Challenges of Mergers and Acquisitions Deals

There are many details that can stand in the way of the future success of the new legal entity. You must find effective ways to take two separate companies and learn how to combine them into a high-functioning business that yields positive profits.

Part of having a successful business is placing the right people in the right positions.

You do not have to tackle all of the potential obstacles on your own. Using a Professional Employer Organization (PEO) is often the best solution when buying a company that has multiple operations in different countries.

You have many human resources concerns to worry about after a merger and acquisition. A PEO like Horizons can help with all aspects of the merger and acquisition process and human resources functions. Patrol administration, workers’ compensation requirements, compliance law and administrative tasks are part of the services offered.

These are complex processes that involve intricate details and nuances that can confuse established business owners. A PEO can simplify the administrative management system and mitigate a company’s exposure to liability.

Below, we discuss the important role of a PEO in the merger and acquisition process.

We also inform you of how a PEO can help with the due diligence process when considering a potential merger and acquisition, the integration of the purchased business and every step of this process.

To fully understand the significant role a PEO can play, it is important to understand the various stages of a typical merger and acquisition.

Merger and Acquisition Strategies – Benefits of involving a PEO

Before you consider acquiring another business, it is important to analyze your internal functions for effectiveness.

Human resources tasks can often overwhelm a business. They are often complex and expensive, even when only concerning one location and country. However, they become increasingly complex when multiple locations and countries are involved.

Foreign markets like China have a complex regulatory scheme that businesses are not accustomed to.

PEOs serve an integral role. They can help attract and recruit talent both from China and around the globe. They can also assist with the immigration and visa service process.

PEOs can also provide employment services to businesses so that they are the official employer of record, saving the business from the hassle and expense of having to be compliant with complex international laws.

They can take over all human resources functions so that business can tend to its operational tasks.

As the employer of record, PEOs can provide benefits that are often more attractive to workers because they provide them on a larger scale than the small or mid-sized business is able to provide.

Workers’ compensation insurance costs are often exorbitant. It can also be difficult for small and mid-sized businesses to provide medical and retirement benefits that are customary in China and other markets.

A PEO can administer benefits. Some of the key human resources and payroll functions a PEO handles include the following:

• Payroll;
• Tax compliance and remittance;
• Expenses claim declaration and reimbursement;
• Annual tax declarations;
• Leave and holiday management;
• Coordination of final payments after termination;
• Government compliance.

The PEO handles these tedious and time-consuming tasks while you retain full control of your business.

The PEO can offer the guidance and support you need to streamline and standardize your human resources strategy that is aligned with your company’s brand and goals.

Businesses that use PEOs often experience an increase in productivity, loyalty and growth. Additionally, knowing that your human resources responsibilities are in the hands of experts with local knowledge of the regulatory scheme and that you are compliant with all applicable laws will provide you with greater peace of mind and confidence in your business.

When you know that these internal functions are competently handled, you are in a better position to consider an acquisition.

M&A – Identify and Vet Options for Acquisitions

Now that you are well-positioned for an acquisition, you can begin considering options for potential mergers and acquisitions.

A PEO can be critically helpful during this stage.

The PEO can assist with the due diligence process. It can explain standardized accounting principles and discuss how to review the company’s financials that may be acquired.

It can also conduct market research to determine if the product or service is likely to resonate in the new market. Two important areas that PEOs can help with include human capital issues and cultural fit.

Human Capital Issues

Often overlooked aspects of the m&a process involve human capital issues. For example, you need to analyze the benefits program of the companies and see if they are too disparate or can also be merged.

A reputable PEO will have unique insight and knowledge about businesses and characteristics that make businesses successful in the local arena.

They will also have domain expertise that can be very valuable during this process. A PEO can identify dissimilarities between policies and benefits, including:

• Holiday leave, vacation days, sick days and personal leave policies;
• Employment agreements;
• Payroll administration;
• Rates of compensation;
• Insurance, retirement and other benefits.

Companies should also consider the onboarding process and whether both companies can share methods from each other to have a smoother company process. Your human resources team plays a vital role in preparing you for the merger and acquisition process.

Cultural Fit

Many otherwise promising mergers and acquisitions fail because it is simply a poor cultural fit. It is important not to overlook this aspect of the businesses.

Those that succeed often have similar cultures and values that they can embrace and that provide common ground between the two separate companies.

