Cross-border mergers and acquisitions (M&As) can form an effective strategy for business expansion by unlocking new revenue streams and improving bottom-line profitability. Some of the other benefits include increasing market access, reducing competition and opening up new talent pools
Despite the numerous opportunities for success, cross border corporate transactions – like most global expansion strategies – do not come without risks and challenges. Up to 90% of acquisitions eventually fail, according to research published by Harvard Business Review. An exodus of talent is often at the root of an M&A flop, with the same research finding nearly half (47%) of key employees depart from the company within a year of a transaction and up to 75% leave within three years.
As Steve Jobs said, “Incredible things in the business world are never made by a single person, but by a team.”
An Employer of Record (EOR) partner can help both buying and selling companies address compliance issues, bolster employee engagement and build teams during all phases of a transaction.
Pre-deal: preparing for valuation and purchase agreement (seller side)
The usual demands for businesses to grow quickly and cost-effectively often promote short-term, bandage solutions, which can trigger complex and potentially costly challenges further down the road. These nearsighted decisions can even compromise valuation.
For example, while hiring a worker as an independent contractor (IC) is a nimble, cheap solution that contains fixed costs, it is not suitable for permanent employment. If not done properly, it can expose a company to compliance liabilities and intellectual property (IP) risks.
As a company prepares for a corporate transaction, such as a sale or a carve out, these missteps are likely to come under full view in the microscope. Before signing an agreement, the buying company will apply due diligence to uncover red flags in corporate risk such as compliance for misclassified workers, IP, tax liabilities and more.
If a selling company’s corporate risk profile is found to be too high, it can render the company less valuable ahead of a sale. Alternatively, it can delay or altogether terminate the transaction altogether.
An EOR partner may be engaged by a selling company to avoid these common pitfalls, mitigate risks and uphold its marketplace value. The EOR can support the transition from an IC engagement strategy to hiring permanent employees. The EOR can also help a company wind down its headcount or avoid leaving the buyer with ‘orphaned employees’ in the case of a carve out.
Due diligence and transition: planning a road map (buyer side)
Due diligence is conducted before the deal closes to assure the buyer of what they’re getting in the transaction. This also allows them to answer any lingering questions and come up with a plan for how they will hire and retain talent once the deal is completed.
An EOR partner may prove invaluable during this phase, as plans can be made to bridge any hiring gaps, reduce operational risks and promote talent development.
As previously mentioned, sometimes a carve out acquisition will leave key employees without an entity to employ them if the buying company doesn’t have an in-country entity. The buying company can work with an EOR partner before the close of the deal to determine what the needs are and what the costs will be in order to keep those key employees on board.
During due diligence, the buying company can work with an EOR to answer the following questions and plan a road map for transition:
- Will any employees be ‘orphaned’ by the deal?
- What is the current compensation structure for these employees?
- What are the current employee benefits?
- How can this transition be streamlined to promote employee retention and engagement?
- How should the transition and EOR arrangement be communicated to employees?
- Are there any permanent establishment risks lingering in the operational footprint? How can this be addressed?
- Can an EOR serve as a solution to help further support hiring or talent retention?
- Will the EOR hiring strategy serve as an interim or long-term solution?
Beyond the deal: empowering agile, sustainable global expansion
In today’s fast-paced, competitive business climate, global expansion is often a critical imperative for diversifying revenue streams, impressing new audiences, testing innovative products, raising brand recognition and, of course, tapping into new talent pools.
As the appetite for global business expansion continues to increase, 2022 may net out as the second-best year on record for cross-border M&A activity. Global deals are expected to surpass $4.7 trillion in value, according to Bain & Company’s Global M&A Midyear Report. For companies with healthy balance sheets, an economic downturn and reduction in inflation may also present more opportunities for acquisitions.
“Whether you are a buyer or a seller, your company can be supported by an EOR solution throughout a transaction and enjoy streamlined HR processing, compliance assurance and a lower risk profile,” says Andrew Lindquist, a partner at GoGlobal. “Time is of the essence when a cross-border deal is on the table. A flexible and nimble EOR hiring model lets you onboard ‘orphaned’ employees or new hires in as little as 24 hours, significantly accelerating the process.”
By knowing your business is operating compliantly and efficiently, your team can then focus on employee engagement and the core business growth activities that drive the bottom line. In the end, by using a trusted EOR partner, your fast-growth company can approach cross-border deals with agility, efficiency and peace of mind.
Check out our ‘What is an EOR?’ guide or contact us to talk with an international HR expert about how an EOR solution can put your M&A plans on the fast track.