Navigating employee integration and workforce synergy in cross-border M&A deals is one of the key aspects driving success. In the modern economic landscape, most business verticals go through consistent disruption because of fast-emerging technology.
Intellectual Property (IP) and the skilled talent creating these invaluable intangible assets are the core drivers for M&A transactions. Dealmakers are more keen on acqui-hiring than acquisitions when they need the targeted company’s founding teams to join them.
Integrating the workforce becomes all the more complex in offshore acquisitions because of myriad issues, starting with labor councils and laws. Acquirers must also navigate significant differences in language, local culture, communication barriers, and unique workflow processes.
Research indicates that post-acquisition, 33% of the workforce in the targeted company is likely to quit within 12 months. That is, as against 12% of regular hires. You can also expect that up to 75% will leave the new company within three years.
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Why Employee Integration and Workforce Synergy Is Critical
When the key objective of the M&A transaction is to acquire the core skill sets responsible for building IP, you’ll want to avoid this scenario. Acquiring companies must work on their strategies to motivate and engage the targeted company’s workforce.
You’ll also want their buy-ins with the new company’s mission and value statements. That’s how you can ensure that they’ll stay with the company, allowing you to achieve your goals from the M&A deal
You’ll focus on retaining human capital with strategized approaches that you’ll deploy before, during, and after the deal’s closing. Experts estimate that the number of cross-border M&A deals will grow quickly in 2023, with 68% of top-tier executives analyzing foreign companies for acquisition.
However, the percentage of failed deals stands at 70%. A great first step in the right direction to avoid this risk is to bring in expert M&A advisors. Hire teams that are adept at identifying and addressing stakeholder concerns and cross-border labor laws and compliances.
Read ahead to understand how to execute this crucial step in your M&A transaction.
Navigating Employee Integration And Workforce Synergy in Cross-Border M&A
Acquirers entering into cross-border M&A deals must pay careful attention to local workmen’s unions and councils. Be aware of their rights and the general labor and collective bargaining agreements in force in the country. You should be aware of the workers’ representation body and their processes.
Don’t make the mistake of overlooking their rights to have complete information about the transaction before and after the signing. Works councils also have the power to disagree with the M&A deal. While they may not prevent the deal from happening, they can request resolutions and measures.
Resolving their concerns and arriving at a satisfactory agreement can be time-consuming, which, in turn, is expensive. Councils also have consultation rights and exercise veto rights in specific areas. Not addressing their issues at the onset can result in strikes and employee walkouts.
In countries like France, dealmakers can attract penalties, fines, and criminal charges. Belgium, on the other hand, requires companies to pay remunerative damages to their employees. Even if you don’t face these risks, you’ll prepare for a stressful workplace environment, discontent, and lost synergies.
Dealmakers must make sure to prepare for these issues and develop a structure and timeline for executing the transaction accordingly. Most importantly, they must retain local legal counsel who can assist them with negotiations with the European Works Council (EWC) in case of European deals.
They will also direct you on the National Works Council (NWC) compliances and regulations laid down by any other local labor unions. You may also need help with understanding how the rules overlap and how you can navigate them.
The next step is managing the challenges of navigating employee integration and workforce synergy in cross-border M&A deals. Here’s how to address them.
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Maintain Open Communication Lines
Nothing is more damaging to employee morale and confidence than rumors of an impending M&A deal. Rumors typically lead to uncertainty about positions in the company and salary packages that the acquiring entity will offer.
Workers who are unsure about the direction in which the company will go are sure to start looking for positions in competing organizations. Avoid attrition by instructing the management to deliver carefully drafted messages to communicate the deal status. Send out consistent information about the progress.
Inform people about what to expect from the transaction and the new employment structure that will come into place. If you anticipate laying off specific employees, have the management organize one-on-one interviews to advise them.
Your team should also reach out to the work councils and inform them before any irreversible actions take place. Target the relevant organizations within the city or region and send out messages. Allow them time to study the documentation and get back to you with inputs, concerns, and queries.
Make sure that your communication lines allow for coordination with the legal teams, M&A advisors, and employment counselors. Invite stakeholders and HR experts to join the negotiation table.
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Retain the Core Talent of the Newly-Acquired Company
Integrating human resources is an essential component of post-merger activities. Remember that your employees’ primary criteria are the compensation packages they can expect. You’ll make sure that the packages are uniform across the board and match the benefits they received pre-merger.
Any discrepancies will lead to discontent and a lack of engagement among the workforce. Avoid this by taking the time to consult with the work councils and HR managers to review the current benefits.
Examine employment contracts, salaries, perks, benefits, stock options, severance agreements, and any other incentives the seller may have committed. Accrued vacations, pensions, and healthcare benefits are other areas where you’ll focus.
Legally, acquirers must maintain the level of the overall compensation due to the employees. You’ll communicate the information and invite queries and concerns before the new plans take effect. Get your HR team to streamline integration and onboarding processes with the minimum of confusion.
If you can organize the orientation and transition smoothly, you’ll eliminate the 16% attrition rate that can result. An essential facet is determining which workers have legal employment status or are independent contractors.
