The Berger Law Firm, P.C. |
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In a shift that would make Wall Street's Gordon Gekko squirm in his Guccis, a developing focus in today's mergers and acquisitions is integration of corporate cultures and human resources. For high tech industries, competitive advantage and value frequently flows directly from unique human abilities that are hard to duplicate. Employee creativity, experience, and knowledge, cultivated in a supportive work environment, are key resources relied upon by companies to provide innovative products and services. The extent to which these assets are enhanced or depreciated through mergers and acquisitions may determine their actual value to the buyer. Under our employment laws, an ownership change can open a window of opportunity for restructuring the employment relationship which often closes rapidly as the new employer begins operating. Thus, it is essential during the pre-acquisition stage for both sides to assess the value of human capital to the transaction. Where employees play a crucial role in the seller's value, the company must take steps to retain them beyond the M&A process by such devices as change in control agreements, stock options, and non-competition/trade secret restrictions. Retention of critical staff can become complicated, however, when sellers undertake staff reduction to "spruce up" their bottom line for prospective suitors. Even without layoffs, the specter of the unknown brought by a potential sale frequently spawns employment law claims by employees who do not see their future with the acquiring employer. Prudent purchasers will scrutinize the seller during due diligence for labor and employment law compliance and well-structured human resource management. Thus, companies hoping to be acquired undertake fix-ups in the form of employee handbooks, overtime compliance, and settlement of discrimination complaints, in order to present a welcoming environment. In assessing the value of retaining the seller's employees, the buyer should determine whether it is seeking a strategic, long-term investment or short term profit. This is further qualified by whether the buyer intends to integrate the new operation into its own or leave it intact with minimal disruption to organization and culture. If the target company is unionized, strategic corporate planning of ownership, control, workforce continuity, and operations integration are critical to the buyer's legal obligations. These issues also affect whether the purchaser will be a "successor employer" liable for the old company's labor and employment law violations. Essentially, a prospective purchaser must review all aspects of the target's employment relationship, such as recent lawsuits, employment and independent contractor agreements, personnel handbooks, and benefit plans. In the high tech industry, a review of trade secret and non-competition restrictions is also particularly important as a company's competitive edge is often closely connected to the skills and knowledge of its professionals. Finally, the purchaser must "cost out" all potential human resource liabilities and factor them into the deal. Increasingly, companies are paying attention to the respective corporate cultures to determine, as an adjunct to the financials, whether the acquisition will work in terms of retention and growth of human capital. Indeed, the path to a successful acquisition or merger begins with gathering, analyzing, and applying this intelligence. It may be the best way to protect and ultimately enhance value in a merger or acquisition for the companies, employees, and their shareholders. © 1999 Jeffrey Berger REPRINTED FROM: |
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