Overview

After a period of record M&A activity over the past decade, the current downturn in the economy presents not only extraordinary challenges but also new opportunities for dealmakers. As PE and M&A leaders continue to drive disruptive business growth strategies, how can they derive maximum value and enhance operational effectiveness?

Global Mergers & Acquisitions - A Path to Thrive in the New Normal Transcription

Grethel: Hello everyone, and thank you for joining us for today’s webinar: Global M&A’s – A Path to Thrive in the New Normal. This webinar is presented to you in partnership with Global Upside. You can use the Q&A feature at the bottom of your zoom toolbar to ask questions. These questions will be monitored and the presenters will answer as many as possible during or after today’s presentation. This webinar is being recorded and will be posted on ACG’s website along with the slides from today’s presentation. Thank you again for joining us.

I would like to introduce you to our speakers. The first is Andrew Wilson, Vice President of Private Equity and M&A. Andrew has extensive experience in mergers, acquisitions, and spin-offs. He spent 10 years with PWC, working primarily in their M&A practice for the consumer goods, heavy engineering, and steel making industries. He worked on the client-side as a CFO. At Global Upside, he has led engagements in electronics, manufacturing, and software that involved the Big 4 accounting firms and several international law firms. His areas of expertise include international employment law, human resources, payroll and benefits, finance, and operation support.

Next, we have Garry Fielding, Private Equity Operating Advisor. Garry is currently a member of the operating advisory team for Francisco Partners, a global private equity firm that specializes in investments in technology and technology-enabled businesses. He helps portfolio companies increase effectiveness via executive leadership initiatives and operational improvements. He has over 19 years of experience in human capital software and talent strategy. He has led and consulted in a variety of organizations from Fortune 500 corporations to small start-ups. Garry has extensive experience addressing the people and technological aspects of mergers, acquisitions, and divestitures.

Finally, we have Brian Kelly, VP, Co-Head of Global Private Equity. Brian is Vice President responsible for building the Global Private Equity Practice and managing Ceridian’s relationships with the industry’s top-tier global PE firms. For almost 19 years, Brian was involved in investment banking and institutional account management providing equity, fixed income, and cash management transaction services. Responsibilities also included initial public and secondary offering access, PIPE, LBO, venture capital, and mezzanine capital opportunities through investment banking relationships. Prior to joining Ceridian, Brian successfully structured and launched the Private Equity Alliance program at Ultimate Software and spent time consulting at ADP.

Now, I am going to turn it over to Garry Fielding.

Thank you.

Garry: I appreciate you having us on the call. I want to first start by talking a little bit about Francisco Partners and who we are. As Grethel mentioned, we are a private equity firm focused on technology and tech-enabled businesses across many verticals. So, we have healthcare tech, FinTech, communications, a wide range of technology, and tech-enabled businesses. We have deep experience with over 115 platform companies and over 190 follow-on acquisitions and we have done work around divestitures and carve-outs as well. That has all been part of our remit here. We were founded in 1999. There are 50 investment professionals and 25 operating partners. I am on the operating partner’s side, a part of the organization called Francisco Partners Consulting and we focus on helping portfolio companies create value or working with them on operational initiatives such as M&A or carve-out or helping companies to build up out thereafter they get a divestiture from a larger company. Offices in New York, San Francisco, and London, I am based in Atlanta but it is in the operating partner team is based all over the US.

So, we all have heard and we hear about this every day in terms of what is happening with the COVID19 pandemic and we know that it is causing numerous economic and societal impacts around the world. First of all is, the varied response to it around the world and how some countries are growing in their numbers, some are declining, some are at leveling off so, it is a varied experience around the world. Also, it is a synchronized downturn in the global market, so the IMF has reported a negative 4.9 % in GDP growth for 2020 and those are our projections. Those numbers change pretty frequently because we are in such unprecedented times and trying to get the hands around this. But we know that there is a downturn in global markets in terms of global GDP growth.

There is also limited global mobility so, people are moving around a lot less. Myself based here in the US is a lot more difficult to travel to certain places around the world than it would have been a year ago. This also shifts in working arrangements to largely remote and many of us now are working from home and the work arrangement ranges that we have are not what they were a year ago but people are spending a lot more time, distance, and working in remote places. Also, we have the consumption of service around the world so people have been, because of voluntary social distancing and income losses, and weaker consumer confidence, consumption, and service output have dropped. We also have a negative impact on the labor market, so if you look at Q1 2020 versus 2019 Q4, it equated to something like a loss of 130 million full-time jobs globally and I know that number has either increased and decreased over the year. There has been a huge global impact on what we are experiencing with COVID19.

