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10-point checklist for HR and payroll during M&A and divestment

Mergers, acquisitions and divestments happen regularly, but how do you manage them from an HR and payroll perspective. The below checklist can get you thinking into what types of activities you need to consider when subject to a merger, acquisition or divestment.

10-point checklist when undertaking a M&A or divestment

  1. Set up a working party to manage the change. Ideally, one that’s part of a company-wide task force.
  2. Consider early on, if your organization has the IT skills in-house to bring together (or separate in the case of divestment) a range of diverse systems effectively. If not, you should consider partnering with a specialist firm.
  3. Understand what HR resources are already there and plug any gaps with consultants. You need people dedicated to the project. This can save time, money and worry from the start.
  4. Set up temporary service agreements with parent companies / service providers. This is where extra time is needed to bridge gaps.
  5. Audit the current HR infrastructure, including platforms and systems in all locations. Some may have modern Enterprise Resource Planning (ERP) systems, while others may be running HR on spreadsheets.
  6. Map country-specific HR processes. Include employee contracts, terms of employment, legislative requirements, etc. This is so they can be managed effectively.
  7. Prioritize payroll. Payroll systems that work without a hitch are vital for employee engagement and to keep you compliant.
  8. Ensure HR and payroll teams are well trained using the new systems.
  9. Establish a change management strategy. This should include effective employee communication, training and continued engagement post event.
  10. Build in agility for the future.

What we know

Many organizations expand through M&A. Alternatively, they may be looking to focus their business activities, so they divest divisions that become standalone operations. Both groups have different challenges and some might say divestment is a greater challenge.

With divestment, the now standalone business needs to very quickly finance and build an entire HR and payroll infrastructure. This is far from a simple task and comes at a time when there are very many more pressures on the business.

Companies often employ an external partner, who design HR and payroll systems, built to the specification in the separation agreement. Here’s a closer look at the two different groups.

Scenario one: Organizations with complex HR and payroll infrastructures due to merge or be acquired

These organizations are often entering new markets, expanding globally or joining forces to combat increased competition.

They’re usually established businesses, each with their own HR, payroll and data teams and processes. It’s common for there to be reluctance from all sides to relinquish their HR team or systems.

The urgency is less than with a divestment because the functionality for each business remains. However, the complexity and lack of workforce visibility can start to impact the business, which is a concern.

Integrating processes for these merged businesses into a single standardized global process can be relatively straightforward, when you have the right partner.

To get quick results for clients, fast track deployment methodologies can be used. These combine best practice models with pre-configured templates. Both can be up and running in less than three months.

Project examples

Even understanding what systems exist and knowing where and how data is stored can be a major challenge. It’s not unusual for there to be up to 200 HR and payroll systems within a merged business.

There are numerous real-world examples of complexity following a merger or acquisition. Some companies have undertaken hundreds of M&As over the years. It is by no means unique. In cases like this where companies embark on a HR transformation, they need to unravel decades of complexity.

Single-source data for performance and compliance

Single-source data provides managers with workforce visibility previously not possible. Thorough analysis of this accurate data source can help companies plan.

Without unifying processes and integrating these within payroll and workforce systems, it would be difficult for businesses to achieve their business objectives and acting as single integrated companies.

There is an example of a global company that initially faced a lot of internal resistance to change. The merged businesses still operated independently and wanted to keep all business processes in silos.

However, the group HR director was concerned about flight risks and future skills gaps if they could not fully understand their workforce. Consequently, this lack of visibility increased the risk of being non-compliant.

To solve this, a business case for workforce agility and compliance was built. From this they realized the benefits of integrating multiple HR and payroll processes. It not only benefited from economies of scale, but also the development of a unified culture across the group. By doing so best practices were shared and a unified approach implemented.

The major task for all organizations following a merger or acquisition is to join people processes. This challenge is mammoth, high-risk and essential. Very few have the skills in-house to manage this and so employ the skills of an external partner.

Scenario two: Businesses requiring the separation and rebuild of HR and payroll infrastructure

The flip side of M&As is divestment. This is happening increasingly as businesses sell divisions to focus on core growth areas. Separating HR and payroll processes is far more challenging than standardizing.

Once the decision has been made to sell, the need for speed creates complicated people challenges.

Standing on your own two feet

Where an M&A can be seen as a positive marriage of convenience, divestitures can be challenged. c.

Suddenly separated from the parent company, resources, facilities and budgets once available are diminished. Strict timelines are set for the separation from systems and assets, including HR and payroll. People data needs to be separated and critical talent replaced. This might even mean the complete rebuilding of business functions. How do you do this without the systems in place?

What hurts in the short-term works well in the long-term

Step one is to establish what needs to be achieved to meet the overall objectives of the separation.

No one likes to give up what works and they’re familiar with. However, by being forced out of a legacy HR and payroll infrastructure you circumnavigate the need to build the business case for HR modernization.

The solution delivered should be an agile, integrated HR infrastructure that can easily grow. It needs to be simple to on-board new people, locations or businesses as well as being future-proof and highly secure.

In place of the previous systems, you now have a very smart, modern new-build system and architecture that is built to grow and expand with the company.

Many organizations opt for integrated HR, payroll and service center processes, delivered as-a-service. Here a pre-configured cloud HR infrastructure can be up and running in just 12 weeks and at a third of the cost of a bespoke design and build that will suit other business types.

With “demergers,” much of the work involves setting up an entirely new HR and payroll system and to help train internal teams. Like with green-field clients, it can be done very quickly using a global HR cloud platform, including flexible service models.

If you would like to talk to us about your HR and payroll challenges or are in the process of a M&A or divestment, please get in touch.