Taking on an acquisition can be heady business, whether you've done it before or are a novice at what Donald Trump calls ``the art of the deal.''
Not only does a buyout or merger hold the potential for greater growth-and profits-for your dealership, but expanding your company by acquisition also can be wrought with peril and a seemingly endless list of mind-numbing details.
In the first part of this column, I explored a checklist of items to consider before making a decision about purchasing a business. Some of those concerns include ascertaining the corporate and tax status of the possible acquisition, getting comprehensive information about employees working for that business and compiling a complete record of any litigation in which that firm has been involved.
Do not-I repeat, do not-attempt to pull off an acquisition without adequate legal counsel. That's a road you just don't want to travel down.
To conclude this review of the human resource (HR) aspects of an acquisition, we'll look at the HR issues and decisions that need to be contemplated before making a purchase, and the cultural questions and issues that must observed and seriously considered.
HR issues are plentiful
As you address HR issues and decisions, evaluate the employees at the business you're considering purchasing-and any possible union issues involving that company.
Employee hiring-The first question to consider regarding employees is what percentage, if any, should the buyer be ``required'' to hire as a part of the deal. Here are some options:
* Hire all employees working at the business.
Clearly this option is the smoothest for the buyer, and at first glance, for the seller. The seller prefers this option because it does not require delivering the ``bad news'' that not only is the business being sold but ``we also don't have a job for you.'' Additionally, the seller likes this option because if the buyer is not a savvy negotiator, the seller may not have to pay any severance.
The greatest advantage to the buyer is reduction of the employees' anxiety level because the buyer is able to say to the group, ``We are the new owners, and we're looking forward to working with each one of you.'' Additionally, the buyer can bring each employee into the fold and review their positive (or negative) effect on the dealership over a period of time.
The greatest negative for the buyer is if, after a period of review time, it's decided he or she would be better off without a few employees. Then the buyer must deliver the ``bad news,'' may have to pay severance and may create anxiety with the new employees. The buyer can alleviate the financial ramifications of severance payments by negotiating to have the seller assume any severance obligations for the first 90 days after acquisition.
* Hire all employees other than those who are out on disability or other leave.
Sellers usually do not like this option because they have to tell an employee on workers' compensation or on leave that he or she does not have a job. The buyer should review this option with an attorney. But the advantage is the buyer does not retain any employee who may be injured or have leave-of-absence obligations that may prevent him or her from fully contributing to the new company. However, buyer beware: Do not assume any of the seller's workers' compensation liabilities.
* Terminate all employees and conduct new hire interviews.
With this option the only negative for the buyer is not getting to stand in front of the new employees and say, ``We are going to hire each of you, and we're looking forward to working with you.'' This alternative, however, gives the buyer the ability to ``cherry pick'' employees; leaves severance obligations with the seller; provides the buyer with the normal 90-day probation period to review all employees; and does not obligate the buyer to look at an employee on leave since that employee would not be able to apply.
The positive on this option from the seller's perspective is it allows the seller to say each employee is being treated equally and that hiring decisions are completely up to the buyer.
With respect to union employees, consider whether the buyer should be required to adopt/assume any existing collective bargaining agreements with the seller. Which contracts have a successor clause? If adoption or assumption by the buyer is desired, is union consent required?
It is critical to have a lawyer look at the collective bargaining agreement at the company in order to ascertain if it contains a successor clause. Remember, if you do not hire the majority of the union employees, and if there is not a successor clause, the buyer may not have to recognize the bargaining unit.
Compensation and benefit plans-Consider what the seller should require the buyer to provide in terms of compensation and benefit plans. Recognizing that the seller can't really guarantee what the buyer will do over the long run, at least for the transition period the options are: provide the same compensation and benefits; provide substantially the same benefits-maybe with a different carrier; or terminate all of the seller's plans and provide new compensation and benefits to those employees the buyer elects to hire.
An additional question to consider: ``Should the answer be the same for all employees?''
Take the time to really think through this topic. If you know in your heart that you are truly going to change everyone's compensation, you should change it from the onset. In my consulting business I have worked with a number of companies that elected to bring over existing compensation and benefits plans rather than incorporate the acquisitions into their existing programs.
