The Impact of M&A Activity on Functional Business Operations · 2015-04-13 · Due Diligence...

The Impact of M&AActivity onFunctional BusinessOperations

Nicole D. Bogard

Benjamin D. Briggs

Jeffrey D. Cunningham

Johanna T. Wise

©2014 Seyfarth Shaw LLP

Mergers & Acquisitions:A Brief Overview

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Stock Acquisition

ACQUISITION CO. TARGET CO.

Acquisition Co.Shareholders

Target Co.Shareholders

shares shares

In a Stock Acquisition, Acquisition Co or its shareholders acquirefrom Target Co’s shareholders their shares of Target Co stock

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Merger




shares shares

In a Merger, Acquisition Co and Target are literallymerged into a single entity by operation of law

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Asset Acquisition




shares shares

In an Asset Acquisition, Acquisition Co acquires from Target Co itsassets

Assets Assets

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The Business Combination Process Is VeryComplex

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Buyer M&A Preparation

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M&A Deal Process

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M&A Deal Process

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M&A Deal Process

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“Of all the things I’ve done, the mostvital is coordinating the talents ofthose who work for us and pointingthem towards a certain goal.”

Walt Disney

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Due Diligence

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Due Diligence Considerations

WHAT ARE THE GOALS OF DUE DILIGENCE?• Due diligence is about understanding the cost of running a

business

• Assess and provide information related to risks

Identify hidden costs that may spring to life later

• Determine an appropriate price

• Obtain information necessary to execute the transition andonboarding process

Understand the business team’s plans for the transaction andwhere costs will arise

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WHAT ARE SOME OF THE BUYER’S CONCERNSWHEN EVALUATING RISK?

• Identify key documents for legal to review for enforceability andrisk

• Due diligence team and comprehensive checklist

• Review of policies and practices for potential non-compliance

• “Past sins” and “future messes”

Deal team needs to know potential size of risk, not just thatthere is a risk

Improper assessment of potential liabilities can mean a buyerpays too much for a company

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WHAT ARE SOME OF THE SELLER’S CONCERNSWHEN EVALUATING RISK?

• Full disclosure important – buyer may not take oncertain liability unless information related to it hasbeen disclosed

• Buyer may require that seller indemnifies for certainrisks or future occurrencesUnderstand full scope of cost of indemnity provided

• Improper assessment of potential liabilities can meana seller retains costly liabilities

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WHAT ARE SOME OF THE KEY AREAS OF CONCERNWHEN EVALUATING RISK?

• Lawsuits, complaints, charges

• Unfair labor practice charges, strikes, lockouts

• Past RIFs

• Employment policies

• Worker misclassification (exempt/non-exempt)

• Overtime practices

• Large number of independent contractors

• Workers’ compensation and safety issues

• Pension underfunding

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Due Diligence:Labor & Employment Issues

WHAT ABOUT EXISTING EMPLOYMENTCONTRACTS?• Seller’s Perspective

Are severance obligations triggered?

If a portion of your business is being sold, will former executives havethe ability to compete against the remaining business?

Can agreements be assigned?

• Buyer’s Perspective:

Can you shed unwanted contracts and what is the cost?

Are non-compete agreements enforceable?

• Collective Bargaining Agreements

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Due Diligence:Labor & Employment Issues

HOW DOES THE WARN ACT COME INTO PLAY?• Covered employers must provide advance notice before

undertaking a mass layoff or plant closing

• Stock Purchase – seller’s employees automatically become thebuyer’s employees on the effective date

• Asset Purchase – seller usually terminates its employees as partof the sale and the buyer usually rehires some/all of thoseemployees

Seller responsible for notice if mass layoff or plant closingBEFORE or on the “effective date” of the sale (UNLESS soldas a “going concern” and still employed on effective date)

Buyer is responsible for notice AFTER the effective date

• Don’t forget about state WARN laws

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Due Diligence:Employee Benefits Issues

WHAT ABOUT THE IMPACT ON BENEFITPROGRAMS?• Parties to a corporate transaction need to evaluate the impact of

the transaction on both parties’ benefit programs

• Different plans may require different approaches

• Make sure all employee benefit programs that cover acquiredcompany employees are fully disclosed

• Make sure purchase agreement contains proper representations

The representations will always need to be adapted to thetransaction

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WHAT LIABILITIES SHOULD COMPANIES BE AWAREOF IN CONNECTION WITH EMPLOYEE BENEFITPROGRAMS?