On top of that, we have also happening in our global environment, civil unrest, and protests concerning racial injustice and inequality around the world. We also have a looming election in the US and other political upheavals around the world that we have to also contend with, which may also have impacted one way or the other as we navigate the markets.

If we think about the impact on M&A activity, in particular, in North America, this is data from the pitchbook. The growth in M&A activity over the past several years has been a sustaining force for private equity and a value creation engine. If you look at 2019, you had 13,000 deals over there. Almost 13,000 deals worth over $2 trillion in 2019 alone. If you look at 2020, Q1 and Q2 have seen a decline year over year 33.1% and 26.7%, respectively. So, definitely in the M&A activity area for North America, there is a bit of uncertainty that is starting to somewhat level out but with the potential for a second wave, there may be impacts to that coming as well.

Also, if you look at it by sector it is not necessarily a consistent experience, so healthcare and tech sectors have seen growth and steady volume given what is happening in the world. But also, you have seen deals being done as a matter of survival in areas such as oil and gas but the bottom line here is that there is an impact on M&A activity and it is decreasing some areas and increasing others. But deals are being done in different ways.

In Europe, it is a similar picture but slightly different. If you look at this data, it just came out yesterday in terms of M&A activity but if you look at Q1 there was a projection that it would be down. But it is probably been a little bit further than more activity than what one would have expected in terms of deal volume but similarly, in the past, it has been a generation engine just as it had been for North America but slightly different, in terms of, how it is bearing out in Europe. And there have been some pretty large deals over the last couple of months that have increased the size of deal value as well that has been a little bit different than how it has been in the US. But there have been some similarities around B2B software businesses and healthcare being leaders here for keeping value and then some of the distress areas around energy being, hot deals happening but the value has been a little bit depressed.

So, in terms of thinking about this presentation and what we share with you, I want to think about what from Francisco Partners’ perspective, I have seen in my role as an operating advisor in terms of what creates operational success for M&A. So, if we look at a couple of these, in particular, I will not go into all of them but one of the things that have been important for us is the alignment of teams and this is the alignment of deal teams, operating advisory teams and the approach of the portfolio company – how do you align those things together? So that is around communication is around priority that is around figuring out what are the right things to happen for deal one. The other one is strategic vendor partnerships and this has been something before COVID and even now that has been helpful to us and that is everything from understanding who in our networks can help us from whether it is a PPM perspective or due diligence on particular deals and getting them aligned and see the success in and around from day one. And that is also everything including tax and payroll and HRIS and financial systems but having partnerships with companies who understand the private equity world, who understand M&A, who understand how to work with our teams has been pretty critical for us in terms of delivering value. We work in a leveraged fashion so there are only 25 of us in the operating advisory team so with 50 or so portfolio companies you can imagine that we need those partnerships to help us to deliver value for those portfolio companies.

In terms of what has been different around M&A and some of the challenges that we have had to navigate, I will start with diligence on target companies. There were a lot of deals and some of the data suggest that some of the deals that are now closing that have been closing in the second quarter were mostly deals that were started in 2019 or before, so there are some of that come to bear but it is a lot more scrutiny around evaluating the operational health of a target company. There has always been an evaluation of that in terms of understanding what capabilities are there but there is a higher level of scrutiny and understanding whether those companies how they will fare in terms of the uncertainty of the future that is now. There is also a greater focus on analytics and data to evaluate this thing that has always been a focus in private equity but there is a heightened focus on it. Because in the absence of being able to meet with target company leaders or sellers you have to rely a lot more on how the data that you have and networks to be able to source, to be able to due diligence.

There is also limited in-person connections so we are all experiencing the lack of the ability to go and sit down and have a coffee chat or a dinner with the management team or to go and walk the halls of a particular company and understand a little bit of a better sense of the culture of that company and also being able to build that trust element up between deal makers. That has been a really big thing as part of M&A activity. I was talking to one of our operating partners who talked about a deal that we delayed in terms of selling over the summer and that company ended up making two acquisitions in two different countries in Europe and that company was based in the US. So, it was just interesting that he mentioned it to me. He said, “those acquisitions happen I think because those two companies already knew the people that were involved.” They already had a relationship established but it made the process a lot easier for that to happen.” And people are relying on some of those relationships as they have navigated at the beginning of this. But there are increased uses of video to help facilitate that. There is more of an increase in the number of virtual interactions that need to happen to deal with some of the lack of in-person communications.

