When merging or acquiring a new company in another country, it's important to consider how employment, payroll and human resources will be managed.
The three main integration challenges when it comes to M&As are cultural and organizational risks, employment conversion and legal considerations. In order to address some of these issues, some companies choose to invest in a transitional service agreement (TSA).
In this post we are outlining the common challenges with TSAs and why investing in a Global PEO is a better option.
Common Challenges with TSAs for Buyers and Sellers
TSAs are used when an organization is sold to another company. Once the sale has been completed, the selling company provides services to the purchasing company to ensure a smooth transition. This usually includes HR, IT, accounting and finance.
Although TSAs are commonly used, they bring complexities with them and complications that affect both the buying and selling parties. The transaction process creates confusion for employees on both sides. ‘Who do the employees work for’ and ‘when will they be integrated into the new company’ are common questions.
One of the most common challenges with M&As is getting payroll up and running for transferred employees. Establishing this process takes a lot of work which is more time-consuming than what many buyers initially assume.
Challenges for sellers:
Even after the transaction closes, not all administrative tasks will have finished, linking the buyer and seller after the transaction close date.
Sellers maintain liability for employees that are no longer part of their team.
TSAs bring accounting challenges, such as compensation and benefits that aren’t listed on the seller’s records as expenses. (These undocumented expenses then cause confusion for department budgets and create accounting issues).
Challenges for buyers:
Buyers have little flexibility during the TSA which can add more stress to the process.
Buyers have to decide services that are essential and identify the costs of the sellers’ services.
Buyers don’t have complete control over new employees and can’t hire new employees.
Buyers also have to rely on sellers to take on the liability of new employees.
A Global PEO’s Role in the Transaction Process
Ultimately, a Global PEO streamlines the process because it allows companies to complete the transaction without a TSA. This is ideal for sellers that need a simpler way to transfer smaller teams during the transaction.
Although the services offered by PEOs can vary, generally, the best PEOs help businesses with the following:
Payroll - calculating employee pay, making necessary deductions and ensuring employee benefits are distributed correctly.
Human Resources - annual leave, absences, arranging insurance.
Tax - with expertise in tax structure and tax compliance requirements, PEOs can advise on related tax matters in your selected country.
Global Mobility Consulting - provide advice on immigration problems, as well as the visas needed for any employees arriving in the country.
Employee Contracts - create employment contracts tailored to the region the business wants to operate in.
Recruitment - recruit the staff required for the business.
Legal services - provide the necessary legal services for the area the business wants to operate in.
There is a lot that can go wrong with M&As, which is why it is better to invest in all the help you can get before beginning the transaction. A Global PEO provides strategic advice prior to merging and acquiring, this is particularly important when the company is abroad. Not only that, but a Global PEO will provide essential, professional advice on matters such as payroll, human resources and recruitment and how these could be implemented in your M&A.
Generally, the most cost-effective way of ensuring a smooth transition during an M&A is through implementing a PEO solution. This is because a PEO takes on the ongoing administrative and compliance responsibility for employees, so the buying company can focus on other important parts of the merger.
To learn more about M&As and implementing a PEO solution, take a look at our latest download.
Avoid the Common Pitfalls of Mergers and Acquisitions
From regulatory landscapes to culture clashes, there are a variety of reasons why M&As fail. The good news is that by taking the time to understand why others have failed and by taking the right precautions, you can reduce the risk of your M&A failing.
Contracts, payroll, integration and asset liability are all covered in our download. To gain more insight into the common pitfalls - and to discover potential solutions - click the button below.