• Reporting Obligations

• Golden Parachutes

• Plan Terminations - Vesting

• Collectively Bargained Multiemployer Plans - Unfunded Liabilitiesand Withdrawal Liability

• Defined Benefit Pension Plans – Unfunded Liabilities

• Plan Qualification

• Retiree Health Benefits

• COBRA Compliance

• Health Care Reform Penalties

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• WHAT HAPPENS WITH BENEFIT PLANS IN ANASSET SALE?• Buyer can negotiate to have all plan liabilities remain with the seller

Purchase agreement will contain explicit language indicating all plansremain with the seller

• Buyer can assume some or all of seller’s plans

Will want substantial representations regarding plan legal compliance,funding status and other potential liabilities

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• WHAT HAPPEN WITH BENEFIT PLANS IN A STOCKSALE?• Plans transfer with acquired company

• May be able to negotiate to have seller terminate plans prior to sale

Include language in purchase agreement requiring seller to terminateits plans

• If seller’s plans cover employees other than those of the acquiredcompany (i.e., cover other member companies of seller’s controlledgroup), may be able to:

Leave plans behind with seller, or

Spin-off a portion of each plan to buyer

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Workforce Integration

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Workforce Integration:Labor & Employment Issues

WHAT STRATEGY CONSIDERATIONS SHOULD YOUTAKE INTO ACCOUNT FROM AN EMPLOYMENTPERSPECTIVE?

• Buyers should develop a strategy assessing and managingemployment issues in the context of the company’s goals forthe acquired business

• This means asking some fundamental questions:

How will the acquired employees fit into the buyer’s business plans?

Does the buyer anticipate keeping the acquired operation largelyintact?

Will the new parent company consolidate like business units orpotentially shut down part of the acquired entity?

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WHAT SPECIFIC ISSUES MUST A COMPANYRECOGNIZE AND ADDRESS WHEN INTEGRATINGMULTIPLE WORKFORCES?

• Retention

• Workforce Reductions

• Labor Issues

• Non-Compete Agreements

• Employment Policies/HR Issues

• Workforce Transition – One Company Standard

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BEYOND LEGAL INTEGRATION ISSUES, HOW DOESCULTURAL INTEGRATION IMPACT A DEAL?

• Consideration of a company’s growth strategy

• Timing of cultural integration discussions andconsideration

• Factors leading to successful integrationCoherent integration strategy

Strong integration team

Frequent communication

Training

Speed in implementation

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Workforce Integration:Benefits Transition Strategies

WHAT STRATEGY CONSIDERATIONS SHOULD YOUTAKE INTO ACCOUNT FROM A BENEFITSPERSPECTIVE IN AN ASSET SALE?

• Buyer will need to develop a strategy for transitioningacquired employees onto buyer’s existing plans

• Buyer’s benefit plans may provide more or less benefitsthan seller’s benefit plans and buyer will need to considerimpact on acquired employees

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Workforce Integration:Benefits Transition Strategies

WHAT STRATEGY CONSIDERATIONS SHOULD YOUTAKE INTO ACCOUNT FROM A BENEFITSPERSPECTIVE IN A STOCK SALE?

• Buyer will need to consider maintaining seller’s benefit plans,terminating benefit plans or merging benefit plans into buyer’splan after the transaction

• Discrimination rules may dictate the course and timing of thesedecisions

• Obtaining and maintaining accurate records for seller’s benefitplans is a key requirement

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Nicole D. [email protected]

404-885-7981

Benjamin D. [email protected]

404-885-6713

Jeffrey D. [email protected]

404-888-1036

Johanna T. [email protected]

404-881-5448

The Impact of M&A Activity on Functional Business Operations · 2015-04-13 · Due Diligence...

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