The other one is around a divided focus of portfolio company leaders and especially at the beginning of the pandemic, there was a lot of attention that needed to be paid by portfolio company leaders on ensuring that their business was in a place that could manage the current issues but also be able to be in a place that they could navigate the uncertain future. So, we had to make sure we, as a portfolio company, put together a way of assessing and helping our companies assess that in a very structured and organized way but we also were able to consolidate resources. So, instead of companies going out to try and get all their resources on their own, whether that be PPE, whether that is access to information, whether that has anything that they need to sustain themselves through COVID. We pull together a centralized set of resources for companies including delivering CHRO forums, or CEO forums, and CFO forums that we could get information out to people as things were happening.

We have had that be from weekly to bi-weekly to now monthly, now that we have gone through some of the cycles here but that was valuable for helping our companies have a good focus. They could not only have to focus on just running their business and dealing with COVID. But if there is M&A activity happening, they could have some brain share to focus on that as well. Also, we provide operational and third-party support again, reference back to strategic partnerships. So, we were able to come alongside and we do that even today to come alongside them with additional resources to help in executing a successful M&A work.

Some of the other areas are limited talent evaluation methods so again, without the ability to be in-person you have to be a little bit more creative about how you evaluate talent when you are building companies. Whether it is from another investor and you are building up a new company and trying to bring talent in or you are making changes because of M&A activity. We have assessment tools and enhanced processes that we have done around talent evaluation. And we also have deeper reference checking as well as a more thorough video screening for interview and screening processes. In terms of limited M&A support with COVID and with some of the issues happening around the world, companies have had to reduce staff. So, they have less staff to do something that was already more complicated around M&A. Some of the things we have had to do are prioritize some of the workaround M&A in terms of what was important for phase one. So really taking a good look at what is important for day 1 activities and maybe what is not so important and making sure that ally with the deal thesis and also being able to supplement services.

We have had companies come in; I was just working on a carve-out that had a day 1 on July 1st for the company. Throughout that process, at the beginning of the process, we identified that the team needed to have consulting support for the payroll and implement it in HRIS back-office implementation. So, the third-party organization helped the company from start to finish and they help with validation. They will put parallel testing; they have everything to provide an extra set of arms and legs for the team. That just made us be able to meet our timelines and be able to do this quickly as opposed to assuming the team had everything they could do, to manage this on their own. But we partnered with them and they were appreciative of it, they were able to get off to a really quick and successful start because of it. Also, they are rapidly changing regulations and laws so there is, again, we talked about the centralized sources of information that we provided for the portfolio but managing the onsite of changing laws and information and the differences in locales and regions and how they are all addressing these things differently was important for companies and make sure they stay compliant and this is both in the US and all around the world.

There are so many different things changing, so we had experts come from law firms and consulting firms, come and talk to our companies about specifically what is changing and we keep updated access to that information that they can see every week. There is a listing of the laws and regulations that have changed need to be mindful of and we send out reminders on particular things that we think are important so that our leaders are aware of them. Lastly, just the difficulty in building a new culture and brand identity as a part of doing M&A work, a large part of it is the people aspects and how do you bring people together or how do you bring a leadership team together that may be from different companies or how do you address when a company is standing up on its own, is coming out of a larger company and it is a smaller company and it is a whole different culture. But we advise them on creating a task force to create a way, to find creative ways to address problems dealing with it in a pandemic.

We have one of our companies that are, for example, doing a new brand launch for the company that they have come out of a new name and they are doing a brand launch and it is going to be a drive-through brand launch. They had a critical mass in a particular location so they are doing the drive-through brand launch where people are coming to get their swag, to come to get their new badges to come and get a box knife to carry out but it is just a way to deal with what is happening creatively but also to try and infuse some of that culture into the organization that needs to build a new company. Also, it is flexibility, so, we have asked companies to think about, especially with the remote working, and how all that is changing. Think long-term where you want to be as an organization, what works for your business, what works for in terms of what is happening with the deal thesis, and then you need to build from here to there a flexible plan. Because there is so much uncertainty, for all you know. There are going to be things that are changing but you can at least say and put a target on where you think you want to be as an organization and how you want to operate.

So, with that, I will turn it over to Andrew.

Andrew: Thank you, Garry.

Thank you everyone for coming along today and I am with Global Upside, we also were founded in 1999. So, we have offices on every continent around the world. We have over 600 professionals on our team and we specialize from an M&A and carve-out standpoint mostly on the buy-side. In terms of due diligence as it relates to the employment status, personal files, employment agreements as well as the employee transition and communications, human resources, payroll, and benefit stand-up and putting in place the legal and tax structures. We also support companies, portfolio companies with their ongoing human resources, payroll, benefits, administration, counting, tax, and compliance support, and then preparing for an exit. So, we are preferred partner with Francisco Partners and we have worked on carve-outs with them. The largest of which was in 35 countries with 3600 employees internationally.

