The Impact of M&AActivity onFunctional BusinessOperations
Nicole D. Bogard
Benjamin D. Briggs
Jeffrey D. Cunningham
Johanna T. Wise
©2014 Seyfarth Shaw LLP
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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©2014 Seyfarth Shaw LLP
Merger
ACQUISITION CO. TARGET CO.
Acquisition Co.Shareholders
Target Co.Shareholders
shares shares
In a Merger, Acquisition Co and Target are literallymerged into a single entity by operation of law
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©2014 Seyfarth Shaw LLP
Asset Acquisition
ACQUISITION CO. TARGET CO.
Acquisition Co.Shareholders
Target Co.Shareholders
shares shares
In an Asset Acquisition, Acquisition Co acquires from Target Co itsassets
Assets Assets
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©2014 Seyfarth Shaw LLP
“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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©2014 Seyfarth Shaw LLP
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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©2014 Seyfarth Shaw LLP
Due Diligence Considerations
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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©2014 Seyfarth Shaw LLP
Due Diligence Considerations
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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©2014 Seyfarth Shaw LLP
Due Diligence Considerations
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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©2014 Seyfarth Shaw LLP
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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©2014 Seyfarth Shaw LLP
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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©2014 Seyfarth Shaw LLP
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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©2014 Seyfarth Shaw LLP
Due Diligence:Employee Benefits Issues
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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©2014 Seyfarth Shaw LLP
Due Diligence:Employee Benefits Issues
• 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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©2014 Seyfarth Shaw LLP
Due Diligence:Employee Benefits Issues
• 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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©2014 Seyfarth Shaw LLP
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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©2014 Seyfarth Shaw LLP
Workforce Integration:Labor & Employment Issues
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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©2014 Seyfarth Shaw LLP
Workforce Integration:Labor & Employment Issues
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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©2014 Seyfarth Shaw LLP
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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©2014 Seyfarth Shaw LLP
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
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