Tax Insights

Human Resources Levers to Drive Transaction Value

John Schultz, Managing Director

jschultz@alvarezandmarsal.com

August 11, 2020 / North America

Co-Author: Rehan Farooq, Managing Director, Corporate Performance Improvement

Historically, an uncertain business climate precipitates a surge in business activity. As companies emerge from the COVID-19 crisis, we anticipate pent up demand for merger and acquisition (M&A) activity that will resume as leaders seek to lower operating costs, face consolidation or rethink ways to maintain market share and achieve growth targets. 

CFOs are tasked with maximizing the value of any transaction. In addition to maintaining focus on cash management (see COVID-19 CFO Checklist), the CFO should also be leading cost reduction initiatives in anticipation of M&A activity. One area the CFO should not overlook in these efforts is human resources (HR). Often, the HR function is viewed only through the lens of payroll, leading to missed savings opportunities. In fact, finance leaders have multiple levers at their disposal to maximize transaction value and reduce costs associated with HR.

Who’s on the Team? Strategies to Optimize Your Organization

Changes to the employee roster are inevitable during a transaction, but those changes must be strategic and aligned with business objectives. COVID-19 has placed renewed focus on what is truly critical to business continuity; these roles must be retained and appropriately incentivized. For this group, consider an incentive and retention program so the business can remain operationally efficient while minimizing the risk of losing critical employees. In addition to the overarching program, consider stay bonuses for roles critical to realizing synergies that are key to a transaction’s value proposition.

On the other hand, some employees’ roles may not be necessary in the ‘new normal,’ or may overlap across the combined business; different strategies are more appropriate for this group. Providing a Volunteer Early Retirement Program (VERP) and pausing Secondment Programs are recommended initial actions to rapidly create value. In addition, pay special attention to severance policies– those must be contemplated as you develop your new as-is business case.

Always consider your contractor footprint or the proverbial “shadow workforce.” Every time you end or postpone discretionary projects, you are sending a message to employees, including contractors, who in many cases, sit in key roles. If they are not sufficiently engaged or feel alarmed, they will leave, taking valuable knowledge and expertise with them.

Be careful about instituting blanket hiring freezes as they give the appearance of a massive house-cleaning and lay-offs. Implementing a hiring strategy that remains focused on acquiring critical capabilities is a better strategy. Build protocols to ensure that management reviews and approves all new hires, as most separation committees want to see their weekly hiring progress as they begin filling new roles for the organization.

When deciding on appropriate strategies to manage your employee footprint, you must cut through the clutter…

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North America



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