Why payroll holds the secret to M&A success Why payroll holds the secret to M&A success

Why payroll holds the secret to M&A success
10 Apr 2018

Mergers and acquisitions (M&As) are an increasingly popular growth strategy as they enable businesses of all sizes to acquire new clients, talent, technology and intellectual property much more quickly than would otherwise be possible.

According to the Deloitte M&A Index 2017, some US$3.2 trillion-worth of announced deals took place during 2016 - following a record US$4 trillion in 2015 - with more than a third (36%) occurring internationally, the highest number since 2012.

Yet the potential rewards of undertaking an M&A are tempered by the high risks involved, with study after study putting failure rates at between 70% and 90%. M&As are rarely straightforward due to the cultural, compliance and technology barriers it is necessary to overcome. But these stumbling blocks are even more complex in the case of cross-border deals.

The payroll function in particular faces numerous challenges in this area - payroll systems and processes need to be integrated and tax liabilities and compliance must be managed, while still ensuring the workforce is paid accurately and on time.

This means that, rather than being included as an afterthought, it is vital that payroll is involved in the conversation from the earliest possible stage. The aim is to minimise both the cost and impact of change on both the business and their employees as much as is possible.

Merging two sets of employees

Front of mind for most payroll professionals is the challenge of merging two sets of employees that currently exist on two separate payroll systems, each with their own employer references, pay dates and other specifics. But because every M&A is totally different, there is no-one-size-fits-all approach to handling this situation.

In some cases, the acquired company will remain independent from the parent company, which means that payroll systems and employer reference numbers also remain separate. In others, there will be a wholesale coming together of the two companies, which generates much more complexity.

In the latter situation, it will be necessary to speak to the relevant tax authorities as early as possible about the process of transferring employees over to the new payroll in order to ensure their income tax and social security contributions are not affected.     

Data protection

Another core part of the due diligence process is ensuring that the acquiring company complies with the vendor’s data privacy policies and obligations, a situation that will become increasingly important when the new General Data Protection Regulation comes into force on 25 May 2018. 

Both parties are likely to exchange significant amounts of employee and customer information, both while preparing for, and implementing, the deal. In fact, keeping on top of employee data is critical for payroll teams throughout the process in order to understand the nature of the workforce, pay structures and benefit challenges, and also to prepare for the necessary integration work.

Cross-border mergers

Cross-border M&As can spark even more legal and compliance issues for payroll teams due to differences in national employment practices and legislation. For example, workplaces in France and Germany are heavily unionised, which means that extensive consultations are required ahead of any deal.

As a result, before the arrangement is finalised, it makes sense to undertake a thorough review of potential risks and develop a well-thought out strategy to avoid unforeseen problems and reduce the chance of failure. 

Systems and technology

Being able to successfully integrate your payroll and HR systems will be critical to the success of the deal. The goal is to ensure staff can continue to access their pay and benefits details seamlessly throughout the duration of the M&A activity.

Recent research by Ernst & Young (EY) described IT as “the lynchpin of success” for M&As. Being able to identify and analyse any potential challenges early is essential to ensure systems can be integrated successfully and potential risks can be identified and mitigated. 

This means that payroll professionals need to work closely with their IT colleagues to identify which technology, systems and processes need to be retained, merged or scrapped. The integration work itself then needs to take place quickly in order to avoid any downtime in terms of payroll service delivery.

The potential value of external expertise

The complexity of this integration process means that many companies choose to work with HR and payroll service providers. According to EY, third party consultants are most useful during the initial phases of integrating the systems and processes of back-office functions such as HR, finance and IT. This is particularly true if organisations are working across borders due to the large amounts of legislation and processes that need to be navigated.

Conclusion

As M&As have so many moving parts, it is critical to involve payroll from the outset in order to fully understand the implications. Payroll professionals need to be able to plan and prepare as early on in the process as possible and be confident that their needs and concerns will be taken into account at the highest level of the organisation. After all, being able to reward staff accurately and efficiently is fundamental to completing the deal smoothly and ensuring its long-term success.

 Melanie Robinson 

Melanie Robinson is senior director of HR sales & marketing at ADP. She joined the company in October 2007 to support the growth of its sales & marketing business and has been involved in many global projects and business process improvement initiatives since. Melanie, who is a Fellow of the Chartered Institute of Personnel & Development and holds an MSc in Human Resource Management, has 20 years’ experience in HR, predominantly within the engineering sector.

