Guest Post: Three reasons to consider global employment outsourcing
By Eric Snethkamp
SafeGuard World International
While each international M&A transaction is different, many divestitures, spinoffs and asset-based purchases include a transfer of human capital, which can be complicated by different rules and regulations in each country where a multinational company operates.
Businesses involved in cross-border merger and acquisition transactions may want to consider the benefits of a global employment outsourcing (GEO) provider to manage these complexities. There may be several benefits to contracting with a third party to handle employment issues related to an international M&A deal. We’ll look at three key ones:
- Faster transactions: Using a third-party entity to employ workers can speed up the closing of an international M&A deal. If this solution isn’t in place, a buyer purchasing assets who doesn’t already have legal entities established in the foreign countries may need to rely on the seller to maintain HR compliance until the purchaser can establish their own legal entities. This can be a drag on the purchase timeline and the profitability of the seller. An outsourced solution should be ready for deployment during the due diligence period. A seller who provides this option to prospective buyers may be able to obtain a higher selling price for their company, while a buyer who doesn’t have foreign entities established may find this solution attractive enough to outbid competitors.
- Mitigated risk: Employing people and meeting compliance regulations is challenging in one’s own country. If the assets being purchased lie in multiple countries, that risk gets multiplied, because HR requirements may vary by country. Engaging a global employment outsourcer allows the transaction’s entities to transfer risk to a third party. Much like a PEO operates in the United States, the GEO provider becomes the official employer and assumes the employment compliance risk. Even if the deal involves only one foreign country, transfer of risk may be worth it, due to the HR complexities of operating outside one’s home country.
- Speed to market/testing of markets: A Global Employment Outsourcer already established in the country in question can onboard employees on behalf of a client in as little as two weeks. Conversely, setting up a business entity and meeting all statutory requirements to become an employer in that country can take six months or more. A company that uses a Global Employment Outsourcer also has the ability to sample doing business in a new country before going through the cost and expense of establishing a new legal entity there. If things go well, the business may decide to establish a legal entity, and the outsourcer can hand over the employees to the new entity once it is established. If it’s not a good fit, the outsourcer can off-board the employees, and the business isn’t left to unravel a business entity in a foreign country.
Eric Snethkamp is the Global Channels & Strategic Alliances Manager for SafeGuard World International. He partners with international M&A firms, private equity and venture capital advisers to build relationships that help simplify and speed up cross-border transactions.