The people side of divestitures

Set the course

Setting the course for HR involves completing HR specific processes, managing internal and external stakeholders, and complying with legal requirements all in a compressed timeframe. In this phase, HR teams should focus on three primary areas:

Establish HR governance and the HR divestiture playbook

The HR team is part of the overall deal governance and works in collaboration with the

Divestiture Management Office (DMO) and cross functional teams. The HR team should secure the right people to execute the deal strategy, scope, and complexity. The playbook should provide an understanding of the sequence of HR activities and interdependencies across the divestiture lifecycle, and include both cross functional and local legal requirements.

Manage risks and dependencies early in the planning process

Employment matters are governed by local law requirements, resulting in the need for HR to identify risk areas early. The HR divestiture playbook should clearly define what needs to be completed, when, and by whom, and articulate key issues to watch and manage.

Plan ahead for organizational design and communication requirements

It is imperative for Sellers to be aware of employee related issues and be proactive about organizational and communication planning early in the divestiture process. Organization planning should include managing in scope employees and creating frameworks that help maintain business stability.

Plan and execute the divestiture and design the future state

The planning and execution phase should be focused around driving value.

During the planning and execution phase, Sellers, in collaboration with Buyers, need to separate the HR function and associated processes while keeping employees focused. An effective process requires a delicate balance in managing four key areas:

Manage legal obligations and cross border considerations

Multi-jurisdictional deals will encounter complex employment law issues. The HR team should establish the structure to collaborate and manage obligations around critical areas that could derail execution progress if not managed correctly, including establishing legal entities and people related registrations, managing labor consultations, executing the employee transfer process, transitioning appropriate expat and foreign national visas, and adhering to data privacy requirements.

Separate the HR function to support the divested business

When separating the HR function, Sellers should care for both the divested business while addressing implications for the remaining company. The complexity and level of effort for this activity is usually underestimated by Sellers.

• Benefits and pensions: The Seller should replicate employee benefits and pensions in accordance with the stock and asset purchase agreement.
• Payroll: Cross-functional collaboration with Finance, HR, IT, Tax, the Buyer, and third party vendors is needed to ensure employees can be paid at close and the divested business remains in compliance with local authorities.
• HR Operations and Technology: HR should understand the Buyer requirements for supporting HR technology and operations, including cloning of systems, where applicable.

Design the organization and staffing

While the burden of organizational design will commonly lie with the Buyer, the Seller will often require some organizational realignment as well.

Retain and engage employees

Retaining employees requires a balanced use of financial incentives, role alignment, and communications.

Transition and optimize

After the deal closes, HR teams will monitor the execution of TSAs while looking for opportunities to optimize the remaining company. In addition, it will be important to reenergize remaining employees and stabilize the business during this period. Key considerations include the following:

Support Transition Service Agreements

The Seller needs to ensure it has sufficient support, understands obligations, and provides services in line with the TSA service levels, costs, and legal requirements. The HR team needs to manage key items such as dual payroll, managing disputes, hiring and training, and maintaining close contact with the divested business to monitor TSA exit activities, and proactively manage resourcing and stranded costs.

Optimize the go forward business

The Seller should take stock, and right size the remaining organization, roles, and skillsets around the new strategic objectives of the remaining company.

Reenergize remaining employees

It’s vital for the Seller to reengage and refocus the remaining organization with deliberate efforts to move the business and employees ahead. Some tips to align the go forward organization include articulating the culture, cultivating excitement who may be feeling anxious.