Navigating global payroll management through mergers, acquisitions, or divestitures is a unique challenge for all parties involved. There tends to be a corporate agenda within these transformative events that focuses heavily on the financial outcome but puts important elements like payroll on the sidelines.
Whenever employees hear a merger or acquisition is happening, they immediately go on high alert, taking note of any little hint of danger that might affect their job security. A missed paycheck could be the nail in the coffin, so to speak, that leads to a wave of employees leaving. SHRM reports that 70-90 percent of M&A’s do not meet their financial or strategic goals. Interestingly, this failure is most often attributed to HR related issues.
Clear first 100 days milestones are the key to a successful M&A transition; global payroll changes need to be included in these. This is especially important in multi-country deals. There are some complex scenarios that can factor into how payroll will be transitioned, depending on whether the employees abroad will be absorbed into an existing entity in-country, will be under a new entity, will be supported by an international PEO or international employer of record, or some combination of these. It’s best to know exactly what has to happen in each country ahead of time, to ensure you maintain a compliant entity and can continue to pay people on time.
You’d be surprised we have to mention this, but if there is a spin-off in the deal, make sure that local entity set-up is brought up early. We have seen clients who did not put priority to creating a new company in each country where they do business, and they were then at the mercy of the local government’s timelines. There are countries where entity set-up can take up to six months. As an example of what we are talking about here, take a look at the first case study in our list to appreciate the complexity and coordination needed to create new entities in seven countries. This brings us to our next point.
It is incredibly hard to execute any merger, acquisition or divestiture without outside help. In most of the cases we have seen, a lack of internal resources, post-event, leads to a need for a temporary, stop-gap solution. Even more often, it just makes sense for the new entity to outsource to a third party long-term. Either way, someone will need to oversee a new ecosystem of vendors. Payroll, benefits, and legal vendors will need to be on the same page. But executive time will be tied up in running the company and juggling the deal terms. That’s why it makes sense for an outside project manager – or a project team – to be dedicated. They are making sure that all vendors and internal stakeholder involved in payroll are staying coordinated and are receiving the information they need to meet deadlines.
“Lift and shift” is a term used in transitions of all kinds. It means that you focus on just getting the old payroll management systems working again on a new platform, versus trying to transform or improve during the change. Many inexperienced managers will look at a transition as an opportunity to fix all the problems they have, as well as essentially build a new company. This approach is called “transform and shift.” We find that, in nine times out of ten, timeline and complexity pressures lead to significant failures when managers try to fix the system while making a transition like this. We recommend that if there is any question of what the final solution will be, just take your existing process “as is”, and use a third-party outsourcer take it over, to fill the gap while the dust settles.
The name of the game in M&A is to check a box as fast as you can. Even if timeline pressure does not exist in the beginning, something will come up – especially on the HR and culture front, as you get closer to final transition and implementation. Don’t try to reinvent the wheel; instead, focus on the terms of the deal, executing on time, and later – when you are operating smoothly again – focus on improving.
For over 13 years, Celergo has helped many companies transition through all different types of mergers, acquisitions, and divestitures with a focus on payroll management. We have a truly global team of experts serving 150+ countries that can help you check-the-boxes and successfully navigate an M&A transition. Contact us if you have any questions, we are here to help!
**This article is for informational purposes only. It is not intended to constitute legal advice.