In terms of the new normal and what we have seen and this is very much focused on the actions that governments have been taking in the various countries to deal with the crisis and what they have been putting in place in terms of attempting to support employees in each of the countries. Europe, Central America, South America already had very extensive and strong safety nets and certainly addressed a lot of the issues around statutory sick pay and paid time off and had extensive unemployment to pay and benefits. It has been a story about what has been going on around the world in terms of their ability to respond to the crisis from a resource standpoint and the approach that they have been taken. The Central and South American countries do not have the resources to put a lot of financing in place to support their infrastructure. They have taken very much the defensive standpoint of enhancing the labor laws, enhancing the employee protections, and extending their sick pay and paid time off and employment benefits made it more onerous for companies doing business down in Central and South America and more complicated from a longer-term perspective in terms of dealing with acquisitions down there and also restructuring and aligning your business.

Europe policy has taken a different approach after the 2008 crisis, certain countries particularly Germany have put in extensive support schemes to try and encourage companies to maintain employment and to deal with situations where they could provide financing so that they could achieve short-time work and temporary layoffs to see companies through the crises, then move back to normal operations quickly. Germany is the most advanced but you have seen France, Italy, the UK, all of the major economies have put in some type of short-term work or temporary supports to pay the salaries and benefits of workers in the short term until they can see normal operations occurring.  A lot of this has been extended through the end of the year and they are looking at providing anything from 60 to 90% of the salaries and benefits and supports to these workers.

Asia has not seen as drastic and effective COVID and has not had a lot to do there in terms of the support processes because whilst it was the initial point of COVID, it was clamped down and they did return to normal much quicker than the rest of the world. The other aspect has been the border closures, immigration, long-term changes, and this happened in the US. But internationally it has happened as well where governments have taken the position not only to impose border closures and restrict immigration short term but now they are looking at if they can put in place long-term changes to make it harder for people to gain work permits visas and employment passes and working in those countries. So, will affect things for the long-term in terms of looking at mergers and acquisitions and how you deal with foreign nationals working in different countries.

In terms of again keying off what Garry had said on mergers and acquisitions and carve-outs, from a due diligence perspective, there is a greater emphasis in terms of, especially from an employment law perspective and understanding, what the employment status of all the employees is internationally. As we have seen the changes in regulatory compliance come through and also, we see the fact that most countries around the world have a lot more onerous labor law restrictions than the US does. So it requires a lot of better understanding in terms of the employment arrangements of the employees with the companies and how to go about the transition process but also has created great uncertainty with the employees themselves and the work environments and this whole situation of their continuing employment which will need to be addressed more upfront in terms of what is going on.

Global Upside is a company where we can support carve-outs and mergers and acquisitions with our own PEO/ employer record services. So, we have our legal entities in over 50 countries around the world and we have the support organizations to do the transition directly to the PEO/ employment of records services. But we also do specialize in the rapid setup of legal entities and putting the tax structure in place, in terms of being able to transition directly. This is going to be more important in the future as you try to maintain the terms and conditions of employment and transition employees under their existing employment contracts because that is going to be a method where you can look towards if you can transition them directly then you are not going to trigger anything in terms of any involuntary terminations and potential liability as you move forward.

We support for preparing for day 1 in terms of the setup, keying off the due diligence and understanding what the employee transition is going to require and how to go about it in the various countries standing up the HR, the payroll systems, the benefits system, the oracle SAP, Ceridian workday system so that you can cope effectively with it. We do specialize in this type of best classic system so that we can make sure that everything is prepared well in advance. So that come whatever day 1 is about to happen, you are in a position to onboard them and move forward with a seamless continuation of operations.

From a human resources standpoint in terms of understanding a lot more about the due diligence and the impacts of these changes that are being made in a lot of the countries and how to go about the employment. A lot more emphasis not just on the employment agreements and the personal files but also on the company policies and terms and conditions that have affected them. Because now you are looking more in terms of the fact of understanding what is going to be the impact of things like the acquired rights directive, TUPE, collective bargaining agreements, unions, and works councils. The concept of vested rights and constructive discharge is going to play a lot more in terms of making sure that as you transition the employees and trying to make sure that you maintain the comparable equipment to work conditions and you deal with the required communications, it is going to be a lot more into play in terms of making sure that you make that happen successfully. And you planned and you have everything in order before you get to the day 1 process to make sure that you can deal with everything as you do go through the requirements in each of the countries to make sure that is successful.