When looking into potential opportunities for mergers and acquisitions, it is important to consider if the new company is close in culture to the existing company. If they are too disparate or polar opposites, the merger and acquisition may not be successful if one company is unable or unwilling to adapt to the other company.

Part of the merger and acquisition process may involve giving employees surveys that ask them about the company’s values, culture and leadership.

A PEO can conduct this research and determine the ways that the company cultures differ and if these differences can still allow for a compatible merger and acquisition.

Because a PEO is an entity outside of your company, it can provide a more objective and reasonable perspective about your business and identify potential issues related to the disparate cultures of the companies involved in the acquisition.

By looking into the business’ human capital and company culture, a PEO can assist you with overcoming any obstacles that stand in your way during this process. This process can help you identify when potential deals should be discarded or help you realize a more realistic value of the business given some of these potential challenges.

Build a Communication Plan

One important strategy to have a successful merger and acquisition is to build a communication plan.

It is vital to communicate during the merger process. It is not uncommon for employees, managers and stakeholders to develop distrust, concern or confusion during this process due to the potential changes in store.

There are important steps to make part of your communication plan, including:

• Identify which stakeholders should be informed about the Merger and Acquisition;
• Determine a timeline to inform these stakeholders about the deal;
• Determine the method of communicating the change;
• Determine who will be impacted by the change and notify these stakeholders of these potential changes;
• Establish a timeline for when certain steps will be taken in the process;
• Provide employees, stakeholders, and others of important deadlines related to the acquisition process;
• Work closely with your human resources team to ensure all compliance matters are met, new employees are hired, employment contracts are revised and other staffing concerns are addressed.

Address Workplace Changes and Management Changes

Another important variable to consider during the mergers and acquisitions process is managing the transition. It is important to work closely with your human resources team and PEO during this process to determine job titles and responsibilities.

A merger may eliminate unnecessary duplicate jobs or result in the reassignment of existing roles. It is important to consider the new organization of the business, including whether you have the right people in the right positions. It may be necessary to reorganize.

Some companies may interview people from both existing businesses to determine which one should be placed in a key role and that alignment is possible while moving forward.

There are many things that you will need to inform employees of, such as the following information:

• Whether the payroll system will change
• Whether you will be using the benefits policies of one of the previous companies
• Information about the new company, including its history, workplace culture, processes and how the acquisition will benefit the existing company
• How employees will be evaluated under the new evaluation and reward system

It is important to inform employees of changes that will impact them and to provide adequate time to engage and guide them through this process. Take the time to address the needs and concerns of your staff.

Integrate the Two Companies

Once the business transaction is complete, it is time to integrate the two separate companies. Once you acquire the new business, you acquire its payroll, health, workers’ compensation, benefits administration and other administrative duties of the company. It can be a complex process and lead to potential exposure to liability.

Using a PEO provides you with an immediate team to assist with these administrative burdens.

If you have involved a PEO during the entire process, your PEO will be intimately familiar with your company and the new one. It may have been part of the due diligence process and recognize the strengths and weaknesses of the business.

A PEO can assist tremendously with the onboarding process by providing employees with valid employment contracts that meet all local guidelines, informing them of your handbook policies and providing information about the need for any necessary updates. It can also be part of the communication plan so that company leaders can disseminate information to employees and new hires.

Working with a PEO can help you streamline your processes, reduce human resources expenses and stabilize your company during a period of time.

After you work closely with a PEO, you will soon learn how much a PEO can become part of your long-term strategy, well beyond the merger and acquisition integration.

PEO in China – Horizons

The mergers and acquisitions process can be quite complex. It may involve many financial and legal details.

You will inherit the risks and liabilities of the new business, as well as the responsibility to provide compliance with various laws and regulations. The administrative responsibilities alone may be daunting.

However, it is important to remember that you are not alone in this process. There are many benefits of working closely with a PEO.

A PEO can provide support to assist you through the mergers and acquisition process. We can assist you develop a plan to communicate the transition to your team and develop a timeline to accomplish important aspects of your plan.

Outsourcing your human resources responsibilities allows you to transfer the responsibility of payroll, benefits administration, tax compliance, and other time-consuming human resources tasks to a professional organization that can utilize best practices to save you time and money.

If you would like more information about using one of China’s leading PEO providers, contact us today to learn more.