Business considerations, and perhaps personal ones, guide an owner’s decision to sell a company or to expand operations through a merger or acquisition. Consequently, issues involving employee benefits plans are sometimes overlooked until well after the deal negotiations are underway. Delays in recognizing the importance of employee benefits issues to a merger or acquisition can increase the complexities of the transaction and/or create obstacles to its completion.
Benefits plan-related issues can impact merger/acquisition negotiations in a number of ways. Benefits plans can be a source of large liabilities (such as an under funded pension plan) or legal obligations (e.g., COBRA). And, as a crucial factor in employee compensation, mistakes or misunderstandings involving how benefits obligations will be handled can have severe employee relations repercussions. Therefore, taking steps to understand and make provisions for how the benefits plans of affected employees will be handled is crucial to the business transaction.
Any business owner entering merger/acquisition negotiations will need a thorough understanding of the affected employee benefits plans in order to assess the financial significance these plans bring to the transaction. For example, what is the funding status of any pension plan? Who will take responsibility for the COBRA coverage of employees terminated from the seller? Will the health insurer continue coverage for employees affected by the transaction? If health insurance coverage is self-funded, what is the extent of outstanding claims and potential liabilities? Which party will be responsible for any severance pay, accumulated vacation time or paid time off? Unforeseen liabilities associated with issues such as these can result in unwelcome surprises if discovered well into business negotiations.
Involving human resources and benefits personnel at the early stages of the business transaction can be one of the most important keys to avoiding problems. HR and benefits executives and staff are the individuals in a company with the best knowledge of the employee benefits plans. Furthermore, they understand the business strategy supporting the plans; how the plans fit into the company’s philosophy; compliance issues the plans create; and plan provisions and/or vendor-related issues that may be implicated in a merger/acquisition transaction.
HR involvement also is vital insofar as the role these individuals play in communicating M&A-related benefits issues to affected employees. Business transitions are a time when employees will be concerned about the potential for job loss or other changes in the status quo. Invariably, this becomes a time of stress for employees, with the potential for lower productivity, higher absenteeism and increased medical and disability claims. HR’s ability to answer questions, address rumors and clarify misconceptions will help keep these types of problems to a minimum.
Overall, employee benefits plans can present a myriad of complex, challenging issues in an M&A transaction. If dealt with upfront, early in the deal, the chances of these issues having a negative impact on the transaction are minimized. Involving HR staff in the beginning, and working with the services of business professionals savvy in M&A issues, also helps to ensure that employee benefits plan-related issues do not get in the way of a successful business deal. Let us help you with these and other complex Benefits issues. Contact us.