New Guidebook Offers Strategies for Managing Talent in Cross-Border M&As

wooden blocks with abstract people representing employees

As companies turn to M&As to expand their operations and improve their financial performance, it’s crucial to understand the importance of talent management before, during and after the transaction. After all, according to research published by Harvard Business Review, up to 90% of M&A deals fail. A misguided talent strategy is often at the core of the problem. 

GoGlobal’s guidebook “Managing and Engaging Talent through Mergers, Acquisitions and Divestitures” explores the key considerations for cross-border M&A deals and the pivotal role an Employer of Record (EOR) hiring solution can play in enhancing talent management and resolving international HR issues.

To dive deeper into this important topic, we conducted a special Q&A with GoGlobal Partner Andrew Lindquist. Here’s what he had to say.

What are some advantages that cross-border M&As can bring to a company’s global expansion strategy?

Cross-border M&As can bring many advantages to a company’s global expansion strategy, including increasing market access, unlocking new revenue streams, reducing competition, diversifying supply chains, offering economies of scale and scope, opening up new talent pools and mitigating operational risks. These can all help a company expand its operations and improve its overall financial performance. 

M&As can be a quicker and more efficient way to enter new markets and gain access to local expertise and resources, rather than through organic growth or other expansion strategies. 

What is the significance of talent management in M&A transactions?

Talent management is crucial in M&A deals for several reasons. First, the success of an M&A deal often depends on the ability of the acquired team to integrate into the buyer’s organization and fulfill the buyer’s mission. 

However, according to data published by Gallup, nearly half (47%) of key employees will leave the company within a year of the transaction and up to 75% will exit within three years. The exodus of key employees can significantly impact the financial and operational performance of the newly merged organization. 

What are the different talent management considerations for private equity buyers, financial/strategic buyers and divesting companies when it comes to approaching an M&A deal?

These groups all have unique talent management considerations in an M&A deal. 

Private equity buyers, in general, may focus on quick growth levers, while identifying and retaining key talent to drive value creation. Financial/strategic buyers often prioritize integrating acquired talent with their existing workforce as well as cultural alignment. 

On the other side of the table, divesting companies may need to address the impact of the deal on their remaining workforce and support a smooth transition for employees leaving the company. This protects the assets value while negotiations transpire. 

All three groups should consider communication and transparency throughout the process to minimize uncertainty and maintain employee morale. Additionally, during cross-border deals, all groups will need to pay special attention to local labor laws and cultural differences. By doing so, they can effectively manage talent and make compliant decisions ahead of the inking of the deal. 

Why do asset deals or carve-outs tend to increase in an economic downturn or uncertain environment?

Asset deals or carve-outs often increase in an economic downturn or uncertain environment because businesses may need to divest non-core assets or operations in order to raise capital, reduce debt or streamline operations. By selling non-core assets, businesses can focus on their core competencies and reduce costs – which can help improve their financial performance during what otherwise may be a tough time. 

Additionally, in an uncertain environment, businesses may need to adapt quickly to changing market conditions or regulatory requirements. Divestitures can help them do this more effectively. 

For buyers, asset deals or carve-outs can be an opportunity to acquire strategic assets or operations at a discounted price and gain a competitive advantage. 

Are there unique talent management challenges in asset deals or carve-outs?

While any type of corporate transaction can be a complex process – from diligence to integration – the global M&A carve-out deal can prove to be especially challenging in terms of talent management. That’s because carve-outs often produce ‘orphaned’ workers.

Orphaned workers are employees who are included as part of the acquired asset in an M&A carve-out deal – yet there is no in-country legal business entity to employ them. 

This situation can cause challenges for talent management, as gaps in benefits and employee engagement can impact talent retention and the long-term success of the transaction. 

If not planned in advance, the dilemma of orphaned workers can also cause delays in closing the deal or result in unexpected expenses.

How can EOR hiring support talent management during an M&A deal?

EOR hiring can provide a compliant, quick solution for managing talent throughout the M&A timeline, whether the solution is supporting the divesting company preparing itself for a sale or the buying company as it seeks to maximize the impact of a deal. 

For example, an EOR can provide a divesting company’s employees with continuity of employment and benefits, which can reduce their anxiety and improve their morale during a period of transition. Having this in place can reduce the risk of losing top talent and uphold the value of the deal. When adapting benefits, it is virtually impossible to match benefits one-for-one. 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.

Essentially, an EOR partner fixes the gaps in orphaned employees by legally employing the orphaned employees on behalf of the acquiring company. This can help to mitigate compliance risks and map out a smooth transition for these employees.

An EOR, in general, provides a quick and compliant solution for hiring talent in foreign markets, This includes providing payroll, benefits and tax withholdings, as well as ensuring compliance with local labor laws. By partnering with an EOR, the acquiring company can focus on integrating the two parties and ensuring a successful deal – without the burden of navigating complex compliance and administrative tasks.

Is the EOR arrangement usually temporary?

EOR hiring can be either a bridge solution or a more long-term, operational solution for a company. All deals are different so, before engaging an EOR, a company will need to assess what is required for the asset at hand in order for the deal to be successful. This includes factoring in the type of deal, deal terms, people, geography, etc.

EOR arrangements can even be flexible and adjustable during the deal lifecycle, depending on the needs of the acquiring company and the specific circumstances of the acquisition. In general, though, the duration of the EOR arrangement will be determined by the amount of time the buying company needs to integrate the acquired workers into its own company. For cross-border deals, a company may need to set up an in-country entity. 

Sometimes, for smaller headcounts, it may make sense to keep the EOR solution in place indefinitely following a deal.  

How does a company choose the right EOR provider?

To find an EOR provider that is a good fit for your cross-border hiring needs in an M&A deal, it’s crucial to do your due diligence and ask the right questions. Inquire about their local expertise, global hiring experience as well as the level of HR and employee support they provide. Additionally, ask about their previous experience with similar organizations, data security policies, platform usability, onboarding and communication channels. 

Choosing the right EOR provider can be a game-changer for companies looking to retain key personnel and streamline HR processes during an M&A deal. With the right EOR in place, companies can mitigate risks, navigate complexity and set themselves up for success.

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.