The Human Aspect Of A Cross Border Merger and Acquisition
In today’s global economy cross border M&As often play a major role in a company’s strategic direction and international expansion plans.
There are many reasons businesses seek these deals such as boosting their global market share or increasing their scale of production.
But what makes a cross border M&A deal successful? Aside from the price and synergies between the two businesses, recent research shows that the human aspect of a cross border M&A deal is a factor that is increasingly influencing success or failure.
Before anything else, preparation is the key to success
No M&A deal is the same. Preparation is key and all possible challenges need to be addressed beforehand. Each companies’ HR teams play a vital role in navigating the challenges that may arise during the process.
For cross border M&A, it is wise to be informed about the target country, even if this means consulting an external partner. If the preparation is poorly handled, the deal could be postponed or even fail.
Companies must understand how to navigate and consider the human element of a deal:
Diversity: Just as no M&A deal is the same, every country or even region is different. When preparing for a multi-country M&A deal, a country by country analysis is crucial.
Local Laws: Compliance plays a major role in cross border M&A. Insights and business intelligence must be considered, such as in-country anti-bribery policies and anti-money laundering requirements.
Legal Entity: Sometimes the acquired company’s legal entity is not part of the deal, but its employees are. In this instance, you will need to establish a local legal entity in order to take on the acquired employees. In some countries, it can take up to a year to create a legal entity and is often expensive.
Employee benefits: The transition is simpler if employee benefits remain the same. Sometimes, the target firm has a preferred rate with a benefits provider and an acquisition may disrupt these terms. This not only affects private healthcare and pension plans, but other benefits like company car leases, corporate housing, schooling, meal vouchers or even office rent. Employee benefits often cause a delay in many cross-border M&A deals.
Visa and Mobility: Most expat employees have their work permit sponsored by their company. So, if the target company has many expats in its workforce, it is essential to check whether the work permits are transferable during the deal. Often, the expat employees require a new work permit and it can be a time-consuming process. The employee cannot be employed without a valid visa and work permit, which can cause a business and personal impact.
Language Barriers: It is likely that the companies involved in M&A will literally speak different languages. Even if the employees at the target firm have a range of language skills, words can get lost in translation and nuances missed, which can lead to tension.
Time Zones: The firms could be located in different time zones and there be could whole days lost just in communication delays.
Labor Laws: Analysis of in-country labor laws is crucial. Some countries have robust laws for employees of the target firm. In Europe, the Acquired Rights Directive has many legal implications and other regions have challenging regulations on how to process, manage and store personal information when an M&A deal has yet to be signed. Often trade unions must be consulted prior to signing a deal, so compliance is must be respected to avoid penalties that inflate the final cost of the deal.
Payroll: Many countries must run payroll locally, so the acquiring company needs to ensure that payroll is set up from the beginning. Otherwise, there is a risk of missing the first month of pay for your new employees.
HR: Both parties’ HR teams must be aligned when it comes to HR practices. The acquiring company must comply with local labor laws in the new country. The new employment agreements must also follow both local labor laws and company policies for areas like annual leave, working hours and termination. Most countries have clear labor laws for notice periods and severance pay. These costs must be factored in an M&A deal.
Cultural challenges: Differences between customs and traditions can be an unforeseen element of cross border M&A. Many cross-border M&A deals fail because the cultural differences were not given the importance they deserve.
These are just a few of the human aspects that need to be addressed during cross-border M&A. These deals have a high level of complexity compared to domestic M&A and the above factors must be considered when finding the right target and signing the deal with confidence.
Post Signature
One of the reasons a deal can fail is poor post-acquisition integration. This is especially true when there are cultural and linguistic differences, and the newly acquired employees can feel alienated. Poorly handled HR processes can cause further discontent and at the same time, it is essential to retain key employees to secure success post-deal. Misalignment between the M&A integration team and the operations team can delay harmonizing the corporate policies.
The good news is that with proper preparation, this can all be avoided.
Working with a partner that has a deep understanding of the cultural customs and local HR regulations can help ensure that the human element of a cross border M&A deal isn’t ignored.
At Elements Global Services we enable organizations to support the human aspect of a merger or acquisition through a suite of workforce solutions that allow them to Expand, Onboard, Manage and Pay employees globally. We understand the importance of a reliable and best value partner who has extensive experience in facilitating a fast alignment of new personnel within a larger business.
