TM - October 2007 - (Page 26) recruitment & retention assessment & evaluation compensation & benefits performance management learning & development succession planning [compensation & benefits]by Bob Braddick Managing Benefits After a Merger: Lessons From Private Equity Firms Today’s private equity firms know how to generate value from their acquisitions. When it comes to efficient handling of benefits in a merger, corporations can apply some of that private equity savvy. Organizations seeking to maximize the value of a merger and acquisition (M&A) transaction are well aware that human capital costs are consuming an ever-increasing share of corporate revenues. How to manage these costs in the face of a transaction is always a challenge, requiring a high level of strategy and planning before the deal is completed so that the value of the new entity is assured in the postdeal period. In a global M&A context, C-suite and HR executives can use some overarching vision when it comes to ensuring value, and a particularly good place to find strategic inspiration is among today’s private equity firms, which have earned reputations as value generators. Indeed, although these firms might be sheltered from the pressures of public reporting, the results of their leveraged buyouts and venture capitalizations are often the same as that of public corporations: the purchase of entire companies, corporate divisions and the bundling of several small operations. Once private equity firms close their deals, they excel at strategies that enhance the immediate value of their investments. Often, they will generate that greater value through a combination of approaches, such as a change in strategic focus, a restructuring of the company, better financial management, consolidation of operations and the installation of an experienced management team with a clear and focused interest in the venture’s success. The journey to such value creation begins long before the deal is finalized, during the due-diligence phase, when the private equity firms deconstruct their target companies’ financials and business models in excruciating detail, so that there are no post-deal surprises that require extra cash or reduce exit value. Private equity firms typically will move much more quickly and focus almost wholly on the financials in how they acquire and run businesses. Corporate buyers, by comparison, tend to be much more strategic, with a “till death do us part” mindset. Exploring Benefit Opportunities As a result, the rigorousness with which private equity firms inspect a target company’s human capital costs can lead them to pull back from a transaction that is so encumbered with liabilities that things cannot be turned around in the requisite holding period. For example, in a 2006 MMC survey (MMC is Mercer’s parent company), nearly one-fifth of private equity respondents said they had pulled out of a deal because of the target firm’s underfunded pension plan. And to the extent that such liabilities and other legacy costs don’t scuttle a deal, private equity firms make sure these financial burdens are fully reflected in pricing discussions. The best kind of post-merger benefits integration is the sort that begins well before the deal is closed, with analyses not only of the unfunded liabilities, but 26 October 2007 talent management magazine www.TalentMgt.com http://www.TalentMgt.com
For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.