and risks: Assess the regulatory compliance issues and risks associated with the target company. This assessment should include an analysis of employment laws, tax laws, and other regulations in the target country.

☑️ Determine payroll and tax requirements: This assessment should include an analysis of local tax laws, payroll regulations and other related obligations in the target country.

☑️ Identify independent contractor risks: Identify any independent contractors used by the target company, assess risks and come up with alternative ways to engage them if necessary.

☑️ Address orphaned employees: Identify whether the deal will leave behind any orphaned employees. Consider the impact of the integration on these employees and develop a plan that may include an Employer of Record company as a long-term or bridge solution to legally employ them. 

☑️ Assess overlapping assets: Consolidation has the potential to enhance efficiency by streamlining processes and reducing duplication. For example, if there are finance teams in multiple countries, it may be possible to consolidate them into a single unit. A well-thought-out assessment can identify the critical roles and skills required for the consolidated finance team while creating avenues to retain key personnel.

☑️ Evaluate the need for an Employer of Record: An Employer of Record company can support talent strategy and mitigate risks associated with compliance, payroll and employment regulations. Consider partnering with a qualified Employer of Record company to ensure compliance and support a smooth integration.

EOR hiring as a solution

EOR hiring is a solution that can help companies mitigate some of the risks and challenges associated with a global M&A deal. An EOR is a third-party company that acts as the legal employer of the target company’s employees. This means that the EOR is responsible for compliance with local employment laws and regulations, payroll and other HR-related tasks. 

EOR hiring can help companies:

Mitigate compliance risks: An EOR can ensure compliance with local employment laws and regulations, reducing the risk of penalties or legal disputes.

Minimize payroll and tax risks: An EOR can manage payroll and tax obligations in the target country, achieving efficiencies, ensuring compliance and minimizing the risk of penalties.

Provide a smooth transition: An EOR can help employees feel more secure by providing a smooth transition and ensuring continuity of employment.

Evaluate independent contractor status: An EOR can review the status of independent contractor status and develop legally compliant contracts. Alternatively, independent contractors can be transitioned into the role of employees, helping companies mitigate potential misclassification risks while maintaining workforce continuity.

Support a bridge and long-term talent strategy: An EOR can help support the acquiring company’s talent strategy by providing access to local talent and reducing the risk of talent flight. Sometimes the EOR arrangement is just a temporary bridge until the parent company fully establishes a local business entity. Other times, especially in the case of smaller headcounts, EOR hiring can serve as a long-term operation solution. 

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.