 

 

Mergers and acquisitions (M&As) are an increasingly popular growth strategy as they enable businesses of all sizes to acquire new clients, talent, technology and intellectual property much more quickly than would otherwise be possible.

According to the Deloitte M&A Index 2017, some US$3.2 trillion-worth of announced deals took place during 2016 - following a record US$4 trillion in 2015 - with more than a third (36%) occurring internationally, the highest number since 2012.

Yet the potential rewards of undertaking an M&A are tempered by the high risks involved, with study after study putting failure rates at between 70% and 90%. M&As are rarely straightforward due to the cultural, compliance and technology barriers it is necessary to overcome. But these stumbling blocks are even more complex in the case of cross-border deals.

The payroll function in particular faces numerous challenges in this area - payroll systems and processes need to be integrated and tax liabilities and compliance must be managed, while still ensuring the workforce is paid accurately and on time.

This means that, rather than being included as an afterthought, it is vital that payroll is involved in the conversation from the earliest possible stage. The aim is to minimise both the cost and impact of change on both the business and their employees as much as is possible.

Merging two sets of employees

Front of mind for most payroll professionals is the challenge of merging two sets of employees that currently exist on two separate payroll systems, each with their own employer references, pay dates and other specifics. But because every M&A is totally different, there is no-one-size-fits-all approach to handling this situation.

In some cases, the acquired company will remain independent from the parent company, which means that payroll systems and employer reference numbers also remain separate. In others, there will be a wholesale coming together of the two companies, which generates much more complexity.

In the latter situation, it will be necessary to speak to the relevant tax authorities as early as possible about the process of transferring employees over to the new payroll in order to ensure their income tax and social security contributions are not affected.     

Data protection

Another core part of the due diligence process is ensuring that the acquiring company complies with the vendor’s data privacy policies and obligations, a situation that will become increasingly important when the new General Data Protection Regulation comes into force on 25 May 2018. 

Both parties are likely to exchange significant amounts of employee and customer information, both while preparing for, and implementing, the deal. In fact, keeping on top of employee data is critical for payroll teams throughout the process in order to understand the nature of the workforce, pay structures and benefit challenges, and also to prepare for the necessary integration work.

Cross-border mergers

Cross-border M&As can spark even more legal and compliance issues for payroll teams due to differences in national employment practices and legislation. For example, workplaces in France and Germany are heavily unionised, which means that extensive consultations are required ahead of any deal.

As a result, before the arrangement is finalised, it makes sense to undertake a thorough review of potential risks and develop a well-thought out strategy to avoid unforeseen problems and reduce the chance of failure. 

Systems and technology

Being able to successfully integrate your payroll and HR systems will be critical to the success of the deal. The goal is to ensure staff can continue to access their pay and benefits details seamlessly throughout the duration of the M&A activity.

Recent research by Ernst & Young (EY) described IT as “the lynchpin of success” for M&As. Being able to identify and analyse any potential challenges early is essential to ensure systems can be integrated successfully and potential risks can be identified and mitigated. 

This means that payroll professionals need to work closely with their IT colleagues to identify which technology, systems and processes need to be retained, merged or scrapped. The integration work itself then needs to take place quickly in order to avoid any downtime in terms of payroll service delivery.

The potential value of external expertise

The complexity of this integration process means that many companies choose to work with HR and payroll service providers. According to EY, third party consultants are most useful during the initial phases of integrating the systems and processes of back-office functions such as HR, finance and IT. This is particularly true if organisations are working across borders due to the large amounts of legislation and processes that need to be navigated.

Conclusion

As M&As have so many moving parts, it is critical to involve payroll from the outset in order to fully understand the implications. Payroll professionals need to be able to plan and prepare as early on in the process as possible and be confident that their needs and concerns will be taken into account at the highest level of the organisation. After all, being able to reward staff accurately and efficiently is fundamental to completing the deal smoothly and ensuring its long-term success.

 Melanie Robinson 

Melanie Robinson is senior director of HR sales & marketing at ADP. She joined the company in October 2007 to support the growth of its sales & marketing business and has been involved in many global projects and business process improvement initiatives since. Melanie, who is a Fellow of the Chartered Institute of Personnel & Development and holds an MSc in Human Resource Management, has 20 years’ experience in HR, predominantly within the engineering sector.