The immigration which is typically the large problem when it comes to transitioning employees, the time that lags that occur in terms of being able to deal with the transition of the work terms of visas or getting new work permits and visas will have to be planned a lot earlier in terms of the requirements and making sure that everyone is fully aware, the processes have been started. If you are putting in the new legal and tax structures that you are applying for any immigration sponsorship licenses and everything that you need to start the work permit process and put the visas in place so a lot more fore-planning from an immigration standpoint.

We do specialize a lot in terms of trying to set up legal entities, branches, or non-resident employer registrations quickly and efficiently. It is a complete solution from our perspective in terms of being able to do the incorporation registrations, provide whatever you need from a registered office resident director perspective. Get the registrations for the income taxes – the VAT, GST, HST, payroll taxes, statutory benefits, etc., you need to get operational quickly. Because we do it more of as an integrated solution, we typically take 30 to 45 days to settle in most countries. If you are talking about countries like Brazil, China, France, Japan, Philippines it is a whole different world but we have a lot of experience in terms of getting that up and running quickly. This is going to be very important as we move forward because as I said the transition of employees to direct employment is going to be a lot more preferable and easier to communicate as we move forward as opposed to the PEO in some senses. After all, it is one of those situations where they are going to be a lot more comfortable you are going to provide uncertainty and it is going to be very beneficial as they move forward.

As I said, we have our legal entities about 50 plus countries, we do support PEO/ employer of record in over 150 countries around the world. Very great vehicle in terms of small population countries that are not strategic to you in terms of being able to hire quickly and provide that immediate employment. It is, as they said, that going forward the potential issues you have with TUPE, ARD, and CBAs, or unions are going to be more prevalent. So, they are going to require more planning in terms of the human resources, parallel benefits, for as we move forward and as always addressing the supplemental benefits issues of being able to provide those comparable or equivalent benefits is going to be a major player in this certain aspect of that.

From an existing portfolio company private equity firm, the things that we are seeing as we move forward and companies, as Garry said, they need to focus and continue operations as we go through this pandemic, we are seeing a lot in terms of the continuing emphasis on growth. Companies saw a downturn at the end of the first quarter. In the second quarter, we have seen companies starting to expand fairly aggressively in APAC and Europe and look to expand their existing networks in those regions or enter those regions as they stabilize quickly and those economies have started to come back more quickly. So that is something where while we deal with the certainty, we are not over this pandemic by anyway, shape, or form companies are saying that growth can happen again and we should be taking advantage of it in terms of seeing these markets stabilized.

The other area where Garry alluded to in terms of talent acquisition and being able to diversify operations, it has created opportunities and as companies have considered now going more global and clients are looking at – where can we provide, get the best talent, where can we diversify, what can we do in terms of being more proactive in terms of making that happen. Again, the whole work from home and global mobility that leads you to assess whether you need those office spaces, whether you can go more virtual, how are you going to move forward in terms of those operational needs. From that aspect, in terms of moving more people to work virtually and then assessing your cost structures and are you paying a premium for PEO hires in certain countries, should you be looking to rationalize and look for more cost-effectiveness, in terms of how you are employing people in the various global markets. Address those issues as well as issues where you might have created permanent establishments and tax nexus issues because there is going to be a lot more government scrutiny moving forward.

In terms of existing systems day 1 comes and often you end up with antiquated or patchwork systems from human resources, payroll, time and attendance, accounting standpoint this is a great time to re-evaluate that. Not only from the perspective of the partners who are providing you that outsourced operational support but also to upgrade and automate your systems, come up with better processes and consolidate the systems in terms of what you need to do, in terms of the various functional areas, get in the position for your companies to be streamlined, realigned and better equipped to move forward as we go through this pandemic.

With that, I will hand it over to Brian.

Brian: Thank you, Andrew, and thank you, Garry.

I appreciate everybody joining us this afternoon.

Once again, my name is Brian Kelly and I am the Vice President and Co-Head of our Global Private Equity Practice at Ceridian. My partner Susan Johnson who is also a Co-Head of the program, spent almost 28 years in the industry, 20 at ADP, and helped built the program at ultimate software and Ceridian with me here. Very excited to talk to you a little bit about our space here and how it relates to what is going on in the new norm. For those of you out there who are not familiar with Ceridian or may have seen us, we have been around for about 88 years, spawned out of IBM a long time ago. In 2007, we were taken private by T.H. Lee and at that point proceeded to go through a transformation.

