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Treat Mergers and Acquisitions Like a Wedding Plan

BY: Tricia Richardson, CPP, SPHR, SHRM-SCP | 05/28/20

Putting mergers and acquisitions (M&A) in perspective is like planning a wedding. Two people meet, they get to know each other’s business, they like what they see, so they decide to merge (marry) and acquire (each other’s stuff).

Who are the cast of characters? The betrothed are the owners, focused on growth and the future. While the betrothed are happily moving toward the date, the fathers (accounting) are figuring out how to possibly pay for the happy event and how many people (staff from both companies) will be invited. The mothers (human resources) are helping the betrothed hurriedly make seating charts, look for wedding attire, navigate the family dynamics … all trying to make everyone happy. The wedding planner (payroll) is desperately trying to get the information needed to plan the event so that everyone is fed, the catering bill is correct, the wedding attire is tailored to fit, and everyone gets there on time.

M&As are an exciting business development approach that can make money if done correctly. They are never easy, though. You will never be able to address everyone’s angst. This is about change, and change is rarely easy. For some, it is unbearable. There are steps and processes to put in place and follow. Before you start putting together Gantt sheets for your project schedule, take a step back and consider what is happening. For a successful M&A, several steps need to happen first.

Initial Steps to Consider

When you first start out in a M&A, consider the following steps, at a minimum:

  • Make a timeline and stick to it. As soon as you know this is going to happen, create a timeline of tasks and decisions. Put someone in charge of making sure the deadlines are met and the M&A stays on track.
  • Develop the change management plan quickly. Be proactive, not reactive.
  • Use a decision-maker. Someone must lead and make decisions. Everyone will have a different opinion about how things should be handled. There may not be a right or wrong answer or decision per se—but not making decisions will be detrimental. Give the person who is a leader this role. The Vice President or Chief Financial Officer may seem like the people who should lead. What if they are not the type of leader needed—or even a good leader?
  • Have the right people at the table. The epic failure of M&As always starts with having the wrong people in, or missing people from, the conversations. Unfortunately, too many organizations will focus on the owners, board of directors, accountants, and attorneys. These are important people in the process, but they are not the ones who will be involved after the papers are signed.

Don’t Forget the Payroll Team

Here is where the M&A can go horribly wrong. I have seen this happen in every M&A I have ever been involved with. Payroll will need to know things—a lot of things—right from the beginning. For the employees, it is about the total compensation package—and most of that, if not all, is represented in their paycheck. To make the M&A work, payroll must know the following:

  • What is the official effective date of the change and what is the first pay date?
  • Is the general ledger changing?
  • Will the benefit plan deductions be changing?
  • Are paid-time-off accruals changing? Are any employees being “grandfathered” into accrual plans? Will any balances be brought over?
  • What is the retirement plan going to look like? Is the match changing? When are “acquired” employees eligible? Will there be one plan, or will all the plans be maintained? What are the eligible earnings? Bonuses could be an eligible earning for calculating deferrals for one organization but not for another.
  • Are schedules changing?
  • Will all managers be signing off on timesheets and employee requests? If so, what are those hierarchies?
  • Who will need what permissions in the human resource information system (HRIS)?
  • What are the earnings and deductions codes?
  • Where are the employees working? Will new states and localities be added? If so, who is applying for those registrations?
  • How are employees used to getting paid? Will you be using paycards?
  • What pay schedule and pay dates will be used? Will there be multiple?
  • What Federal Employer Identification Number (FEIN) is being used?
  • How will Forms W-2, 1095, and payroll tax returns be completed for the remainder of the calendar year?

Word of caution—payroll teams are usually understaffed. Make sure the payroll team is staffed accordingly. You will need more people for M&As—not just for the routine tasks but also for the additional questions and concerns of employees.

