Practical human capital and HR strategies that capture value beyond the deal

Connect teams early in M&A deal process for successful day one
Connect teams early in M&A deal process for successful day one

Q4 of any calendar year is the busiest time of year for many business functions, but it certainly is for HR professionals. Now add into the mix the closing of one or more transactions and the pressure for HR teams increases exponentially. What is a strategy to help ensure a successful closing and day one transition for employees and benefit plans? Connect your employee benefits counsel (who are part of your deal team’s lawyers), your benefits consultants and/or insurance broker, and your internal HR/benefits lead (or team) as early as possible in the deal process. 

Opening the line of communication between these individuals enables collaboration and coordination to determine the best solution for addressing the critical questions for a successful benefit plan transition and integration:

  • In which retirement and health/welfare benefit plans will the acquired group’s employees be able to participate effective on the closing date and through the end of the calendar year to minimize or prevent gaps in coverage?
  • How can we minimize the impact (financial or otherwise) to the buyer, the buyer’s benefit plans, and the acquired group’s employees?
  • How can we mitigate the potential legal liability or noncompliance exposure to buyer and buyer’s benefit plans (including any benefit plans being acquired in the transaction) when implementing the desired approach on tight deal timelines?

Different but Complementary Roles

Benefits counsel and benefits consultants serve different but complementary roles when advising buyers in a transaction context. These teams are quite accustomed to working together on deals and introducing them early helps to eliminate out-of-sync recommendations and duplication of efforts. In our experience, having these teams collaborating and staying coordinated throughout the entire deal process results in a more successful day one and integration strategy – from the perspective of the employee experience, the financial impact to the buyer, and legal compliance. All of the benefits consultants and insurance brokers we have worked with over the years (such as Lockton, Gallagher, Mercer, Aon, CAC Specialty, and PwC to name a few) have the same goals that we have as benefits lawyers: helping the buyer look around all corners, anticipate risks and common errors, and navigate thorny and complex benefits integration issues.  

We (as benefits lawyers) recognize the value and perspective that benefits consultants and brokers bring to the table, and we have found that benefits consultants and brokers similarly find that the benefits lawyers add value by making sure that the legal aspects are all in line—from a timing perspective and a documentation perspective (including the purchase agreement language, any board resolutions and plan amendments, and employee communications)–to help a buyer comply with applicable laws and regulations, the plans’ terms, and related contract terms. As the saying goes, we are all better working together to help the buyer achieve a successful employee and benefit plan integration!

Here’s an Example

A private equity-sponsored platform company with one or more operating companies is looking to acquire another company (or the assets of a company) to add to the platform or a public or private company with current operations is looking to acquire a company (or the assets of a company) and the parties are pushing to close the deal by November 30. What can benefits counsel and benefits consultants help buyers figure out?

  • All of the actions that are needed to on-board the acquired group’s employees into buyer’s payroll system, buyer’s retirement and health/welfare benefit plans, and buyer’s compensation and incentive plans.
  • The financial implications of on-boarding the acquired group’s employees into buyer’s payroll system, buyer’s retirement and health/welfare benefit plans, and buyer’s compensation and incentive plans.
  • The legal implications of and documentation that would be necessary for on-boarding the acquired group’s employees into buyer’s payroll system, buyer’s retirement and health/welfare benefit plans, and buyer’s compensation and incentive plans.

Then, together, the buyer’s HR lead or team can collaborate with benefits counsel and the benefits consultants to determine the strategy for day one. Common issues that we encounter with buyers include:

  • The buyer’s payroll provider does not have enough time to on-board the employees into its system. If this issue isn’t addressed early enough, the parties may have to push back the closing or quickly put in place a transition services agreement (TSA) to bridge the gap.
  • The buyer’s medical plan is not able to credit employees’ expenses toward deductibles. A significant employee morale issue could result if employees have to move benefit plans and restart deductibles in the last month of the year.
  • The buyer’s medical plan does not currently have networks that cover the geographic location of the acquired group’s employees, which means that the acquired group may not have in-network coverage for their healthcare needs.
  • The buyer’s benefit plans are more generous so adding the acquired group’s employees would significantly increase the costs of benefits to the buyer.
  • The buyer does not want the legal liability and exposure associated with assuming or allowing the acquired group’s 401(k) plan to be transferred in the deal but also does not want the acquired group to start participating in its 401(k) plan until a later date post-closing, such as January 1. If this is not handled timely and documented properly, the buyer could be stuck assuming the plan anyway or need to undertake a noncompliance corrective actions to fix the failed attempt.

But, benefits counsel and benefits consultants have seen and dealt with these issues across thousands of transactions with buyers and we have strategies to address them; however, it definitely helps to get us working together with the buyer’s HR lead and/or team as early as possible to be in the best position for implementing a successful day one strategy, particularly coming into the end of the calendar year. 

This is just one example of how coordination of benefits consultants and benefits counsel throughout the deal process can help buyers establish a post-closing integration plan to mitigate risk and accelerate value creation, which gives the buyer an INTEGRATION ADVANTAGE. 

  • Melissa R. Grim

    Melissa Grim is the leader of the Employee Benefits and Executive Compensation Practice Group. Melissa advises clients in connection with a wide range of employee benefits and executive compensation-related matters, including ...

  • Emily L. Morrison

    Emily Morrison’s practice includes a broad range of employee benefits and executive compensation matters, including handling such matters as part of corporate, M&A and private equity transactions.  She regularly advises ...

Jump to Page

By using this site, you agree to our Privacy Policy and our Disclaimer.