During mergers and acquisitions, company focus is almost always on financial due diligence. However, a merger or acquisition doesn’t just transfer ownership of equipment and facilities. Arguably the most valuable acquisition during these large business transactions is the talent working at the other company.
There are numerous unique human resources concerns to address when acquiring another company or merging with an existing business. A human capital audit can help ensure that business leaders effectively manage the staff they hope to acquire through a large business transaction.
Review top performers’ contracts
Mergers and acquisitions tend to result in a sudden loss of talent. The best and brightest may start looking for jobs elsewhere, as they are unsure about their future with the company.
Reviewing the contracts for key professionals within an organization can help identify those who could leave immediately after the announcement of the transaction. Leaders can then take steps to keep that talent, such as negotiating a new salary and benefits package or offering a multi-year retention bonus.
Contract reviews can also highlight other sources of exposure, such as change-of-control bonuses. Executives and key employees may be eligible for cash bonuses or equity incentives to keep them at the company after a change in ownership. Validating that these do not already exist before offering new incentives is critical.
The audit may also need to look for double-trigger payouts. Some contracts may include a double-trigger payout clause that allows for severance or restricted stock units paid to workers after a change in company ownership followed by either an involuntary termination or a resignation for a valid reason.
A human capital audit also allows an opportunity to determine who is subject to a noncompete agreement or other restrictive covenants that protect the company. The process could also identify misclassified contractors who generally work as employees. The company can take steps to address this by formally hiring workers previously classified as independent contractors.
Finally, a review of contracts could help prevent intellectual property (IP) assignment gaps. If contracts include vague language about IP ownership or overly-broad language, valuable IP could be at risk. A review of existing contracts can identify employment law compliance issues and also overpaid professionals, such as those with bonus structures that are not sustainable.
Conducting an audit to evaluate the human capital to be acquired during an upcoming merger or acquisition can help a company make the upcoming transition as smooth as possible. The guidance of an attorney familiar with large business transactions and employment contracts can prove invaluable during this process.