Know the Payroll Tax Implications

In a M&A, you want to understand the payroll tax implications. If you are creating a new FEIN, all the employees are considered new and all the payroll item thresholds start over. If using one of the FEINs, any employee on the “old” FEIN will be considered a new employee and those thresholds will start over. The high-wage earners, if moving to a new FEIN, will have their social security and Medicare taxes begin anew. They may pay more in social security than they would have under the old company.

For example, an employee earned $195,000 YTD in social security and Medicare taxable wages. They have maxed out on social security taxes and were close to the additional Medicare surcharge. All of this starts over with a new FEIN. Make sure the employee knows this! They reconcile this on their personal tax return, but that is not going to help them now. Consider the impact to fringe benefits like tuition reimbursement. What about health savings accounts and flexible spending accounts?

Let HR Lead the People Part

There should be at least one member of the human resources (HR) team from each organization with one point-person and decision-maker for both. They may or may not contribute much to the final terms, but they will point out all the information that is not being considered.

For example—who will “own” the staff? Who, if any, will need to re-apply for a job in the newly established organization? Will existing benefit plans for both organizations remain in place until the next open enrollment or will one be chosen for all? What will the new employee handbook look like?

All policies for both companies should be compared and implemented for everyone. There are probably good and bad practices in both. Keeping the best from both will assist with merging both teams into one.

HR should have the skill set to effectively manage the change for employees. They work with employees on all the other workplace issues, so let them take the lead on this one. Follow their judgement and recommendations.

Communicate, Communicate, Communicate

Use a communication team. One employee from each department should be recruited for the communication team. Pick a point-person (preferably from HR) on the team to develop the communications based on what the department representatives discuss and recommend. You never want to leave people’s needs out of the conversation. Marketing will contribute a lot to the team. They can help draft creative communications that give clear and accurate information. This is their skill set.

Then you want to over-communicate. There are no such things as dumb questions or over-communication. This is about change. Change management is all about communication. Tell the employees the M&A is happening. Tell them what it means for them. Tell them the truth. If there will be layoffs and downsizing or redundant staff, let them know. They have worked hard for you; you should work hard for them. M&As are not the time for a mass exodus of staff because they are uncertain or afraid.

Town-hall meetings will help. Facilitate regular open forums for staff to ask questions or share concerns. Never let the communication flow one way. There will be a lot of misinformation out there, along with fears, grumblings, etc. Address employees in an open forum to avoid the negative impact of employees speaking out of fear instead of knowledge. Use your communication team to lead these discussions.

Impact of Corporate Culture

Remember, you are creating a new company. Instead of two becoming one, think of the M&A as building a new company with resources from all. Treat all employees as if they are new employees. This will ensure they are equal, trained accordingly, understand the new corporate culture and employee handbook, and have direct interaction with the new HR team. They may have been an employee for 20 years, but not of the new company.

Use this time to clean house. Let’s be honest. There are managers in all companies that should probably not be there. Some employees and departments are going to be redundant. Some technology, policies, processes, and procedures should have been changed or removed years ago. Rip off the Band-Aid quickly. Be smart about the changes—but make them if they need to be made. Now is the time.

Also, never underestimate the impact of the corporate culture. Every business has a corporate culture. Corporate culture is a lot like tradition. One business may have had a casual culture of jeans, personalizing workspaces, regular potluck lunches, conducting meetings outside, and non-standard email signatures. If the other business has not embraced a casual work environment, meetings are held in a designated space with strict agendas, and the IT department locks down signatures to be uniform, merging these different corporate cultures is going to be a problem. Create a new culture using the best of all of them. Communicate why changes to the culture are being made. Otherwise, employees will see it as a punishment.

Employees may not always be happy or comfortable, but they should always feel valued. If employees believe they are more than a cog in the wheel of the success of the company machine, they will stay, work hard, and contribute to the organization’s success in ways the stakeholders could never have imagined, doing their part for a long and happy marriage.


Tricia Richardson, CPP, SPHR, SHRM-SCP, is a Consultant for RKL, LLP. She is a member of APA’s National Speakers Bureau and the Board of Contributing Writers for PAYTECH.