It’s in the news almost daily… dairy processing capacity is not keeping pace with production growth.
How are processors responding? Many are expanding their plants, or acquiring other companies in order to grow capacity.
While growth through physical expansion is complex, companies who choose to grow via acquisition also face numerous challenges. Not only do they incorporate new products into their operations, but they add new employees as well. So how can a company create a smooth acquisition process, while avoiding any unpleasant surprises?
According to Ryan Barbieri, Vice President of Sales for Employee Benefits at M3 Insurance, there are three critical areas of concern for the Chief Financial Officer (CFO), and Human Resources team. Let’s refer to them as the three “C’s” of effective benefit program assimilation: COST, COMPLIANCE and Benefit COHESIVENESS.
Gaining a full understanding of the program will help leadership successfully integrate the benefits brought to the table from the acquired organization.
COST: Budget Certainty Post-Acquisition
Employee benefits are typically the second highest expense for an organization. As a result, cost considerations are front-of-mind.
Leadership of the acquiring company would have completed the cost analysis during the due diligence phase prior to the transaction; however, budget certainty must be brought to the process post-transaction as well. Benchmarking total employee benefit costs as a percentage of gross payroll can provide a baseline for comparison and decision making.
Employers in the state of Wisconsin typically operate their benefits in a range of 15 percent to 20 percent of gross payroll. Additional benchmarking will reveal decision points to create a program that operates on a cost effective basis. Often times when two benefit programs merge there are opportunities to leverage economies of scale for marginal savings.
COMPLIANCE Checks Critical
In addition to cost, leadership should work with their insurance benefits broker to complete a full compliance check. This can help protect the company from legislative pitfalls. The Affordable Care Act (ACA) requires employers of various sizes to offer certain benefits and ensure benefit affordability for employees. The CFO and Human Resources Director of the acquiring company should do a careful review of the acquired medical plan to ensure it is in compliance with the ACA. Penalties levied on the acquiring company can make the most well-run acquisition process turn sour.
Beyond ACA, each state has laws that govern employer sponsored benefit plans. Parent companies that grow outside of their headquartered state often have challenges maintaining multi-state compliance.
This compliance can extend beyond health insurance plan administration. For example, California, New Jersey, New York, Rhode Island and Hawaii have requirements for employers to offer short-term disability coverage. Every good acquisition plan includes a review of applicable state laws in advance of and during the acquisition process.
COHESIVENESS & Communication
Last, but certainly not least, are employee goodwill and morale. The last thing any dairy processor wants is a disgruntled employee – especially considering the important role employees play in ensuring food safety and quality assurance.
To maximize employee goodwill and minimize employee angst (and risk), the acquiring company should complete a side-by-side analysis of the benefit programs. This will help to create cohesiveness in the newly combined benefits program. Reviewing the benefits from both the employer’s perspective and the employee’s perspective is critical to developing the optimal offering on a go-forward basis.
Once the new benefit program is structured, leadership needs to effectively communicate the program to the new and existing employees. Best case scenario – your insurance broker partners with you to develop an intentional and deliberate communication plan to inform all employees of the new structure.
Well-executed communication plans not only inform, but also gain buy-in from employees, and can boost morale.
Regardless of the size of an acquisition, partnering with an experienced employee benefits insurance broker can help processors implement a smooth acquisition process. After all, as dairy processors, what would you rather hear when you acquire a company: “Congratulations” or “SURPRISE!”
This article by Jen Pino-Gallagher was published by the Cheese Reporter on January 19, 2018: When Acquiring A Company, No One Likes to Hear “SURPRISE”