Post on 15-Oct-2020
Hyatt Regency Santa Clara | November 7, 2019
Do or Do Not – There is no Try! Post-Acquisition Integration Planning to Seal the Cross-Border Deal
Agenda
1 The Rise of Cross-Border
Transactions
2 What it Means to Integrate
(or Not)
3 The Integration Awakens
4 Attack of the Integration Diligence
5 A New Hope: the Cross-Functional
Project Team
6 The Global Markets and Local
Regulations Strike Back?
Speakers
Senior Corporate Counsel
for Corporate Operations
and M&A, Legal at
Autodesk
Amanda Riley
Privacy Associate
+1 415 984 3842
helena.engfeldt
@bakermckenzie.com
Helena Engfeldt
Employment Partner
+1 415 591 3248
benjamin.ho
@bakermckenzie.com
Benjamin Ho
Corporate and Securities
Partner
+1 415 984 3886
veronika.nemeth
@bakermckenzie.com
Veronika Nemeth
Tax Partner
+1 415 984 3832
adam.obrien
@bakermckenzie.com
Adam O'Brien
1
The Rise of Cross-Border Transactions
Cross-Border TransactionsToday, nearly all transactions are cross-border
A "cross-border," "multi-jurisdictional"
or "international" transaction is any
transaction involving two or more
countries
Cross-border transactions are not
limited to transactions between parties
that are headquartered in different
jurisdictions
Any transaction that involves key
personnel, assets, markets, contracts
and/or relationships in more than one
country is cross-border
Cross Border IntegrationIt seems simple……but it's not
Parent
Company A
Parent
Company B
Parent Company A
acquires
Parent Company B
Parent
Company A
Parent
Company B
Multiple (and often duplicative) subsidiaries
now need to be integrated
Be Mindful of Foreign Complexities
2
What it Means to Integrate (or Not)
Ownership Structure Immediately After Stock Acquisition
Buyer
(Delaware)
Other B
Subsidiaries
B Subsidiary
(GmbH)Target
(Delaware)
T Subsidiary
(GmbH)Other T
Subsidiaries
Why Integrate?
Eliminate expenses from
duplicative entities
Reduce overall corporate
administrative burden and
complexity
Consolidate operations in
one premise
Cost Savings
Simplify payroll administration
Manage employees as one
group
Simplify purchasing and
invoicing
Sell full product range to
customers through one entity
Streamline Operations
Unwind unsustainable tax
structures that the target
may have in place
Mitigate transfer pricing
risks
Take advantage of existing
tax attributes
Tax Benefits
Integrate to What Extent?
Vet local issues and
timeline
"Fast and furious" approach
can backfire
Implement interim operating
rules
Full integration on "big
bang" date
Integrate employees, soon
after Day 1
Allow target to operate
under its own business
model for a period of time
Partial or phased
integration
Antitrust conditions may
require it
Operate as standalone
business (e.g., non-tech
acquires tech)
May subsequently end up
integrating
Limited or no integration
3
The Integration Awakens
M&A Transaction TimelineMake integration planning part of your M&A process
Merger negotiations 1
11
2
3
4
5
6
8
9
10
7
Due diligence
Definitive agreement
Transaction announced
Integration team and goals identified
"Straw man" integration plan
Closing
Refine and finalize integration plan
Implementation of integration
Completion
Parallel integration diligence should be
conducted
Integration issues should be analyzed
during merger negotiations
Integration plan should be well
advanced by the time of closingPreliminary information gathering
M&A and Integration Diligence in Parallel
Signing Closing
Establish process for
integration team to
leverage deal team
diligence
Clean up corporate
maintenance and
compliance issues
Consult with antitrust adviser to ensure integration
planning does not run afoul of antitrust laws, such
as gun jumping or exchange of confidential
information
"Parallel diligence" is beginning before signing when there is reasonable deal certainty.
Integration diligence findings are captured for use in the integration process and are also
fed back in real time to the deal team as they could impact deal value.
4
Attack of the Integration Diligence
Integration Due Diligence
Corporate org chart
Entity data sheets
Share certificates
Corporate registers
D&O information
Minority ownership
Corp Sec providers
Issues:
Lost share certificates
Long departed D&Os
Corporate
Any prior restructuring
to address international
tax developments?
Transfer pricing studies
Existence of audits
Existence of NOLs
Tax credits or holidays
Prior year tax returns
Status of stat accounts
Issues:
Delinquent statutory
accounts
Tax & Financial
No. of employees by
entity, location and
function
Part time, contractors,
secondees
WCs, unions and
employee reps
Immigration status
Salary and benefits
Data privacy/GDPR
Issues:
France - Loi Hamon
issues
UK - defined benefit
pension arrangements
Employment
FA registers and
balance sheets
Customer and vendor
contracts
Regulatory licenses
Real estate
Intellectual Property
Information technology
Data protection
Data privacy
Issues:
Restrictive covenants
in licenses or contracts
Commercial
Data Privacy Diligence Tips
Contractual reps and
warranties
Review prior versions of
public facing privacy policies
Review current privacy
notices including localized
versions
Consider whether to require
target to update privacy
notice before deal closing
How to legitimize any
international data transfers
5
A New Hope: the Cross-Functional Project Team
Working TogetherBuild a dedicated team representing each internal function
Functional teams should
provide input to the
integration plan while it is
being developed
Business objectives
may need to be
weighed against tax or
legal considerations
Identify issues within each
function that could
significantly impact the
timing or cost of the
integration
Build an effective PMO
and ensure regular
communications
Weighing Cross-Functional Inputs
Management
Derive maximum value
Share price performance
Cost efficient and timely execution
Minimize disruption to business
HR
Reduction in workforce?
