M&A best practice: harmonising employee benefits

Undertaking a merger or acquisition (M&A) can be an exciting time, offering new opportunities, fresh ways of working, and the potential for growth. But for employees, M&A can also bring uncertainties – not least, around the status of their employee benefits. Failure to plan effectively could see much-needed benefits interrupted, with damaging consequences for satisfaction and productivity. And where employees suffer, it can threaten the success of the merger or acquisition overall.

To avoid these scenarios, it’s vital that companies take steps to secure a smooth transition of employee benefits during any M&A. If successful, a merger can empower employees to succeed within the workplace and beyond. The process of merging benefits is not easy, however – and various considerations need to be made.

Below, we’ve listed some key factors to bear in mind when it comes to merging benefit schemes.

Start with due diligence

When acquiring a new company, it’s vital that companies develop a proper insight into the acquisition target. This extends to a target’s benefits plan – inefficiencies within a benefits plan can represent a significant financial risk, and need to be considered.

To develop this insight, companies need to undertake proper due diligence into employee benefit plans. Not only will this help to assess the feasibility of the merger, but it can also help to prepare and build a strategy for growth post-close.

Identify similarities and differences

Those driving the merger should undertake like-for-like comparisons of their current benefit structure and those within the acquisition target. This process can help to highlight priorities – for instance, identifying any benefits that would have the greatest impact on employees. Any discontinuation to employees’ health insurance, for example, is likely to be far more detrimental than the suspension of retail perks.

Where differences are significant, it may prompt purchasing companies to rethink their own benefit strategy. Companies may find it useful to build out a better-aligned package prior to the merger’s completion.

Stamina is key

It’s easy to believe that a good M&A deal is fast, efficient, and cost-effective. Yet, when it comes to employee benefits, speed can come at a cost. For instance, it may not be practical to immediately convert employees onto a new insurance plan. There may be requirements to fulfil the remaining time on a policy.

By playing the long game, firms may be able to improve their negotiation position and buying power, thereby helping to secure a better deal. A staggered transition may also have advantages when it comes to prioritising delivery and ensuring other targets are met, such as those for equity, diversity, and inclusion. This can also provide companies with feedback while the transition is still ongoing, helping to further refine the strategy.

Involve human resource

Any M&A deal is a significant undertaking, requiring focus, time, and dedication. Human resource (HR) teams play a particularly important role, helping to convey any changes to all staff, and providing a regular flow of information. HR can play an effective role in defining the new culture moving forwards, such as by outlining and enforcing expectations, and ensuring employees remain included and motivated.

To successfully execute a merger, HR teams need to be properly equipped to assist employees in navigating the challenges of the merger. Capacity during an M&A deal is likely to be stretched, so HR teams will need to be adequately staffed. To communicate with the rest of the business, they will also need to be brought in from an early stage to understand the changes that are taking place, and the reasons behind them.

Communication is everything

M&A deals will always involve change. Often, however, change will be anticipated for the better. This can make any unfavourable changes a surprise, with the potential to impact employee satisfaction, with knock-on consequences for productivity and business stability.

To avoid these outcomes, it’s key to maintain clear and effective communication throughout the M&A deal lifecycle. Practically, this could involve taking steps to understand employees’ attitudes to their current benefits, and surveying potential options before implementation. Engagement should always be constructive with avenues for feedback.

For more information, please visit our People Solutions (opens a new window) page, or contact:

Carolyn McVey, Senior Consultant

E: carolyn.mcvey@lockton.com

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