This becomes difficult over the long haul because you must keep current with multiple benefit plans. Eventually the company will want to ``roll all the programs together'' for economies of scale and then, inevitably, some employees will feel their benefits were reduced.
Single employer pension plans-Can or should sponsorship of any such plans be transferred to the buyer? Should assets or liabilities of such plans be transferred? If the company you are purchasing has a defined benefit plan, you may want to think of changing to just a 401(k), profit sharing or a defined contribution plan.
A defined benefit plan is like a reverse mortgage: the liability grows as the employee stays with the company. A defined contribution plan is ``paid off'' every year.
Consult your accountant for the option that is best for your dealership.
Multi-employer pension plans-If an event-such as sale of the company-triggers withdrawal liability, should the purchase agreement require the buyer to post bond to prevent withdrawal liability?
401(k) savings plans-Can or should sponsorship of any such plans be transferred to the buyer? Can or should account balances be transferred to the buyer's plan? Should assets be distributed to employees who will have an option to roll accounts over to the buyer's plan?
Don't underestimate the importance of this topic to your employees. For many workers, their 401(k) money is their only retirement.
Retention/severance plans-Consider whether a severance plan should be adopted, revised or clarified. Is a retention plan desirable for a certain group of employees? Yes, severance plans do cost you some cash, but the settlement agreements employees sign to obtain the cash virtually eliminate lawsuits.
Trigger event-Determine whether the acquisition or merger is an event-that is, a ``partial termination''-that causes full vesting of affected employees under their pension plan or 401(k) plan.
ERISA-If a potential ERISA (Employee Retirement Income Security Act) liability exists, will the seller indemnify the buyer? As a buyer, you want the seller to feel so good about his benefit plans that he will gladly give a ``free and clear'' indemnification.
Employment agreements-Review any employment agreements in place at the business and determine if new agreements are appropriate. Don't jump into employment agreements lightly. An employee the business simply ``loves and can't live without'' might end up being your ``pain in the neck.''
Aaaahhhh...the cultural questions-so often forgotten and almost always the reason an acquisition is successful or unsuccessful! Buying a business is not just about nuts and bolts. There are definite cultural issues that give a dealership its ``personality,'' so to speak. Thus, there are a number of questions the buyer must ask.
What does the owner of the dealership say about his company's culture?
Is there any mission statement paraphernalia on desks, or placards on the walls, that paraphrase what the core beliefs of the dealership are supposed to be?
What do you know about the dealership by reputation? Sometimes you can have mantras hanging on the walls that espouse ideals such as an ``open door entrepreneurial environment,'' and yet all employees know they are living under a dictatorial rule regardless of what the plaques say.
Study the compensation programs. What are they rewarding? Do you agree with what they are rewarding? If not, change them.
How visible is the leader or owner of the dealership? Is he/she a hands-on operator or do the key employees run the organization? Will this fit in with your dealership's philosophies?
How rigid does the work environment feel? Do you need a forklift to pick up all the policies and procedures of the firm you're acquiring, or does logic and good business sense run the company? (Oops, I guess my bias is showing!)
How do their day-to-day practices compare with yours?
Observe the work environment. Is it stiff and buttoned down, or congenial and loose? Can you live with it?
If the business is profitable, what makes it profitable? Believe me, in a profitable business there are philosophies and core beliefs that contribute to that profitability. If you change them, don't be surprised if the black numbers change to red ones.
If you are a dictatorial/highly structured company and you buy an entrepreneurial dealership, be honest with yourself. Are you really going to be able to leave that culture alone?
Although all the topics covered above are important, the last one-about corporate culture-is critical and, sadly, is most often overlooked.
More mergers and acquisitions have derailed into ``red number'' land by ignoring the obvious cultural differences. Once you own a new company with serious cultural differences to yours, the route to getting the train back on track toward profitability is an entirely uphill battle.
Observe, think, listen to employees before you buy...and don't be afraid to walk away. Don't let momentum overtake your instinct. Not every deal is the deal of a lifetime!
Mary Miles can be reached via e-mail at [email protected]