Lionel Paraire of Galion participated in The Art of Deal Making: Using External Expertise Effectively
Foreword by Andrew Chilvers
For ambitious companies eager to expand into overseas markets, often the conventional route of organic business development is simply not fast enough. The other option to invest in or buy a business outright is far quicker but often fraught with unforeseen dangers. And even the biggest, most experienced players can get it badly wrong if they go into an M&A with their eyes wide shut.
If you search for good and bad M&As online the Daimler-Benz merger/acquisition with Chrysler back in 1998 is generally at the top of most search engines on how NOT to undertake a big international merger. Despite carrying out all the necessary financial and legal measures to ensure a relatively smooth deal, the merger quickly unravelled because of cultural and organisational differences. Something that neither side had foreseen when both parties had first sat down at the negotiating table.
These days the failed merger of the two car manufacturers is held up as a classic example of the failure of two distinctly different corporate cultures. Daimler-Benz was typically German; reliably conservative, efficient, and safe, while Chrysler was typically American; known to be daring, diverse and creative. Daimler-Benz was hierarchical and authoritarian with a distinct chain of command, while Chrysler was egalitarian and advocated a dynamic team approach. One company put its value in tradition and quality, while the other with innovative designs and competitive pricing.
Lionel Paraire discussed The Art of Deal Making: Using External Expertise Effectively as part of the Employment chapter.
What advice can you offer international clients on harmonising employment practices and culture following a merger or acquisition in your jurisdiction?
Of all the challenges encountered during an M&A transaction, dealing with cultural differences between organisations and integrating people (and everything they deem important) is the biggest one. If these issues are not identified and managed properly within the allotted timeframe, it can lead to wasted time, missed synergy, and, in some cases, decreased value. According to HR professionals, it is the management of change and integration of the corporate culture that, among all people issues, require increased attention during M&A transactions.
Countless questions undoubtedly come to mind, whatever the position held. From the employer’s side: how to prevent key employees from leaving the company? How to keep staff satisfied? How to clearly explain the implications of the transaction? From the employees’ side: who will become my boss? What will my salary be? Will I keep my company car? If these questions are not considered nor answered, trouble and uncertainty will grow, which can have a negative effect on the target’s value.
Moreover, for a merger or acquisition to be a commercial success, HR teams will be asked to be familiar with the rules and practices specific to the target, especially when the target is in a different country.
A deep and broad analysis of the target through a human capital (HR and employment law) due diligence as well as a clear communication with all stakeholders, including employees – old and new – prior to, during and after the M&A process, will be helpful.
To bring success to the M&A transaction, it’s necessary to:
• Quickly identify the targeted culture and ensure key employees follow a common objective from the start
• Decide quickly what the company will become and communicate as clearly as possible on that
• Follow-up any progress of the transaction and celebrate each step once completed.
Do you have a best practice for incorporating collective bargaining agreements, employee benefits and pension scheme provision into the deal making process?
In France, corporate reorganisations have no impact on an employee’s social security insurance coverage and pension benefits. Only additional pension benefits, when implemented at the level of a company or a group, may be put at risk. Harmonisation actions may be required post-deal regarding employees’ welfare and health insurance schemes.
Otherwise, the situation will depend on the legal source of the collective status. A collective bargaining agreement is entered into between one or more employee representative trade unions and one or more employer representative organisations. It can be binding on the employer whose line of business is covered by the agreement. A collective company agreement is signed by an employer and, in principle, trade union representatives present in the company. Collective rules may also come from atypical agreements (signed with elected staff representatives) or common practices. Except if the acquirer applies a different collective bargaining agreement, the contemplated transaction will not have any impact on the applicable collective bargaining agreement. On the contrary, a merger or an acquisition through TUP transfer legally implies an automatic termination of collective agreements on the date of transfer, a continuation for a maximum period of 15 months and a mandatory negotiation to harmonise the employees’ collective status. The law now authorises the initiation of
negotiations even before the corporate reorganisation becomes effective, which may be, in some circumstances, a useful tool to facilitate the integration of the transferred employees in the new employing entity.
Human capital due diligence will be then critical to identify the legal sources of the collective status, as well as the main interlocutors for the negotiation, to analyse the current collective status and to build bespoke new collective rules.
Incentivisation and retention of senior management is important to ensure stability and continuity post-deal. Any examples in which you have achieved this effectively?
A merger or acquisition is challenging from an HR perspective: workforce mechanically increases while means remain the same or even decrease in order to reach the financial objectives expected from the synergy. It is essential to the success of the transaction to keep the employees – old and new – happy and dedicate enough time to making sure they feel fulfilled. The people of the acquired company have spent time and energy building and growing something that they believe in. It is then important to understand that value, encourage that passion and build something even stronger together.
The human capital due diligence will provide relevant information about the target’s corporate culture, its structure, processes, the key people – and not only the top management. The M&A process leads to a large amount of stress for employees, who then need to be reassured and understand the goal of the transaction.
Key people of the acquired business should be identified as early as possible and be adequately incentivised to assist with and support the acquisition and subsequent integration actions.
There are many ways to drive motivation, including team activities and goal setting. Incentivisation and/or retention will be different depending on the business sector, the company’s culture, etc. It could be attractive compensation packages, which include salaries, of course, but also bonuses, paid time off, health benefits or retirement plans, recognition and rewards systems or flexible working arrangements.
In a challenging time, keeping staff as informed as possible is more than helpful, as is making big announcements face-toface, either individually or in group meetings, and making sure that enough time is allowed for questions.
Top Tips – To Keep Your People Happy During The M&A Process
• A due diligence specifically dedicated to human capital (HR and employment law) is essential: Yet it is often underestimated. It consists of learning quickly about the target’s corporate culture, its structure, processes, the key people – not only top management – the different ways of working and the management of perceptions and emotions. It is more than a financial analysis of employees’ compensation and benefits.
• Team working is crucial: Beyond online data rooms, being able to meet face-to-face with the target, or meeting with team members in a war room can create an environment more conducive to open communication and lead to additional insight.
• Not only integrate but transform: Human capital due diligence provides the benefit of working with industry-leading professionals and external advisors and receiving their knowledge. It is then time to go forward and transform the new entity. Integrating the target’s employees leads to questioning one’s own culture and structure.