Dear Kathleen

Human Resource Insights from Kathleen Weiss

Preparation is Key for Merger or Acquisition

Dear Kathleen:
Our construction company plans to acquire another small company. We currently have about 35 people and the new company has 15. The other organization has no formal human resources individual, so the responsibility will fall on my shoulders. As the HR Manager, what are some things I should do to ensure this acquisition goes smoothly?

Thanks,
Carol H.

Dear Carol:
If you want things to run smoothly, the human resources function is a vital component in any merger or acquisition, but it's also often neglected, especially in small firms and companies where resources and time are at a minimum. Although the financial and legal aspects of the acquisition will be handled by your lawyers, accountants and senior management, the "people" aspect will fall on human resources.

There are an endless amount of decisions to make, so planning and discussion are the key to success. You did not mention that you are bound by a collective bargaining agreement, so I won't address that at this time.

I usually follow a four-step strategy for these matters: Preparation – Communication – Integration – and Evaluation. If you follow these four steps, you'll be on the road to a successful merger or acquisition.

Preparation - In the Preparation stage, consider all the aspects of the other three stages, as well as HR's due diligence.

The first step I suggest is meeting with your executive team to understand any plans and expectations you may be unaware of. Like many other small companies, you're probably being included at the end of the transaction and need to be aware of what decisions have already been made. Once you know your company's perspective, you'll be better prepared to start planning.

The due diligence stage is an unavoidable risk management step that includes evaluating everything the other company has in place and how that will fit into your organization. Needless to say, this list is comprised hundreds of factors. However, let's start with the basics.

  • A transition team should be determined regarding the various decisions that need to be made, and is usually comprised of the CEO, CFO, president, HR and other decision makers. In the meantime, decide who will be your main contact during the acquisition and meet with them in person, if possible. This first meeting should give you an idea of how closely that company has complied with HR's best practices and employment law, and how employee-related issues have been decided. It will soon become clear exactly how smoothly this process will be or if you are acquiring a big headache.

  • You should plan to review the organizational chart, salaries, employment contracts, titles, department heads, compensation plans and fringe benefits, and gather all the demographic information about each employee. Which are exempt and non-exempt? Are there any employees currently on leave, covered under COBRA or on long-term disability plans? What are the employee performance expectations or issues and how have they been recorded? This review process also will include reviewing the employee handbook and comparing policies to decide what will be changed, integrated or deleted. Consider what technical expertise you will need to merge two different Human Resource Information Systems (HRIS).

  • Have there been any employment lawsuits or any pending litigation? Obtain copies of any and all non-compete/solicitation/disclosure agreements. Which terminated employees are still bound by these contracts? Have there been any oral contracts? You should receive copies of any and all forms and applications currently being used.

  • Manually assessing the employee files will be necessary to make sure recordkeeping is in compliance. You should have each employee complete a new I9 form. Be aware of any employees working with a visa and immigration statuses. Is there anything in the employee files that should not be? Are all the medical records separate from the employee's main file, including medical forms and information?

  • Reviewing the current employee benefits can be a monumental task. Get all the vendor contact information, such as company names, contact, email, phone numbers and account numbers. You need to gather all medical, dental, vision, life and any other related plan documents, and understand who is on each plan, the costs and premiums. Retrieve all retirement or savings plan documents and work closely with your CFO regarding yearly tax filings, such as the 5500 form and ERISA compliance. What are the benefits, employee contribution percentages and vesting schedule? What benefits will you keep in place and which will you eliminate and when?

  • Review worker's compensation insurance and determine if there may be duplication of coverage, and life and long-term disability plans and claims, as well as unemployment issues. You may need to schedule a meeting with your insurance professional(s) to make the decisions that are best for your company.

  • What to do with time-off plans will need to be considered. How do they compare? How will you bring the new employees on to the current plan, fairly, if there are differences? Will their tenure with their existing company be considered? Will they stay on their current time off plan?

  • Being a construction company, you are probably bound by OSHA regulations. You will need to know of any accidents, deaths or OSHA fines or citations in the last six years and determine if there are any safety issues that need to be addressed.

  • Training is a lesser priority at this point, but nevertheless, still needs to be considered. What training has been provided in the last three years? Has any anti-harassment training been conducted for staff and management? What skills are lacking and what are the cross-training options from both sides of the table? Are there training manuals available?

Once you have obtained all the information, you can begin to complete the "Preparation Phase." Decisions will need to be made for each area discussed above. Determine what decisions you can make and which will be made with the assistance of members of the transition team. Outline each decision, the appropriate action to be taken and appropriate timeline. Once these many decisions have been made, a communication plan must be put into place. Remember, change is difficult under any circumstances. The better prepared you are with your "Communication Plan," the easier it will be for the employees to embrace the many changes that are ahead of them.

Here are some astounding statistics. According to the Society for Human Resource Management (SHRM), senior HR executives who have had experience with mergers, acquisitions or joint ventures were polled and found that the major obstacles were: loss of productivity (65%), incompatible cultures (56%), loss of key talent (53%) and clash of management styles (53%).

Communication - Creating a communication plan is easier than it seems. The transition team should meet to determine a timeline for each important communication – and from whom that communication will come. Determine what staff meetings will need to be held, what must be delivered in writing, such as notifications regarding retirement plan changes, salary or compensation changes, and anything relating to finances. There must be decisions regarding what communications will be made through department heads and what acknowledgement signatures might need to be obtained. Keeping employees apprised of changes that personally affect them will go far in moral and retaining top talent, not to mention risk management.

Stop back next month for Part II covering the Integration and Evaluation phase of HR's role in mergers and acquisitions.

"Dear Kathleen" is a monthly Human Resources advice column written by Kathleen Weiss, SPHR, Human Resources Manager for SWK Technologies, Inc.

SWK's HR Advisor services provide cost-effective human resources solutions to small businesses. If you want more information on how to change your current vacation and sick policy to a PTO policy, or have an outdated employee handbook that needs to be revised, please contact Kathleen Weiss, SPHR, at 973-758-6122, e-mail hrdept@swktech.com or visit www.swktech.com.

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Disclaimer: Information provided is not intended to be and should not be considered legal advice. As always, please consult your attorney regarding your company's legal matters.