By Andrew Lindquist, Partner, GoGlobal
In the high-stakes environment of mergers and acquisitions (M&A), particularly during carveout transactions, there’s nearly always a race against the clock. Deadlines to transition talent from the seller’s organization to the buyer’s newly acquired entity are frequently tight. Best-case scenario targets can set unrealistic expectations.
The complexities of talent transitions in M&A deals extend far beyond simple logistics and negotiations at the board table. They involve strategic planning, legal compliance and the preservation of employee morale.
In this blog, we uncover the ‘X’ factors that buyers should consider when planning the transition of talent in an M&A carveout, from pre-deal support to post-deal operations.
Exploring employment structure options
A critical early decision is determining the right employment structure for transitioned employees:
- Entity Setup: Establishing a new legal entity is often necessary for larger headcounts but is time-consuming, especially in countries with complex regulations. This process can take six months or more, including payroll registrations and setting up local bank accounts.
- Employer of Record (EOR): For smaller headcounts or interim solutions, an EOR can be a faster and more flexible option. The EOR assumes legal responsibility for employees, bypassing the lengthy entity setup process.
- Non-Resident Payroll Setup: When neither entity setup nor EOR is viable, a non-resident payroll setup may be considered. This option, most popular in Canada a Europe, allows employees to be paid in their home country while working for the new organization. However, it introduces complexities related to tax compliance and local employment laws.
Beyond legal entity setup: operational readiness
Setting up a legal entity is only the first step. Buyers must also consider the time required to make the entity operational:
- Payroll Registration: After establishing a legal entity, payroll registration is necessary. This process varies by country and may involve navigating complex local regulations.
- Local Payment Methods: Payroll cannot be processed without local payment methods, usually requiring a local bank account to be set up. This step can add weeks or months to the timeline.
- Compliance with Local Laws: Buyers must ensure that the new entity complies with all local labor laws. Non-compliance can lead to legal challenges and reputational damage.
The expat exception: managing visas
Rehiring expatriates presents unique challenges in M&A carveouts. Their visas are often tied to the legal entity of their current employer. Therefore, transitioning these employees may require:
- Visa Transfers: In many cases, an expat’s visa must be transferred to a new entity. This process can be time-consuming, often taking weeks or months.
- New Visa Applications: If a visa transfer isn’t possible, a new visa application may be required, adding further complexity.
Given these challenges, expats may not transition at the same time as other employees. Buyers should plan for potential delays and consider interim solutions.
Transitioning talent: legal considerations
The method of transitioning employees varies based on local employment laws and transaction specifics:
- Local Frameworks: There may be legal frameworks in place that impact how talent is transitioned. For example, in the United Kingdom, the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) may apply, requiring the preservation of employees’ terms and conditions during a business transfer.
- Termination and Rehire: In some cases, a termination and rehire model may be used. This simplifies the process but may present challenges in how seniority and severance are handled.
- Severance Considerations: Understanding how severance is treated is key, as it can significantly impact the cost and complexity of the transition. The requirements vary by country and contract terms.
Evaluating and implementing benefits
Buyers must evaluate the benefits offered to transitioned employees. In many countries, the new employer is legally required to provide similar compensation and benefits. Even where this is not mandated, failing to offer comparable benefits can lead to dissatisfaction and turnover.
Matching Compensation and Benefits: While exact matches may not be possible, buyers should strive to offer comparable packages. Cash allowances or other compensation forms may help bridge gaps.
Global Employee Benefits: These are non-wage incentives designed to meet the diverse needs of an international workforce. Global benefits packages may include paid time off, private health insurance, occupational pensions and remote work stipends. Implementing global benefits is key for engaging talent and unifying cross-border teams.
Case study: managing a complex carveout
- Background and Challenge: An industrial products company acquired assets from a large firm, including support staff across nine countries. The client faced challenges in establishing operational legal entities and managing the transition of 75 workers in three countries. Additionally, 14 workers across nine countries were left in limbo, needing transition to a new employment structure.
- Solution: GoGlobal conducted a GAP analysis to evaluate salaries, benefits and contracts, guiding the transition of orphaned employees to our EOR platform. Depending on the country and headcount, this served as a temporary solution until the client could establish their own entities.
- Outcome: All talent was successfully transitioned with 100% retention. Our proactive approach ensured contracts were in place two weeks before the start date, with special considerations for visas and severance liabilities.
Planning and support are key
Time is critical in M&A carveout transactions, but with careful planning and the right support, buyers can navigate the complexities of talent transitions.
By leveraging comprehensive M&A lifecycle support, buyers can take on successful carveouts that protect their operations and maximize the value of the transitioned talent.
Contact us to learn more about how our dedicated M&A Solutions team can help support your business growth strategy.