Merger and acquisition activity in the UK took a slight and steady decline in 2023, according to latest reports from the ONS. A variety of factors are likely to have contributed, such as historic levels of inflation, high interest rates and increased regulatory scrutiny in some geopolitical areas. While these factors are set to continue to affect the global M&A market, it is expected that there will be more opportunities in 2024 with improved market conditions in line with expectations on interest rates.
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Whether an M&A is part of your business plan for 2024 or you are anticipating one and considering your options, some key points from an employee benefits and legislative point of view are worth considering as part of any due diligence process.
Employee benefits advice key to any M&A
Why might it be an advantage to have an M&A employee benefit specialist involved from the outset?
Employee benefits are a vital component of any successful company. They help you attract and retain talent, boost staff morale, and avoid long-term employee sickness. During times of change, this focus can make a significant impact on the success of such a transition, whether you are experienced in managing mergers and acquisitions or guiding your business through this for the first time.
However, the benefits offered to staff on either side of a merger or acquisition are often not considered critical to the deal. This is strange, considering that a wide range of benefits can have different cost implications for the parties of a transaction.
Typically, a specialist comes into play when the deal is almost complete, principally to implement the new organisation’s benefit structure. Often, the benefit structure will have been agreed in principle following on from staff consultations, but without full comprehension of whether it can be implemented.
At this point, it is often too late to avoid expensive liabilities that can potentially have an impact on the earnings from the deal now, and in the future.
Frequently, the benefits on offer for staff moving to the new employer are not always considered critical to the deal.
Often, employment law specialists are asked to review employment contracts to see whether there are any unusual or non-standard benefits, such as redundancy entitlements. With pensions, often, the only benefit that is considered early is whether the company’s plan is a defined benefit or final salary scheme.
This approach goes some way to uncovering all the critical elements relating to employee benefits, pension plans and their financial impact on your merger or acquisition. But does it go far enough?
Pension Legislation and forthcoming changes in law in relation to Auto Enrolment can all add to sometimes unanticipated complexities of the process and cost with any mergers or acquisitions.
However, some employee benefits issues can have an impact on the value of the business whereas others have the potential to create liabilities that could stop trading. Others might even exclude employees who are key to the new venture.
Then there are the economies of scale that can often mean that large employers have access to benefits smaller employers simply do not.
The timing of an employee benefits and workplace pension consultation is crucial. Finding out a few days before the deal concludes doesn’t provide adequate time to review and deliver what is promised to all stakeholders and can add to an already stressful experience, adding additional pressure to find alternatives at the last minute. The risks can come in different guises, with various implications to the transaction and can have a negative impact on the bottom line.
Effective planning from a benefits perspective involves acquiring all the relevant information at the onset to ensure decision-makers have a clear view of the status of all benefits such as those currently offered across different employee teams to the level of cover included on these benefits.
This means it is crucial to bring in the right expert at the right time.
Over the years Acumen Employee Benefits has collaborated with buyers and sellers and has added real value to the process and identified potential problems before they become reality – often saving hundreds of thousands of pounds in liabilities. While there can be many challenges with a merger or acquisition, this can provide an ideal opportunity to review and enhance employee benefits across all teams at a time when consistency and communication is key.
Anne Lawson is an employee benefits consultant at Acumen Employee Benefits.
This content within this article does not constitute advice. Acumen Employee Benefits is an appointed representative of Acumen Financial Planning who are authorised and regulated by the Financial Conduct Authority. FCA number: 916905.
