Redcap&Truss is working on a few deals at the moment that we should be announcing in the coming months (touch wood) and as diligence is being completed and definitive documents drafted, we also recommend that parties open discussions about integration requirements. In some cases, it’s relatively straightforward if it’s an asset deal and the buyer has existing operations – in that case, generally the acquired company will just be integrated into the existing operations.
In other cases, particularly if there are a large number of employees coming over in a deal and if it’s a corporate deal where IT infrastructure, Vendor Contracts, and perhaps a new geographic location is being acquired, there are a number of items that should be coordinated to ensure a smooth transition. Further complicating this is the fact that with many deals, only a small number of employees will likely know about the deal until close to, or at closing, further complicating matters (which likely results in a small group of people do the majority of the work).
Key areas of transition that we typically cover are below (these are examples of common ones, but each deal will have its own unique items to discuss).
Human Resources – Typically in the schedules to the definitive documents there is a section that covers employee matters. A listing of employee name, title, wage, start date (to calculate weeks/years of service), benefits, vacation matters, etc. As part of integration, both buyer and seller should discuss whether there will be any changes to wages, vacation time, employee responsibilities etc. as part of the deal and if so, how and when this will all be communicated to staff. In asset deals, the employees are terminated and rehired by the acquiring entities, so vacation time and any benefits owing are paid out at closing. In a corporate deal, those liabilities roll to the new buyer and an accrual is set up and paid for up to closing by the seller. Employee matters, especially as it relates to key staff members can make or break the success of a deal and should be addressed early and revisited often.
Vendor contracts and assignments – Buyers need to look at whether there are vendor obligations that are being assumed and if not, are there buy-out penalties and who is responsible for these costs. In asset deals, typically a seller will have to give notice to the Vendor of contract termination or re-assignment so both parties will want to think about timing of this as our experience has been that vendors are one of the main sources of “deal leaks”. In other cases, buyer and seller may agree to just “pay the penalty” if its relatively minor but carries deal risk for leakage and deal with any transition post-closing. If there are key vendors, like DMS providers in an auto dealership acquisition for example, should be brought in early. These firms are very familiar with the M&A process and have policies and processes in place to keep deals quiet.
Clients – Similar to HR matters, client communications should be discussed. This is particularly tricky if the buyer and acquirer and current competitors. A detailed discussion should be had over which clients are material and key to a deal consummating, how they are likely to react, who should communicate to them and the timing. Some client contracts may have change of control provisions in place so that may also influence timing and communication. This is not only a key part of pre-closing integration, but should be something that is addressed early in diligence.
There are a multitude of other items that are deal specific that should be addressed. A strong advisor team will identify, recommend strategies for addressing and keep these topics top of mind throughout the pre-closing activities.