Changing terms and conditions?
Salary and benefits
Retain talent
Tax
Optimize tax planning opportunities
Tax efficient combinations
Preserve tax attributes
Trading model review
Real Estate
Opportunity to combine facilities
Reduce overhead
Leases: terminate, share or sub-
lease
Finance and Treasury
Reporting information for combined
organization
Accounts and consolidation for local
integration
Cure delinquent filings
Marketing & IP
Brand and culture
Name changes
Message to customers and market
Impact on IP ownership & licensing
Legal
Implementation of local integrations
D&O and name changes
Customer and interco agreements
Compliance
Operations and Commercial
Key contracts and customers
Single operating company in each
jurisdiction?
Invoices and systems
Will any services be outsourced?
IT
Compatibility of IT systems to be
integrated
Corporate Implementation
Asset sale & dissolution
Share transfer & merger
Local Integration Methods
Other
SubsidiariesBuyer Subsidiary
TargetCo
(Delaware)
Target Subsidiary Other
Subsidiaries
Buyer
(Delaware)
US & International Tax Considerations
For U.S.-based multinationals, all integration transactions need to be considered from a
U.S. and non-U.S. tax perspective
Ensure that integration addresses recent international tax developments, including:
Rules that require tax structures to align with business substance
U.S. tax reform
Consider exit taxes if supply chain integration requires moving entrepreneurial
functions cross-border
Identify as early as possible whether tax rulings or clearances will be required in
connection with integration
Employment & Benefits Key Issues
Transfer methods may include:
Automatic transfer
Termination & re-hire
Tripartite agreement
No change of employer
Pension issues tend to dominate (e.g., funding and liability allocation)
If automatic transfer, employee benefit entitlements remain
One of the most taxing and time-consuming stages involves informing and/or consulting
with works councils, employee representatives and unions
Impact of the Workforce
Consider timing of termination of
employees and putting
incentives in place for
employees to help with the
integration
Identify in which jurisdictions
works councils, unions and
employee representative bodies
exist in order to plan consultation
at an early stage in the process
Consider ability to harmonize on
a country by country basis and
whether to introduce in stages
Maintaining Institutional
Knowledge
It is important to try to retain the
knowledge base of the target
company to enable an integration
to proceed smoothly
Unions and Employee
Representatives
Be mindful of unions and
employee representative bodies
that can wield significant influence
Challenges to
Harmonization of Benefits
The harmonization of benefits can
cause problems and in some
countries certain detrimental
changes to terms and conditions
may not be made, even with
employee consent
Data PrivacyProactively address compliance issues
Legitimize any
international data
transfers
Obtain consent from
data subjects to send
marketing emails
Update/put in place
internal privacy law
policies, protocols and
agreements
Update all privacy
notices to employees,
customers, etc. (now
includes California)
Privacy law and relevance of integration plan
Share vs asset
transfersTypes of data and its place
in new structure
6
Global Markets and Local Regulations Strike Back?
Global Transactions Forecast
Our global transactions forecast predicts that global M&A volumes will decline from USD
2.9 trillion in 2019 to USD 2.1 trillion in 2020.
The US deal market has held firm despite the odds, but we predict a short term
deceleration in 2020 due to the economy slowing down and a possible equity market
correction. What's more, the geopolitical environment is increasingly challenging and
political uncertainty will be elevated due to the upcoming presidential elections.
Ultimately, the appetite for deal making should return from 2021 onward, providing the
foundation for a gradual recovery in M&A volumes. Acquisitions will remain an
important growth strategy for corporations in all major industries, driven in
particular by the need to defend against technological disruption.
The Expanding Privacy Landscape Brazil, California, India
Brazil's General Data
Protection Law –
August 2020
The California
Consumer Privacy Act –
January 1, 2020
India privacy bill –
pending but some
version likely to go
into effect
Ongoing Global Tax Developments
The OECD is working on a comprehensive framework for addressing the taxation of the
digital economy
In the meantime, many countries are considering unilateral initiatives aimed at taxing
digital services such as online advertising and online marketplaces (and France has
already enacted a "digital services tax")
European jurisdictions continue to implement new rules under the EU's Anti-Tax
Avoidance Directive
Uncertainty regarding longevity of certain U.S. tax reform rules
The Last Word: Top Integration Tips
Make integration planning part of your M&A process
Make compliance part of the integration process
Identify and plan around local complexities
Develop a realistic integration plan based on key objectives
Break down silos and involve key constituents
Questions
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