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Accelerating International Expansion and Growth Through Mergers & Acquisitions

The use of mergers and acquisitions (M&A) to accelerate growth is a well-established business strategy, and offers a company the potential to enter new markets, access top talent and reduce costs.  By merging with or acquiring another firm, a business can often achieve these goals more quickly and easily than with a solo expansion.  These are not automatic outcomes however, and sometimes an M&A deal will not deliver as expected or can bring more complexity than anticipated.

This uncertainty is multiplied when an M&A takes place across international borders, and a company finds itself entering a new and unfamiliar market.  While there can be significant opportunities, there is also a new level of risk for the emerging multinational company. 

Nonetheless, some of the immediate benefits of expanding through an international acquisition include:

  • An existing team already in place in the new market with valuable experience
  • Established business infrastructure and facilities
  • Confirmed regulatory approvals
  • Developed relationships with customers and suppliers

These advantages are often the reasons behind a planned M&A deal, and it can appear deceptively simple to step in and take over an ongoing enterprise.  But, there are multiple steps involved to make an acquisition a long-term success in a foreign market.

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Opportunities

It is the business opportunities that often spur an acquisition, where another company’s success can be leveraged across borders.  The buyer is essentially moving into the acquired company’s established market niche and region, and combining both companies resources and talent.

Diversification

In some M&A, the acquired company may have a distinct product or service line that allows the buyer to quickly diversify and compliment their current portfolio.  In some cases, that may have been the primary motivation for the M&A deal, to give the buyer access to a distinct service or technology in a new global region.

Presence in New Markets

The most obvious opportunity in international M&A is the ability to quickly enter a foreign market where a company may not have had a previous presence.  The acquired company has paved the way and already have brand recognition and goodwill in the country, both of which form a large part of the target company’s asset value.  It would take years to achieve this in a straight expansion, which is part of what makes the cost of an acquisition worth the investment.

Access to New Talent

Because the management and employees of the acquired company are usually part of the asset sale, there is an immediate impact in having a new talent pool with experience in the foreign market.  Instead of having to recruit and hire new employees, or assign existing staff, the buyer now has a human resource asset at their disposal that are already working.

For this reason, it is crucial that there a be careful management of all employees involved in M&A, to ensure that they remain in their positions and will perform as expected.

Risks

Even with the advantages and opportunities that M&A bring, the risks cannot be overlooked when entering the market of a foreign country.  Unless a company has gone through the process before, they may be surprised at the number of new challenges they will be facing internationally.

Cultural Differences

Naturally, a primary risk is the cultural difference between the home country and the new market.  These can include business customs, governmental priorities, language barriers and even how employees expect to be treated by their new employer.  New management will be tasked to ensure that both new and existing employees are oriented thoroughly to overcome cultural differences, especially if there are employees who are native residents.

Compliance – Legal Implications and Taxation

The majority of multinationals agree that compliance is the number one challenge when expanding into a new market.  M&A is no exception to this, although the company does have some advantage with existing legal agreements and regulatory permissions.

Still, the new company will be setting up their own new legal entity in most cases, so there may a great deal of compliance work ahead.  Not the least of these is understanding and navigating a new system of taxation, for both employees and the company.  Both HR and accounting will likely need local experts to assist, as well as the staff that handled compliance for the target company.

Managing a Cross Border M&A

As mentioned, when one company acquires another, the employees are often part of the ‘assets’ purchased, giving the buyer the right to continue their employment and utilize their skills.  This can be important to maintain operational continuity and business presence, more so with experienced staff working abroad in key positions.

If you are an HR manager you will need to provide new employee contracts, shift benefit plans and change the payroll to reflect the new ownership.  This is an expected and known process within your own country of incorporation, but takes on new significance if you don’t have an entity set up yet in the foreign location of employment. 

Most countries don’t permit ‘remote payroll’ of workers inside their borders, so you cant just put them on your home country payroll while you are in transition and meeting local incorporation rules.  In that case, how do you manage international employment and payroll during this type of asset sale? 

The Challenge of Employing in Foreign Countries Using a DIY Approach

Of course, the buyer can go ahead and set up their own corporate entity in the new country of operations, and then put the employees on the new payroll.  The problem with this approach is that it can take months to properly incorporate and register a foreign branch or subsidiary, depending on host country laws.  Then you have to navigate all of the local labor laws and payroll rules on your own.

In the meantime, employees may feel the uncertainty of the transition and be concerned about their own compensation and benefit packages.  There are ways however to avoid this ‘gap’ in setting up payroll, and ensuring the entire acquisition is seamless.

Getting Expert Help with a GEO Service

The better alternative is the service of a Global Employment Organization (GEO) to employ the transitioning staff immediately in the country and take them off the seller’s books and payroll as soon as the deal is concluded.  The reason this can be accomplished so quickly is that the GEO already has a local entity and employer of record (EOR) in the country and is positioned to onboard those employees right away.

The GEO will be well ahead of the process during negotiations, preparing the EOR to employ the new staff without delay.  All that is required is a simple administrative shift to the EOR’s payroll, along with existing benefit plans and employment contracts in the host country.  One key factor to note is that in some countries when you change an employee’s formal employer, that is a legal termination, requiring notice periods and compliance with labor procedures.

Communication with Employees

Beyond the shift in employment administration is the need to communicate with employees affected by the merger.  Some may be on assignment while others are local residents, and either way they may be anxious about the change in ownership.

It is important to set up communication networks with staff during the transition, so that they feel supported by management and HR both in country and at home.  Also, letting them know how their payroll will be shifted to either a new entity or GEO employer of record will help put their minds at ease.

Understanding Existing Cultural Difference

Cultural differences may exist that are unfamiliar to the acquiring company, and employees with in country experience can be valuable in bridging those gaps.  Similarly, there may be differences in company culture, especially if the buyer has a different way of approaching their business.

The Shield GEO Solution

Completing a successful international merger or acquisition will require multiple compliance steps and structural changes for the acquiring company.  This is why many companies choose Shield GEO as their employment solution, either in the interim or to simplify HR’s administrative role long term.  By utilizing our local partners and in country experts, we can help you navigate the transition for both new and existing employees.

Even if you are planning on setting up a corporate entity, it may still make sense to outsource your payroll and employment administration, and take advantage of our direct experience and knowledge in the foreign location.  This can ease the burden on HR and allow you to concentrate on orientation and management of employees in their new organization.  We make international employment simple for our clients in over 90 countries.

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