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Webinar: Managing a Smooth HR Transition in International Mergers and Acquisitions

By February 5, 2020September 11th, 2022No Comments

Managing HR transitions during global mergers and acquisitions (M&A) is a complicated endeavor for both buyers and sellers. Between balancing HR, IT, payroll, accounting, and other essential internal resources, each party must contend with distinct challenges. Many firms utilize transitional services agreements (TSAs) to mitigate these challenges, yet end up facing difficulties using this solution.

To help buyers and sellers better understand TSAs, Sam Sailer, Velocity Global’s Head of Global Transactions and Expansion, guided attendees through benefits, challenges, and must-knows during the international M&A process. Sailer covered proven alternatives to help buyers and sellers ease specific HR-related headaches and highlighted a simpler method to manage a transaction.

Watch the Webinar Here

What are Transitional Services Agreements (TSA)?

Sailer kicked off the webinar addressing a fundamental question: What are transitional services agreements? He noted that companies utilize TSAs when a company, or part of a company, is sold to another firm. After the sale, the seller provides services to the buyer for a determined period of time. These services include HR, IT, accounting, finance, and other essential resources.

Firms use TSAs when a seller acquires tangible assets (equipment, inventory) or intangible assets (patents, customer lists) but does not have the infrastructure to immediately use them. Overall, buyers and sellers use TSAs to transition resources and human capital for buyers that do not have the capabilities to absorb all aspects of the transition.

He noted that as 84% of firms plan to divest by 2021 (a 40% increase from 2017), TSAs’ role in global M&A remains prevalent despite the complexities they impart on buyers, sellers, and their employees—and their poor reception by all parties.

Timing the HR Transition 

The timing of any deal is crucial to a smooth transition. Sailer notes that all parties must consider country-specific requirements, headcounts, and any disconnect between infrastructures to absorb all aspects of the transition. Firms are reactive during the HR transition; they do not always plan for HR-related challenges.

However, Sailer cautioned that a traditional TSA approach creates challenges down the road. Both parties must evaluate the scope of this significant undertaking to avoid any unnecessary complications. Firms must anticipate at least 6-8 weeks’ preparation before the deal begins. In many cases, the transaction requires more time.

Challenges for Sellers 

Sailer then focused on sellers’ challenges, including maintaining liability and responsibility for former employees that the buyer absorbs. Sellers must also contend with varied hard and soft costs, both of which require time-consuming evaluation. Accounting teams remain responsible for capturing employee compensation, benefits, and additional expenses on their records during the transition period, even though they are not the end employer. Sailer stressed that up-to-date reporting and record-keeping is essential during all aspects of the deal.

Challenges for Buyers 

Buyers face unique challenges, too. Their employees’ rights remain a necessity, and buyers must ensure the TSA’s provisions protect these rights. Buyers must evaluate the TSA line by line, and perform a benefit analysis, and address which aspects must go through relevant works councils if any. Sailer also noted that buyers do not have complete control over new employees, cannot hire new employees during the transition period, and must rely on sellers to retain employee liability.

Learn How Buyers and Sellers Simplify Transitions with an Experienced Partner 

While TSAs remain central to most HR transitions, Sailer spoke to the role an Employer of Record (EOR) plays in simplifying the transition—without a TSA. Employers of Record ensure fewer transition challenges for buyers, making sellers more attractive. He noted that, when buyers see a lack of infrastructure in the company they are looking to acquire, their bids reflect that. Employers of Record also reduce the headaches for buyers taking on payroll and other essential HR responsibilities.

If you could not join Velocity Global for the webinar and want to learn more about how you can simplify your HR transition during global M&A, click here to watch the webinar in full.