90% of Mergers & Acquisitions fail: How Can An Employer of Record Lead To Success?

Employees discussing around a table
Global Mergers and Acquisitions volumes exceeded $5 trillion in 2021, well surpassing the previous record of $4.55 trillion set in 2007. Mergers and acquisitions have indeed flourished, thanks to declining interest rates and rising stock values. And yet, if one is to believe research by the Harvard Business Review, 70–90% of those deals are doomed to failure. Many reasons explain this shocking statistic, not least of which is the lack of a legal entity in the country of expansion. This often causes a snowball effect, effectively creating a multitude of issues for companies to deal with in the midst of already stressful M&A negotiations. Fortunately, an Employer of Record (EOR) can greatly unburden companies in M&A processes, helping pave the way for a successful corporate transaction.

The practicality of an EOR (Employer of Record)

During cross-border M&As, especially in the case of a carve-out deal – where a parent firm sells a minority stake in a subsidiary to outside investors as part of the partial divestment of a business unit – many buyer companies do not yet have a legal entity in the country of expansion. Unfortunately for these organizations, legal entities can’t be created overnight. They require time and the fulfilment of a number of criteria, namely: opening a bank account, with all the paperwork this entails, having a physical address to serve as an office in the country, and even at times, earning the seal of approval of numerous government agencies.

 

Naturally, meeting all these requirements can take months, and in some cases even years — time that most buyers simply do not have if they want to close M&A deals, which are notorious for their complexity and strict deadlines.

 

This is where an Employer of Record proves to be most useful.

As a third-party service provider legally registered in the country of choice, an EOR becomes the legal means through which a company can act. The EOR hires the employees of the M&A, fulfils tax, payroll, benefits, and compliance obligations on behalf of the buying company. The latter can then simultaneously begin the legal process for the creation of a new, local entity without being worried about meeting tight deadlines.

 

In this way, EORs also allow companies to focus on matters of greater importance to them. Companies are safe in the knowledge that these operational tasks are being taken care of in such a way that they do not have to worry about such matters exploding into greater issues.

Testing new markets

For buying companies, mergers and acquisitions are also an opportunity to test out new markets. Thanks to an EOR, these companies don’t have to go through the complex, costly, and time-consuming process of creating a local entity to understand if the business will take on or not. On the other hand, if companies do opt for a local entity and the business unfortunately does not work out, they will have to face the cost of company liquidation.

No need for TSA deals

As part of an acquisition transaction, both parties involved usually negotiate a Transition Service Agreement (TSA) whereby the seller typically agrees to manage payroll and other HR tasks for a set period of time after the deal has been closed. This is done so as to bridge the gap between the sale and the takeover of the company, giving the buying company time to create takeover strategies. Unfortunately, this period of time rarely proves to be enough for buying companies. Sellers, on the other hand, are usually reluctant to extend TSA agreements, eager to fulfil their obligations and move on to other matters.

An EOR allows buying companies to forgo the need for TSA agreements as the EOR already takes on all such responsibilities, making for a smoother transition.

Preventing employee misclassification

Some companies may resort to hiring employees as independent contractors in order to lessen the burden of compliance and HR process. Such manoeuvres are fraught with compliance and reputational risks.

 

If buying companies are found guilty of classifying an employee as an independent contractor, the repercussions will be severe and may include the payments of penalties, time off, sick days, social security contributions, and other benefits mandated by the local law. By using the services of an EOR, companies engaged in M&A discussions can help ensure that no such offence is committed.

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Promoting talent retention

Did you know that 47% of key employees leave after a major transaction such as a merger or an acquisition? Worse still, according to a study by EY, this brain drain further grows to a staggering 75% within three years. For organisations that merge and acquire others in the hopes of strengthening their workforce, these numbers as well as the loss of human capital may come as a big blow. It’s not difficult to understand how this brain drain heavily contributes to the failure of M&A transactions. In short, talent management can well decide the success or failure of mergers and acquisitions. Unfortunately, during M&A discussions, other matters may take centre stage, leaving talent management on the backburner. An EOR can help ensure good communication during a corporate transaction, reassuring employees and being a source of stability during the relative uncertainty of transactions such as mergers and acquisitions. This can, in turn, help to lessen the brain drain issue, contributing to the success of the transaction.

Why Africa HR Solutions?

With more than 12 years of experience in assisting organizations going through mergers and acquisitions in various industries, Africa HR Solutions is uniquely qualified to anticipate and meet your company’s needs during a merger or acquisition.
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GRANT GERAGHTY - Africa HR Team

GRANT GERAGHTY

HEAD OF CLIENT RELATIONSHIP

Grant Geraghty is the longest-serving member of the Africa HR team. This resident subject matter expert and client champion is responsible for gaining a deep understanding of our clients’ unique HR needs in Africa and providing tailored solutions that align with their business objectives. Grant collaborates closely with our clients to ensure that their requirements are properly implemented, providing ongoing support and guidance throughout the process.