T.H. Lee sold off pretty much all of our non-core assets in the HCM space and partnered us with a time and management solution company and proceeded to build our new solution called Dayforce. Dayforce is a single record solution, has a single line of code, and is truly one single global system of record solution in the marketplace today. Covering about 157 countries and the dual part of our practice is Susan and I run at Ceridian, we have our carve-out and M&A practice. Then we do our standard HRIS practice with private equity firms. We have about 320 private equity firms in our practice right now and I am looking forward to sharing with you some of the challenges that we are seeing in the industry and some of the solutions to those challenges that we are working on.

In taking a look at some of the Global System Challenges that are out in the marketplace today, identified seven challenges that we are seeing not only before the pandemic but are now more prevalent and proving troublesome with the new norm. The first one I am going to talk about is the fragmented solution landscape. Fragmented solutions as you all know can snowball into several different issues whether it be compliance risk, data inconsistencies, employee, or administrator frustrations and this is going to lead to the inability to provide impactful feedback. And right now, when we are seeing systems out there where a provider is more of a system aggregator, they are not going to influence the source product roadmap within that organization. That, therefore, is going to lead them to inadequate system visibility. When you have that type of landscape you are looking at then splintered data which is a major problem using numerous systems. It is going to increase the IT burden and it is going to limit access to actionable data support and decision making especially when times like this come up. So, when we see situations like this, the inability to predict what areas of the organizations are going to be impacted are heightened and focused on during times like this that we are seeing in the COVID pandemic.

If we drop down to the second bullet outdated IT infrastructure. If you think about it, in-house IT simply is just not going to cut it right now when we are trying to thrive in the new normal. We talked about it in the previous bullet – increased IT burden.  IT departments right now are thin and when you have a situation where an in-house solution is installed, it is going to be very difficult when it is outdated in a situation like this. A lot of organizations and you may be experiencing this right now, found out the hard way that on-prem solutions have significant shortfalls. Those shortfalls were focused on when our populations of employees are now moving to the remote workforce. A lot of organizations are playing catch-up right now, but those that have been staying on the cutting edge of IT and the cloud-based solutions that are out there have been able to stay in front of the challenges or at least help maintain the scenarios that they are in right now.

In the next poll, we identified was rigid technology. You can no longer remain competitive with a stagnant and outdated mindset. The market is changing every single day, cloud technology and technology especially in the HRIS space is changing rapidly and you have to address those changes to stay in front of situations that we are seeing right now. Technologies that have rigid configuration, those capabilities tend to be like that old saying – the jack of all trades but a master of none. That contrast can also provide very significant problems when an IT department has to address pandemics like we are seeing right now. A solution that is customized to fit your business needs is always going to result in managing extra upkeep, maintenance, in-house, and fees in any changes that are required in that particular system. So, the flexibility is not there to move on the fly when you have to do that in situations that we are in right now and not being able to pivot for that remote workforce has become a great deal of strain and pressure on a lot of organizations today. Finally, when you look at those rigid environments you are unable to reskill and inform your employees around changes, and today, we have had changes come across our desk every single day and again you are not having the ability to move and to pivot off of those particular scenarios.

The next poll we had is variable cost impact. Not surprisingly as you all can probably imagine organizations’ labor spend has a significant impact on profitability across every industry out there. Without the ability to accurately forecast and predict labor costs, organizations today in this environment are unable to retain or control one of their biggest spends which is their workforce. It is driving down profitability and it is causing layoffs; it is causing a lot of disruptions and organizations and they are not prepared to deal with what COVID has presented us in this environment today.

We look at the pace of regulatory and compliance changes, again this was discussed earlier but it is very pertinent when we talk about the HCM, which is human capital management. We have the presence of labor deployment and payroll execution; it can require a great deal of significant time allocated to individual resources to stay up to date on all of those changes that apply to businesses. Without a provider or a partner that can provide that again, an extreme amount of stress and challenges to an organization that is already thin in itself. We take a look at the inability to scale as we move down towards the end of this slide, many organizations have had to scale down significantly during this pandemic. Not all solutions can manage this while supporting business continuity and many employees as we have seen and I know we have seen in our business, they have had to take on duties where they are not normal to their day-to-day activities and it is been very challenging for them to try to adapt to a system that is not easily adaptable.