At this time, you’ll need the guidance of local HR and legal teams, who’ll guide you through the laws. That’s because the foreign country may have regulations for drawing up employee contracts that are compliant with international laws.
Checking out the European Commission’s Acquired Rights Directive (ARD), transferable liabilities, and Collective Bargaining Agreements (CBA) is mandatory. You’ll also ensure that employees having ARD protection remain in the surviving company.
The CBA is the protocol for negotiating employment terms between the hiring company and workers. The company management and labor union are parties to the agreement that covers topics like salary, overtime compensation, working conditions, benefits, and more.
Since your primary objective is to retain the core talent, you’ll also work out solutions for bringing aboard expat employees. Once again, your legal team will direct you on the procedures to follow as laid down by the US Citizenship and Immigration Services (USCIS).
Acquirers purchasing a company that hires local employees must sponsor their visas to the US. You can use the original employer’s approved labor certification as the successor-in-interest (SII). That is, if you changed the company structure or acquired or merged with the company.
To get the visas, you’ll prove that the job positions you’re offering are similar to the jobs in the seller’s company. Also, provide documentation outlining how the acquisition progressed.
Acquirers should also examine any contracts the seller has entered into with private contractors. Defining their relationship with the surviving company and compensation structures is important to rule out any liabilities and risks. You also risk legal compliance issues.
At the same time, the acquiring company should also look into the interests of redundant workers. Not only must you provide severance packages, but as in countries like Germany and Switzerland, you’ll also assume the pension liabilities of the seller’s company.
Then again, according to UK law, if you’re electing a worker representative body, pension trustees have a say. Not taking care of redundant employees can lead to expensive litigation and penalties.
Streamline Payroll and Salary Payments
When navigating employee integration and workforce synergy in cross-border deals, you must work out payroll. Depending on the country where you’ve purchased a company, you’ll comply with their regulations related to employees.
If you intend to convert the targeted company into a subsidiary to acqui-hire, you’ll get the necessary permits. You’ll also need licenses from the federal, municipal, state, and city governments to conduct business. For instance, the IHK (Chamber of Commerce and Industry) in Germany and federal authorities in Canada.
Applying for and acquiring them can take months to execute. Many countries require you to complete these formalities before getting a bank account, which you’ll need to pay salaries.
With the advice of your legal team, initiate the procedures for applying for the accounts in advance. Not only will delays hold up the deal’s closing, but they will also result in problems with paying employees.
Don’t forget to factor in currency conversions, cross-border payroll processing, different banking protocols, fees, taxes, and more. Deploying AI tools is always a smart move to speed up the process.
Maintain and Integrate the Company Culture
The workforce is the company’s most dynamic resource that needs a vision and mission statement to function efficiently. That’s what constitues the company culture, which you need to integrate properly to maintain engagement levels.
Integrating the purchased company’s culture with the acquirer’s organization is a complex process, more so, in cross-border mergers. Research indicates that in 75% of acquisitions, buyers need to invest in professional agencies to assist with the integration. That’s how they can ensure success.
Offshore mergers and acquisitions become more challenging because of distinct languages, time zone issues, customs, and communication styles. More than just language, interpretation and usage are major problems that create problems in relaying messages.
If you can execute this process efficiently, you’ll build a robots, well-coordinated team that functions seamlessly out of two locations. You can institute a new corporate culture which is an amalgamation of the best of both worlds. That’s how you’ll prevent attrition and burnout and achieve success.
Even as you’re reading up on how to integrate teams in cross-border M&A deals, you should also know what investors look for in a founding team. This information will help you screen companies for acquisitions accordingly. Check out this video I have created.
Partnering with an Employer of Record
When navigating employee integration and workforce synergy in cross-border M&A deals, consider retaining the assistance of an EOR. An Employer of Record or EOR is an agency that bridges the gap between employees and acquirers.
You can rely on expert HR managers to supervise the entire workforce integration, starting with regulatory compliance through employee contracts. They’ll address the pain points to resolve issues with employee engagement, onboarding, orientation, company culture, and compensation structures.
The agency will streamline communication with your new workforce leaving you free to deal with the other challenges of a foreign acquisition. Making payroll, reclassifying employees, and ressigning redundant workers is also part of their services portfolio.
If needed, you can also rely on them to hire local talent and manage any other HR-related tasks of the subsidiary you’ve acquired. It is not unusual for offshore acquirers to employ these agencies as cornerstone assets to manage their human resources capital.
Having local experts on the ground who are familiar with how employees think and behave is a hige asset. You can also stay on top of changing local regulations, labor laws, compliance issues and any other day-to-day challenges.
The benefits of cross-border M&A deals are manifold, including gaining a market presence in new locations and product diversification. When your objectives are acquiring skilled talent and creators of valuable IP, seamless integration becomes a top priority.
That’s how you can ensure minimum attrition rates and avoid delays in achieving synergy. Bringing experts on board to assist and direct the process is advisable for navigating employee integration and workforce synergy in cross-border M&A deals.
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