Human Resources In M&A Deals - A Critical Analysis

Any form of restructuring of business impacts human resources and hence, the need to address concerns related to human resources…

 

 

Human resources and their management plays a crucial role in the success of any organization. Thus, an acquirer needs to pay attention to matters relating to human resource as there may be financial implications or operational issues having an impact on the structure and/or valuation of the deal.

Business restructuring is a necessity for survival and growth and brings about efficiency and profitability in today’s competitive global economy. Restructuring of business can take a variety of forms. No matter the form, there is always an impact on human resources. Hence, the need for evaluating and addressing concerns relating thereto is critical for successful implementation of the transaction.

Share Acquisition

In a share acquisition, the purchaser acquires the entire legacy of issues and liabilities of a company. Therefore, due diligence plays a vital role to identify problem areas to be addressed and resolved in the initial stages of the deal.

Significant diligence matters include: identifying noncompliances of statutory obligations that can lead to potential financial liabilities, labor disputes, and possible criminal prosecution; classification of nature and number of the workforce for identification of potential issues and regulatory requirements, workforce restructuring, and integration; and examining employee benefits to ascertain financial obligations. Similarly, terms of employment are essential where there are financial implications on change in control or loss of office. Such conditions are primarily found in senior management contracts. Where there are trade unions, there will be collective bargaining agreements requiring adherence to terms and consultation where such terms are impacted. Also labor unrest and litigation by or against an organization by employees or labor authorities are critical red flags in terms of financial liabilities, criminal prosecution, and disruption of operations.