Without intuitive solutions, the time to productivity in assuming additional tasks for these employees not only could cripple but has crippled several organizations forcing them to retain additional payroll costs and further impacting profit margins in a time right now where every penny counts. Finally, all this leads to disengaged employees, disengaged workforce right now, employees can easily feel disconnected when they have to move out remotely. You have got financial hardships, isolation, reduced communication, and many more outcomes that have developed from this COVID new world that we are in right now.

This is going to result in a loss of productivity as you can imagine, you got an overall drop in job satisfaction and mental health. And all this can also reduce collaboration between an organization, so that disjointed side of it starts to show itself. Financial stress though has the strongest impact on employer productivity. 55 % of US employees have had trouble covering expenses between pay periods over the last six months. So, you can only imagine what that is doing to workforces that are still being required to wear many different hats in their environments today.

So, with these challenges, I want to jump to the next slide that talks about some of the solutions that we are seeing in our business and how we can address those. The first bullet here is consolidated technologies. Consolidated technologies simply mean a single solution that can handle not just the most complex company requirements but the most important impactful can help accuracy and optimize the process. I am not saying that everything must live in a single location, we know that is not feasible. But select technology is what I am trying to say there, it is mastered an area of business tech and when you have a situation like an HCM solution or ERP solution, you want to make sure they have the interoperability and the capabilities to connect with the master areas of other specific specialties within that organization.

We also want to see embracing technological change, the evolution of technology as I mentioned in some of the challenges in the previous slide, and the migration of the cloud was not something to fear but to embrace and all of us on this on this call are seeing that in our day-to-day operations. Those that realize that can continue those operations and be flexible and capitalize on this next move. We see flexibility and agility dovetailing without what I just said – flexible solutions have helped numerous organizations navigate that early uncertainty and the continued uncertainty of possibly a second wave that is in front of us. That flexibility and agility in labor deployment not only can help control labor costs but actually can help keep employees informed about that changing work environment. As I mentioned cost, being able to control variable costs is important not only in a SAAS environment but a single solution environment. Labor costs have a huge implication on organizations’ bottom line and in times like this, we need to be able to ensure that you have got complete visibility and control around any variable cost and labor spend.

Moving on to almost the last point here we have got partnership excellence. Lean on those technology providers like the Francisco Partners, the Global Upside partners, that can consult with your organizations. Treat them as an extension of the organization and when you are hiring these partners and you are bringing them on, what better way to bring best practices to your clientele and help them understand how the industry is changing and how we are overcoming challenges that the pandemic has dropped on us. Taking a look at one solution-fits-all or enabling a bi-directional scalability side of things, find a solution that can both grow and contract within the organization. We see that by ensuring that you have a solution that supports that need is going to help support the growth model, it is going to empower the employees and it is going to enable those employees to be able to delegate duties and responsibilities intuitively and not by association and by default that they have to do that.

And finally wrapping up, prioritizing that employee engagement. With employment engagement, 64% of HR leaders right now are prioritizing the employee experience more than before the pandemic. Engaged employees can lead to a 21% greater profitability and 59% less turnover. So, attracting, developing, and retaining that top talent is key to recovering from the pandemic here. Financial stability through those innovative technologies, we have seen not only through our particular client base but it has helped many employees navigate through these tough times. Whether it is through solutions like on-demand pay which is a solution that we brought out where employees can access their pay every single day. Having more flexibility, being on the cutting edge of technology can help shape employee engagement and help people get through these very tough times right now.

So, with that said, I am going to turn it back to Grethel and I think we are open to questions.

Grethel: Thank you so much for that presentation.

We did have a couple of questions come in. The first one that I see here is from David and he is asking –

  1. How are you handling the inability to travel, to conduct technical due diligence, facility evaluations, and management interviews?

Garry: I can talk a little bit about the technical part of it. Most of our companies are more software-related companies, so our technical due diligence has often been virtual even before the pandemic. I think the difference would be that if you are walking through and we have partners that come in and help us with diligence as well on the technical side and product side, typically there were meetings, a series of meetings in-person but now those series of meetings are happening via virtual meetings. That is changing and challenging to do but it is possible in terms of management meetings and things of that nature. We started to see a few companies still want to meet, they want to come and see in-person and there are limited scenarios where that happens but again those are still happening virtually. So, you are getting comfortable with managers and sellers and putting sellers and purchasers together via virtual meetings and that is the way some of them are happening.

Grethel: Great. Thank you for that answer, Garry.

I have another question here and it is asking –

  1. If you are working with an organization where it makes sense for them to pull out of the PEO model, how do you go about the process to educate them on the pros and cons? How do you help them identify specific areas where they will see cost savings?