Grant brings a wealth of experience to his role, having served as Africa HR’s longest-serving employee. He holds a Bachelor of Commerce degree, with a major in Economics and Business Finance, from the University of Natal in South Africa. Additionally, he has completed a certification program in Payroll and Tax Administration from the University of Cape Town, further enhancing his expertise in HR operations and compliance.

His commitment to delivering exceptional service and his extensive knowledge of HR in Africa make him an invaluable member of the Africa HR team.

KEVINA TAKOORDYAL Africa HR Team

KEVINA TAKOORDYAL

HEAD OF OPERATIONS

Kevina Takoordyal has a BA Hons Business Management from the University of Glamorgan, UK, with MBA in leadership and Innovation, MBA General, PMP Certified, and Agile Scrum Master. She currently works as the Head of Operations at Africa HR Solutions Ltd with more than 20 years of proven leadership capabilities in Operations, Business Development, People Management, Process Optimization, and Project Management in the Financial Services, BPO, Banking Industry, and Heath Care Industry. In Senior leadership roles with an international footprint across Europe working and extensive Pan- African experience from a compliance, finance, and operations angle, Kevina comes across with a panoply of cross-functional skills. Kevina also serves on a few Boards, Non-Independent Executive at MioD and for NGOs on a voluntary basis, a coach and mentor to aspiring female leaders across Africa and Mauritius.

Kevina is a firm believer in Servant Leadership with a strong focus and commitment to uplifting others, with the ability to deliver through a highly engaged – diverse team, and works towards consistently synergistic value creation. While being a focused and adaptive thinker and Kevina is actively participating in panel discussions on Innovation, CX, Digital transformation.

Kevina serves as Project Assessor for the National Youth upskilling program. She has been recognized as Global Talent in a few companies, Ceridian, and International SOS Ltd whereby she has been awarded a few scholarships and had the opportunity to be mentored by Senior Vice President in the US. Award Winner in various fields and at a national level and recognized including Super Achiever Leader Award in Africa in 2016, Awarded Africa Women Leader 2018.

VILOSHNA PACKIRY POULLE​

VILOSHNA PACKIRY POULLE

Head of Finance & Business Support

Viloshna is an experienced finance professional with 18 years of expertise in strategic financial planning, financial analysis, cash flow management, systems and controls implementation, financial reporting, and continuous process improvements. She currently serves as Head of Finance & Business Support, where she has successfully automated and leveraged the financial reporting system capabilities to ensure efficient company operations.

Viloshna’s background includes senior roles in a multinational pharmaceutical company and a large listed Mauritian conglomerate. Her meticulous attention to detail and strategic thinking have streamlined financial processes, making her a valuable addition to any finance team. Viloshna is a qualified finance professional with an FCCA qualification and an MBA, bringing valuable expertise to any organization.

In her current role, Viloshna leads the company’s Treasury and Payments function, including the fulfillment of the company’s cross-border payments into Africa. With her strong educational background and extensive experience, Viloshna consistently demonstrates her ability to optimize financial operations, minimize risks, and improve profitability. Her expertise in financial reporting and process improvements make her a valuable asset to any organization.

MARK DU PREEZ​

MARK DU PREEZ

Head of Legal & Compliance

A qualified lawyer who joined Africa HR Solutions in July 2020, Mark Du Preez has experience working in private practice for a reputable law firm in South Africa. He also played commercially focused roles at a leading private bank, wealth management company, and outsourcing firm in South Africa and Mauritius.

Mark has played a pivotal role in Africa HR Solution’s risk mitigation strategy, which positively impacted P&L performance over the years.

He currently leads the Partnerships function of the company including relationships and oversight with in-country partners (ICPs) across Africa.

Alex Daruty - Africa HR Team

ALEX DARUTY

Head of Commercial

Alex has more than 15 years of experience in the global, strategic development of both enterprise and consumer brands in categories including technology, transport, enterprise software, entertainment, and travel.

With experience in roles on both agency and corporate side, he has worked across international brands and has led the development and execution of multi-discipline campaigns across EMEA, NORAM and Asia Pacific.

His focus is on driving meaningful business impact through brand differentiation and building high-functioning, digitally oriented, and analytically driven capabilities. He is motivated by working with, and developing dynamic people, teams, and organizations.

He leads, manages, develops and mentors the Key Account Management department, including line management responsibility for the team of Key Account Managers and Key Account Administrator who represent the Company as the primary communication link between all relevant stakeholders, including clients, third party in-country partners and internal functions.

Originally from Mauritius, he holds bachelor’s degrees in International Business, Finance and Management from the University of Nevada, Reno.