Andrew: I think from the PEO perspective oftentimes what you do find is that especially when you have several employees in the country that it is very cost-effective from the perspective that you have much lower payroll costs, benefit costs, even though you do have to commit to some tax and compliance type costs in terms of their support and their various ways that there is a legal entity which does not involve having the annual compliance income tax return filings and things of that nature. There are also possibilities in some countries where you can register a foreign entity just for payroll taxes and the statutory benefits and not have to incorporate a legal entity. But the ongoing cost especially when you have multiple employees and you are paying a PEO on the per-employee basis, can lead to a lot more cost-effective solutions. They are in terms of the transition; you do have to go through often the PEO will want to terminate and re-hire. Global Upside is one of the few where we will transition the employees directly to the newly formed legal entity or it is direct employment but often, we can go through an analysis and demonstrate based on the fees that they are paying – what they will see in cost savings longer term although there will be some initial setup costs.

Grethel: Thank you for that and I think we have time for maybe one or two more questions. I have this question here that asks –

  1. Are there any aspects of operations or systems where you think companies have been lacking in their response? What effect has that had?

Garry: One of the things that Brian said earlier, around the systems that are not integrated well or they have a lot of complexity around them and being able to navigate that complexity and bring, especially, if you are doing M&A work, where you bring complexity on top of the complexity. I think companies, even before the epidemic, they were challenged in doing that but I think even now that you have limited the ability to be able to get in a room and hatch things out on ideas, on how our road mapping or designing what the new system should look like, I think companies are just challenged in that area. Again, I think there is a way to do it in a way that makes things go a lot better companies have to pay a lot more attention to what they are doing when they are merging systems and merging processes altogether and that is where I see some of the challenges for companies.

Andrew: I think that what we see is not a is often you will inherit using different systems, be it for accounting, payroll human resources, benefits in each of the countries. Different partners supporting them that there is no effective communication or you are running different processes and so there is a move towards wanting to centralize but then even from an enterprise standpoint the fact that you are often maintaining databases in your HCM system, ERP system, payroll system, the benefits system, and maintaining those when they do not communicate effectively with each other leads to a lot of dysfunction and a lot of need to the manpower to keep up to date. But the errors and mistakes happen because you are trying to maintain so many databases.

Garry: Just add one thing to that, as I was talking to other operating partners, the thing that stood out to me that they said is that people often underestimate the people aspect of changes even though whether they are financial or technical, etc. But being able to communicate the goals the in-state goals that you are trying to reach to and staying in constant communication and moving things forward with the project, there have been some challenges for companies in this era in particular, and understanding that is a really important aspect of how you can have M&A success.

Grethel: Thank you so much for that Garry, that is a great way to leave it. All other questions will be addressed by the panelists after the presentation if they were not answered during. Thank you all again so much for joining us for this webinar – Global M&As – A Path to Thrive in the New Normal, presented in partnership with Global Upside.

Thanks, everyone.

Panelists

Andrew Wilson Head of Private Equity and M&A

Andrew Wilson

Vice President, Private Equity and M&A

Global Upside

Andrew has extensive experience in mergers, acquisitions, and spin-offs. He spent 10 years with PwC, working primarily in their M&A practice for the consumer goods, heavy engineering, and steel making industries. He worked on the client-side as a CFO. At Global Upside, he has led engagements in electronics, manufacturing, and software that involved the Big 4 accounting firms and several international law firms. His areas of expertise include international employment law, human resources, payroll and benefits, finance, and operations support.

Garry Fielding

Private Equity Operating Advisor

Francisco Partners

Garry is currently a member of the operating advisory team for Francisco Partners, a global private equity firm that specializes in investments in technology and technology-enabled businesses.  He helps portfolio companies increase effectiveness via executive leadership initiatives and operational improvements.  He has over 19 years of experience in human capital software and talent strategy.  He has led and consulted in a variety of organizations from Fortune 500 corporations to small start-ups.  Garry has extensive experience addressing the people and technological aspects of mergers, acquisitions, and divestitures.

Brian Kelly

VP, Co-Head Global Private Equity

Ceridian

Brian Kelly is a Vice President responsible for building the Global Private Equity Practice and managing Ceridian’s relationships with the industry’s top tier Global PE Firms. For almost 19 years, Brian was involved in Investment Banking and Institutional Account Management providing equity, fixed income, and cash management transaction services. Responsibilities also included initial public and secondary offering access, PIPE, LBO, venture capital, and mezzanine capital opportunities through investment banking relationships. Prior to joining Ceridian, Brian successfully structured and launched the Private Equity Alliance program at Ultimate Software and spent time consulting at ADP.